Generalized System of Preferences: Agricultural Imports
Released: 2016-12-08T00:00:00

Background

The U.S. Generalized System of Preferences (GSP) was established by the Trade Act of 1974 (19 U.S.C. 2461, et seq.) and now provides preferential duty-free entry of up to 5,000 agricultural and non-agricultural products for 120 designated beneficiary countries and territories. Agricultural products under the program totaled $2.6 billion in 2015, accounting for 15% of the total value of annual GSP imports. Some in Congress have called for changes to the program that could limit or curtail benefits to certain countries.

The program was most recently extended until December 31, 2017 (Title II of P.L. 114-27 ). Expiration of the program in 2017 means that GSP renewal could be a legislative issue in the 115 th Congress. In recent years, GSP has been reauthorized through a series of short-term extensions.

GSP Agricultural Imports

In 2015, U.S. imports under GSP totaled $17.7 billion, accounting for roughly 1% of all commodity imports. Leading U.S. imports under the program are manufactured products and parts, chemicals, plastics, minerals, and forestry products.

Agricultural products accounted for 15% of all imports under GSP, totaling $2.6 billion in 2015. Compared to 2010, the value of agricultural imports under the program has nearly doubled. Imports under the program account for about 2% of total U.S. agricultural imports. Table 1 shows the leading agricultural products (ranked by value) imported into the United States under the program. Leading agricultural imports (based on value) include processed foods and food processing inputs; beverages and drinking waters; processed and fresh fruits and vegetables; sugar and sugar confectionery; olive oil; and miscellaneous food preparations and inputs for further processing.

More than one-third of agricultural imports under GSP (based on value) include food processing inputs, such as miscellaneous processed foods, processed oils and fats, fruit and vegetable preparations, and ag-based chemicals and byproducts ( Table 1 ). About 15% of GSP agricultural imports consist of sugar and sugar-based products, and cocoa and cocoa-containing products. Mineral waters and other types of beverages account for about 12%, while olive oil accounts for about 8% of the value of GSP agricultural imports. Fresh fruits and vegetables account for another 11%, with roughly half of that consisting of bananas and other tropical produce imports.

Most GSP agricultural imports are supplied by beneficiary countries that have been identified for possible graduation from the program. In 2015, five beneficiary countries ranked by import value—Thailand, Brazil, India, Indonesia, and Turkey—accounted for roughly two-thirds of the value of agricultural imports under the GSP program (see Table 2 ). Thailand and Brazil alone accounted for 40% of agricultural imports under the program.

Legislative and Administrative Changes

GSP was most recently extended until December 31, 2017 (Title II of P.L. 114-27 ). Over the past decade, GSP renewal has been somewhat controversial. Some in Congress have continued to call for changes to the program, including tightening the program's requirements on products that can be imported under the program and limiting GSP benefits for certain eligible countries. Leaders of the House Ways and Means Committee and the Senate Finance Committee have continued to express an interest in evaluating the effectiveness of U.S. trade preference programs, including GSP, and broader reform of these programs might be possible. Both committees have conducted a series of oversight hearings in recent years, focused on determining the effectiveness of U.S. trade preference programs and discussing ways to reform them. Others have continued to call for meaningful reforms to GSP. The Government Accountability Office (GAO) has published a series of reports highlighting the perceived benefits and shortcomings of U.S. preference programs, including GSP.

Amendments to GSP followed extensive debate about the program during the 109 th Congress. Specifically, some in Congress questioned the inclusion of certain more advanced "beneficiary developing countries" (BDCs) under GSP and also commented that certain countries had contributed to the ongoing impasse in multilateral trade talks in the WTO Doha Development Agenda. In response to these concerns, both Congress and the previous Administrations have made changes to the program regarding product coverage (e.g., the type of products that can be imported under the program) and country eligibility (e.g., limiting GSP benefits to certain countries).

Changes Regarding Product Coverage

Congress enacted a number of amendments to GSP as part of its annual review in 2006 by tightening the program's rules on "competitive need limits" (CNL) waivers that allow imports from beneficiary countries in excess of GSP statutory thresholds for some products ( P.L. 109-432 ). CNLs are quantitative ceilings on GSP benefits for a particular product from a particular BDC. CNL waivers allow for certain products to be imported from a country duty-free under GSP despite the statutory import thresholds. Periodically USTR has revoked a country's CNL waiver, as part of the agency's program review. For example, as part of USTR's 2006 review, Côte d'Ivoire lost its CNL waivers for fresh or dried shelled kola nuts (HTS 0802.90.94). In 2006, the statute was amended to allow for the revocation of any waiver that has been in effect for at least five years, if a GSP eligible product from a specific country has an annual trade level in the previous calendar year that exceeds 150% of the annual dollar value limit or exceeds 75% of all U.S. imports.

In July 2015, USTR granted a CNL waiver for coconut products (HTS 2008.19.15) from Thailand. USTR further granted CNL waivers, in July 2016, for the following products: (1) certain pitted dates (HTS 0804.10.60) from Tunisia; (2) certain inactive yeasts (HTS 2102.20.60) from Brazil; and (3) certain nonalcoholic beverages (HTS 2202.90.90) from Thailand. Other existing waivers include sugar and preserved bananas (Philippines); sugar, carnations, figs, yams, and gelatin derivatives (Colombia); and animal hides (South Africa and Thailand).

A listing of all current CNL waivers, including for agricultural products under GSP, is available in USTR's GSP Guidebook .

In addition, the most recent GSP extension in 2015 broadly designated five new cotton products as eligible for GSP status (for least-developed beneficiary developing countries only), along with some other non-agricultural products ( Table 3 ). Some African cotton-producing nations, such as Benin, Burkino Faso, Chad, and Mali, are among the current list of eligible countries. To date, no cotton imports have been reported under these new import categories.

Changes Regarding Country Eligibility

In early 2012, the Obama Administration implemented a number of actions affecting certain countries' eligibility under the GSP program. Included was the suspension of GSP eligibility of Argentina. Argentina was among the program's top beneficiary countries, accounting for more than 10% of all agricultural imports under the GSP (ranked by import value). The President suspended GSP benefits for Argentina because "it has not acted in good faith in enforcing arbitral awards in favor of United States citizens or a corporation, partnership, or association that is 50 percent or more beneficially owned by United States citizens." (In October 2016, the Government of Argentina requested designation as a beneficiary of the GSP, which is under review by USTR.) In 2012, Gibraltar and the Turks and Caicos were graduated from the program after they were determined to have become "high income" countries, while the Republic of South Sudan and Senegal were designated as "least-developed beneficiary developing countries" (LDBDCs), becoming eligible under GSP.

Other countries have since been suspended from GSP. The Administration announced the suspension of GSP benefits for Bangladesh in June 2013. To date, USTR has not reinstated Bangladesh's GSP status. In 2014, following Russia's invasion of Crimea, many in Congress became critical of Russia's status as a GSP beneficiary. Russia's GSP status was officially terminated in October 2014. Under GSP, Russia had exported nearly $20 million of agricultural products in 2012, duty-free, including grain-based products, cocoa preparations, sugar and molasses-based confectionary, tree nuts, and other products.

In September 2015, President Obama announced, among other things, that Seychelles, Uruguay, and Venezuela had become "high income" countries and were no longer eligible to receive GSP benefits, effective January 1, 2017. In September 2016, USTR reinstated Burma's (Myanmar's) eligibility for GSP benefits as an LDBDC, effective November 13, 2016.

For more information and for a discussion of possible legislative options, see CRS Report RL33663, Generalized System of Preferences: Overview and Issues for Congress .

Implications of Possible Program Changes

Changes made to GSP in the past decade have affected the overall distribution and volume of both agricultural and non-agricultural product imports under the program.

The suspension from GSP of some countries, such as Argentina, likely has had an impact on agricultural trade under the program. Argentina had been among the main beneficiary countries under GSP and in earlier years accounted for more than one-tenth of all agricultural imports under GSP (ranked by import value). In 2012, Argentina had exported $116 million of agricultural products under the program, accounting for nearly 5% of the total value of GSP agricultural imports. Products imported from Argentina under GSP included casein, olive oil, prepared meats, gelatin derivatives, cheese and curd, sugar confectionery, wine, and other food products. Other countries whose GSP beneficiary status has been suspended or who have graduated out of the program had not been major suppliers of U.S. agricultural imports under the program.

Aside from changes made to the list of eligible GSP countries, other statutory changes to GSP tightening rules for CNL waivers may not have greatly affected U.S. agricultural imports under the program. Historically, there have been few CNL waivers for agricultural products imported duty-free under GSP. Other types of program changes, however, could affect U.S. agricultural imports under the program, including additional limits on CNL waivers from certain countries or graduation of some beneficiary countries. Some African cotton-producing nations are now eligible to supply certain cotton products to the United States, but data are not yet available to determine whether imports will consequently increase under these new categories.

Although USTR has continued to conduct annual reviews of the program, it has not conducted a broad review that has solicited extensive stakeholder comment. However, previous comments submitted to USTR as part of its 2006 review from U.S. agricultural industry groups indicate that opinions vary among U.S. agricultural groups regarding the program. For example, the American Farm Bureau Federation (AFBF) expressed its general opposition to the GSP program, stating that products imported duty-free under the program compete with U.S.-produced goods without granting a commensurate level of opportunity for U.S. producers in foreign markets. AFBF further supported withdrawal of CNL waivers for the Philippines, Argentina, and Colombia. The Grocery Manufacturers Association (GMA) expressed support for the current GSP program and identified certain agricultural products of importance to GMA under the program, including sugar confections, spices, and certain processed foods and inputs from Brazil, India, and Argentina. GMA's position was generally supported by comments from the American Spice Trade Association, the National Confectioners Association, and the Chocolate Manufacturers Association. GMA has previously supported congressional efforts to extend GSP.

What remains unclear is whether duty-free access for most agricultural imports under the GSP greatly influences a country's willingness to export these products to the United States. In most cases, costs associated with import tariffs are borne by the importer. These costs may be passed on to the BDCs in terms of lower import prices. However, import tariffs to the United States for most of these products tend to be low. As calculated by CRS, ad valorem equivalent tariffs range from 3% to 4% for sugar, 2% to 10% for cocoa-containing products, 5% to 12% for confectionery, 1% to 2% for most processed meats, about 2% for olive oil, less than 1% for mineral water, and about 5% for agriculture-based organic chemicals. In general, any additional costs that might be incurred by the BDCs as a result of the proposed changes could be more than offset by the generally higher U.S. prices for most products compared to prices in other world markets. Nevertheless, the imposition of even relatively low import tariffs could represent an increase in input costs to some U.S. food processors and industrial users. These costs could be passed on to consumers through higher prices for these and other finished agricultural or manufactured products. As shown in Table 1 , most GSP agricultural imports are intermediate goods and inputs, such as raw sugar, miscellaneous processed foods, preparations, and byproducts, and agriculture-based organic chemicals.