June 12,2008

Grassley: Trade Preference Programs Should Not be Taken for Granted

Opening Statement of Senator Chuck Grassley
Senate Finance Committee Hearing
Oversight of U.S. Trade Preference Programs
June 12, 2008

For some time now, I’ve been thinking about the function of our preference programs and theirrelation to U.S. trade policy objectives. I welcome the witnesses who are here today to assist theCommittee in exploring these issues. Our trade preferences merit fundamental reconsideration onthree levels. First, what is their purpose? Second, how effective are they in achieving their purpose?Can their operation be improved, and if so, how? And third, do U.S. trade preferences undermineour broader trade policy objectives to any extent? If so, how can the two be reconciled? Thisreconsideration of our preference programs is needed because the answers to at least some of thesequestions may have changed over time. And those changes may have consequences for how weutilize our trade agenda to advance our national economic and foreign policy interests in theglobalized economy of the 21st century.

On the first point, if we accept that our preference programs are primarily intended to help facilitatesustainable economic development in the beneficiary countries, it’s natural then to ask how well arethey achieving that objective. According to recent study of 2006 data by the GovernmentAccountability Office, the distribution of benefits appears limited. Our broadest preference programis the Generalized System of Preferences (GSP), which has been in place since 1975. Of 131beneficiary countries, the top 10 account for over three quarters of our imports under the GSPprogram. Similarly, if you consider all our preference programs together, the top 4 beneficiarycountries account for over half of our imports under those programs, while the top 25 account forover 95 percent of such imports. A threshold concern then is how to spread those benefits morebroadly.

The composition of our imports raises another concern. Fuel accounts for about 60 percent of ourimports under preference programs. How can we utilize our preferences to better facilitate verticallyintegratedbusiness development in beneficiary countries outside of the energy sector? That’s anissue we’ve been grappling with under the African Growth and Opportunity Act, for example.

On the other hand, we also need to consider the point at which it becomes appropriate to limit orwithdraw benefits under our preference programs. The GSP program does contain limitations onthe amount of preferential treatment a beneficiary country may receive, but those limitations can bewaived. Congress took a first step in reforming this waiver framework in 2006, by providing for thereview and revocation of such waivers if they’ve been in place for 5 consecutive years and thevolume of imports reflects that such imports have become super-competitive. We need to furtherreview the conditionality that attaches to our various preference programs and assess whether theoperation and administration of that conditionality can be improved.

We must also guard against complacency. Trade preferences should not be taken for granted. Thatgoes for U.S. importers as well as foreign governments. I’m concerned that we’re seeing evidenceof complacency from some of the advanced developing countries in the ongoing Doha Roundnegotiations in the World Trade Organization. If trade preferences become an obstacle to achievingbroad multilateral market liberalization, then we need to rethink the construct of our preferenceprograms.

Finally, we need to consider what are the limitations of preference programs. Other factors such ascivil strife, conflict, inadequate infrastructure, an inefficient transportation network, poorlydeveloped capital markets, and corruption, may play a large role in impeding sustainable economicdevelopment. So, I put it to our witnesses—how should we utilize our preference programs to betterfacilitate sustainable economic development—and, as developing countries prosper, how do wetransition to a more mature, reciprocal, trading relationship? I look forward to hearing yourresponses.