The Andean Trade Preference Act: Background and Issues for Reauthorization
Released: 2002-08-23T00:00:00

An Overview of ATPA's Scope and Impact

ATPA was created as part of a broader Andean initiative to address the growing drug trade fromLatin America. It provided zero or reduced tariffs on certain U.S. imports from Bolivia, Colombia,Ecuador, and Peru (see Appendix 1 for program details) to complement crop eradication,interdiction, military training, and other counternarcotics efforts. In 1992, when the program wasimplemented, supporters expected that ATPA-induced export diversification and growth wouldencourage economic alternatives to coca production and other drug-related activity, with oneestimate projecting as much as a three-fold increase in U.S. imports from ATPA countries over adecade. (1)

Trade data alone, however, do not provide adequate measures of success, which should link a decline in drug activity with the expansion of ATPA supported industries. Indeed, there was somemovement on the drug front. For example, total coca cultivation fell by 13% from 1992 to 2000. This represented significant declines in Bolivia (68%) and Peru (74%), but an offsetting largeincrease in Colombia (267%). Little coca is grown in Ecuador. (2) Determining the role of ATPAtariff preferences in this trend, however, presents a difficult challenge because their effects must beisolated from other counternarcotics and economic development efforts.

Studies by the U.S. International Trade Commission (USITC) of ATPA's trade effects suggest that overall, the program had a positive, but small influence on the volume and composition of U.S.imports from ATPA countries. For example, although total U.S. imports from ATPA countries ona dollar-value basis grew 85% through the decade 1990-99, this was much less than some had hopedfor and represented no growth of ATPA imports relative to U.S. import growth worldwide. Further,the composition of U.S. imports from Andean countries changed only slightly in favor of productsthat were ATPA eligible. This suggests that there was no major change in the production structureof ATPA economies, particularly in the biggest ATPA beneficiary, Colombia, which actuallyexperienced a large increase in coca production in the 1990s.

One of the most telling indicators of ATPA's limited influence was that U.S. imports given preferential treatment exclusively under ATPA represented only 10% of total imports from the foureligible countries . (3) This constituted a smallpercentage of trade and did not grow through the lifeof the ATPA program. Without legislative change to the ATPA program, a larger response wasthought to be limited in the short run by the Andean export sector's dependence on a fewnatural-resource based products and simple manufactures, ATPA's program exclusion of manymajor Andean products (e.g. petroleum products, textiles, certain leather goods), and the fact thatmany products were already eligible for duty-free or preferential treatment under other tradearrangements.

In short, as elaborated below, although there was a positive response to the ATPA preferential tariff provisions, the overall impact was small and operated at the margin of Andean trade. Similarly, the tariff preferences had little effect on the United States economy, suggesting the costof these preferences was low.

U.S.-ATPA Country Trade

Colombia and Bolivia qualified as ATPA first beneficiaries in mid-1992, with Ecuador andPeru following one year later. Despite ATPA, aggregate U.S. trade with beneficiary countriesremained small and grew in line, more or less, with the average for U.S. trade worldwide. For thedecade 1990 to 2000, U.S. exports to ATPA countries rose by 84%, less than total export growth (see Appendix 2 for aggregate trade data.) Relative to the rest of the world, U.S. exports to ATPAcountries declined slightly to less than 1% of total exports, although there was an upward trend inthe mid-1990s. U.S. imports from ATPA countries, although rising by 105% in dollar terms from1990 to 2000, also declined slightly on a relative basis to less than 1% of total U.S. imports from theworld.

In addition to trade volume, another indicator of ATPA's possible effects is change in the composition of ATPA imports. Figure 1 contrasts the composition of U.S. imports from ATPAcountries between 1994 and 2000. Because 1994 was the first full year all four countriesparticipated, it provides a base for comparison since it is unlikely to reflect large changes in the tradecomposition due to ATPA given that insufficient time had passed for industries to have respondedfully. (4)

A comparison of the two years suggests that on a broad product category basis,

the composition of U.S. imports from eligible countries changed only marginally during the time thatthe original ATPA program operated. Most notable was the addition of Peru's refined coppercathode imports, which began in 1995 and were ATPA eligible. Petroleum products, which werenot eligible for ATPA tariff preferences, remained a large portion of imports, but camepredominantly from Colombia. There was a contrasting relative decline in seafood and coffeeimports.

In general, the minimal change in U.S. import composition during this time period reflected three factors. First, most U.S. imports from ATPA countries were natural-resource based products(petroleum, gold, fish, coffee, bananas, cut flowers) or simple manufactures (knit apparel, sweaters,shirts, suits, copper cathodes), many of which were not ATPA eligible. This trend is likely tocontinue regardless of ATPA reauthorization. Second, the continuing large portion of oil importson a dollar-value basis in 2000 continued to skew import figures, reflecting in part the worldwidesurge in oil prices. Third, Colombia stands out as the dominant ATPA trade partner, accounting for62% of total U.S. imports from the group in 2000, followed by Peru and Ecuador, both with 18%,and Bolivia trailing with only 2%. (5)

Given that the relative size and composition of ATPA imports, variables expected to reflect the program's effects, did not change during the course of the program, little trade effect seemsattributable to the ATPA provisions. A closer look at the trade data at the sectoral level supports thisconclusion, until the data are further disaggregated by duty treatment and product type. These trendsare in keeping with economic reasoning that would suggest a program such as ATPA would notaffect the overall structure of trade, but might alter the composition of ATPA imports at the marginand within very specific product categories.

Imports from ATPA Countries by Duty Status (6)

To determine which products were benefitting from ATPA, it was necessary to ascertain what portion would have entered duty-free exclusively because of their ATPA eligibility. Many importsqualified unconditionally as duty-free under general tariff rates (e.g. coffee) or through otherfavorable tariff arrangements, such as the Generalized System of Preferences (GSP), and could enterunder more than one of these arrangements. For example, some products eligible to enter under GSPcame in under ATPA. As shown in Table 1 , when these products are subtracted, it turns out thatimports eligible exclusively for ATPA preferences represented only 10% of total U.S. imports fromthe ATPA countries. (7) The table contrasts selectedAndean country import data in 1995 and 1999 toreflect changes that may have occurred during a time when the ATPA program was in full force. Duty-free imports rose from 59% of total imports in 1995 to 66% in 1999, but because theATPA-only category is unchanged, the increase appears to have been due entirely to non-ATPAtrade arrangements (general rates, GSP, production-sharing arrangements, or other smallerprograms).

Table 1. Duty Status of U.S. Imports from ATPA Countries (1995 and 1999 in $ millions)

The 10% figure is important because it shows first that the amount of imports that entered duty-free exclusively under ATPA was a small portion of trade and second that, over the life of theprogram, ATPA-eligible imports as a group did not grow any faster than U.S. imports from the fourAndean countries as a whole. This was unlikely to change in the short run without legislative actiongiven that many imports already entered the United States duty free, other big items, such aspetroleum and textile products, were not eligible for duty-free treatment, and economicdiversification into new (ATPA-eligible) areas was a slow process.

Imports from ATPA Countries by Product Level

The major products that entered the United States under ATPA appear in Table 2 in descendingorder of importance. Between 1995 and 1999, cut flowers, most of which came from Colombia,were the largest import item. Copper cathodes from Peru grew to become the second largest ATPAimport, rising in 1999 to nearly 19% of the total on a dollar-value basis. Precious metals, mostlyjewelry and gold products from Peru, were the third largest import group, comprising some 11% ofthe total. Colombian pigments (9%), Ecuadoran non-canned tuna (5%), and Peruvian zinc (5%)rounded out the major ATPA imports.

Table 2. Major U.S. Imports Entering Under ATPA (1995 and 1999, in percent)

The composition of ATPA imports changed some over the life of the program, but not in clearly predictable ways. Cut flowers, for example, which remained the largest U.S. import item on a dollarbasis, actually fell from nearly 40% to 25% of total ATPA imports. This trend reflected fallingdemand in the United States for cut flowers and growth in other ATPA imports such as coppercathodes and pigments, which represented new U.S. imports since the ATPA the program began. Although there was a large increase in zinc products coming in under ATPA, this growth waspartially due to a shift in duty treatment of zinc products, which previously entered the United Statesduty-free under the GSP provisions. (8)

The benefits of ATPA fell in line with the overall trade importance of the countries. In 1999, Colombia and Peru benefitted most and had 45% and 36% of the dollar value of ATPA imports,respectively. Colombia's percentage fell slightly since 1995, reflecting a decline in cut flowerimports, offset some by an increase in U.S. pigment imports. Peru was the fastest growing exporterunder ATPA, reflecting its new copper cathode manufacturing industry. Ecuador accounted for 15%of ATPA imports in 1999, followed by Bolivia with only 4%. Ecuador accounted for most of thetuna imports and a small portion of cut flowers. Bolivia exported mostly gold jewelry items, whichis the only major ATPA item it produces. (9)

Overall, the ATPA trade effects appear to be relatively small. Nonetheless, at the product level there was some indication of a change in trade composition when new products came on line, at leastin part to take advantage of ATPA's duty-free provisions. This reflects some level of Andeaneconomic diversification, but not a net growth in the amount of Andean exports eligible under ATPAon a relative basis. Given that total imports eligible exclusively under ATPA remained at 10% oftotal U.S. imports from these countries, it appears that gains in some industries or products offsetdeclines in others.

ATPA Program Effects: Andean and U.S. Responses

An evaluation of ATPA should indicate how any changes in trade patterns affect the economiesof the Andean countries and the United States. Two studies required by the ATPA legislationtackled these questions. First, the U.S. International Trade Commission ATPA report evaluated boththe Andean and U.S. responses to ATPA. The U.S. Department of Labor produced a separatetargeted evaluation of ATPA's effects on U.S. workers. Both pointed to the marginal effects ofATPA on the economies of participating countries and the United States.

ATPA's Economic Effects on the Andean Countries

Although the trade effects of ATPA were relatively small, there was some indication that the composition of trade changed and that, with a few products, a case can be made that ATPAcontributed to this change. It is possible that the altered composition of U.S. imports from ATPAcountries reflects broader change in what Andean countries were producing and that this in turnpoints to some indirect evidence that ATPA-eligible products were substituted for illicit coca. (10)

It is difficult to gauge the effects of ATPA on national economies because the program has a small effect relative to other variables. National macroeconomic policies, particularly in countriesundergoing long-term economic reform, have a much larger effect on economic trends. DomesticAndean government policies also supported crop substitution, the effects of which were not easilydistinguishable from those of ATPA. In effect, they worked together. External shocks to theregion's economies, such as repeated El Ninos and other natural phenomena, had devastating effectson the agricultural sector that easily overshadowed incremental policy shifts like ATPA. Isolatingthe marginal effects of ATPA, therefore, was an imprecise exercise. (11)

Bolivia and Peru. In its 2000 report, the USITC used Bolivia and Peru as case studies to explore the possibility of a link between ATPA programeffects and changes in economic production. Bolivia showed some diversification in exports to theUnited States that coincided with ATPA. In the mid-1990s, there was a marked expansion of jewelryand, to a lesser extent, leather and wood product exports that may have been related to the ATPAtariff reductions, but other domestic policy changes (e.g. the tax code) also affected productionincentives for these goods. In any case, after 1996 this export growth trend slowed. In Peru, abroader array of export growth was discernible over the past decade, with a noticeable increase incopper cathodes and agricultural products, especially asparagus, all of which benefitted from ATPA. Asparagus also stood out because it was grown near traditional coca cultivation areas and waspresumed to be an alternative cash crop, at least in part encouraged by ATPA provisions. (12)

Colombia and Ecuador. In its 1999 report, the USITC evaluated ATPA's impact on Colombia and Ecuador. Of the ATPA-eligible products fromColombia over the past decade, cut flowers increased the most as a proportion of U.S. imports, butoverall, the composition of Colombia's exports to the United States did not change dramaticallysince ATPA began, in part because of the dominance of petroleum. Other nontraditional products,such as asparagus, presented some potential for increased benefits from ATPA, but overall itsbenefits were considered small. Ecuador had a similar profile, with little change in the compositionof exports to the United States, but some credited significant increases in the production of cutflowers and seafood, both of which benefitted from ATPA, with encouraging export diversification. The overall effect was still small given the myriad variables that affected production capabilities anddecisions. (13)

Coca Eradication and Crop Substitution. Alternative crop production is a critical component of the coca eradication effort underway in theAndes. Although there was some indirect evidence to suggest that crop substitution has occurring,it was small overall and the effect of ATPA on this process was marginal at best. Whereas largersubstitution effects may be linked to the cut flower industry in Colombia, there were many factorsthat allowed such alternatives to exist before ATPA was even conceived. All the evidence pointsto ATPA's supportive, but relatively small effect, particularly given the magnitude of the problemand the comprehensive effort needed to address the drug trade. For example, numerous obstaclesimpeded the alternative development strategy including the high profitability of coca production,lack of physical infrastructure required to support alternative cash crops, and overt, often violent,guerrilla pressure to reject the program. (14)

ATPA's Economic Effects on the United States

Although ATPA was created to influence the economic landscape of the Andean region, Congress also requested analysis of how changes in trade patterns related to ATPA might affect theUnited States. The USITC looked at three basic issues: 1) consumer welfare gains from lower-pricedimports; 2) the offsetting tariff revenue losses; and 3) producer welfare losses (productiondisplacement). The U.S. Department of Labor produced a separate report dealing only with ATPA'seffects on the domestic labor force.

Changes in Trade Composition. Given that only a very small share of U.S. imports were involved in the ATPA program, its effects on the aggregateU.S. economy were negligible. Therefore, measuring the gains and losses to the U.S. economy mustbe done at the product/industry level. In 1999, copper cathodes, cut flowers (roses andchrysanthemums), tuna, and gold compounds together accounted for 83% of total imports thatbenefitted exclusively from the ATPA provisions. Copper cathodes and cut flowers each contributedto approximately one-third of the ATPA-exclusive imports. Hence, an analysis of the benefits anddisplacement costs related to these products covers most of the effects ATPA had on the U.S.economy. (15)

Consumer Welfare and Tariff Effects. USITC market share data showed that ATPA-imported copper cathodes, although growing briskly, stillaccounted for only 7.4% of the U.S. market in 1999 and imported gold compounds claimed only6.7%. Cut flowers, by contrast, accounted for up to 75% of the U.S. market. Based on an partialequilibrium analysis, the USITC estimated that the consumer welfare effects in all three cases were,nonetheless, small. In the first two, market penetration was simply too small, but even in the caseof Colombia's dominance of the U.S. cut flower market, the USITC suggested that U.S. consumerswould have paid only 5.5% more for flowers than they would have in the absence of ATPA. Inaddition, the consumer benefits were offset, in many cases, by reduced tariff revenues. The netwelfare effects for the United States as a whole, therefore, were considered small. (16)

Producer Welfare Effects. Of greater concern tomany were ATPA's effects on U.S. producers. To the extent that ATPA encouraged a marginalincrease in imports, those industries in the United States that produced competing products werepotentially "displaced" from the market. Given market share figures, the USITC found that only cutflowers and asparagus caused "displacement" of over 5% of the market. Asparagus imports weresmall and entered during the late summer and fall months when domestic crop production was lowand so had a clear benefit to U.S. consumers. Because they did not directly compete with the U.S.growing season, however, they were not a primary target for concern over displacement. (17)

Cut flower imports have been a greater concern, but as the USITC points out, Colombia, the major flower exporter, had established its market dominance before ATPA, and the U.S. growershad already responded by differentiating their products. The overall impact of ATPA flower importswas deemed small given domestic industry adjustment. One indication that U.S. flower growers areno longer seriously concerned with competition from Andean imports is their decision to discontinuepursuing antidumping and countervailing duty remedies as of May and October 1999, respectively. In short, should ATPA tariff preferences be eliminated, it appears there would be little effect on thedomestic cut flower industry. (18)

The U.S. Department of Labor (DOL) report targeted ATPA's impact on the domestic work force. It concluded that the overall effects of ATPA in 1998 were negligible given the strong U.S.economy and employment picture, and the fact that ATPA-eligible imports were so small that theireffect on aggregate U.S. employment was virtually unmeasurable. (19) Based on an analysis of productsthat entered the United States duty free exclusively from ATPA provisions, the Department of Laborsuggested that only the cut flower industry was likely to have presented any adjustment problem. U.S. cut flower production had fallen by 11% in 1998 as ATPA imports rose, perhaps indicating thatATPA may have had some effect on the industry's contraction, but the Department of Labor reportwas quick to note that other factors may have affected cost competitiveness of the U.S. cut flowerindustry, such as complying with worker protection standards, and that in any case, their estimateswere not precise. (20)

Of the workers potentially affected by layoffs in the flower industry, the DOL noted that all were seasonal agricultural workers who often experience periods of unemployment, have a very lowwage level, and live predominantly in poverty. Some 43% were estimated to be of "illegal,temporary, or unknown legal status." DOL did not estimate the "degree of adjustment difficulty,"but noted that the strong U.S. economy should have been able to minimize any employmentdislocation that might have occurred. Adjustment costs faced by other industries from increasedimport competition from ATPA were considered insignificant. (21)

Policy Discussion

ATPA was only a small part of the larger Andean counternarcotics effort. Coca production wasthe primary target of these efforts and because it is a highly profitable undertaking and particularlyenticing for poor areas of the world, a key element of the strategy was supporting the cultivation ofalternative cash crops. (22) ATPA's supportersargued that reduced tariffs conceivably played a partof the "alternative development" strategy by providing an additional financial incentive to substitutelegal crops for coca cultivation. The increase in non-agricultural exports (e.g. copper cathodes), itwas argued, may also have reflected, in part, ATPA's preferential tariff treatment.

Testimony before congressional committees expressed the desire by groups in the United States and the Andean countries to reauthorize ATPA and consider expanding the tariff preferences to moreproducts and countries. These views were summarized before Congress by representatives of theBush Administration as well, who stated that ATPA was achieving its goal of promoting "exportdiversification and broad-based economic development that provides sustainable economicalternatives to drug-crop production in the Andean region." (23)

In considering the merits of ATPA, it is important to understand that the benefits it provided were quantitatively small. ATPA's influence should have been visible in the changing compositionof U.S. imports, which was marginal. Because many imports were not eligible by law for ATPAduty-free treatment or entered the United States under other preferential trade arrangements, only10% of ATPA country imports entered the United States exclusively under the ATPA provisions. This did not change over time, suggesting that ATPA's effect on trade was unlikely to increase,unless the program's parameters were modified.

Because the trade response has been small, so too have been ATPA's likely effects on the Andean economies. Still, indirect evidence suggests that it may have supported economicdiversification into products such as copper cathodes and asparagus. Asparagus, for example, hasbeen cultivated in larger quantities near traditional coca producing regions. Although anencouraging sign, given the high profitability of coca and active resistence by both armed guerrillagroups and peasants, there were limits to what ATPA may have been expected to accomplish andit was not clear that there is a strong direct link between increased ATPA-eligible exports and anyverifiable diminished drug-related activity.

In addition to the economic analysis, the debate over ATPA considered more intangible policy benefits. For example, supporters argued that ATPA was an expression of direct U.S. support forthe regional counternarcotics efforts with potentially positive side benefits in the area of economicdevelopment. They also noted that it was a less expensive and invasive counter-drug optioncompared to the large financial and military commitment of Plan Colombia.

Supporters of ATPA proposed at least three program initiatives. First, reauthorize ATPA for an extended period of time to reinforce the U.S. commitment to the alternative developmentcounternarcotics strategy. Second, extend duty-free treatment to other Andean exports, such astextile and apparel products, to broaden the program effects, particularly in Colombia, which remainsthe most problematic country. Third, include Venezuela as a beneficiary country, which althoughnot currently a major coca producer, is part of the larger drug trafficking problem.

Postscript: Legislation in the 107th Congress

On December 4, 2001, ATPA expired and U.S. tariffs were reimposed on affected Andeanexports. On February 15, 2002, the Bush Administration deferred collection of these tariffs for 90days in expectation that the 107th Congress would either reauthorize ATPA or provide a short-termextension of its trade preferences. In part because the ATPA legislation was eventually linked to thelarger debate on trade promotion authority (TPA), Congress was unable to complete work on the billbefore the deferral expired. The ATPA program was reauthorized in the Andean Trade Promotionand Drug Eradication Act (ATPDEA), Title XXXI of the Trade Act of 2002 ( H.R. 3009 ), which was signed into law by President Bush on August 6, 2002 ( P.L. 107-210 ). All dutyreductions that were in place prior to ATPA's expiration were made retroactive to December 4, 2001and presumably all those duties collected are reimbursable.

Legislative Action

In the House, H.R. 3009 , the Andean Trade Promotion and Drug Eradication Act was introduced on October 3, 2001 by Representative Crane (for himself and Ways and MeansChairman Thomas). Hearings were held by the House Ways and Means Committee on October 5,2001. Chairman Thomas offered an amendment in the nature of a substitute and the committeeordered the bill favorably reported, as amended, by voice vote. On November 14, 2001, the bill wasreported to the House ( H.Rept. 107-290 ). On November 16, 2001, the House Rules Committeereported ( H.Rept. 107-293 ) the rule (H. Res. 289) for consideration of H.R. 3009 by avote of 225 to 191. H.R. 3009 was passed by the House the same day by voice vote.

In the Senate, S. 525 , the Andean Trade Preference Expansion Act (ATPEA) was introduced by Senator Graham on March 13, 2001 and referred to the Committee on Finance. TheSubcommittee on International Trade held hearings on August 3, 2001. The amended House-passedversion of H.R. 3009 was sent to the Senate on November 16, 2001, where it wasreferred to the Committee on Finance. Full committee consideration and mark up occurred onNovember 29, 2001, and by voice vote, the language of S. 525 , with somemodifications, was offered in the nature of a substitute for H.R. 3009 , which wasadopted, along with three amendments, and reported to the full Senate ( S.Rept. 107-126 ).

The Andean Trade Preference Expansion Act passed the Senate as Title XXXI of the Trade Act of 2002. The Senate action was controversial because it adopted the ATPA provisions by agreeingto S.Amdt. 3401 , a substitute amendment for H.R. 3009 , which alsoincluded a broader trade legislation package covering trade promotion authority (TPA), tradeadjustment assistance (TAA), and the Generalized System of Preferences (GSP), among others. OnJune 26, 2002, following a heated debate, the House voted 216 to 215 to agree to the Senateamendment with an amendment incorporating House versions of the broader provisions added in theSenate, and requested a conference. (24)

The conference report was filed on July 26, 2002 ( H.Rept. 107-624 ). It was agreed to in the House (215-212) on July 27, 2002 and in the Senate (64-34) on August 1, 2002. President Bushsigned the bill into law on August 6, 2002 ( P.L. 107-210 ).

Changes to ATPA Provisions

As passed into law, the Andean Trade Promotion and Drug Eradication Act (ATPDEA) expresses the findings of Congress that extending and expanding trade preferences to beneficiarycountries continues to be an effective part of a broader U.S. foreign policy to counter illicit drugtrafficking from the Andean region. To enhance the effects of the expired ATPA, it extendspreferential treatment through December 31, 2006 and expands it to cover many exports previouslyexcluded. In general, the provisions provided treatment similar to that received by Caribbeancountries under the Caribbean Basin Trade Promotion Act (CBTPA) and incorporates customsprocedures, including more relaxed certificate of origin rules, similar to those found in the NorthAmerican Free Trade Agreement (NAFTA). ATPDEA also tightens transshipment and safeguardprovisions to address concerns of U.S. textile and apparel manufacturers.

Changes in Tariff Treatment. The major changes to the ATPA provisions that were at the heart of much of the congressional debate involvedconsideration of altering the tariff treatment of eight categories of goods that were excepted frompreferential treatment under the original ATPA legislation. To summarize:

selected textile and apparel articles, as defined in the next subsection, now enter duty-free; footwear (not eligible under the GSP preferences) enter duty-free; tuna harvested by a U.S. or ATPDEA beneficiary country that is prepared or preserved byan ATPDEA beneficiary country in an airtight container weighing not more than 6.8kilograms, enters free of duty and quantitative restriction; petroleum products under HTS headings 2709 or 2710 enter duty free; watches previously excepted if they included material from HTS column 2 countries enterduty free; selected leather goods (e.g. handbags, luggage, apparel) that previously received reducedduty treatment, enter duty free; sugars, syrups, and sugar products subject to over-quota duty rates remain exceptions topreferential treatment; rum and tafia classified in subheading 2208.40 of the HTS also remain exceptions toduty-free treatment.

Treatment of Textile and Apparel Articles. Thenumber of apparel articles that receive duty-free treatment has been expanded based on variousproduct categories differentiated by origin of fabric, yarn, and components used. Provided the articleis imported from an ATPDEA beneficiary country, it enters free of duty and quantitative restrictionif it qualifies under any of the following categories:

Apparel articles assembled from products of the United States or and ATPDEA country,or products not available in commercial quantities - Apparel articles sewn or otherwiseassembled in 1 or more ATPDEA beneficiary country or the United States, or both,exclusively from any one or any combination of the following:

ï¿½fabrics or fabric components wholly formed, or components knit-to-shape, in theUnited States, from yarns wholly formed in the United States or 1 or more ATPDEAcountries (including felts and nonwovens if formed in the United States). But, if thefabrics are knit or woven fabrics , the apparel articles shall qualify under thissubclause only if all dyeing, printing, and finishing of the fabrics from which thearticles are assembled is carried out in the United States; ï¿½fabrics or fabric components formed, or components knit-to-shape, in 1 or morebeneficiary countries, from yarns wholly formed in 1 or more beneficiary countries,if such fabrics (including fabrics not formed from yarns if classified as felt ornonwovens) or components are formed in chief value of llama, alpaca, or vicuna; ï¿½fabrics or yarns, to the extent that apparel articles of such fabrics or yarns would beeligible for preferential treatment, without regard to the source of the fabrics or yarns,under the North American Free Trade Agreement (NAFTA) short-supply provisions(Annex 401).

Additional Fabrics - at the request of any interested party, the President is authorized toproclaim additional fabrics and yarns as eligible for preferential treatment under theimmediately preceding paragraph if:

ï¿½the President determines that such fabrics or yarns cannot be supplied by thedomestic industry in commercial quantities in a timely manner; ï¿½the President has been properly advised by a committee established under Sec. 135of the Trade Act of 1974 and the USITC; ï¿½within 60 days after the request, the President has submitted a report to the HouseCommittee on Ways and Means and Senate Finance Committee that sets forth theaction, the reasons for such action, and the related advisory committee findings; ï¿½a period of 60 calendar days has expired , beginning with the first day on which thepresident has met the congressional notification requirements; and ï¿½the President has consulted with such committees regarding the proposed actionduring the notification period.

Regional Fabrics - apparel articles sewn or otherwise assembled in 1 or more beneficiarycountries from fabrics or from fabric components formed or from componentsknit-to-shape, in a beneficiary country, from yarns wholly formed in the United States orin 1 or more beneficiary countries, including felts and nonwovens, whether or not theapparel articles are also made from any of the fabrics, fabric components formed, orcomponents knit-to-shape as defined in 1) above (page 14), unless the apparel articles aremade exclusively from any of the fabrics, fabric components, formed, or componentsknit-to-shape described in 1) above.

ï¿½this preferential treatment begins October 1, 2002 for a limited quantity equal to 2%(measured in square-meter equivalents) of all apparel articles imported into theUnited States during the previous 12 months for which data are available. Thispercentage increases to 5% over the next 4 one-year periods in equal increments.

Handloomed, handmade, and folklore articles - if certified as such by the ATPDEAcountry in consultation with the United States. Certain Other Apparel Articles - any article classified under HTS subheading 6212.10(brassieres), except for articles entered under sections 1), 2), 3), or 4) above, if the articleis both cut and sewn or otherwise assembled in the United states, or one or more ATPDEAcountry, or both, with limitations. Special Rules -

ï¿½ Findings and Trimmings - an article that is otherwise eligible for preferential treatmentshall not be considered ineligible so long as findings and trimmings (buttons, zippers, lace,etc.) of foreign origin do not exceed 25% of the cost of the components; ï¿½ Interlinings - identical rule for selected interlinings of foreign origin. Rule may beterminated if President determines that U.S. manufacturers are producing such interliningsin the United States in commercial quantities; ï¿½ De Minimis Rule - an article that otherwise would be ineligible for preferential treatmentbecause it contains yarns not wholly formed in the United States or an ATPDEA countryshall not be ineligible if the total weight of such yarns does not exceed 7% of the totalweight of the good; ï¿½ Special Origin Rule - articles otherwise eligible for preferential treatment under sections1) and 3) above shall not be ineligible because the articles contain nylon filament yarn(other than elastomeric yarn) that is classifiable under various HTS 5402 subheadings(synthetic filament yarn) from a country that is a party to an agreement with the UntiedStates establishing a free trade area, which entered into force before January 1, 1995.

Textile Luggage - assembled in an ATPDEA country from fabric wholly formed and cutin the United States from yarns wholly formed in the United States that is entered undersubheading 9802.80 of the HTS (Mexico production sharing/maquiladora provisions), orassembled from fabric cut in an ATPDEA country from fabric wholly formed in theUnited States from yarns wholly formed in the United States.

Discussion of Legislative Changes

The 107th Congress developed a compromise position on ATPA reauthorization that appeared to have broad support, although not all constituent concerns were resolved. Expanding the tariffreduction provisions is expected to serve multiple purposes: 1) provide similar tariff treatment toATPA, NAFTA, and CBTPA countries, thereby eliminating the relative competitive disadvantageof ATPA countries; 2) deepen coverage of the tariff program to include products that compose alarger portion of Andean exports and hence improve the chances for greater impact on the region'strade diversification, economic development, and counterdrug activity; 3) encourage increased U.S.investment in ATPA countries; and, 4) address possible negative repercussions to domestic appareland textile manufacturers. (25)

Although it is possible that the beneficiary countries will respond more to these additional incentives, they will not benefit equally. In dollar terms, Colombia may benefit the most becauseit has the largest share of U.S. apparel imports from beneficiary countries (49% in 2000). Peru,which constituted 46% of U.S. apparel imports from these countries, uses mostly non-U.S. materialsand so has lobbied for removing restrictions on use of local fabrics and yarns. It should benefitsignificantly. Ecuador and Bolivia have small apparel export industries, each accounting for only2% of the ATPA country apparel exports to the United States. (26)

Ecuador is a major tuna exporterand so will benefit from new tariff reductions on canned tuna.

Concerns of U.S. domestic apparel and textile groups were critical aspects of the debate to loosen tariff restrictions. Many of these concerns were addressed in the detailed language relatedto these articles. In addition, it is worth reiterating that apparel products accounted for only 7% ofU.S. imports from ATPA countries in 2000, although this percentage doubled since 1994 (see Figure1 ). Also, ATPA apparel imports accounted for less than 2% of the total sector's U.S. imports in2000. Still, the United States is the primary market for Andean apparel, capturing 93% of theregion's apparel exports. (27) For this reason alone,although reauthorized ATPA program may still beonly a small part of a large and long-term U.S. counternarcotics effort, expanding duty-freeprovisions to a larger portion of the region's exports, including its growth industries, may have apositive effect on the program's effectiveness.

Appendix 1. Original ATPA Program Details

The original ATPA program had two major facets. First, each nation had to be designated a"beneficiary country" by meeting legislated standards. (28)

Beneficiary status could be denied if acountry: 1) is a Communist country; 2) unfairly nationalizes or expropriates U.S. property, tangibleor intellectual, without due recourse or commitment for compensation; 3) fails to act in good faithin recognizing arbitral awards in favor of U.S. citizens or companies; 4) affords preferentialtreatment to products from other developed countries that may have a significant impact on U.S.commerce; 5) has a government entity that fails to follow copyright agreements for broadcastmaterials; 6) is not a signatory to an agreement providing for the extradition of U.S. citizens; or 7)is not taking steps to afford internationally recognized workers rights as in the Trade Act of 1974. All conditions, except 4 and 6, may be waived by the President if conferring beneficiary status isdeemed in the economic or security interests of the United States. The President is also required toconsider other factors, among them the prospective beneficiary country's: 1) interest in ATPA; 2)economic conditions and development policies; 3) trade policies and practices complying with rulesdefined in the World Trade Organization (WTO) agreement; and 4) efforts to meet the narcoticscooperation certification criteria.

Second, eligible articles must be imported directly from a beneficiary country. The content of materials and processing costs originating in CBTPA or ATPA beneficiary countries, Puerto Rico,the Virgin Islands and up to 15 percentage points of U.S. origin value must sum to at least 35% ofthe value of the article when it enters the United States. Many products are denied duty-freetreatment, including textile and apparel products subject to textile agreements, crude and refinedpetroleum products, canned tuna, and certain footwear, watches, sugars, syrups, molasses, and rumproducts. Selected import sensitive products are eligible for only a 20-percent reduction in duties,including certain handbags, luggage, flat goods, work gloves, and leather wearing apparel. ThePresident may suspend duty-free treatment under title II of the Trade Act of 1974 (safeguard actions)or the national security provision (sec. 232) of the Trade Expansion Act of 1962, as amended (19U.S.C. 1862). Other trade regulations apply, such as quotas and food-safety requirements. (29)

ATPA operated in addition to the Generalized System of Preferences (GSP), a program in place since 1976 giving duty-free treatment to certain developing country imports to promote economicdevelopment. Where the two programs overlap, many Andean exporters preferred to use ATPAbecause it covered more tariff categories, tended to be more liberal and easier to qualify under, andhad a ten-year authorization and so until recently, had not expired as had the GSP multiple times inthe 1990s. (30)

Appendix 2. U.S.-ATPA Country Merchandise Trade, 1990-2000