Short-Term Extension of Trade Preference Programs Likely Ahead Broader Overhaul

September 26, 2009

Last fall, Congress passed a one-year extension of the Generalized System of Preferences (GSP) and the Andean Trade Preferences Drug Eradication Act (ATPDEA), with the intent of completing a major overhaul during the interim period. However, with no substantive efforts at reform having materialized over the last 10 months, democratic leaders on the House Ways and Means Committee and the Senate Finance Committee have recently indicated that they are interested in passing a straight extension of the unilateral trade preferences programs, which are set to expire on December 31st.  

This is likely to draw the ire of the Senate Finance Committee’s Ranking Member Charles Grassley (R-IA), who has been frustrated that reform of preference programs has been constantly postponed. It is possible that Senator Grassley will ultimately agree to a one-year extension that would keep the pressure on Congress to pursue preference reform in the near future. However, Democratic leaders favor a longer two-year extension because it provides additional security to businesses importing and exporting under the programs.

Both Senate Finance Committee Chairman Max Baucus (D-MT) and House Ways and Means Chairman Charles Rangel (D-NY) have signaled they are interested in long-term reform of the programs as well, but agree it is unlikely in the short-term.

Initial discussions on reform have centered on ideas that could promote trade between developing beneficiary countries. This might be accomplished by changing the rules of origin, which determine a product’s eligibility for duty free treatment under the programs, to allow exporters to use inputs from other developing countries and still have their goods qualify. Currently, products must contain value added in the beneficiary country of at least 35% of the price of a product when sold for export.