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An international trade lawyer who has examined foreign access to the domestic market is urging Congress and the Administration to modify a key component of U.S. trade law, as opposed to routinely extending it by its July 31 expiration, so the law fulfills its primary goal — helping the world’s poorest countries lift people out of poverty by giving them access to our domestic market.

“While many may view a simple extension of the Generalized System of Preferences (GSP) as the appropriate course of action, now is the time for meaningful reform to reverse decades of inaction during which this major component of U.S. trade policy has not fulfilled its primary function of helping those in need,” said international trade lawyer Terence Stewart, managing partner in the Washington, DC-based international trade law firm of Stewart and Stewart. “Under our current policy the bulk of the benefits flow to a handful of countries, often advanced developing countries, and typically to companies and sectors where the GSP-beneficiary country is not in need of a helping hand to be internationally competitive.”

Graduating the top six countries from all GSP eligibility, or at least on all products where the graduated country does not make an affirmative showing of actual ongoing need, would be a sensible and major step in directing the preferences to those in need versus simply those in line, Stewart said.

That kind of reform is consistent with language in the recent trade policy agenda released March 1 by the Obama Administration. But that pronouncement alone may not effect in the amount of pressure necessary to achieve meaningful reform, Stewart said.

“With less than four months until the law expires, those with an interest in the operation of the GSP system need to be in touch with the Administration and with their Congressional members, particularly on the relevant Committees – House Ways and Means Committee and Senate Finance Committee,” Stewart said.

GSP was introduced into the United States legal system as part of the Trade Act of 1974 in response to concerns of the needs of developing countries to receive a helping hand from developed countries to be better able to compete in developed country markets. GSP benefits are unilaterally bestowed by developed countries on developing countries. In the U.S., the law has always had a series of limitations on eligible countries and on eligible products.

The problem with GSP has always been the concentration of benefits in a limited number of recipients, often to subsidiaries of multinational companies who do not need the preferential access to be internationally competitive. Stewart’s research shows. As a result, in 2012 of the $19.9 billion in imports that received GSP benefits, $16.4 billion in benefits, or 82.4 percent, went to the top six countries, 52.8 percent to the top three countries, according to data Stewart examined from the US International Trade Commission:

India, $4.454 billion (22.4percent of total GSP imports)
Thailand, $3.710 billion (18.7percent of total GSP imports)
Brazil, $2.317 billion (11.7percent of total GSP imports)
Indonesia, $2.208 billion (11.1percent of total GSP imports)
South Africa, $1.924 billion (9.7percent of total GSP imports)
Philippines, $1.239 billion (6.2percent of total GSP imports)

“My research shows GSP benefits to these countries are not important to their overall exporting efforts to the U.S.,” Stewart said.

For example, total US imports from India were $13 billion in 2003 but $40.1 billion in 2012, an increase of more than 208 percent. GSP imports from India by contrast grew from $2.6 billion in 2003 to $4.5 billion in 2012, an increase of 68 percent, as non-GSP imports went from $10.4 billion in 2003 to $35.7 billion in 2012, an increase of 243 percent. GSP imports were 20.3 percent of imports from India in 2003 but only 11.1 percent of imports from India in 2012. Similarly for Thailand, GSP imports were 17.9 percent of total imports from Thailand in 2003 and 14.3 percent of total imports from Thailand in 2012. Brazil went from GSP imports into the US being 14.1 percent of total imports from Brazil in 2003 to just 7.3 percent in 2012.

“At least for manufactured goods, it is hard to argue that any of the above countries need special treatment to compete, “Stewart said, adding that “A factual argument can be made to graduate the top six countries who account for more than 80 percent of the benefits. This would indeed free the system up to provide benefits to the more needy countries in the global trading system-- those who have a continuing need for a helping hand.”

“Alternatively, there could be an automatic graduation for a country that accounts for 10 percent of GSP benefits in the prior calendar year – this would graduate the top five countries this year,” Stewart said.

It is possible that an across the board graduation without exception would frustrate the underlying purpose of the GSP law.

“Where a country is a major beneficiary, there should at least be a presumption that there is a graduation for the country as such, with a limited exception for the country to later request reinstatement of GSP benefits for a particular item where the competitive need of the domestic industry in the exporting country can be demonstrated,” Stewart said. Where the domestic industry has a significant presence of multinational subsidiaries, say, 10 percent of production, that should be a bar to seeking GSP eligibility on the premise that such multinational presence provides the domestic industry the ability to compete internationally.”

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Terry Stewart, Managing Partner of Stewart and Stewart Urges Congress and the Administration to Modify the Generalized System of Preferences - Press Release