Introduction

The Generalized System of Preferences (GSP) provided nonreciprocal, duty-free tariff treatment to certain products imported into the United States from designated beneficiary developing countries (BDCs). The United States, the European Union (EU), and other developed countries have implemented similar programs since the 1970s in order to promote economic growth in developing nations. GSP authorization lapsed at the end of 2020, but the U.S. customs agency has instructed importers to continue flagging GSP-eligible imports to allow duties to be refunded automatically if Congress retroactively reauthorizes the program.

Prior to the lapse in authorization, 119 developing countries and territories were eligible for GSP benefits. The GSP program provided duty-free entry into the United States for over 3,500 products (based on 8-digit U.S. Harmonized Tariff Schedule tariff lines) from BDCs, and duty-free status to an additional 1,500 products from 44 GSP beneficiaries additionally designated as "least-developed beneficiary developing countries" (LDBDCs). In 2020, products valued at $16.9 billion (imports for consumption) entered the United States duty-free under the program, out of $152.0 billion worth of total imports from GSP-eligible countries. Total U.S. imports from all countries amounted to about $2.3 trillion in 2020.

This report briefly summarizes recent GSP developments. It provides a brief history, economic rationale, legal background, and comparison of preferential trade programs worldwide and describes the U.S. implementation of the GSP program.

Latest Developments

On December 31, 2020, GSP expired despite legislative efforts to reauthorize the program. U.S. Customs and Border Protection (CBP) issued guidance on the expiration of GSP, instructing imports to continue identifying eligible products with the Special Product Indicator (SPI) for GSP on import documents.¹ This would enable CBP to automate the duty refund process in the event that Congress reauthorizes the program with a retroactive refund clause.² In 2022, the total value of imports that would have been eligible for duty-free treatment under GSP was $21.5 billion.³ Supporters of the program estimate that U.S. importers have lost at least $2.6 billion in tariffs on GSP-eligible imports between January 2021 and April 2023.⁴

The debate surrounding possible reauthorization of GSP revolves around the program's eligibility criteria. Some Members of Congress support reforming the program's eligibility criteria, such as strengthening the provisions on worker rights, and adding new eligibility requirements on gender equality, human rights, good governance, digital trade, and environmental law and regulations.⁵ Others are concerned that adding new eligibility criteria would increase compliance costs for developing countries and discourage their participation. In the 118^th Congress, H.R. 4276 would reauthorize GSP through December 2026 and add eligibility criteria related to human rights violations, enforcement of environmental laws and international commitments, and good governance. The proposed legislation is similar to bills introduced in the 117^th Congress: the Senate-passed United States Innovation and Competition Act of 2021 (S. 1260) and the House-passed America COMPETES Act of 2022 (H.R. 4521). The Senate bill differed in that the proposed new eligibility criteria included provisions related to gender equality and digital trade. Some Members in the 117^th Congress also sought to modify the competitive needs limits (see "Competitive Need Limits (CNL)") provisions by amending the calculation of CNL thresholds from an annual $500,000 increase to an annual 6.5% increase of the previous year's threshold (H.R. 6171).

On September 20, 2023, the House Ways and Means Subcommittee on Trade held a hearing on GSP reauthorization.⁶ Various Members expressed bipartisan interest in reauthorizing and amending the program's eligibility criteria. Some also questioned whether the program's rules of origin requirement should be updated to encourage higher use of local or U.S. inputs.

History, Rationale, and Comparison of GSP Programs

The basic principle behind trade preference programs worldwide is to provide developing countries with unilateral preferential market access to developed-country markets in order to spur economic growth in poorer countries. The preferential access is in the form of lower tariff rates (or as in the U.S. case, duty-free status) for certain products that are determined not to be "import sensitive" in the receiving country market. The program concept was first adopted internationally in 1968 by the United Nations Conference on Trade and Development (UNCTAD) at the UNCTAD II Conference.⁷

Economic and Political Basis

The GSP concept and programs were established based on the premise that preferential tariff rates in developed country markets could promote export-driven industry growth in developing countries. It was believed that this, in turn, would help to free beneficiaries from heavy dependence on trade in primary products (e.g., raw materials), and help diversify their economies to promote stable growth.⁸

Some economists claim that GSP was established, in part, as a means of reconciling two divergent economic perspectives of trade equity that arose during early negotiations on the General Agreement on Tariffs and Trade (GATT).⁹ Industrialized, developed nations argued that the most-favored-nation (MFN) principle should be the fundamental and universal principle governing multilateral trade, while less-developed countries believed that equal treatment of economically unequal trading partners did not constitute equity in trade benefits.¹⁰ These countries called for "special and differential treatment" for developing countries. Economists assert that GSP schemes thus became one of the means of offering a form of special treatment that developing nations sought, while allaying the fears of developed countries that tariff "disarmament" might create serious disruptions among import-sensitive industries in their domestic markets.¹¹

Due to differences in developed countries' economic structures and tariff programs—as well as differences in the types of domestic industries and products each country wanted to shield from greater foreign competition—it proved difficult to create one unified system of tariff concessions on additional products. Therefore, the GSP concept became a system of individual national schemes based on common goals and principles—each with a view toward providing developing countries with generally equivalent opportunities for export growth.¹² As a result, the preference-granting countries implemented various individual schemes of temporary, generalized, nonreciprocal preferences under which tariffs were lowered or eliminated on some imports from certain developing countries.

Although not specifically allowed or codified in the GATT, the programs of most GSP-granting countries place certain conditions on the nonreciprocal preferences by: (1) excluding certain countries; (2) determining specific product coverage; (3) determining rules of origin governing the preference; (4) determining the duration of the scheme; (5) reducing preferential margins accruing to developing countries by continuing to lower or remove tariffs as a result of multilateral, bilateral, and regional negotiations; (6) preventing the concentration of benefits among a few countries; (7) including safeguard mechanisms or "escape" clauses to protect import-sensitive industries; and (8) placing caps on the volume of duty-free trade entering under their programs.¹³

GATT/World Trade Organization Framework

By its very nature as a trade preference, the GSP concept posed a problem under the GATT, because granting preferences to particular countries is inconsistent with the fundamental nondiscrimination obligation placed on GATT Parties (GATT Article I:1) to grant MFN tariff treatment to the products of all other GATT Parties. However, since preference programs were viewed as a means of transitioning developing countries to greater trade liberalization and economic development, GATT Parties accommodated them in a series of joint actions.

First, in 1965, the GATT Parties added Part IV to the General Agreement, an amendment that recognizes the special economic needs of developing countries and asserts the principle of nonreciprocity. Under this principle, developed countries may forego the receipt of reciprocal benefits for their negotiated commitments to reduce or eliminate tariffs and restrictions on the trade of less developed contracting parties.¹⁴ Second, because of the underlying MFN issue, GATT Parties in 1971 adopted a waiver of Article I for GSP programs to allow developed contracting parties to accord more favorable tariff treatment to the products of developing countries for 10 years.¹⁵ The GSP was described in the decision as a "system of generalized, non-reciprocal and non-discriminatory preferences beneficial to the developing countries."

Enabling Clause

At the end of the Tokyo Round of Multilateral Trade Negotiations in 1979, developing countries secured adoption of the so-called Enabling Clause, a permanent deviation from MFN by joint decision of the GATT Contracting Parties.¹⁶ The clause states that notwithstanding GATT Article I, "contracting parties may accord differential and more favorable treatment to developing countries, without according such treatment to other contracting parties," and applies this exception to the following:

(a) Preferential tariff treatment accorded by developed contracting parties to products originating in developing countries in accordance with the Generalized System of Preferences;

(b) Differential and more favorable treatment with respect to the provisions of the General Agreement concerning non-tariff measures governed by the provisions of instruments multilaterally negotiated under the auspices of the GATT;

(c) Regional or global arrangements entered into amongst less-developed contracting parties for the mutual reductions or elimination of tariffs and, in accordance with criteria or conditions which may be prescribed by the contracting parties for the mutual reduction or elimination of non-tariff measures, on products imported from one another;

(d) Special treatment on the least developed among the developing countries in the context of any general or specific measures in favour of developing countries.

Additional Commitment to Least Developed Countries

When launching the Doha Development Agenda (DDA) negotiations in November 2001, World Trade Organization (WTO, successor to the GATT established in 1995) members committed themselves to provide "duty free/quota free" (DFQF) access to the products of least-developed countries, in keeping with the shared objective of the international community as expressed in the Millennium Development Goals.¹⁷ During DDA negotiations at the sixth WTO Ministerial Conference in Hong Kong in December 2005, developed country WTO members and "developing country members declaring themselves in a position to do so" agreed to deepen this commitment by providing DFQF access to at least 97% of products originating from least developed countries (LDCs) by 2008, "in a manner that ensures stability, security and predictability."¹⁸ Many developed countries continued to implement these provisions despite the failure of the DDA. As of the WTO Nairobi Ministerial in October 2015, most developed countries granted either full or near full access to LDCs, and several developing countries had also taken concrete steps to provide duty-free access to products from LDCs.¹⁹

Comparison of International GSP Programs

Other developed countries besides the United States that implement GSP programs include Australia, Canada, the EU, Iceland, Japan, New Zealand, Norway, the Russian Federation, Switzerland, and Turkey.²⁰ One economist has referred to these programs as a nonhomogeneous set of national schemes sharing certain common characteristics.²¹ Generally, each preference-granting country extends to qualifying developing countries (as determined by each benefactor) an exemption from duties (reduced tariffs or duty-free access) on most manufactured products and certain "non-sensitive" agricultural products. Product coverage and the type of preferential treatment offered varies widely.²²

In the WTO, the developing country status of members is generally based on self-determination. For GSP, however, each preference-granting country establishes particular criteria and conditions for defining and identifying developing country beneficiaries. Consequently, the list of beneficiaries and exceptions may vary greatly among countries. If political or economic changes have taken place in a beneficiary country, it might be excluded from GSP programs in some countries but not in others. For example, in 2020 the EU suspended Cambodia's GSP membership due to concerns over human rights abuses, while it remains a GSP beneficiary in the U.S. program.²³

Some countries, including the United States, also reserve the right to exclude countries if they have entered into another kind of commercial arrangement (e.g., a free trade agreement) with any other GSP-granting developed country, and in the U.S. case, "if it has, or is likely to have, a significant adverse effect on United States commerce."²⁴

In terms of additional GSP product coverage for LDCs, the EU's program, which offers duty-free access for "Everything but Arms," is currently perhaps the most inclusive.²⁵ GSP-granting countries may also have incentive-based programs that provide enhanced benefits for beneficiary countries that meet certain additional criteria. In 2007, for example, the EU implemented a regulation that grants additional GSP benefits to countries that have demonstrated their commitment to sustainable development and internationally recognized worker rights.²⁶

Each preference-granting nation also has safeguards in place to ensure that any significant increases in imports of a certain product do not adversely affect the receiving country's domestic market. Generally, these restrictions take the form of quantitative limits on goods entering under GSP. Under Japan's system, for example, imports of certain products under the preference are limited by quantity or value (whichever is applicable) on a first-come, first-served basis, administered monthly (or daily, if indicated). For other products, import ceilings and maximum country amounts are set by prior allotment.²⁷ The United States quantitatively limits imports under the GSP program by placing "competitive need limit" (CNL) thresholds on the quantity or value of commodities entering duty-free, as discussed in more detail below.

Each GSP benefactor also has criteria for graduation—the point at which beneficiaries no longer qualify for benefits because they have reached a certain level of development. Most preference-granting countries require mandatory graduation based on a certain level of income per capita based on World Bank calculations. Some programs, such as the EU's, also specifically provide for graduation of certain GSP recipients with respect to specific product sectors. A description of three other countries' GSP programs follows.

EU Generalised Scheme of Preferences

The European Economic Community (EEC) began implementing GSP in January of 1971. In the current EU scheme, developing countries are automatically granted GSP status by the EU if they are classified as having an income level below "upper middle income" by the World Bank, and do not benefit from another arrangement (e.g., a free trade agreement or economic partnership agreement) already granting them preferential access to the EU market.²⁸ GSP countries must also respect the principles of fifteen core conventions on human rights and labor rights listed in the GSP regulation.²⁹

The EU Generalised Scheme of Preferences (EU GSP) has three different preference arrangements:

• The "Standard" GSP framework grants duty reductions for about 66% of all EU tariff lines, to low-income or middle-income countries that do not benefit from any other preferential trade access to the EU market. As of October 2023, there were 12 Standard GSP beneficiaries.³⁰
• The Sustainable Development and Good Governance (GSP+) program grants duty-free access to the same 66% of EU tariff lines as Standard GSP to beneficiaries that are found to be especially vulnerable in terms of economic diversification and import volumes. In return, these countries must ratify and effectively implement 27 core international conventions, human and labor rights, environmental protection, and good governance.³¹ As of July 2022, there were seven GSP+ beneficiary countries.
• The Everything but Arms (EBA) arrangement grants full duty-free, quota-free access for all products except arms and ammunition for all United Nations-classified least-developed countries. As of July 2022, there were 47 EBA beneficiaries.³²

Economic Partnership Agreements

Since 2000, as part of a long-term overhaul of the EU's relationship of its trade arrangements with developing countries, including its GSP beneficiaries, negotiations have been ongoing to establish reciprocal, WTO-compliant "Economic Partnership Agreements" (EPAs) with developing country trading partners in the African, Caribbean, and Pacific (ACP) regions. There were seven EPAs in the implementation phase, involving 32 ACP countries.³³

Changes to the EU GSP

On January 1, 2014, the EU implemented additional substantial changes to the EU GSP program that it stated were intended to: (1) better focus on countries in need; (2) further promote core principles of sustainable development and good governance; and (3) enhance stability and predictability.³⁴ As part of the changes, the EU mandatorily graduated all countries identified by the World Bank as upper-middle income and above, and excluded those countries that benefit from a preferential market access arrangement with the EU. To add a measure of stability to the program, the EU extended GSP benefits for 10 years, and provided transition periods of at least one year for those countries that would lose EU GSP eligibility.

The EU GSP program is scheduled to expire on December 31, 2023. The European Commission proposed a new framework for the EU GSP that would introduce several changes to the program, including a new arrangement for countries projected to graduate from least developed country status; several new compliance requirements on international conventions on human rights, labor rights, governance, and environmental protection; improvements to monitoring compliance with the program; and a new rapid response procedure to withdraw benefits under "exceptionally grave" violations of international standards.³⁵ If the proposal is adopted, the changes would go into effect on January 1, 2024 for a ten-year period. In July 2023, the Commission proposed a three-year extension of the program through December 2027 to ensure continuity and provide time for legislators to agree upon a new framework.³⁶

Canada's General Preferential Tariff (GPT)

Canada's General Preferential Tariff (GPT), first implemented in 1974, provides duty-free or reduced tariff rates for designated developing country beneficiaries. The GPT program expires, and is reviewed and amended on a 10-year cycle. Canada's Economic Action Plan for 2012 announced a comprehensive review of the GPT in advance of its expiration on June 30, 2014, due to "significant shifts in the income levels and trade competitiveness of certain developing countries" since 1974, and to ensure that the GPT is "aligned with Canada's development policy objectives."³⁷ As a result of the review, Canada withdrew GPT benefits from 72 countries, but continues to extend preferential treatment to 103 beneficiaries, 48 of which also benefit from Canada's Least Developed Country Tariff (LDCT).³⁸ Canada announced that it would continue to review the list of beneficiary countries biannually, and will automatically graduate countries that are either classified for two consecutive years as high or upper-middle income countries; or have a 1% or greater share of world exports for two consecutive years.³⁹ Canada's GPT is currently authorized until December 31, 2024.

Japan's Generalized System of Preferences

Japan's GSP program, first implemented in 1971, provides preferential tariff treatment to 128 developing countries and five territories, and is currently authorized through March 31, 2031.⁴⁰ Beneficiaries are designated on the basis of: (1) being in a stage of development, (2) having its own trade and tariff system, (3) the country's desire to receive preferential tariff treatment, and (4) a determination by Cabinet Order that the beneficiary is a country or territory to which such preferences may be extended.⁴¹

Reduced or duty-free status is provided for 416 products in the agricultural and fisheries sectors (Harmonized System [HS] chapters 1-24) and for 3,151 industrial/manufactured products (HS chapters 25-97). Most industrial products are duty-free to GSP beneficiaries, but tariff reductions are provided on some import-sensitive items.⁴² Forty-six countries recognized as LDCs by the United Nations receive duty-free, quota-free market access for the above products, as well as for additional items (about 98% of all products defined at the tariff-line level).⁴³

A country or territory may be partially graduated from Japan's GSP scheme if it is classified as a high-income country in World Bank statistics in the previous year, or is classified as an upper-middle income country and the value of the beneficiary's exports exceeds 1% of the total value of world exports in the previous year.⁴⁴ Countries are permanently graduated from GSP if they are classified by the World Bank as a high-income economy for three consecutive years.

Beneficiaries may lose GSP benefits for certain products if, for the past three years, regarding Japanese exports of that product: (1) the average value of Japan's imports of the product originating from the beneficiary for the past three years exceeds 1.5 billion yen and 50% of the world's exports of the product to Japan, or (2) in the case of any fish product, the country or territory is judged (by a Regional Fisheries Management Organization) to be against the conservation of certain fish species.⁴⁵

United States GSP Implementation

Congress first authorized the U.S. Generalized System of Preferences scheme in Title V of the Trade Act of 1974 (P.L. 93-618), as amended.⁴⁶ Title V authorized the President to grant duty-free treatment under GSP for eligible products imported from any BDC or any LDBDC, provided the President with economic criteria in deciding whether to take any such action, and specified certain other criteria for designating eligible countries and products.⁴⁷

GSP country eligibility or changes in product coverage were made at the discretion of the President, drawing on the advice of the International Trade Commission (ITC) and the United States Trade Representative (USTR). The Trade Policy Staff Committee (TPSC), an executive branch interagency body chaired by the office of the USTR, served as the interagency policy coordination mechanism for GSP matters.⁴⁸ The GSP Subcommittee of the TPSC conducted annual reviews in which petitions related to GSP country and product eligibility were assessed, and made recommendations to the full TPSC, which, in turn, passed recommendations to the USTR.⁴⁹

Country Eligibility Criteria

When designating BDCs and LDBDCs, the President was directed to take into account certain mandatory and discretionary criteria. The law prohibited (with certain exceptions) the President from extending GSP treatment to certain countries, as follows:⁵⁰

• other industrialized countries (Australia, Canada, EU member states, Iceland, Japan, Monaco, New Zealand, Norway, and Switzerland are specifically excluded);
• communist countries, unless they are a WTO member, a member of the International Monetary Fund, and receive Normal Trade Relations (NTR) treatment from the United States; must also not be "dominated or controlled by international communism";
• countries that collude with other countries to withhold supplies or resources from international trade or raise the price of goods in a way that could cause serious disruption to the world economy;
• countries that provide preferential treatment to the products of another developed country in a manner likely to have a significant adverse impact on U.S. commerce;
• countries that have nationalized or expropriated the property of U.S. citizens (including corporations, partnerships, or associations that are 50% or more beneficially owned by U.S. citizens), or otherwise infringe on U.S. citizens' intellectual property rights (IPR), including patents, trademarks, or copyrights;
• countries that have taken steps to repudiate or nullify existing contracts or agreements of U.S. citizens (or corporations, partnerships, or associations that are 50% or more owned by U.S. citizens) in a way that would nationalize or seize ownership or control of the property, including patents, trademarks, or copyrights;
• countries that have imposed or enforced taxes or other restrictive conditions or measures on the property of U.S. citizens; unless the President determines that compensation is being made, good faith negotiations are in progress, or a dispute has been handed over to arbitration in the Convention for the Settlement of Investment Disputes or another forum;
• countries that have failed to act in good faith to recognize as binding or enforce arbitral awards in favor of U.S. citizens (or corporations, partnerships, or associations that are 50% or more owned by U.S. citizens); and
• countries that grant sanctuary from prosecution to any individual or group that has committed an act of international terrorism, or have not taken steps to support U.S. efforts against terrorism.

Mandatory criteria also required that beneficiary countries:

• have taken or are taking steps to grant internationally recognized worker rights (including collective bargaining, freedom from compulsory labor, minimum age for employment of children, and acceptable working conditions with respect to minimum wages, hours of work, and occupational safety and health); and
• implement their commitments to eliminate the worst forms of child labor.⁵¹

The President had the authority to waive certain mandatory criteria if he determined that GSP designation of any country was in the national economic interest of the United States and reported this determination to Congress.⁵²

The President was also directed to consider certain discretionary criteria, or "factors affecting country designation":

• a country's expressed desire to be designated a beneficiary developing country for purposes of the U.S. program;
• the level of economic development of a country;
• whether or not other developed countries are extending similar preferential tariff treatment to a country;
• a country is committed to providing reasonable and equitable access to its market and basic commodity resources, and the extent to which a country has assured the United States that it will not engage in unreasonable export practices;
• the extent to which a country provides adequate protection of intellectual property rights;
• the extent to which a country has taken action to reduce trade-distorting investment policies and practices, and to reduce or eliminate barriers to trade in services; and
• whether or not a country has taken steps to grant internationally recognized worker rights.⁵³

The law further authorized the President, based on the required and discretionary factors mentioned above, to withdraw, suspend, or limit GSP treatment for any beneficiary developing country at any time (see Table B-1 for a list of currently eligible GSP beneficiaries). Figure 1 shows eligible GSP duty-free imports of the top 10 BDCs as a proportion of their total imports to the United States in 2020.

Figure 1. Top 10 U.S. GSP Beneficiary Countries, 2020 GSP imports compared to BDC's Normal Trade Relations (NTR) imports, $ billions

Source: CRS analysis of data from U.S. International Trade Commission (ITC) Dataweb. Notes: Thailand's GSP benefits were partially suspended effective in April and December 2020 for worker rights and market access issues. Data depicts the last year the program was authorized. Congress may choose to retroactively reauthorize the program, in which case CBP would refund duties paid on eligible imports.

Least-Developed Beneficiaries

The President was authorized by statute to designate any BDC as an LDBDC, based on an assessment of the conditions and factors previously mentioned.⁵⁴ Although the United Nations' designation of LDCs played a large factor in GSP least-developed beneficiary determinations,⁵⁵ U.S. officials could also assess compliance with GSP statutory requirements and comments from the public (as requested in the Federal Register) before identifying a country as "least-developed" for purposes of GSP.⁵⁶

Country Graduation from GSP

The President was authorized to terminate, suspend, or limit GSP status of a BDC if he determined that a country was sufficiently competitive or developed. In May 2019, President Trump terminated Turkey's GSP eligibility for this reason.⁵⁷

Mandatory GSP country graduation occurred when the BDC was determined to be a "high income country" as defined by official World Bank statistics (gross national income [GNI] per capita of $13,846 or more as of July 2023).⁵⁸ The last time that countries were mandatorily graduated from GSP was in 2015, when President Obama determined that Seychelles, Uruguay, and Venezuela had become "high income" countries, and therefore, no longer eligible for GSP benefits, effective January 1, 2017.⁵⁹

If a country became part of an association of countries specifically excluded from GSP, the country was also mandatorily withdrawn from GSP. Bulgaria and Romania were the last countries to lose GSP eligibility for this reason, effective when they became EU member states as of January 1, 2007.⁶⁰ Croatia, the latest country to join the EU (in 2013), was also previously a GSP beneficiary, but was mandatorily graduated from GSP as a "high income" country in 2009, prior to its accession to the EU.⁶¹

Although not specifically required by GSP statute, a developing country that entered into a free trade agreement (FTA) with the United States, at the discretion of Congress, generally lost GSP eligibility in favor of the reciprocal concessions granted by the FTA. Specific language to this effect appeared in FTA implementing legislation.⁶²

The President also was authorized to suspend, terminate, withdraw, or limit a country's GSP status if he determined that a country was not complying with one or more of GSP statute's eligibility requirements.⁶³ On March 29, 2021, the USTR stated that it would consider Burma's GSP eligibility with respect to internationally recognized worker rights when it announced the suspension of U.S. trade engagement with the country following the military coup.⁶⁴

Reporting Requirements

The President was required to advise Congress prior to the designation of any country as a GSP beneficiary, and at least 60 days before he designated any country as a least-developed beneficiary country.⁶⁵ The President also had to notify Congress at least 60 days in advance of the termination of a country's GSP status.⁶⁶ A country's change in status became effective following the President's formal announcement by executive order or presidential proclamation.⁶⁷ The President must also have advised Congress "as necessary" on the application of presidential authority, and the actions taken to "withdraw, suspend, or limit" the application of duty-free treatment if beneficiaries were found to not be in compliance with certain eligibility criteria.⁶⁸

Additional GSP reporting requirements included an annual report to Congress on the status of internationally recognized worker rights within each BDC, including findings of the Secretary of Labor with respect to the beneficiary country's implementation of its international commitments to eliminate the worst forms of child labor.⁶⁹

Eligible Products

The Trade Act of 1974 authorized the President to designate certain imports as eligible for duty-free treatment under GSP after receiving advice from the ITC.⁷⁰ "Import-sensitive" products specifically excluded from preferential treatment under GSP included most textiles and apparel goods; watches; footwear and other accessories; most electronics, steel, and glass products; and certain agricultural products that are subject to tariff-rate quotas.⁷¹ Congress, from time to time, has amended the GSP law to provide the President with additional authority to declare duty-free access for certain products previously considered "import-sensitive," provided that the ITC examines the possible effects on the U.S. market of granting duty-free access to GSP beneficiaries. The last time that Congress amended the list of import-sensitive products was in Section 204 of P.L. 114-27, the Trade Preferences Extension Act of 2015, which gave the President the authority to designate certain luggage and travel products as eligible for GSP.⁷² The value of travel goods imported under the GSP program substantially increased beginning in 2017, contributing to the increase in total U.S. imports of such products (Figure 2).

Figure 2. Imports of Travel Goods, Handbags, and Wallets In current U.S. dollars

Source: CRS analysis of data from ITC Trade Dataweb. Notes: *Section 204 of the Trade Preferences Extension Act of 2015 expanded the list of eligible products that may be designated to certain luggage and travel products found under HTS heading 4202. **Although GSP expired on December 31, 2020, U.S. Customs and Border Protection (CBP) instructed importers to indicate GSP preferential status for eligible imports so that CBP may automate duty refunds in the case that the program is reauthorized retroactively. 2021 and 2022 shown to provide an idea of the value imports that would have qualified for GSP benefits.

GSP Rules of Origin

Eligible goods under the U.S. GSP program must have met certain rules of origin (ROO) requirements in order to qualify for duty-free treatment. First, duty-free entry was only allowed if the article was imported directly from the beneficiary country into the United States without entering the commerce of a third country. Second, at least 35% of the appraised value of the product was required to be the "growth, product, or manufacture" of a beneficiary developing country, as defined by the sum of (1) the cost or value of materials produced in the BDC (or any two or more BDCs that are members of the same association or countries and are treated as one country for purposes of the U.S. law), plus (2) the direct costs of processing in the country.⁷³

GSP Product Coverage

More than 3,500 products were eligible for duty-free treatment, and about 1,500 additional products originating in LDBDCs could receive similar preferential treatment.⁷⁴ Figure 3 shows the top 10 products that would have qualified for GSP benefits in 2022 if the program was authorized. Table 1 provides the Harmonized Tariff Schedule (HTS) subheading and description of the leading products, along with the tariff rates that have been assessed on the products since the program expired.

Figure 3. Top 10 U.S. GSP Imports, 2022* In millions of current U.S. dollars

Source: CRS analysis of data from ITC Trade Dataweb. Notes: Products are categorized at the HTSUS 8-digit level. *Although GSP expired on December 31, 2020, CBP instructed importers to indicate GSP preferential status for eligible imports so that CBP may automate duty refunds in the case that the program is reauthorized retroactively.

Annual Reviews

The TPSC's GSP Subcommittee conducted annual reviews of the list of eligible products, generally on the basis of petitions received from beneficiary countries or interested parties requesting that additional products be reviewed (i.e., added or removed) for GSP eligibility.⁷⁵ When a country's petition for product eligibility was approved, the product would become GSP-eligible for all BDCs (or only for LDBDCs if so designated).⁷⁶ USTR has not conducted an annual review since 2020 as a result of the lapse of GSP authorization. In the context of an annual product review, countries may petition for certain products to be added to GSP, or to receive waivers of certain limits to GSP status, as described below. USTR also accepted public comments and held hearings to provide the opportunity for interested parties to provide insight during the annual review process.

The GSP Subcommittee also annually reviewed issues regarding BDCs' and LDBDCs' observance of country practices (such as worker rights or IPR protection); investigated petitions to add or remove items from the list of eligible products; and considered which products should be removed on the basis that they were "sufficiently competitive," or "import sensitive" relative to U.S. domestic firms.⁷⁷

The GSP Subcommittee, after consultations with the ITC, would make recommendations to the President regarding various product waivers that BDCs may have requested. Waiver petitions, if granted, were country-specific. Any modifications to product lists would usually take effect on July 1 of the calendar year after the next annual review was launched, but could also be announced and become effective at other times of the year. At the completion of an annual review, the results were announced by proclamation.

Petitions to Add to or Remove Products from GSP

In the context of a GSP annual review, beneficiaries or other interested parties were able to request that certain products be added to the list of eligible products for GSP. If a beneficiary requested that a product be provided GSP status, and the request was approved, the product became GSP-eligible for all GSP beneficiaries (or, in some instances, for least-developed beneficiaries only). As a result of the 2020 annual product review, the President added fresh-cut roses (HTS 0603.11.00) to the list of eligible products.⁷⁸

Interested parties could also request that products be removed from GSP status. In the 2020 annual review, parboiled rice (HTS 1006.30.10) was removed from GSP eligibility.⁷⁹

Competitive Need Limits (CNL)

The GSP statute established "competitive need limit" (CNL) requirements for the President to suspend GSP treatment for individual products from BDCs (LDBDCs and AGOA countries were exempt) if

• imports of a product from a single country reached a specified threshold value, which increases by $5 million each calendar year (i.e., $190 million in 2019 and $195 million in 2020); or
• 50% or more of total U.S. imports of a product entering under GSP came from a single country.⁸⁰

Section 502 of P.L. 115-141 amended the date that products that exceed the CNL become GSP-ineligible from GSP to November 1 of the next calendar year rather than July 1.

In the 2020 product review, due to CNLs, Ecuador lost its GSP eligibility for taro (HTS 0714.40.10), and Brazil for gum, wood or sulfate turpentine (HTS 3805.10.00), and diesel-powered electric generating sets (HTS 8502.12.00).⁸¹

CNL Waivers

Also in the context of an annual review, BDCs could petition for CNL waivers, which the President would review on a case-by-case basis. In deciding whether to grant a waiver, the President was required to (1) receive advice from the ITC as to whether a U.S. domestic industry could be adversely affected by the waiver; (2) determine that the waiver is in the U.S. economic interest; and (3) publish the determination in the Federal Register.⁸² The President was also required to give "great weight" to the extent to which the BDC opens its markets to the United States and protects IPR.⁸³

In 2006, Congress amended the GSP law to provide that the President should revoke any CNL waiver that had been in effect for five years or more if (1) the exports of the product were in excess of 1.5 times of the specified dollar amount reflected in the CNL provision; or (2) imports of the product exceeded 75% of the appraised value of total imports of the product into the United States in a calendar year.⁸⁴

In the 2020 GSP annual review, four countries: Argentina, Brazil, Ecuador, and Indonesia received CNL waivers for products, including taro, chemicals, plywood, gold jewelry, and engines.⁸⁵

De Minimis Waivers

Under GSP, de minimis waivers could also be provided if the total dollar value of a particular product imported into the United States from all countries was small; CNL would not apply for the identified product. The de minimis level was adjusted each year, in increments of $500,000.⁸⁶ In the 2020 GSP product review, de minimis waivers were granted to 24 products from eight countries, including fresh cut orchids from Thailand, shelled macadamia nuts from Brazil, woven rattan from Indonesia, and more.⁸⁷

Waivers for Articles Not Produced in the United States (NPUS)

As part of the last GSP renewal, (Division M, Section 502 of P.L. 115-141, enacted in March 2018) Congress amended the GSP statute to provide that BDCs could apply for waivers of competitive need limits for certain products that were not produced in the United States for three years prior to the waiver request. Interested parties could petition for a waiver during the annual review process.⁸⁸ Prior to this amendment, certain products that the President determined were not produced in the United States on January 1, 1995, were eligible for CNL waivers.

Reviews of Country Practices

As part of GSP annual reviews, any interested party could file a request that the GSP eligibility of any GSP beneficiary be reviewed. For example, the GSP review of India, announced in April 2018, was based on market access petitions from three U.S. industry associations alleging that India did not provide equitable and reasonable access to its market.⁸⁹ India's GSP eligibility was subsequently removed by Proclamation 9902 of May 31, 2019.⁹⁰ On October 30, 2020, Thailand's GSP eligibility for certain products was suspended as a result of a petition filed by the National Pork Producers Council in 2018, alleging that it was not meeting the GSP eligibility criterion to provide equitable and reasonable market access.⁹¹ Thailand was also being investigated for worker rights issues, and in context of the 2020 annual review, the President suspended Thailand's GSP eligibility for 231 products worth about $817 million in 2019, effective December 30, 2020.⁹² The products included steering wheels, plastic glass frames, certain chemical products, and rubber or plastic bedding.⁹³ Thai officials expressed confidence that Thai exports of these products were competitive in the U.S. market despite the tariffs ranging from 3% to 4% on these items that would be assessed due to the GSP suspension. The officials estimated that the losses would only amount to about $19 million.⁹⁴

In October 2017, the USTR announced a "proactive" process for ensuring that GSP beneficiaries were complying with the program's eligibility criteria. The process included increased efforts to conclude outstanding country practices reviews, and a triennial assessment of each beneficiary's compliance with the statutory GSP eligibility criteria. The first assessment period (in 2018) focused on Asian BDCs. If the TPSC review raised concerns about a BDC's compliance, it could self-initiate a country practice review of the country's continued GSP eligibility.⁹⁵ The country practice reviews of India, Indonesia, and Turkey initiated in 2018, Azerbaijan in 2019, and Eritrea and Zimbabwe in 2020 were, in part, self-initiated by the TPSC due to this compliance review strategy.⁹⁶

The USTR held two hearings for ongoing reviews of specific country practices in November 2018 and January 2020. The hearings were held for the following countries: Azerbaijan (worker rights), Bolivia (worker rights), Ecuador (arbitral awards), Georgia (worker rights), Indonesia (intellectual property rights), Iraq (worker rights), Kazakhstan (worker rights), South Africa (intellectual property rights), Thailand (worker rights and market access), Ukraine (intellectual property rights), and Uzbekistan (worker rights and intellectual property rights).⁹⁷ In addition, both hearings included discussions on the country designation review for Laos.⁹⁸ In October 2020, the USTR announced that the country practices investigations for Bolivia, Georgia, Indonesia (market access), Iraq, and Uzbekistan had been resolved with no loss of GSP benefits.⁹⁹ The GSP re-designation review for Laos ended without granting GSP eligibility.¹⁰⁰ Country practices reviews of Azerbaijan, Ecuador, Indonesia (IPR), Kazakhstan, South Africa, and Ukraine are still ongoing.¹⁰¹

In the 118^th Congress, the proposed American Worker and Trade Competitiveness Act (H.R. 4276) includes provisions that would require the USTR to apply a similar process to regularly assess BDC compliance with GSP eligibility criteria.

Effects of the U.S. GSP Program

The statutory goals of the U.S. GSP program were to: (1) promote the development of developing countries; (2) promote trade, rather than aid, as a more efficient way of promoting economic development; (3) stimulate U.S. exports in developing country markets; and (4) promote trade liberalization in developing countries.¹⁰² It is difficult to assess whether or not the program alone had achieved these goals, however, because GSP was only one of many initiatives used by the United States to assist poorer countries. Economic success within countries is also related to internal economic and other factors, such as governance, stability, wise policy decisions, availability of infrastructure to foster industry, and legal/financial frameworks that encourage foreign investment. External macroeconomic factors, including global economic growth, worldwide economic shocks, exchange rates, and regional stability may also influence the growth of developing countries.

What follows, therefore, are general comments, rather than hard data, about the impact of GSP on developing countries, and possible economic effects on the U.S. market. The positions of various stakeholders regarding the value of the program are also discussed.

Effects on Developing Countries

From 2000 to 2008, total U.S. imports from all GSP countries (see Figure 4, red line, includes imports entering the United States without preferential tariff treatment) increased dramatically by value, from $172 billion in 2000 to a peak of $384 billion in 2008. In 2009, imports from GSP countries decreased by 36% (to $246 billion), largely due to the effects of the global economic downturn. Total imports increased to $367 billion in 2011, but decreased gradually to $202 billion in 2016. Total imports from all GSP countries declined sharply from a high of $238 billion in 2018 to $152 billion in 2020, likely due to the COVID-19 pandemic.

U.S. imports of GSP-eligible products (see Figure 4, blue line, represents only imported products that qualify for GSP duty-free treatment) have been relatively static.¹⁰³ A number of factors could explain this, including uncertainty based on short-term GSP program renewals and long pauses between program authorization periods. Other programmatic factors that could keep GSP imports fairly constant over time include suspension, termination, or graduation of some countries from GSP eligibility; exclusion of certain products from eligibility through CNLs; and the entry of some developing countries (many of which had been GSP beneficiaries) into FTAs with the United States and thus being disqualified from GSP eligibility. In addition, some products from BDCs may have received more favorable treatment under other trade preference programs, such as AGOA or the Caribbean Basin Initiative (CBI).¹⁰⁴

Figure 4. U.S. Imports from GSP Beneficiary Countries 2000 to 2022, in current U.S. dollars

Source: CRS analysis of data from ITC Trade Dataweb. Note: *Although GSP expired on December 31, 2020, CBP instructed importers to indicate GSP preferential status for eligible imports so that in the case that the program is reauthorized retroactively, CBP may refund duties efficiently.

Many developing countries with a natural competitive advantage in certain products have used trade preferences such as GSP to gain a foothold in the international market. For example, India and Thailand, two countries with well-established jewelry industries, were able to expand their international reach through GSP programs. As the jewelry products reached their CNL thresholds, those countries were no longer eligible to receive duty-free status for their jewelry products under GSP, but gained a foothold in the U.S. and international markets that enabled their jewelry industries to continue to be competitive.¹⁰⁵

However, some developing countries could also be encouraged by preferential trade programs to develop industry sectors in which they might not otherwise ever be able to compete, thus diverting resources from other industries that might stand a better chance of becoming competitive over time (trade diversion).¹⁰⁶

Some economists assert that the lack of reciprocity in the GSP program could result in long-term costs for beneficiary countries, because by not engaging in multilateral, reciprocal negotiations in favor of preference programs, these countries keep in place protectionist trade policies that could ultimately impede their long-term growth. Nonreciprocal preferences could also become an impediment to multilateral trade negotiations because beneficiaries may prefer to seek ways of maintaining them rather than exchanging them for reciprocal benefits.¹⁰⁷ Nonreciprocal access, particularly for countries with large or rapidly growing domestic markets, may also contribute to concerns over "fairness" in the U.S. trading relationship among policymakers.¹⁰⁸

For these reasons, some economists prefer multilateral, nondiscriminatory tariff cuts because preferential tariff programs, such as GSP, could lead to inefficient production and trade patterns in developing countries.¹⁰⁹ They say that when tariffs are reduced across-the-board, rather than in a preferential manner, countries tend to produce and export on the basis of their comparative advantage—exporting products that they produce relatively efficiently and importing products that others produce relatively efficiently.¹¹⁰

Economic Effects on the U.S. Market

In 2021, $18.7 billion worth of U.S. imports could have claimed GSP preferences if the program was authorization; total imports from beneficiary countries were valued at $191.9 billion. In comparison, total U.S. imports from all countries for 2021 amounted to about $2.8 trillion. These figures suggest that the overall effects of GSP on the U.S. economy were relatively small. In addition, most U.S. producers of import-competing products were largely protected from severe economic impact. First, certain products, such as most textile and apparel products, were designated as "import sensitive" and therefore were ineligible for duty-free treatment. Second, CNLs were triggered when imports of a product from a single country reached a specified threshold value, or when 50% of total U.S. imports of a product come from a single country.¹¹¹ Third, U.S. manufacturers or producers could petition the USTR to withdraw GSP benefits from a certain product if they were injured by the preference.¹¹²

In federal budgetary terms, the Congressional Budget Office estimated that retroactive reauthorization of GSP and extension of other trade preference programs (i.e., AGOA and CBI) to 2033 would cost the United States (in foregone tariff revenues) about $15 billion from 2024-2033.¹¹³

Many U.S. manufacturers and importers have benefitted from the lower cost of consumer goods and raw materials imported under the GSP program.¹¹⁴ U.S. demand for certain individual products, including jewelry, leather, and aluminum, is quite significant.¹¹⁵ The Coalition for GSP, a group of U.S. companies and associations that benefit from, and advocate for, the GSP program, estimate that U.S. importers have paid up to $1.47 billion in tariffs on GSP-eligible imports between January 2021 and April 2022.¹¹⁶ It asserts that, during periods of GSP expiration, small and medium enterprises (SMEs) bear a disproportionate share of the burden, resulting in lower sales and lost jobs.¹¹⁷ It is also possible, however, that other factors, including slower growth and reduced demand in the U.S. market, contribute to adverse economic impacts on these businesses.

Stakeholders' Concerns

Supporters of the GSP program include beneficiary developing country governments and exporters, U.S. importers, and U.S. manufacturers who use inputs entering under GSP in downstream products. Some Members of Congress favor GSP renewal, because they believe it is an important development and foreign policy tool. Opposing the program are some U.S. producers who manufacture competing products and some in Congress who favor more reciprocal approaches to trade policy. What follows is a thematic approach to the major topics of discussion in the GSP renewal debate.

"Special and Differential Treatment"

Developing countries have long maintained that "special and differential treatment," such as that provided by the GSP, is an important assurance of access to U.S. and other developed country markets in the midst of increasing globalization.¹¹⁸ Many of these countries have built industries or segments of industries based on receiving certain tariff preferences.

Some in Congress and in previous Administrations have expressed the desire to see reciprocal trade relationships with some of the emerging market economies that are still beneficiaries of nonreciprocal U.S. preference programs.¹¹⁹ At the same time, there is continued broad support for preference programs in general, including GSP, CBI, and AGOA.¹²⁰

Erosion of Preferential Margins

Developing countries have expressed concern about the overall progressive erosion of preferential margins as a result of across-the-board tariff reductions resulting from WTO agreements and, more recently, the proliferation of bilateral and regional free trade agreements.¹²¹ Several economic studies predict tariff reductions by developed countries would generally hurt exports of developing countries, but certain economies, specifically least-developed economies and small island economies may be affected the most.¹²² Other economists say that preference erosion could be more than outweighed by the benefits of increased market access brought about by multilateral or reciprocal trade liberalization.¹²³ These economists say that, rather than continuing GSP and other preferential programs (either through inertia or concern that removing them would be seen as acting against the world's poorest populations), a better approach might be to "assist them in addressing the constraints that really underlie their sluggish trade and growth performance."¹²⁴

Expanding GSP eligibility for additional products, especially textile and apparel products, may erode preferential benefits for beneficiary countries under AGOA and CBI. On October 2, 2020, some Members of Congress introduced legislation that would have opposed the inclusion of textile and apparel products as eligible for designation under GSP.¹²⁵ It stated several reasons for opposing the inclusion of the products, including potential harm to domestic industries as import-sensitive items and possible erosion of existing preferential treatment of textile and apparel products to certain Latin American and Caribbean countries as well as sub-Saharan African countries under regional trade preference programs. Regional programs, such as the CBI, also established strong supply chain networks and bilateral trade relations between the United States and Latin American and Caribbean beneficiary countries. Policymakers and industry groups that oppose the inclusion of textile and apparel products argue that expanding GSP eligibility to those products would weaken existing supply chain networks by providing preferential benefits to countries outside the region.¹²⁶

Underutilization of GSP

Some academic literature on preference programs, including GSP and free trade agreements, suggests that they are not used to their fullest extent. One reason cited is that the benefits accruing to importers may not be worth the additional costs (such as the additional paperwork needed to fulfill the local content rule of origin) associated with claiming the preference.¹²⁷ One method of calculating preference utilization by country is by taking the share of eligible imports that claimed preferential status (i.e., GSP) over total imports of eligible products (i.e., GSP plus NTR imports).¹²⁸ In 2019 (most recent data available), by import value, the overall GSP utilization rate was around 43.1%.¹²⁹

Additional literature suggests that some countries may not use GSP for a variety of reasons, including exporters being unfamiliar with the program; BDC governments not sufficiently promoting the existence of available opportunities under the preference program; lack of available infrastructure (for example, undeveloped or damaged roads and ports that impede the efforts to get goods into the international market); developing countries' major products being deemed import sensitive; or a combination of all of these factors.¹³⁰ One option for addressing these factors could be to provide assistance to GSP beneficiaries through U.S. trade capacity building efforts similar to those employed as part of AGOA.¹³¹ The relatively long-term reauthorization of AGOA also may have encouraged beneficiary countries to develop utilization strategies.¹³²

Trade as Foreign Assistance

No other U.S. trade preference program is more broadly based or encompasses as many countries as GSP. As a result, the program has been supported by many observers who believe that it was an effective, low-cost means of providing economic assistance to developing countries. Supporters maintain that encouraging trade by private companies through the GSP program could stimulate economic development much more effectively than intergovernmental aid and other means of assistance.¹³³ Economic development assistance through trade is a long-standing element of U.S. foreign policy, and other trade promotion programs such as AGOA and CBI are also based on this premise.

Conditionality of Preferences

Some supporters of GSP and other nonreciprocal programs assert that the conditions required (such as worker rights and IPR requirements) for GSP qualification provide the United States with leverage that can be used to promote U.S. economic and foreign policy goals and interests.¹³⁴ For example, in October 2019, President Trump partially restored Ukraine's GSP benefits, which were partially suspended in December 2017, after determining that the country made progress in "providing adequate and effective protection of intellectual property rights."¹³⁵ USTR and the TPSC Subcommittee on GSP also regularly engaged through bilateral meetings with BDCs on GSP eligibility criteria compliance, such as meeting with the government of Kazakhstan to discuss the implementation of its amended Trade Union Law.¹³⁶

In the 117^th Congress, several bills were introduced to modify GSP's eligibility criteria. For example, measures include provisions that would have added eligibility criteria on gender equality and human rights, good governance, and environmental law and regulation, as well as amend provisions on worker rights.¹³⁷ Some Members of Congress contended that the proposed eligibility criteria, such as provisions on environment and human rights violation, will modernize the program to address modern issues.¹³⁸ However, some policy experts cautioned that adding too many requirements may increase compliance costs, making it difficult for developing countries with limited capacity to meet the eligibility criteria.¹³⁹ H.R. 4276, introduced in the 118^th Congress, proposes similar amendments as the bills introduced in the previous Congress.

Lower Costs of Imports

U.S. businesses that import components, parts, or materials that were duty-free under the GSP maintain that the preferences result in lower costs for these intermediate goods which, in turn, can make U.S. firms more competitive, and the savings can be passed on to consumers. These supporters assert that GSP is as important for many domestic manufacturers and importers as for the countries that receive preferential access for their products.¹⁴⁰

Even though most U.S. producers are shielded to a certain extent by CNLs and were somewhat protected by the exclusion of import-sensitive products from GSP eligibility, U.S. manufacturers and workers were sometimes adversely affected by GSP imports. Some of these companies petitioned for the elimination of specific products from GSP eligibility.¹⁴¹ For example, in 2010, Exxel Outdoors, a U.S. company that manufactures certain non-down sleeping bags, petitioned for their removal from GSP eligibility, claiming that their business operations were being harmed by imports of duty-free sleeping bags from Bangladesh under the GSP program.¹⁴² These sleeping bag categories were ultimately removed from GSP duty-free treatment in January 2012.¹⁴³

Options for Congress

The GSP program expired on December 31, 2020. Congress may consider reauthorizing the program and, if so, whether to reauthorize it with a retroactive refund clause for U.S. imports to receive refunds on duties paid on GSP-eligible products during the expired period. Since the 117^th Congress, some Members have suggested various reforms of the GSP program. Possible options include supporting reciprocal tariff and market access benefits through FTAs, renewing the GSP for least-developed beneficiaries only, extending the program in a modified form (e.g., with new eligibility criteria), or letting the program lapse altogether.

Although the GSP was a nonreciprocal tariff preference, any changes to the program may need to be considered in light of the requirements of the WTO Enabling Clause, as it has been interpreted by the WTO Appellate Body. At a minimum, the United States may need to notify—and possibly consult with—other WTO members regarding any withdrawal or modification of GSP benefits, as required by paragraph 4 of the Enabling Clause.¹⁴⁴ The United States could also pursue a WTO waiver were any modifications of the GSP program considered not to comport fully with U.S. WTO obligations.

Negotiate Trade Agreements with GSP Countries

Some U.S. policymakers have suggested that developing countries might benefit more from WTO multilateral negotiations, FTAs, or some form of agreement that could also provide reciprocal trade benefits and improved market access for the United States.¹⁴⁵ Arguably, this was one of the policy arguments for the EU's pursuit of Economic Partnership Agreements with many of its former GSP beneficiaries. Because tariff concessions under these agreements could apply to more sectors of the economy than GSP, such agreements could increase the likelihood of spurring across-the-board economic growth in developing countries. Each one of the United States' current comprehensive FTA partners, with the exception of Canada and Australia, was at one time a beneficiary of the GSP program.¹⁴⁶

Authorize GSP Only for Least-Developed Countries

Some in Congress have expressed the possibility of modifying GSP so that the benefits apply primarily to least-developed beneficiaries. The Trump Administration in effect took some steps in this direction by removing GSP eligibility from some more "advanced" developing countries, such as India and Turkey.

Narrowing the scope of eligibility could benefit the LDCs that remain in the program by reducing competition in the U.S. market from more advanced developing countries. Assuming that many least-developed African beneficiaries¹⁴⁷ would continue to receive the GSP preference under AGOA, other LDCs that might benefit from an LDC-only GSP program are Afghanistan, Bhutan, Burma, Burundi, Cambodia, Congo (Kinshasa), Haiti,¹⁴⁸ Kiribati, Mauritania, Nepal, Samoa, Somalia, South Sudan, the Solomon Islands, Timor-Leste, Tuvalu, and Vanuatu.¹⁴⁹

Of these countries, in 2022, the LDCs that imported the most GSP-eligible goods by value were Cambodia ($3.5 billion), Burma ($234 million), Ethiopia ($22 million), Nepal ($12 million), and Angola ($11 million).¹⁵⁰ Greater U.S. efforts through trade capacity building could also potentially help LDCs take greater advantage of the GSP program.

Reform GSP

Congress could change the GSP eligibility criteria, as it applies to all BDCs. Some of these options could have the effect of expanding the GSP program, while others could serve to restrict its application. Expanding the program, such as increasing the number of eligible products or relaxing the rules of origin (ROO) requirements, may encourage higher utilization. On the other hand, restricting the program by strengthening eligibility criteria or lowering the income graduation threshold could limit benefits to countries meeting the eligibility criteria or developing countries that need the market access the most.

Expand Application of GSP

Should Congress seek to expand or enhance application of the GSP in a reauthorization, it may consider the following options:

• Expand the list of tariff lines permitted duty-free access. Allow some import-sensitive products to receive preferential access.¹⁵¹
• Increase flexibility of ROO requirements. For example, allow more GSP beneficiaries to cumulate inputs with other beneficiaries or the United States to meet the 35% domestic content requirement or lower the domestic content requirement.¹⁵²
• Eliminate the competitive need limitations for BDCs, or raise the thresholds that trigger them.
• Reauthorize GSP for longer time periods or make the program permanent.

Restrict Application of Preferences

The following is a list of possible approaches if Congress desires to extend the program but restrict imports under GSP:

• Consider mandatory graduation for "middle income" countries, similar to EU GSP changes, or strengthen the language giving the President authority to graduate countries based on competitiveness.
• Strengthen provision that allows graduation of individual industry sectors within beneficiary countries.
• Modify the ROO requirement for qualifying products to require that a greater percentage of the direct costs of processing operations (currently 35%) originate in beneficiary developing countries or introduce separate ROO requirements for possible addition of textiles and apparel products.¹⁵³
• Lower the threshold at which the President may (or must) withdraw, suspend, or limit the application of duty-free treatment of certain products (CNLs).¹⁵⁴
• Require the President to more frequently and actively monitor (an annual process existing statute) the economic progress of beneficiary countries, as well as compliance with GSP criteria.
• Reform eligibility criteria to strengthen provisions on worker rights as well as introduce new criteria, such as good governance, gender equality, and environmental law and regulation.

Appendix A. GSP Implementation and Renewal

Appendix B. GSP Beneficiary Countries