OTN Special Update - (The Future of US Trade Preferences) 2011-02-07
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OTN Special Update - (The Future of US Trade Preferences) 2011-02-07

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OTN Special Update - (The Future of US Trade Preferences) 2011-02-07 Document Transcript

  • 1. SPECIALOFFICE OF TRADE NEGOTIATIONS … for trade matters OTN Update February 7, 2011 T he Fu tu re o f U.S. T rade Pre fe re nce Prog rams Remains Unc e rtain The Andean Trade Promotion and Drug Eradication One of the reasons that the proposal did not attract Act (ATPDEA) as well as the Generalized System of Congressional consensus is that the GSP program Preferences (GSP), two of six of the U.S.’s trade in particular had attracted negative attention from preference programs for developing countries, face an influential private sector interests groups. The latter uncertain future. While both preference programs were have insisted that the GSP program presents a scheduled to expire on December 31 2010, only the threat to American Jobs and can further hurt the ATPDEA was allotted a short-term extension until economy – a politically weighted argument that February 12, 2011. The failure to renew an extension would not go unheeded in the current U.S. financial for the GSP has meant that the advantages to the climate. Specifically, Senator Jeff Sessions, the beneficiaries of merchandise trade under this program republican representative of Alabama, was not in have been suspended. As the deadline of the ATPDEA favour of the extension of the GSP as proposed extension draws near, it is also unclear at this time how under the Levin Bill because it granted duty-free the ATPDEA or the GSP for that matter will be treated access to certain sleeping bags from Bangladesh thereafter. that compete with a product made by one of his constituent companies Exxel Outdoors, which At one stage, a proposal was drafted within the US assembles sleeping bags in Alabama. In order to House of Representatives to extend both the GSP and protect the interests of his constituent, Senator the ATPDEA until June 30 2012. This proposal was Sessions had pressed for an amendment to the Bill articulated in the omnibus trade bill H.R 6517, also and ultimately the preference that would exclude known as the Levin Bill, which passed in the House on certain types of Bangladeshi sleeping bags from December 15 2010 but floundered in the Senate. the GSP. OTN UPDATE is the flagship electronic trade newsletter of the Office of Trade Negotiations (OTN), formerly the Caribbean Regional Negotiating Machinery (CRNM). Published in English, it is a rich source of probing research on and detailed analyses of international trade policy issues and developments germane to the Caribbean. Prepared by the Information Unit of the OTN, the newsletter focuses on the OTN, trade negotiation issues within its mandate and related activities. Its intention is to provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy developments of currency and importance to the Caribbean. http://www.crnm.org
  • 2. 2From a policy perspective, any Congressional United States. As designed, the program extendspermeability to the pressure exuded by Exxel can have income support and training for U.S workers.a destabilising effect on the future of the trade However, the benefits under the TAA were set topreference programs in the long term as any company expire at the beginning of January 2011. Under thewhich feels itself disadvantaged may seek to proposed Levin Bill, the extension of the GSP, thecontinuously develop exceptions under these programs ATPDEA and the TAA were placed together as athat would protect its market interests. package.On the other hand, the objection by Senator Sessions, Along with the ATPDEA, an extension was securedillustrates a perennial conflict between trade for the TAA until February 12, 2011 as part of apreference programs and the competing interest of package deal. At this time, disparate views on theindigenous U.S. firms. While the preference programs TAA are also stymieing further progress necessarycan engender economic development in developing to secure a more permanent arrangement for bothcountries, in order to continue to be politically saleable, the ATPDEA and the TAA. For example, whilethey would need to be perceived to be consistent with some members of Congress may be willing toAmerican policy goals. In recent times, one of those extend the ATPDEA, they have refused to advancepolicy goals, which has been acutely politically an extension for the TAA unless the U.S. -sensitive, has been the creation of jobs for U.S. Columbia free trade agreement (FTA), which hasworkers within the U.S. While there is a perception been regarded as problematic for the Obamathat the GSP and other trade preference programs Administration, is advanced.displace American jobs, the displacement potential oftrade preference programs is quite minimal as many of The lapse of the GSP and the indefinite status ofthe countries that export to the U.S. under the GSP the ATPDEA beyond February 12, 2011 haveprogram are least-developing countries (LDCs) and the created some disturbances amongst the USproducts imported into the U.S from LDCs account for business sector as well as for beneficiaryless than 1% of total U.S non-oil imports. 1 developing countries. For American businesses, in particular, small businesses that rely on theWhere adjustment costs exist as a result of the trade importation of products under these programs, thepreference programs, such costs can be mitigated in loss of preferential access under these programspart through the Trade Adjustment Assistance (TAA) could imperil their competitiveness. On the otherprogram, which is designed to help trade-affected hand, without the preference programs, many ofworkers who have lost their jobs as a result of the export sectors from the beneficiary developingincreased imports or shifts in production out of the countries would experience challenges in remaining competitive in the U.S market and in remaining viable.1 See Trade Preference Program Reform: Questions and Responses With respect to the GSP, this is not the first timefor Congressional Staff, Center for Global Development. Available athttp://www.cgdev.org/doc/Trade/CGD_Trade_Preference_Reform_ that a lapse has occurred. International headlinesCongressional_%20Q_and_A.pdf OTN UPDATE is the flagship electronic trade newsletter of the Office of Trade Negotiations (OTN), formerly the Caribbean Regional Negotiating Machinery (CRNM). Published in English, it is a rich source of probing research on and detailed analyses of international trade policy issues and developments germane to the Caribbean. Prepared by the Information Unit of the OTN, the newsletter focuses on the OTN, trade negotiation issues within its mandate and related activities. Its intention is to provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy developments of currency and importance to the Caribbean. http://www.crnm.org
  • 3. 3have reflected that the mood even in beneficiary Andean Trade Preference Act, the African Growthcountries is that of ‘business as usual’ following the Opportunity Act, and the Caribbean Basinexpiration of the program on December 31 2010.2 It Economic Recovery Act.appears that the expectation is that, followingprecedent, at some point the GSP will be reauthorized The debate has so far been concentrated onretroactively and that all duties paid will be identifying certain principles upon which the reformreimbursed. However, it is not certain at this time that or improvement of the programs should be based.should the GSP be renewed that it will be For example, taken together, the US preferenceimplemented retroactively. 3 programs create a complex system of differing rules of origin and product exclusions that make itEven with the hope of retroactive renewal of the GSP, challenging for beneficiary countries and importersthe lapse of the preferences would make it difficult for to navigate. There is also a plethora of eligibilityproducers in beneficiary countries as well as US criteria requirements which differ across theimporters to plan ahead for the long term. In the case programs and in some cases includeof ATPDEA, the scenarios would be similar and the conditionalities which are archaic and bear nounpredictability of the fate of the program could relevance to current geo-political or economicundermine the credibility of the program as an considerations. It has been proposed thateffective trade tool. increased flexibility, simplification and harmonization of the programs’ rules of origin, product coverage and eligibility criteria are crucial elements that would make the market access of theReform of Preference beneficiary countries more meaningful and renderPrograms still pending the preference programs system more transparent and more attractive to importers.Notwithstanding the above details, the future of thetrade preference programs will be linked to their It has also been proposed that the preferencereform. Apart from the annual review process which is programs should have firm graduation provisionsundertaken for trade preference programs, the that would impel beneficiary countries to engage inperformance, operation and potential reform of the a more reciprocal trading relationship when suchpreference programs have been the subject of countries have attained a certain level ofdebate. The debate has largely focused on an development. However, with respect to graduation,examination of how GSP operates in relation to the finding appropriate optimal benchmarks for graduation would be an important consideration to2 ensure that beneficiaries are not graduated based See “It’s ‘business as usual’ for RP exporters amid US GSP renewal”U.S. News Las Vegas, January 13, 2011. Available at on the performance of isolated indicators.http://www.usnewslasvegas.com/business/its‐business‐as‐usual‐ Moreover, the ability of a former beneficiary countryfor‐rp‐exporters‐amid‐us‐gsp‐renewal/ to participate in a reciprocal trade arrangement3 See GSP Expiration: Frequently Asked Questions. Available athttp://www.ustr.gov/about‐us/press‐office/fact‐ would depend on a number of variables includingsheets/2010/december/gsp‐expiration‐frequently‐asked‐questions the institutional capacity of that country to enable OTN UPDATE is the flagship electronic trade newsletter of the Office of Trade Negotiations (OTN), formerly the Caribbean Regional Negotiating Machinery (CRNM). Published in English, it is a rich source of probing research on and detailed analyses of international trade policy issues and developments germane to the Caribbean. Prepared by the Information Unit of the OTN, the newsletter focuses on the OTN, trade negotiation issues within its mandate and related activities. Its intention is to provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy developments of currency and importance to the Caribbean. http://www.crnm.org
  • 4. 4the implementation of reciprocal commitments. with improving the programs as a development tool for least developed countries. Within CARICOM,There is some political support from a range of Haiti is the only LDC and efforts have beeninterest groups for the reform of the trade revamped to assist Haiti with its economic recoverypreferences and it is likely that the openness of through the HOPE II preference program. However,Congress to the reauthorization of such preferences the World Bank classification of CARICOMfor longer time frames would be linked to some extent countries as middle income and high incometo the completion of this reform process to the countries may not readily convince all WTOsatisfaction of the divergent interest groups. members that the region’s development needsHowever, the preference reform agenda has been served by the trade preference program shouldsuspended indefinitely because Congressional outweigh their own concerns related to theirsupporters have been expending all energies in perception that US unilateral preferential tradefrenzied attempts to revive the GSP and to obtain an regimes with the Caribbean, and other countriesextension for the ATPDEA. present unfair competition to their local producers. The future of the Doha Round of negotiations may also have an impact. For some developed andThe Implications for CARICOM developing countries, further tolerance of U.S trade preference programs may be contingent upon theThe successful reform of the programs could extent to which the final deal of the Dohaenhance the overall credibility of the programs as negotiations will be in sync with their own interests.trade development tools for developing countries. At the same time, from the U.S perspective, thereThis boost to credibility could also assist U.S. may be an underlying concern that the accessibilityconsensus building amongst WTO members which of its preference programs to advanced developingwill be necessary to obtain WTO waivers for most of countries has the potential to compromise itsthe programs. However, increasingly, WTO members interests in the Doha round. The idea is thathave been showing decreased tolerance for unilateral unilateral access to the U.S. market may not bepreferential programs. For example, prior to the providing an incentive for advanced developingrenewal of the Caribbean Basin Economic Recovery countries to make further market accessAct (CBERA) WTO waiver in March 2009, attempts concessions to developed countries such as theby the U.S. to secure a waiver were blocked because U.S.4of objections raised by a number of WTO members. However, this is not to suggest that, should theWhile the renewal of CBERA’s waiver has secured U.S. reconsider the extension of its preferenceunilateral market access for Caribbean beneficiarycountries until 2014, it is uncertain how the furtherrenewal of the program’s waiver will be considered by 4 See Opening Statement of Senator Chuck Grassley Hearing, “U.S. Preference Programs: Options for Reform” Tuesday, March 9, 2010.the WTO membership thereafter. The reform of the Available atpreference programs has been especially concerned http://finance.senate.gov/imo/media/doc/prg030910.pdf OTN UPDATE is the flagship electronic trade newsletter of the Office of Trade Negotiations (OTN), formerly the Caribbean Regional Negotiating Machinery (CRNM). Published in English, it is a rich source of probing research on and detailed analyses of international trade policy issues and developments germane to the Caribbean. Prepared by the Information Unit of the OTN, the newsletter focuses on the OTN, trade negotiation issues within its mandate and related activities. Its intention is to provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy developments of currency and importance to the Caribbean. http://www.crnm.org
  • 5. 5programs to secure its negotiating leverage in the fulfil its own needs and continue to be relevant to itsmultilateral arena, the Caribbean will be the target. evolving trade and economic policy.Market interests aside, the Caribbean’s economicstability is still relevant to U.S geo-politics andsecurity policy objectives. For this reason, theprotection of its trade relationship with itsCaribbean neighbours is still important to U.S *********objectives. The importance of the Caribbean-U.S.relationship was illustrated by the actions ofCongress following the January 2010 earthquakewhich devastated the Republic of Haiti. The U.S.Congress promptly sought to implement measuresthat would support Haiti’s economic recovery. Torevitalize one of Haiti’s key industries, the apparelindustry, Congress enacted the Haiti Economic LiftProgram (HELP) Act in May 2010. This keyFederal legislation not only secured preferences forHaiti by extending the Haitian HemisphericOpportunity through Partnership Engagement Act(HOPE Act) but it also extended preferences for allof the beneficiaries of the Caribbean Basin TradePartnership Act (CBTPA) until 30 September 2020.While that extension is advantageous for theCARICOM region, it is uncertain that the U.S willseek indefinitely to treat its trading relationship withCARICOM under the rubric of unilateralism ratherthan reciprocity.In planning its longer-term economic and tradingrelationship with the U.S., the CARICOM region willhave to consider the current challenges beingexperienced within the U.S Congress to preservethe authorization of the preference programs, 5particularly with regard to the GSP, and the Some CARICOM CBI beneficiary countries have also utilized the preferences under the GSP. For further reading see “Eighth Reportreluctance of WTO members to facilitate WTO to Congress on the Operation of the Caribbean Basin Economic Recovery Act”, Office of the United States Trade Representative,waivers. 5 The region will also need to reflect on its December 31, 2009. Available atown experience with the CBI programs to http://www.pdfchaser.com/Eighth‐Report‐to‐Congress‐on‐the‐ Operation‐of‐the‐Caribbean‐Basin‐....html#determine the extent to which such arrangements OTN UPDATE is the flagship electronic trade newsletter of the Office of Trade Negotiations (OTN), formerly the Caribbean Regional Negotiating Machinery (CRNM). Published in English, it is a rich source of probing research on and detailed analyses of international trade policy issues and developments germane to the Caribbean. Prepared by the Information Unit of the OTN, the newsletter focuses on the OTN, trade negotiation issues within its mandate and related activities. Its intention is to provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy developments of currency and importance to the Caribbean. http://www.crnm.org