US Congress Agrees To Extend Series Of Trade Preferences

13 December 2006

In one of its final acts, the outgoing 109th US Congress narrowly passed a bill containing a raft of trade preferences and other commercial measures long pursued by the Bush administration. Support from both Republicans and Democrats was essential to securing passage of the bill.

The legislation extended the Generalised System of Preferences, which accords duty-free access to certain goods from over 100 developing nations, and prolonged specific trade preference schemes for Andean nations and sub-Saharan Africa. It also normalised trade relations with Vietnam.

Andean preferences extended, with a caveat

Unilateral trade preferences for Peru, Colombia, Bolivia, and Ecuador under the Andean Trade Promotion and Drug Eradication Act (ATPDEA), scheduled to expire at the end of 2006, were extended for an extra six months. This will be followed by a further six months for countries that approve free trade agreements (FTAs) with the US.

Andean exporters had warned that letting the preferences lapse, with the consequent reintroduction of tariffs, could have cost hundreds of thousands of jobs in the region. Although the extension will save jobs, they say that the uncertainty surrounding the future of the preferences will not encourage new investment.

Colombia and Peru have already concluded FTA negotiations with Washington, and thus appear likely to benefit from the additional six-month period. However, whether these accords will secure Congressional approval in the US remains uncertain. The Democrats, who will take control of Congress in January, have threatened to vote against the FTAs unless they are modified to include new provisions on labour standards (see BRIDGES Weekly, 29 November 2006).

The US has not concluded an FTA with either Ecuador or Bolivia has . Negotiations with the former got bogged down amidst disagreements on several issues, including the treatment of US investors. Talks with the latter never got off the ground. The two countries thus stand to lose duty-free access to the US market on 1 July.

The Bush administration had wanted the preferences prolonged for all four Andean countries. One trade observer suggested that it was unlikely that Washington would move quickly to reimpose tariffs on exports from Ecuador and Bolivia, noting that doing so would have substantial negative effects on those countries.

AGOA expanded

The bill enhanced the ability of African clothing manufacturers to use raw materials from third countries and still benefit from preferential access to the US market under the African Growth and Opportunity Act (AGOA).

The reforms to the US' trade preference system for sub-Saharan African countries, called the AGOA Investment Incentive Act of 2006, aim to aid African textile producers who have suffered job losses as a result of Chinese competition since the end of quotas on textile and clothing trade in 2005.

The act extends through 2012 an exemption that allows least-developed country (LDC) clothing manufacturers to use raw materials from third countries to manufacture the clothing which they export to the US under AGOA.

Another provision encourages African clothing producers to use fabric from other African countries when available, by denying them duty-free access if they fail to do so.

In an attempt to help countries like Lesotho regain factory jobs in the textile industry, the US will now grant duty-free access under AGOA to non-apparel textile products manufactured in sub-Saharan African LDCs, so long as they use materials from other least-developed countries.

Haitian clothing receives duty-free access

The bill also extended duty-free privileges to imports of Haitian clothing made from fabric produced in third countries. This provision proved to be particularly controversial, drawing strong opposition from House and Senate Republicans representing textile states. Some of them argued that Haiti would become a conduit for Chinese products to enter the US market, tariff free.

Senators Lindsey Graham (Republican-South Carolina) and Elizabeth Dole (Republican-North Carolina) both threatened to oppose the bill so long as Haiti was included. Some Democrats, on the other hand, reportedly threatened to do the same if Haiti were excluded.

GSP extended, modified

Congress agreed to extend for two years the Generalised System of Preferences, which grants certain products from over 100 developing countries tariff-free access to the US market. It modified the scheme to make it harder for imports that surpass threshold levels of import value and import volume in the US to continue to receive preferential market access. Trade sources suggest that certain Brazilian and Indian exports will lose duty-free access to the US due to the change.

Oxfam America welcomed Congress' decision to extend the US' various trade preference programmes, praising AGOA in particular for job creation. It also praised the trade preferences granted to Haiti.

Trade with Vietnam normalised

The legislation grants permanent normal trade relations to Vietnam. This will make US businesses eligible to benefit from the tariff cuts and other liberalisation measures that Vietnam undertook in order to join the WTO, once it becomes the global trade body's 150th Member on 11 January (see BRIDGES Weekly, 15 November 2006). Trade between the two nations currently measures USD 7.8 billion per year.

The trade package passed through the House of Representatives on 8 November by a vote of 212 to 184. With the outgoing Republican majority supporting the bill by a margin of only 120 to 87, the support of the 92 Democrats who voted in favour of it was essential for its passage (96 Democrats opposed it).

Notably, a group of Democrats called the 'New Democrat Coalition' threw its weight behind the bill, declaring their support for "expanding trade that benefits the US economy and that of our partners."

Senators worked into the early morning on 12 December to pass the trade package as part of a larger tax, energy, and trade omnibus bill. The bill was overwhelmingly approved in a 79-9 Senate vote. Five of the eight textile state Republican senators that opposed Haiti's inclusion in the bill ultimately voted in favour of it anyway.

US Trade Representative Susan Schwab welcomed the approval of the trade preferences bill, suggesting that it could "lay the groundwork for bipartisan action on trade issues in the next Congress."

The bill must still be signed by the president to become law.ICTSD reporting; "ATPDEA Extended for Six Months," FRESH PLAZA, 11 December 2006; "Congress Winds Down Session by Approving Tax-Cut and Trade Bills," WALL STREET JOURNAL, 12 December 2006; "House Passes Vietnam, Haiti Trade Package," REUTERS, 10 December 2006; "Textile Producers Get a Boost from US Trade Bill Extension," ALLAFRICA.COM, 12 December 2006; "United States: House Passes Haitian Trade Bill," JAMAICA GLEANER, 12 December 2006; "US, Vietnam Hail Vote to Normalise Trade Relations," THE AUSTRALIAN, 12 December 2006; "Extension of Andean trade pact welcomed," MIAMI HERALD, 13 December 2006; "Congress Approves Measure Extending Trade Preferences," US INFO, 11 December 2006.


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