Trade preference  programs extend unilateral tariff reductions to over 130 developing  countries. Currently, the United States offers the Generalized System of  Preferences (GSP)  and three regional programs, the Caribbean Basin  Initiative (CBI), the Andean Trade Preference Act (ATPA), and the  African Growth and Opportunity Act (AGOA). Total U.S. preference  imports grew from $20 billion in 1992 to $110 billion in 2008. Most of this  growth in U.S. imports from preference countries has taken place since  2000. Critical Policy Trade- offs among U.S. Consumers, Producers, and Foreign Beneficiaries Are Inherent in Preference Programs

Preference programs entail a number of difficult policy trade-offs. A few LDCs in Asia are not  included in the U.S. regional preference programs, although they are  eligible for GSP-LDC benefits. Two of these countries—Bangladesh and  Cambodia—have become major exporters of apparel to the United States  and have complained about the lack of duty-free access for their goods. This trade-off concerning what countries to include also involves decisions  regarding the graduation of countries or products from the programs. However, some U.S. officials believe that periodic  program expirations can be useful as leverage to encourage countries to  act in accordance with U.S. interests such as global and bilateral trade  liberalization. Potential Areas of Improvement for U.S. Trade Preference Programs

		Proliferation of Preference Programs Has Led to a Need for a More Integrated Approach

GAO found that preference programs have proliferated over time and have  become increasingly complex, which has contributed to a lack of  systematic review. Moreover, we found that there was little to no  reporting on the impact of these programs. Experts Provided a Range of Options for Improving AGOA

In addition to the recommendations based on GAO analysis, we also  solicited options from a panel of experts convened by GAO in June 2009 to  discuss ways to improve the competitiveness of the textile and apparel  sector in AGOA beneficiary countries. Modify Rules of Origin among Trade Preference Program  Beneficiaries and Free Trade Partners: Some African governments  and industry representatives of the textile and apparel inputs industry in  Sub-Saharan African countries suggested modifying rules of origin  provisions under other U.S. trade preference programs or free trade  agreements to provide duty-free access for products that use AGOA textile  and apparel inputs. Create Non-Punitive and Voluntary Incentives: Some of the experts  we consulted believe that the creation of non-punitive and voluntary  incentives to encourage the use of inputs from the United States or its  trade preference partners could stimulate investment in beneficiary  countries.
Why GAO Did This Study

U.S. trade preference programs promote economic development in poorer nations by providing duty-free export opportunities in the United States. The Generalized System of Preferences, Caribbean Basin Initiative, Andean Trade Preference Act, and African Growth and Opportunity Act unilaterally reduce U.S. tariffs for many products from over 130 countries. However, two of these programs expire partially or in full this year, and Congress is exploring options as it considers renewal. This testimony describes the growth in preference program imports, identifies policy trade-offs, and summarizes the Government Accountability Office (GAO) recommendations and options suggested by a panel of experts on the African Growth and Opportunity Act (AGOA). The testimony is based on studies issued in September 2007, March 2008, and August 2009. For those studies, GAO analyzed trade data, reviewed trade literature and program documents, interviewed U.S. officials, did fieldwork in nine countries, and convened a panel of experts.

What GAO Found

Total U.S. preference imports grew from $20 billion in 1992 to $110 billion in 2008, with most of this growth taking place since 2000. The increases from preference program countries primarily reflect the addition of new eligible products, increased petroleum imports from some African countries, and the rapid growth of exports from countries such as India, Thailand, and Brazil. Preference programs give rise to three critical policy trade-offs. First, opportunities for beneficiary countries to export products duty free must be balanced against U.S. industry interests. Some products of importance to developing countries, notably agriculture and apparel, are ineligible by statute as a result. Second, some developing countries, such as Bangladesh and Cambodia, are not included in U.S. regional preference programs; however, there is concern that they are already competitive in marketing apparel to the United States and that giving them greater duty-free access could harm the apparel industry in Africa and elsewhere. Third, Congress faces a trade-off between longer preference program renewals, which may encourage investment, and shorter renewals, which may provide leverage to encourage countries to act in accordance with U.S. interests such as trade liberalization. GAO reported in March 2008 that preference programs have proliferated and become increasingly complex, which has contributed to a lack of systematic review. Moreover, we found that there was little to no reporting on the impact of these programs. In addition, GAO solicited options from a panel of experts in June 2009 for improving the competitiveness of the textile and apparel sector in AGOA countries. Options they suggested included aligning trade capacity building with trade preference programs, modifying rules of origin to facilitate joint production among trade preference program beneficiaries and free trade partners, and creating non-punitive and voluntary incentives to encourage the use of inputs from the United States or its trade preference partners to stimulate investment in beneficiary countries.