News and Analysis • Volume 10 • Number 6 • September 2006

New US GSP Proposal Draws Opposition

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The US House of Representatives has postponed the consideration of a proposed new General System of Preferences law due to opposition from textile states.

Ten Conservative representatives from Alabama, Georgia, North and South Carolina, and Virginia requested the postponement, because the bill under consideration (H.R. 6142) would extend until September 2008 duty-free access under the African Growth and Opportunity Act (AGOA) for apparel made with fabric from anywhere in the world up to a limit amounting to 3.5 percent of all US apparel imports. After that, a new ‘value-added’ rule of origin would be introduced, limiting duty-free access to goods in which 50 percent of value is added either in AGOA or another US FTA partner. The bill would also grant duty-free entry for three years to apparel made in Haiti, provided that 50 percent of the value is added there.

The textile-state representatives called these two provisions a ‘dramatic change’ in the rules of the game that would allow “apparel assembled in Haiti and Africa from Chinese fabrics with Chinese yarns duty-free access to the United States” and be devastating to the US textiles industry.

Brazil and India Targeted

H.R. 6142 would also extend the US Generalised System of Preferences (GSP) for two years, but change certain provisions so as to limit Brazil’s and India’s access to GSP benefits. The two countries are currently the greatest GSP beneficiaries, with exports under the programme in 2005 amounting to US$3.6 billion for Brazil, and US$4.1 billion for India.

The bill would make countries with per capita incomes above US$3,400 – Brazil’s was US$3,460 in 2005 – ineligible for the ‘competitive need limit’ (CNL) waivers they need to keep (or to obtain) GSP benefits for certain products. In principle, US legislation requires the termination of GSP market access for any product that accounted for more than 50 percent of all US imports of that product in the previous year, or the imports of which exceeded a certain dollar amount (currently US$100 million). The president may, however, waive the application of these CNLs, and 83 such waivers are currently in force. Brazil stands to lose 19 waivers, including one that covers auto part exports worth US$300 million. Waivers would also terminated for Argentina, Turkey and Venezuela under the income cap criteria.

In addition, the bill would not allow CNL waivers for a specific product from a single country that exported more than US$1.5 billion of that product in the previous year. According to US sources, this provision would cover Indian precious metal jewelry, imports of which in 2005 amounted to US$1.59 billion, by far the greatest single GSP export from any individual country, and about 40 percent of all Indian GSP exports.

Senate Finance Committee Chairman Charles Grassley said on 21 September that instead of tightening the rules on product eligibility, he wanted Brazil and India graduated out of the GSP programme altogether. Along similar lines, Senate Agriculture Committee Chairman Saxby Chambliss has said that the GSP should focus on countries that needed preferential treatment, and not reward those that threaten litigation against the US, work against its goals in the Doha Round or do not protect intellectual property rights.

Alternative Proposed

An alternative proposal introduced by Senator James Inhofe in late September would extend the current GSP for three years, but allow the administration to consider “a country’s position and level of co-operation with the United States in multilateral negotiations” as a factor in determining a country’s GSP benefits. This provision could make it easier to terminate all GSP privileges for countries such as Brazil and India, but not only them, if they were found to lack co-operation in the Doha Round negotiations or other fora such as the World Intellectual Property Organisation.