The United States extends unilateral tariff reductions to over 130 developing countries through one general trade preference program (GSP) and three regional programs—CBI, ATPA, and AGOA (see table 1). The preference programs are tools that the U.S. government uses to assist countries in the developing world. At the United Nations Conference on Trade and Development (UNCTAD) in 1964, developing countries asserted that one of the major impediments to their accelerated economic growth and development was their inability to compete with developed countries in the international trading system; the developing countries argued that preferential tariffs would allow them to increase exports and foreign exchange earnings necessary to diversify their economies and reduce dependence on foreign aid. The rationale for trade preferences was that poorer countries need to develop industrial capacity for manufacturing in order to move away from dependence on imports and production of traditional commodities that could be subject to declining prices in the long term. It was argued that poorer countries also needed time to retain some protection to develop their “infant industries,” but that increases in exports would be necessary to help countries capture economies of scale in production and earn foreign exchange. In addition, it was evident that some provision for the elimination of preferences once the industries were firmly established was necessary. The argument was that trade preferences should be temporary, introduced for a period of no less than 10 years with respect to any given industry in any developing country. At the end of the 10-year period, preferences would be withdrawn unless it could be shown that special circumstances warranted their continuation. At the second UNCTAD conference in New Delhi in 1968, the United States joined other participants in supporting a resolution to establish a mutually acceptable system of preferences. In order to permit the implementation of the generalized preferences, in June 1971 the developed countries, including the United States, were granted a 10-year waiver from their obligations under the global trading system, now embodied in the World Trade Organization (WTO), to trade on a most favored nation (MFN) basis. Following the granting of this waiver, developed countries created their GSP programs, and Congress enacted the U.S. GSP program in January 1975. The United States maintained that GSP was a temporary program to advance trade liberalization in the developing world, but it recognized the need to address the legal basis for granting these preferences, in anticipation of the expiration of the waiver in 1981. An agreement was reached at the 1979 conclusion of the Tokyo Round of Multilateral Trade Negotiations, known as the “Enabling Clause,” which has no expiration date and replaces the waiver. Because the Enabling Clause applies to preference regimes that are “generalized, non-reciprocal, and non- discrimatory,” separate waivers have been sought for U.S. regional preference programs. The GSP program seeks to accelerate economic growth and development in developing countries by providing access to the U.S. market. GSP establishes a basic level of product coverage common to all the preference programs. Over the years, Congress has also enacted a series of regional trade preference programs that have evolved to address U.S. foreign policy objectives beyond the shared general objective of promoting economic development. The regional programs expand on GSP to cover additional products that are not covered by GSP, including some apparel, footwear, and certain leather-related products. While regional programs may generally have more liberal conditions for product entry than GSP, these differences are more likely to affect products for which countries cannot receive GSP benefits (e.g., textiles and apparel). CBI was created to promote economic and political stability in the Central America and Caribbean region, to diversify exports, and to expand trade between those countries and the United States. ATPA was established to combat drug production and trafficking by providing sustainable economic alternatives to beneficiary countries in the Andean region of South America. AGOA was set up to facilitate Sub-Saharan Africa’s integration into the global economy. The regional preference programs have some eligibility criteria that overlap with GSP, but the regional programs also set forth additional eligibility criteria that are not part of the GSP statute. In order to be eligible for AGOA, a country must also be eligible for GSP. In addition, all preference programs contain certain common eligibility requirements, such as having national policies to ensure workers’ rights and protect intellectual property. Regional program beneficiary countries are subject to more extensive eligibility criteria than GSP beneficiary countries. For example, ATPA requires cooperation with U.S. counternarcotics and antiterrorism efforts, and AGOA requires that countries be making progress toward political pluralism and not commit gross violations of human rights. Eight agencies have key roles in administering U.S. trade preference programs. Led by USTR, they include the Departments of Agriculture, Commerce, Homeland Security, Labor, State, and Treasury, as well as ITC. USTR utilizes an interagency mechanism, the TPSC, and its associated subcommittees to consult and coordinate with these and other agencies such as USAID. This year, ATPA, CBTPA, and GSP expire, and Congress will need to explore the option of renewing these programs. At the same time, legislative proposals to provide additional, targeted benefits for the poorest countries are pending. In addition to examining the benefits trade preference programs provide, Congress will need to consider concerns by beneficiary and other developing countries, industry groups, and economic experts surrounding these programs. Such concerns include the potential for diversion of trade from other countries that these programs can cause; the complexity, scope of coverage, certainty, and conditionality of these programs; and the potential opposition to multilateral and bilateral import liberalization that preference programs can create. The overall effects of trade preference programs on the U.S. economy are small, but preference programs have direct effects on U.S. businesses, consumers, and the federal budget. Effects on U.S. industries and individual businesses vary; some have shared-production arrangements with preference beneficiaries, while a few U.S. industries compete with imports benefiting from preferences. U.S. consumers have benefited from lower prices resulting from duty-free imports under trade preference programs, while tariff revenues to the U.S. Treasury have been lower because of foregone tariff revenues. In addition, preference programs serve as a tool to advance U.S. foreign policy objectives. Imports under preference programs represent a small share of total U.S. imports. As shown in table 2, U.S. preference imports across all programs accounted for about 5 percent of U.S. imports in 2006. In general, studies of the effects of preference programs on the U.S. economy find that the overall impact is small. For example, the ITC consistently finds in its biennial reports on ATPA and CBI that the impact of imports from these programs on the U.S. economy is minor. In the most recent ITC reports on ATPA and CBI, ITC reported again that the overall effect of imports from these programs on the U.S. economy continued to be negligible, representing only 0.09 percent and 0.10 percent, respectively, of the U.S. gross domestic product in 2005. Similarly, in January 2008, the Congressional Research Service concluded that the overall effects of GSP on the U.S. economy are relatively small and that the rate of increase of imports entering under GSP in the past 10 years is relatively flat, indicating that there may be little impact on the U.S. market as a whole by extending these preferences. Some U.S. industries and individual businesses have shared-production arrangements with foreign producers that depend heavily on duty-free preference benefits. Over the last two decades, U.S. producers of apparel have come to rely on “outward processing arrangements.” In such arrangements, U.S. factories focus on relatively capital-intensive operations, such as fabric production. Fabrics and components are then shipped to CBI, ATPA, or AGOA countries, where factories conduct the relatively labor-intensive business of assembling the finished garments. In addition, U.S. manufacturers and importers benefit from the lower cost of consumer goods and raw materials imported under preference programs, such as jewelry, leather, and aluminum imported through GSP. Furthermore, U.S. manufacturers also rely on and benefit from intermediate goods from preference beneficiary countries. For example, Brazil is a major user of GSP. In 2006, 10 percent of all nonfuel imports to the United States from all preference programs came from Brazil. Much of what Brazil ships to the United States under GSP are intermediate goods produced by U.S.-affiliated multinational companies. Once exported to the United States, these goods are further processed or incorporated into U.S.- manufactured goods such as cars and power generators. Given the importance of these intermediate goods to domestic manufacturers, the Congressional Research Service reported that an expiration or modification of GSP would directly affect them, at least in the short term. Smaller U.S. businesses that regularly import inputs under a preference program may be especially affected by a lapse or expiration of the program because they rely on GSP’s duty savings to compete with much larger companies, and they are less able to adjust to increased costs. A wide range of U.S. companies submitted official comments to USTR on several countries during an overall review of GSP in 2006. For example, concerning GSP imports from Thailand, U.S. companies’ comments were overwhelmingly positive and supported continued preferential treatment for imports that included items such as jewelry, bottle-grade polyethylene terephthalate resin, motor vehicle tires, microwave ovens, ophthalmic lenses, televisions, cookware, golf equipment, and tuna. On the other hand, certain other U.S. industries compete with imports benefiting from preferences.