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). U.S. trade preference programs are widely used, but some economists and  others have raised questions about them. Total U.S. preference  imports grew from $20 billion in 1992 to $92 billion in 2006. 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 three critical policy trade-offs. GAO’s analysis showed that  notable gaps remain, particularly in agricultural and apparel products. Certain U.S. industries have joined African nations in  opposing the idea of extending duty-free access for apparel from these  countries, arguing these nations are already so competitive in exporting to  the United States that in combination they surpass U.S. FTA partners  Mexico and CAFTA, as well as the Andean/AGOA regions, which are the  major export market for U.S. producers of textiles. This same trade-off involves decisions regarding the graduation of  countries or products from the programs. Although the intent of country and product  graduation is to focus benefits on those countries most in need of the  competitive margin preferences provide, some U.S. and beneficiary  country officials observe that remaining GSP beneficiaries will not  necessarily profit from another country’s loss of preference benefits. Policymakers face a third trade-off in setting the duration of preferential  benefits in authorizing legislation. 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. Proliferation of Preference Programs Has Led to a Need for a More Integrated Approach

Preference programs have proliferated over time. While there is overlap in various aspects of trade preference programs,  each program is currently considered separately by Congress based on its  distinct timetable and expiration date. Reflecting the relevant  statutory requirements, two different approaches—a petition process and  periodic reviews—have evolved to monitor compliance with criteria set  for various programs. Separate Reporting and Examination Hinder Measuring Progress on Programs’ Contribution to Economic Development

Separate reporting for the various preference programs makes it difficult  to measure progress toward achieving the fundamental and shared goal of  promoting economic development. Moreover, there is no evaluation of  how trade preferences, as a whole, affect economic development in  beneficiary countries. GAO Recommendations and Agency Response

To address the concerns I have summarized today, in our March 2008  report, GAO recommended that USTR periodically review beneficiary  countries that have not been considered under the GSP or regional  programs.
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 since 1992, identifies policy trade-offs concerning these programs, and evaluates the overall U.S. approach to preference programs. The testimony is based on two recent studies on trade preference programs, issued in September 2007 and March 2008. For those studies, GAO analyzed trade data, reviewed trade literature and program documents, interviewed U.S. officials, and did fieldwork in six trade preference beneficiary countries.

What GAO Found

Total U.S. preference imports grew from $20 billion in 1992 to $92 billion in 2006, with most of this growth taking place since 2000. The increases from preference program countries reflect legislation passed by Congress in 1996 and 2000 that enhanced preference programs and added new eligible products. Preference programs give rise to three critical policy trade-offs. First, preferences entail a trade-off to the extent 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. Secondly, certain developing countries have been given additional preferential benefits for such import-sensitive products under regional programs. But some of the poorest countries, outside targeted regions, do not qualify. Third, Congress faces a trade-off between longer program renewals, which may encourage investment and undermine support for the likely greater economic benefits of broader trade liberalization, a key U.S. goal, and shorter renewals, which may provide opportunities to leverage the programs to meet evolving priorities. Trade preference programs have proliferated over time, becoming more complex, but neither Congress nor the administration formally considers them as a whole. Responsive to their legal mandates, the Office of the U.S. Trade Representative (USTR) and other agencies use different approaches to monitor compliance with program criteria, resulting in disconnected review processes and gaps in addressing some countries and issues. Disparate reporting makes it difficult to determine progress on programs' contribution to economic development in beneficiary countries.