International Trade:

U.S. Trade Preference Programs Provide Important Benefits, but a More Integrated Approach Would Better Ensure Programs Meet Shared Goals

GAO-08-443: Published: Mar 7, 2008. Publicly Released: Apr 8, 2008.

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U.S. trade preference programs promote economic development in poorer nations by providing export opportunities. 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, three of these programs expire partially or in full this year, and Congress is exploring options as it considers renewal. GAO was asked to review the programs' effects on the United States and on foreign beneficiaries' exports and development, identify policy trade-offs concerning these programs, and evaluate the overall U.S. approach to preference programs. To address these objectives, we analyzed trade data, reviewed trade literature and program documents, interviewed U.S. officials, and did fieldwork in six countries.

Overall, trade preference programs have a small effect on the U.S. economy. Some U.S. industries have shared-production arrangements with foreign producers that depend on preference benefits, while others compete with preference imports. Preference programs are used to advance U.S. goals, such as intellectual property rights protection. Developing countries extensively use preferential access to boost exports to the United States. Preference imports have grown faster than overall U.S. imports, and recent changes in product coverage have expanded beneficiaries' export opportunities. Gaps in duty-free access continue for sectors such as agriculture and apparel. Preference exports remain concentrated in a few countries and products, but trends indicate greater diversification and increased use by the poorest countries. Those GAO interviewed in beneficiary countries also stressed the benefits derived from preferences. Preference programs balance two key policy trade-offs. First, programs offer duty-free access to the U.S. market to increase beneficiaries' trade, while attempting not to harm U.S. industries. Second, Congress faces a trade-off between longer program renewals, which may encourage investment, and shorter renewals, which may provide more opportunities to change the programs to meet evolving priorities. Finally, some beneficiary countries' concerns over the eroding value of preferences must be weighed against the likely greater economic benefits of broader trade liberalization. Trade preference programs have proliferated over time, becoming more complex, but neither Congress nor the interagency Trade Policy Staff Committee that manages the programs has formally considered 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 reporting on some countries and issues. Separate reporting and examination also hinder measuring programs' contribution to economic development.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: As Congress deliberates on whether to renew the ATPA, CBTPA, and GSP programs this calendar year, it should consider whether a more integrated approach would better ensure programs meet shared goals. Specifically, Congress should consider which elements of the approaches used by agencies to administer these programs, such as petition-initiated compliance reviews or periodic assessment of all countries under certain programs, have benefits that may be applied more broadly to trade preference programs in general. Congress should also consider streamlining various program reporting requirements to facilitate evaluating the programs' progress in meeting their shared economic development goal.

    Status: Closed - Implemented

    Comments: Since GAO made this Matter for Congressional Consideration, members of Congress have deliberated on options to improve trade preference programs. For example, the Senate Finance Committee held a hearing entitled "Oversight of U.S. Trade Preference Programs" on June 12, 2008, and the Subcommittee on Trade, House Committee on Ways and Means held a hearing entitled "Operation, Impact, and Future of the U.S. Preference Programs" on November 17, 2009. GAO testified at both hearings, drawing on information from this report. At the November 2009 hearing, members considered ways to oversee the preference programs in a systematic matter. For example, members discussed ways to align the review processes to ensure regular evaluation of beneficiaries' compliance with the conditions for participation in each program.

    Recommendations for Executive Action

    Recommendation: To ensure that beneficiary countries are in compliance with program criteria, the USTR should also periodically review preference beneficiaries that have not otherwise been reviewed by virtue of their membership in the regional programs.

    Agency Affected: Executive Office of the President: Office of the U.S. Trade Representative

    Status: Closed - Not Implemented

    Comments: In a letter responding to GAO's recommendation, USTR indicated that it would consider periodically reviewing preference beneficiaries that have not otherwise been reviewed due to their membership in the regional programs as part of a broader review of the operation of the preference programs. According to USTR officials, in 2008 the TPSC formally considered a periodic review and decided not to implement this recommendation. In meetings with USTR, officials cited, as reasons for the decision, resource constraints and the opinion that such a review would be more appropriate in the context of a broader reform of the preference programs at the direction of Congress. As GAO demonstrated in its report, the absence of such a review may result in a long time passing between reviews of country compliance with the criteria for participation. Furthermore, a total reliance on a petition-based review process may also result in an undue investment of U.S. government resources in performing repeated reviews of a country that is of particular concern to a given interest group, while other countries with potential problems receive substantially less scrutiny.

    Recommendation: To ensure that these programs, as a whole, meet their shared goals, USTR should periodically convene the TPSC to discuss the programs jointly to determine what lessons can be learned from the various provisions concerning matters such as linkages to trade capacity building.

    Agency Affected: Executive Office of the President: Office of the U.S. Trade Representative

    Status: Closed - Implemented

    Comments: USTR responded to this recommendation by holding several meetings to identify lessons learned, including linkages to trade capacity building. First, the TPSC's interagency GSP subcommittee convened at least twice in 2008 and 2009 to discuss overall preference reform and program administration. Second, the preference program managers within USTR also met at least twice in 2008 and 2009, and again in December 2011, to compare practices in the areas of country and product eligibility, trade capacity building, program authorizations, and administration of the programs. USTR officials attributed the lack of meetings in 2010 and most of 2011 to staff turnover and the lapse in authorization of two of the programs. Third, USTR officials described ongoing informal coordination among TPSC member agencies and identified instances in which the agencies worked to improve trade opportunities for developing countries through the preference programs. For example, USTR officials told us that in 2011 they conferred with National Security Council staff on ways that the preference programs could assist Egypt and Tunisia. USTR staff traveled to those countries to meet with government officials and business people to provide information on and promote use of the preference programs. In addition, USTR worked with USAID on an initiative announced in December 2011 to boost trade with least developed countries through the preference programs and trade capacity building.

    Recommendation: To ensure that these programs, as a whole, meet their shared goals, Office of the U.S. Trade Representative (USTR) should work through the Trade Policy Staff Committee (TPSC) and its associated agencies to consider ways to administer, evaluate, and report on preference programs in a more integrated manner.

    Agency Affected: Executive Office of the President: Office of the U.S. Trade Representative

    Status: Closed - Implemented

    Comments: USTR has taken several actions that implement this recommendation. First, the agency has changed the format of its annual report to discuss the preference programs in one place in response to GAO's recommendation. This change was first made in 2009 for USTR's annual report covering 2008 and has been maintained in each annual report since then. USTR officials told us there is more consistency in the presentation of results across programs now. In addition, a TPSC subcommittee and USTR program managers have met irregularly to discuss the programs on a cross-cutting basis. Specifically, USTR officials reported that the TPSC's interagency subcommittee on the Generalized System of Preferences (GSP) convened at least twice in 2008 and 2009 in response to GAO's recommendations to discuss overall preference reform and program administration. Within USTR, the preference program managers also met at least twice in 2008 and 2009, and again in December 2011, to compare practices in the areas of country and product eligibility, trade capacity building, program authorizations, and administration of the programs. USTR officials said that staff turnover in 2010 and the lapse in authorization of two of the programs for much of 2011 accounted for the sporadic timing of those meetings.

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