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The U.S. Generalized System of Preferences for Developing Countries: International Innovation and the Art of the Possible

Published online by Cambridge University Press:  27 February 2017

Thomas R. Graham
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Extract

On January 1, 1976, some 2,700 articles from 137 developing countries and territories became eligible to enter the United States free of import duties. By this overnight elimination of tariffs that had ranged as high as 28 percent, on articles as diverse as sausage and spacecraft, from countries as different as Brazil and Bangladesh, the United States became the twenty-third and most recent industrialized country to implement a “Generalized System of Preferences” (GSP), permitting imports from developing countries to enter at lower rates of duty than those applicable to the same products from industrialized countries.

Type
Research Article
Information
American Journal of International Law , Volume 72 , Issue 3 , July 1978 , pp. 513 - 541
Copyright
Copyright © American Society of International Law 1978

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References

1 The U.S. GSP was authorized by Title V of the Trade Act of 1974 [herein after referred to as the Trade Act], 19 U.S.C. §§2461–2465 (Supp. V 1975), and was implemented by Exec. Order No. 11,888, 40 Fed. Reg. 55,275 (1975). Other countries implementing GSP schemes are Australia, Austria, Canada, the original six of the European Economic Community (the United Kingdom, Denmark, and Ireland later incorporated into the E.E.C. scheme their separate GSP programs), Finland, Japan, New Zealand, Norway, Sweden, Switzerland, Bulgaria, Czechoslovakia,Hungary, and the USSR. Poland implemented a GSP program on the same day as the United States.

2 General Agreement on Tariffs and Trade, done Oct. 30, 1947, 61 Stat. A3, Tiasno. 1700, 55 UNTS 187.

3 See T. Murray, Trade Preferences for Developing Countries (1977). See also Ginman & Murray, The Generalized System of Preferences: A Review and Appraisal, in The New International Economic Order: Confrontation or Cooperationbetween North and South? (K. Sauvant & H. Hasenpflug eds. 1977). For early economic analyses of the GSP proposal, see H. Johnson, Economic Policies Toward Less Developed Countries (1967); and J. Pincus, Trade, Aid, and Development:the Rich and Poor Nations (1967). For recent articles describing other aspects of the GSP, see Young, , The Generalized System of Preferences: Nations More Favored Than Most, 8 Law & Policy Int. Bus. 783 (1976)Google Scholar and Nemmers, & Rowland, , The U.S. GeneralizedSystem of Preferences: Too Much System, Too Little Preference, 9 id. 855 (1977)Google Scholar.

4 The idea of particular tariff preferences is not new. For decades, Britain and France maintained special trading relationships with their former colonies, while the United States granted preferential duty rates to products of Cuba until 1961 and to products of the Philippines until 1975. These arrangements predated the formulation of the GATT in 1948 and thus were “grandfathered” by the Protocol of Provisional Application, by which signatory nations in effect undertook to apply the GATT rules only prospectively. The GATT rules themselves, moreover, explicitly sanction preferential arrangements inherent in the creation of free trade areas and customs unions.

5 RaúlPrebisch, “Toward a New Trade Policy for Development,” in 2 United Nationconference on Trade and Development [hereinafter referred to as UNCTAD],Proc, 1st Sess. 5 (1964).

6 For the full report of the 1964 UNCTAD Conference, see 1–8 id. For a general description of the background and issues related to the first UNCTAD, see B. Gosovic, UNCTAD: Conflict and Compromise (1972).

7 Prebisch, “Toward a New Trade Policy,” supra note 5, at 35.

8 … [I]f as a result of the preference, a country exerts undue pressure on the prices prevailing in the industrial countries, it thereby demonstrates either that it does not need the preference or that the preference is excessive. Developed countries could hardly be expected to offer encouragement to those industries in developing countries that are already able to stand on ther own feet in world markets and still less to those industries whose costs are much lower than those of similar industries in developed countries. Id. at 38.

9 Prebisch feared that internationally agreed limits on product coverage would sink such coverage to the most restrictive common denominator and thus preferred that all LDC exports be eligible in principle. He appeared to recognize the unlikelihood of such a broad coverage, however, and concluded that disagreements over product coverage “should not prevent the Conference from adopting a decision in principle in favor of preferences.” Id. at 37.

10 Id.

11 Prebisch suggested, as one means of ensuring that the least developed countries were not entirely preempted from donor-country markets by the larger LDC's, that articles peremptorily excluded from the GSP schemes of each donor (on grounds that they competed with sensitive domestic industries) nevertheless be granted GSP benefits when imported from the least developed countries. Id at 39.

12 Not surprisingly, those already receiving special preferences wished to be compensated for any loss of their privileged status in the British and E.E.C. markets. The British representative to UNCTAD I, Edward Heath, then Secretary of State for Industry, Trade, and Regional Development, suggested what became the conventional wisdom with respect to such compensation—that the increase in the number of donor countries through the worldwide extension of preferences would sufficiently compensate recipients of colonial preferences for the loss of their privileged status. See 2 UNCTAD, Proc, supra note 5, at 390.

13 The LDC's at UNCTAD I proposed in committee a GSP program that was considerably more liberal in several respects than the Prebisch proposal. Although this proposal was not adopted by the UNCTAD plenary conference, it served in succeeding years to rally the LDC's around a specific negotiating position. See 1 id. at 20.

14 The debates at UNCTAD I showed the developed countries to be split into three basic camps: a group flatly opposing the GSP, which was led by the United States and included Canada, Switzerland, Norway, Finland, and Iceland; a group clearly supporting the GSP, which included the United Kingdom, the Federal Republic of Germany, the Netherlands (which called the GSP perhaps an “advance payment in the Kennedy Round“), and Denmark; and a group favoring qualified, negotiated preferences, composed principally of France and Belgium. This third approach became known as the “Brasseur Plan,” after Maurice Brasseur, Head of the Belgian Delegation, who first proposed such negotiated preferences in the GATT in 1963. The plan was seen by other delegations as a means of preserving existing colonial preferences or at least of extracting concessions for their removal.

15 The work of the Group is reported in “The Question of the Granting and Extension of Preferences in Favour of Developing Countries,” UNCTAD Doc. TD/12 (1967).

16 See Statement by George Ball, Head of the U.S. Delegation, in 2 UNCTAD, PROC., supra note 5, at 394. For an extensive discussion of the early U.S. position, see S. Weintraub, Trade Preferences for Less-Developed Countries (1966). See also Johnson, supra note 3, at 165–70; and Pincus, supra note 3 , at 205 et seq. U.S. oppo-sition to the GSP at UNCTAD I may have enabled other developed countries to appear more flexible than they would have been in the absence of such opposition. See Robert-son, The Creation of UNCTAD, in R. Cox, International Organization: World Politics 262 (1969).

17 The text of a waiver granted by the GATT, excusing Australia from its MFN obligations for the purpose of instituting its preference system, is set forth in GATT, 14th Supp. B.I.S.D. 23 (1966).

18 The Inter-American Committee of the Alliance for Progress, in a letter of August 10, 1965, to the Presidents of the American Republics, stated that: [A]: though we are opposed to the creation of spheres of influence we commend for urgent consideration, a policy of transitory, defensive measures to compensate for such preferences. It is inequitable for the products of some of the developing countries to enjoy preferences outside this hemisphere plus non-discriminatory access to the U.S. market. A policy to compensate for such discrimination against Latin America should be worked out pragmatically, on a commodity-by-commodity basis, with provisions which would facilitate return to non-discriminatory trade as discriminatory practices are removed elsewhere.See UNCTAD Doc. TD/B/82 /Add . 2, at 29 n. 12, quoted in Prebisch, “Toward a Global Strategy for Development,” UNCTAD Doc. TD/3 , at 64 n. l (1968).

19 Perhaps the most concise explanation of the reasons for the change in the U.S. position with respect to the GSP is contained in the prepared statement by Anthony M. Solomon, then Assistant Secretary of State for Economic Affairs, before the Subcommittee on Foreign Economic Policy of the Joint Economic Committee, July 12, 1967. Mr. Solomon stated, inter alia, that [t]he growing rash of further proliferation of trade arrangements which discriminate among developing countries was from our viewpoint a most unfortunate development both politically and economically. It threatened to fragment world trade; it increased the pressures from Latin America for exclusive trade arrangements with the United States; it was a retrogression toward special spheres of influence. It became quite apparent to us in the Executive Branch that this posture which the U.S. had maintained since the issue of trade preferences first arose in 1964 was ill-suited to our political and economic interests. Politically, we found ourselves virtually isolated from all the developing countries and most of the industrialized countries as well. Economically, our reservation in principle and skepticism precluded our having much influence over the proliferation of discriminatory arrangements and also reduced our influence with regard to the specific workings of a preference scheme which other industrialized countries indicated they might put into effect whether or not the United States took part....

20 56 Dept. State Bull. 709 (1967).

21 “Report by the Special Group on Trade with Developing Countries of the Or-ganisation for Economic Co-operation and Development,” OECD Doc. TC (67) (16), Pt. 1, para. (1).

22 UNCTAD Doc. TD /38 and Add. 1 & 2, reprinted in 1 UNCTAD, PROC , 2d Sess. 431 (1968). The LDC position at Algiers built upon earlier detailed studies by the UNCTAD Secretariat, including “The Question of the Granting and Extension of Preferences in Favour of Developing Countries,” UNCTAD Doc. TD/B/C.2/AC. 1/7 (1967). See also “A System of Preferences for Exports of Manufactures and Semi-Manufactures from Developing to Developed Countries,” UNCTAD Doc. TD/12/Supp. 2 (1967); and “The Question of Granting and Extension of Preferences in Favour of Developing Countries,” UNCTAD Doc. TD/12 (1967).

23 The escape clause is an internationally accepted mechanism that permits import barriers to be raised temporarily in order to provide an opportunity for recovery to a domestic industry that has been injured or threatened with injury by import competition. Currently, U.S. authority and procedures for escape-clause actions are embodied in sections 201–203 of the Trade Act, 19 U.S.C. §§2251–2253 (Supp. V 1975). Use of the escape clause as a domestic safeguard is permitted by Article XIX of the GATT.

24 Adjustment assistance, consisting of federal aid to workers, firms, and communities affected adversely by import competition, is authorized by sections 221–274 of the Trade Act, 19 U.S.C. §§2271–2374 (Supp. V 1975).

25 The significance of a tariff binding in international trade usage is that a country making such a binding cannot thereafter raise the bound duty rate or otherwise nullify or impair the benefits of the binding without risking trade retaliation against its exports by affected countries. Such retaliation may be avoided by “compensating” the affected countries with trade concessions (such as other bound tariff reductions) on other products. The U.S. emphasis on the nonbinding nature of the GSP reflected the strongly held position of the United States and other donor countries that the withdrawal of GSP benefits was not to give rise to threats of trade retaliation or to claims for trade compensation.

26 UNCTAD Doc. TD/B/330 (1970).

27 The text of the waiver is set forth in GATT Doc. L/3545 (1971), reprinted in GATT, 18th Supp. B.I.S.D. 24 (1972).

28 See Gosovic, supra note 6, at 87.

29 For a capsule description of all national GSP schemes, see “Generalized System of Preferences: Digest of Schemes,” UNCTAD/UNDP Doc. TAP/136/Rev. 1 (1976).

30 UNITED States International Economic Policy in an Interdependent World (1971). The Commission's chairman was Albert L. Williams of IBM.

31 Supra, note 8.

32 There was particularly heavy pressure to add watches to this exclusionary list, mainly because watch assembly operations are important to the Virgin Islands, American Samoa, and Guam, each of which exported assembled watches duty free to the United States under special tariff provisions.

33 The LDC's granting reverse preferences had protested vigorously the U.S. requirement of advance assurances that the preferences would be ended; they were unwilling to risk losing the advantages they derived from preferential access to the E.E.C. market by publicly promising to end the E.E.C.'s preferential access to their markets. In response, the United States was willing to consider dropping the requirement of an advance commitment to end reverse preferences and instead to set a date by which U.S. GSP eligibility would end if the reverse preferences continued. The date mentioned most often was 1975, the year that the Yaoundé Convention, covering many of the E.E.C.-LDC preferential relationships, and the Laurel-Langley Agreement, establishing a preferential relationship between the United States and the Philippines, were to expire. It was recognized that such a change would put pressure on the E.E.C. to eliminate the requirement of reverse preferences in any new arrangement succeeding Yaoundé.

34 It was generally assumed that those Communist countries whose products did not already receive non discriminatory MFN treatment from the United States would not be eligible for U.S. GSP benefits. Questions remained, however, with respect to Yugoslavia, which received MFN treatment from the United States and was a member of the GATT and the UNCTAD Group of 77, as well as other Communist LDC's that might receive MFN status from the United States in the future. Poland, which also enjoyed U.S. MFN status, generally was regarded as a developed country and was not a potential GSP beneficiary.

35 The U.S. OECD submission had indicated that the standard escape clause, which required a showing that increased imports resulting in major part from a trade con-cession (or, in this case, the GSP) caused or threatened serious injury to a competing domestic industry, would be the only safeguard in the U.S. system. A debate remained as to whether the President should have the authority to distinguish between GSP-beneficiary countries and other countries in applying escape-clause import relief and to confine relief to the withdrawal of GSP benefits if preferential imports were the cause of injury.

36 In 1971, the U.S. countervailing duty law did not apply to duty-free imports. Administration planners had to address the question whether imports entering duty-free under the U.S. GSP could be freely subsidized without the possibility of countervailing duties offsetting the effects of the subsidies and, if not, whether the imposition of countervailing duties would be subject to an “injury test,” since the U.S. countervailing duty law did not require a showing of injury to a domestic industry as a prerequisite to the imposition of countervailing duties on subsidized dutiable imports.

37 The legislation authorizing the GSP was submitted as Title VI of H.R. 6767, the Trade Reform Act of 1973, which was transmitted by the President to the Congress on April 10, 1973. The President's message accompanying his transmittal of the bill showed, in outline form, how some of the outstanding questions had been settled. The President announced … our intention to exclude certain import-sensitive products such as textile products, footwear, watches and certain steel products from … preferential treatment, along with products which are now subject to outstanding orders restricting imports …. Public hearing procedures would be held before such preferences were granted and preferential imports would be subject to the import relief provisions…. Once a particular product from a given country became fullycompetitive, however, it would no longer qualify for special treatment. We would not grant preferences to countries which discriminate against our products in favor of goods from other industrialized nations unless those countries agreed to end such discrimination (emphasis added). See “Message of the President,” in House Comm. On Ways and Means, The Ad-Ministration Proposal Entitled the “Trade Reform Act of 1973,” H.R. Doc. No. 478, 93rd Cong., 1st Sess. (1973).

38 The bill provided that the competitive-need limits could be waived by the President on grounds of national interest.

39 In addition to the mandatory criteria on MFN and reverse preferences, H.R. 6767 provided that the President was to take into account such factors as a country's self-election to developing status, its level of economic development, whether it had nationalized U.S. property without compensation, and GSP burden sharing among donor countries. Aimed primarily at Hong Kong, this last guideline provided the President with a handle for the removal of Hong Kong's eligibility if other countries ceased to grant it GSP benefits.

40 These were the escape-clause provisions in Section 350 of the Trade Expansion Act and Sections 201–203 of H.R. 6767; Section 22 of the Agricultural Adjustment Act; Section 202 of the Sugar Act of 1948; Meat Import Act of 1964; any agreement concluded under Section 204 of the Agricultural Act of 1956; or any national security action by the President pursuant to Section 232 of the Trade Expansion Act. The bill also provided for special escape-clause relief in that the President could, following an affirmative finding of injury to a domestic industry from imports, terminate the status of an article as eligible for the GSP in lieu of providing any other import relief.

41 In addition, in order to ensure that GSP benefits were not accorded to products of developed countries that were merely trans shipped through eligible developing countries, the bill provided that for an article to receive GSP benefits, it would have to be imported directly from a GSP beneficiary country; it would also have to have a value added, consisting of the sum of the cost or value of materials produced in the beneficiary country plus the direct costs of processing operations performed in the beneficiary country, equal to or exceeding a percentage of the appraised value of the article to be prescribed by the Secretary of the Treasury.

42 H.R. 10710, 119 Cong. Rec. 40, 502 (1973).

43 These countries were Australia, Austria, Canada, Czechoslovakia, the E.E.C. member states, Finland, East Germany, Hungary, Iceland, Japan, Monaco, New Zealand, Norway, Poland, Republic of South Africa, Sweden, Switzerland, and the USSR.

44 120 Cong. Rec. S21,484(daily ed. Dec. 13, 1974).

45 120 Cong. Rec. H12,575(daily ed. Dec. 20, 1974), reprinted in [19751 U.S. Code Cong. & Ad. News 7367.

46 11 Weekly Comp.Ofpres. Doc. (Jan. 10, 1975).

47 This provision was more restrictive than the corresponding provision in the House bill which excluded only countries the products of which “do not receive non discriminatory treatment” from the United States.

48 Emphasis added. This provision, which was known as the “Israeli Amendment” because it loosened the reverse-preference restrictions so as to permit Israel to qualify for the GSP, was substantially more liberal than the House version.

49 This amendment, proposed by Senator Taft, was apparently aimed at India.

50 Tax Reform Act of 1976, §1802, P.L. 94–455, 90 Stat. 1763, 19 U.S.C. §2462(b)(7).

51 The House bill provided the President with a general waiver of the limits on the basis of “national interest.” The Senate bill limited the waiver to countries that: (1) had a historical preferential trade relationship with the United States; (2) had a treaty or trade agreement covering economic relations with the United States in force at the time of the waiver; and (3) did not discriminate against, or impose unjustifiable or unreasonable barriers to, U.S. commerce. This provision, which remained in the law as enacted, is known generally as the “Philippine waiver,” because only the Philip-pines can meet the first requirement; it has never been used. Only Cuba, in addition to the Philippines, could potentially meet the first test, but Cuba is not currently eligible for the U.S. GSP by reason of the provision excluding Communist countries that do not have MFN status.

52 S. Rep. No. 1298, 93rd Cong., 2d Sess. 220 (1974), reprinted in [1974] U.S. Ode Cong. & Ad. News 7186,7350.

53 Trade Act, §503 (c)(1) , 19 U.S.C. §2464(c)(1) (Supp. V 1975).

54 These provisions were intended to be a shorthand description of Yugoslavia, which already had MFN status, and Romania, which was shortly to be granted it.

55 The conference combined the two exclusions into a single provision. This appeared to change the meaning by specifying that a member of OPEC or another arrangement was to be ineligible for the GSP if “such country participates” in an embargo or a price increase with disruptive effects. The use of the present tense might have been viewed as an exclusion only of countries that embargo or raise prices in the future and not as an automatic exclusion of all OPEC countries, their embargo and initial large price increase having occurred before passage of the Trade Act. An Administration review led to a conclusion not to follow this approach, however, in part because of intense congressional opposition to it. In addition to the ambiguity regarding the use of the present tense, a key phrase is repeated in the last lines of the provision as en-acted in a way that obscures the meaning. One version states that OPEC or other cartel members are ineligible for the GSP if they participate in embargoes or price increases “and … cause serious disruption of the world economy“; the other version uses the phrase “which causes serious disruption of the world economy.” See Trade Act, §502(b)(2), 19 U.S.C. §2462(b)(2), (Supp. V 1975).

56 Trade Act §203(f), 19 U.S.C. §2253(f) (Supp. V 1975).

57 Trade Act §331(a), amending Tariff Act of 1930 §516, 19 U.S.C. §1515(d)(3) (Supp. V 1975).

58 Id., § §131, 5 02 (a) (1) , and 503(a) , 19 U.S.C. § §2151, 2462 (a) (1) , and 2463(a), (Supp. V 1975), in combination, require that the following procedural steps be taken in order to implement the GSP: that the President notify the House and Senate of the beneficiary countries that he intends to designate, together with the considerations entering into his decision to designate them; that the President designate beneficiary countries by Executive order; that the President publish and furnish to the U.S. International Trade Commission (USITC) lists of articles that may be considered for GSP designation; that the USITC, within 6 months, furnish a report on the probable economic effects of such designations on domestic industries producing like or directly competitive articles and on consumers; that the Departments of Agri-culture, Commerce, Defense, Interior, Labor, State, and Treasury, and the Special Representative for Trade Negotiations, as well as other appropriate sources, furnish information and advice regarding the designations; and that the Administration hold public hearings with respect to the designations. The President may then designate eligible articles by Executive order and provide duty-free treatment for those articles when imported from the designated beneficiary countries.

59 The Executive had argued strenuously but unsuccesfully to the House-Senate conferees that the law should permit a temporary or conditional designation of beneficiary countries, in order to give the public and agencies studying potentially eligible articles a good idea as to which countries would be eligible, without requiring the exclusion of countries that could not immediately qualify under the criteria of eligibility.

60 Initial determinations regarding the effect of nationalization problems on a country's GSP eligibility were made by the Interagency Staff Coordinating Group on Expropriation. The Group operated under the auspices of the Council on International Economic Policy, but it was chaired by an official of the Department of State. The recommendations of this Group were sent to the Trade Policy Staff Committee for action.

61 Trade Act, §502(b), 19 U.S.C. §2462(b), (Supp. V 1975), sets forth the national economic interest waiver in the following terms: Paragraphs (4), (5), and (6) [the nationalization, drug, and arbitration exclusions]shall not prevent the designation of any country as a beneficiary developing country under this section if the President determines that such designation will be in the national economic interest of the United States and reports such determination to the Congress with his reasons therefor.

62 Letter of January 13, 1975, from President Ford to Speaker of the House Carl Albert and President of the Senate Nelson Rockefeller, on file at the Office of the Special Representative for Trade Negotiations. The President's letter stated that use of the waiver to designate all countries that would otherwise have been ineligible was in the national economic interest “in order to allow the International Trade Commission to take into account all prospective beneficiaries when evaluating the domestic economic effects of granting generalized preferential treatment.“

63 Exec. Order No. 11,844, 40 Fed. Reg. 55,275 (1975). The President determined that 18 of the designated countries (Afghanistan, Argentina, Bangladesh, Bolivia,Central African Republic, Congo (Brazzaville), Dahomey, Egypt, El Salvador, Ethiopia, India, Morocco, Pakistan, Sri Lanka, Sudan, Syria, Tanzania, and Zaire)were taking steps to carry out their obligations under international law with respect to nationalizations of U.S. property and thus were eligible for designation notwithstanding the nationalizations.

64 The 24 countries listed as under consideration were Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela (OPEC membership); Cyprus, Greece, Israel, Portugal, Spain, and Turkey (reverse preferences); Somalia, Uganda, People's Republic of Yemen (nationalizations); Romania (Communist, without U.S. MFN status or other requisites); and Hong Kong (controversy regarding developed state of its manufacturing industries).

65 Gerald R. Ford, “Remarks Upon Signing the Trade Act of 1974,” [1975] Pub Papers 3.

66 This attitude perhaps was based more on the symbolism of the exclusion than on the loss of tangible trade benefits. Only about 0.4 percent of dutiable Venezuelan exports to the United States and 11.9 percent of dutiable Ecuadorian exports would have been eligible for GSP in any event, based on 1972 data. Hearings on U.S. Trade Relations with Latin America Before the Subcom. on Western Hemisphere Affairs of the Senate Comm. on Foreign Relations, 94th Cong., 1st Sess. 221 (1975)(statement of Kenneth A. Guenther, Acting Deputy Special Trade Representative).The figures for the dutiable imports from the Arab OPEC members that stood to benefit from the GSP would, in all likelihood, be smaller still. OPEC members could, moreover, have qualified for GSP eligibility, pursuant to section 502(e) of the Trade Act, 19 U.S.C. §2462(e) (Supp. V 1975), by entering into agreements described in section 108 of the Trade Act, 19 U.S.C. §2118 (Supp. V 1975) that would assure the United States of “fair and equitable access” to oil “at reasonable prices.” Not surprisingly, the prospect of eligibility for the U.S. GSP was not sufficient leverage to induce the OPEC countries to seek such agreements, and it is doubtful that agreements could have been reached in any event, since such an agreement on the basis of current prices would have required implicit recognition by the United States that the current prices were “reasonable”.

67 The bill, H.R. 5897, was introduced by Congressman William Green and would have permitted the President to exercise the national economic interest waiver with respect to the OPEC members that did not participate in the 1973 oil embargo, i.e., Ecuador, Venezuela, Gabon, Indonesia, Iran, and Nigeria. An identical bill, S. 1706, was introduced in the Senate by Senator Brock. Another bill, S. 394, introduced by Senator Bentsen, would have denied GSP eligibility only to countries that both raised prices and participated in the embargo. Still another, S. 465, introduced by Senator Kennedy, would have permitted OPEC members in the Western Hemisphere (Ecuador and Venezuela) to qualify. Congressman Michael Harrington introduced in the House an amendment identical to that of Senator Kennedy.

68 Trade Act §502(a)(3), 19 U.S.C. §2462(a)(3), (Supp. V 1975) provides that:[I]n the case of an association of countries which is a free trade area or customs union, the President may by Executive order provide that all members of such an association other than members which are barred from designation under subsection(b) shall be treated as one country for purposes of this title.

69 For example, if Colombia imported widgets from Switzerland, increased their value by 30 percent, and exported them to the United States, the widgets would not qualify for the U.S. GSP because they would not meet the minimum 35 percent “rules of origin requirement.” If, however, LAFTA were designated as a single GSP beneficiary, and if Colombia added 30 percent to the value of the widgets and Peru added another 25 percent, then the widgets would qualify for GSP benefits under the 50 percent value-added requirement applicable to jointly designated free trade areas or customs unions.

70 Trade Act §502(c)(4), 19 U.S.C. §2462(c)(4) (Supp. V 1975).

71 40 Fed. Reg. 13,456 (1975). This list included virtually all eligible manufactured and semi manufactured articles, along with selected lists of primary mineral and agricultural articles that were developed with the approval of the Departments of Agriculture and Interior.

72 Letter of March 24, 1975, from President Ford to Chairman Katherine Bedell of the U.S. International Trade Commission, on file at Office of Special Representative for Trade Negotiations.

73 Exec. Order No. 11,846 §8(a), 40 Fed. Reg. 14,291 (1975).

74 Id. §8(b). The Trade Policy Committee consists of the Special Representative for Trade Negotiations, as Chairman, the Secretaries of State, Treasury, Defense, Agriculture, Commerce, Labor, and Interior, and the Attorney General. The STR subsequently delegated to the interagency Trade Policy Staff Committee [hereinafter referred to as the TPSC] the role of holding public hearings on the GSP, formulating initial positions on country and article designations, and tending to day-today matters for which interagency approval was a practical necessity. In practice, these functions were handled by a GSP subcommittee of the TPSC.

75 Trade Act §503(c), 19 U.S.C. §2463(c) (Supp. V 1975). The list is composed of “textile and apparel articles which are subject to textile agreements; watches; import-sensitive electronic articles; import-sensitive steel articles; footwear articles [in specified tariff categories]; import-sensitive semi manufactured and manufactured glass products; any other articles which the President determines to be import-sensitive in the context of the Generalized System of Preferences“; and articles “the subject of any action proclaimed pursuant to section 203 of this Act or section 232 or 351 of the Trade Expansion Act of 1962.“

76 The “Arrangement Regarding International Trade in Textiles” ([1974] 25 UST1005, TIAS No. 7840) is a multilateral “umbrella” arrangement worked out under auspices of the GATT to permit GATT Contracting Parties to enter bilateral agreements regulating textile imports. The product coverage of the MFA is described in very general terms and potentially encompasses virtually all textile items.

77 For an opinion of the STR Office that “import-sensitivity in the context of the GSP” implies a link between the sensitivity and the GSP program (as well as for a great deal of other information about the GSP program), see letter of April 15, 1976, from Ambassador Frederick B. Dent, Special Representative for Trade Negotiations, to Mr. Gerald O'Brien, Executive Vice President, American Importers Association, reprinted in American Importers Association, Generalized System Ofpreferences 3 (1976).

78 Secretary Kissinger's speech was read to the General Assembly by Ambassador Moynihan. 73 Dept. State Bull. 425 (1975).

79 These assurances consisted mainly of an undertaking to lower the MFN duty rates that applied to several key U.S. products so as to reduce or eliminate the margin of preference between these MFN rates and the preferential rates applicable to the same products from the E.E.C.

80 [1975] 26 UST 2305, TIAS No. 8159.

81 Presidential determination to this effect was signed on November 10, 1975. 41Fed. Reg. 2627 (1976).

82 It also was discovered that the Cocos (Keeling) Islands had been inadvertently left off the original designation.

83 GA Res. 3378. 30 GAOR, Supp. (No. 34) 83, UN Doc. A/10034 (1975).

84 For the text of Senate and House resolutions condemning the UN anti-Zionist resolution and calling for a reassessment of further U.S. participation in the General Assembly, see H.R. Res. 855, S. Res. 288, and S. Con. Res 73, 94th Cong., 1st Sess.(1975).

85 See supra note 1. The order was effective with respect to articles that were both imported (i.e., physically arrived) and entered or withdrawn from warehouse for consumption (i.e., cleared through customs) on or after January 1, 1976.

86 STR Press Release No. 211, Nov. 24, 1975. The list of 3,000 articles that originally were under consideration for GSP, which was published in March 1975, had excluded some 2,000 articles that were covered by the statutory exclusions. Imports from beneficiary developing countries of the 3,000 items on that initial list, after the competitive-need limits were applied, had a 1974 trade value of about $3.5 billion. The interagency review of USITC advice and the results of public hearings further reduced the initial list by some 300 items, worth about $0.9 billion in GSP trade to beneficiary LDC's. These 300 articles included automobiles; certain items of glass, china, and earthenware; honey and certain fruits and vegetables; bicycles; certain sporting goods; firearms; hardware; clocks; and electronic products; certain leather and wood products; and some chemicals. Id.

87 40 Fed. Reg. 60,047 (1975);. 19 C.F.R. Pt. 10.171–10.178 (1975).

88 40 Fed. Reg. 60,042 (1975); 15 C.F.R. Ch. XX, Pt. 2007 (1975). These regulations invite interested parties to submit information relevant to the import sensitivity of articles that they wish to have added or deleted from GSP product coverage. The regulations also permit the Trade Policy Staff Committee to review the GSP article coverage on its own motion.

89 Country eligibilities were considered to involve matters of foreign relations and classified information that were the exclusive concern of the Federal Government.

90 The dollar-value limit was raised to $26.6 million for 1975 by the “inflation escalator” clause in Trade Act §504 (c) (1) (A) , 19 U.S.C. §2464(c)(1)(A) (Supp. V1975), which provides that the ratio of the applicable dollar limit to nominal U.S.GNP for the calendar year to which such limit applies is to remain the same as the ratio of $25 million to 1974 GNP.

91 T h e competitive-need provision in Trade Act §504 (c) (1) , 19 U.S.C. §2464(c)(1)(Supp. V 1975), specifies that “whenever the President determines that any country[has exceeded in any year, for any article, the dollar or percentage limits] then, not later than 60 days after the close of such calendar year, such country shall not be treated as a beneficiary country with respect to such article…. ” The un work ability of this 60-day deadline arises from the fact that official import statistics and GNP data (needed to adjust the dollar limit, see supra, note 90), for the recently completed year do not become available until about mid-February, after which an implementing Executive order must be submitted to the White House with some lead time prior to signature by the President.

92 The initial competitive-need’ exclusions, which were announced in November1975, were based on data for calendar 1974. The Administration considered making no competitive-need changes in the first 60 days of 1976, but instead waiting until1977 to make changes based on 1976 data. This approach is not explicitly inconsistent with the statute, but it was rejected as being contrary to the spirit of the law and too untidy administratively, as it would have caused 1975 data never to be used in applying the competitive-need limits.

93 Exec. Order No. 11,906, 41 Fed. Reg. 8,758 (1976). The order also corrected—by summarily withdrawing the designation of face-finished plywood—the unfortunate results of having designated finished plywood for duty-free benefits, while continuing the 20 percent duty on the unfinished product, thereby placing domestic processors at a severe competitive disadvantage. The plywood item affected was classified to category 240.25 of the U.S. Tariff Schedules. The order also withdrew the designations of four iron alloy products (classified to tariff categories 607.01, 607.02, 607.03,and 607.04), for which the import duty is based on the alloy content, because it was considered practically impossible to administer GSP benefits for them.

94 Trade Act §504(c)(2), 19 U.S.C. §2464(c)(2) (Supp. V 1975), states that “a country which is no longer treated as a beneficiary developing country with respect to an eligible article by reason of this subsection may be re designated … if imports of such article from such country did not exceed the limitations … during the preceding calendar year.“

95 The only exception was Mexico's exports of woodwind musical instruments, for which 1975 import statistics were very near the 50-percent limit.

96 Nemmers & Rowland, supra note 3, at 905 n.191, cite the following actual examples that occurred during the 1977 competitive-need review, based on 1976 data: Syria exceeded the 50 percent limit for marjoram and thus became ineligible even though the total value of marjoram shipments from Syria during the whole of 1976was $595. Similarly, Hong Kong lost GSP eligibility for certain salts of vegetable origin, because its $400 shipment equaled 100 percent of U.S. imports of the item.

97 Trade Act §504(d), 19 U.S.C. §2464(d) (Supp. V 1975), provides that the 50-percent competitive-need limit “does not apply with respect to any eligible article if a like or directly competitive article is not produced on the date of enactment of this Act in the United States.” The Administration has published a list of 63 articles that have been determined to meet this test and for which the 50-percent limit thus does not apply. See 42 Fed. Reg. 20,973 (1977). A more flexible approach was first proposed by the Administration: to grant the President authority to waive the competitive-need limits for reasons of national interest. The limited waiver of both competitive-need rules that does exist, in §504(c)(i), (ii), and (iii), as has been shown above, can apply at present only to the Philippines.

98 The order had four separate lists, one in the body of the order and three in annexes. The first list, which the order inserted verbatim into the U.S. Tariff Schedules, set forth the articles that were subject to competitive-need exclusions, together with the countries that had exceeded the competitive-need limits for such articles. The second list, in Annex I of the order, subdivided several tariff categories in order to designate for GSP benefits only a part of each category (e.g., Item 107.50, “beef in airtight containers,” was divided into 107.48, “corned beef,” and 107.52, “other,“+ so that only corned beef could be designated). The third list, in Annex II, set forth the tariff item numbers of articles that were eligible for the GSP and were not subject to any competitive-need limits. The fourth list, in Annex III, contained the numbers for articles that were eligible for GSP benefits but were not to receive duty free treatment when imported from certain beneficiary developing countries that had exceeded the competitive-need limits for those articles. To understand the order, person not only had to understand the relationship of these three lists, but also had to have access to the U.S. Tariff Schedules, in order to translate the listed item numbers into product descriptions.

99 In particular, there was criticism of the restrictive approach taken by the regulations with respect to items that could be included in the “direct costs of processing” in the LDC claiming GSP benefits, for purposes of meeting the 35 percent value added requirement. These items excluded costs not “directly attributable to the merchandise,” such as profit, administrative salaries and salesman's commissions, advertising, etc.

100 See, e.g., “Scheme of Generalized Preferences of the United States of America,” UNCTAD, Doc. TD/B/C.5/38 (1975); “Report of the Seminar on the GSP,” Brussels, Nov. 18–27, 1975, UNCTAD Doc. TAP/160 (1976); Republic of the Philippines, “GSP Info Materials” (1975). “The Generalized System of Preferences: A Practical Guide,” available from U.S. Embassies and Consulates; U.S. Customs Service, “GSP and theTraveler” (1977). See also compilations of all GSP-eligible articles by product descriptions, all beneficiary countries, and all articles affected by competitive-need limits, published first in 41 Fed. Reg. 11,956 (1976) and later updated and published in 42 Fed. Reg. 20,914 (1977). See also a comprehensive and continuous reference service on the U.S. GSP, available for a fee from the American Importers Association, New York, N.Y.

101 The first review was weighted numerically toward product removals in part because domestic manufacturers reacted faster to the possibility of greater import competition than did importers or foreign exporters and their governments. In order to offset this bias, the executive branch proposed a number of articles for GSP designation during subsequent reviews.

102 Exec. Order No. 11,934, 41 Fed. Reg. 37,084 (1976). The actions taken by this order and the results of the first review are explained more fully in 41 Fed. Reg.37,859 (1976).

103 Exec. Order No. 11,960, 42 Fed. Reg. 4,317 (1977). This order was to have become effective March 1, 1977, but see infra, note 107. For an explanation of the actions taken by this order, as well as a listing of petitions that were under review, see 42 Fed. Reg. 9,636 (1977).

104 15 C.F.R., Ch. XX, Pt. 2007.1(b)(2).

105 Trade Act §501, 19 U.S.C. §2461 (Supp. V 1975).

106 Trade Act §503(c)(1)(G), 19 U.S.C. §2463(c)(1)(G) (Supp. V 1975).

107 Exec. Order No. 11,960, supra note 103, designating 26 articles for GSP eligibility as a result of the second review of petitions, was to have taken effect on March1, 1977, the same date that the annual competitive-need changes, based on 1976data, were required by law to take effect. In an effort to reduce confusion,Exec. Order No. 11,974, 42 Fed. Reg. 11,228 (1977), implementing the competitive-need changes, incorporated the designations made by Exec. Order No. 11,960, and revoked that order. Thus Exec. Order No. 11,960 never took effect, and its substance was implemented by Exec. Order No. 11,974. For anexplanation of Exec. Order No.11,974 and the competitive-need changes of February 1977, see 42 Fed. Reg.12,276(1977).

108 See the revised GSP regulations, published in 42 Fed. Reg. 45,532 (1977),which replace regulations currently codified at 15 C.F.R., Ch. XX, Pt. 2007.

109 Exceptions are Greece and Spain, which so far have been reluctant to make the accommodations that, in the U.S. view, are needed to remove the “significant adverse effects” on U.S. commerce of their reverse preferences for EC products.

110 Those non-OPEC LDC's that remain ineligible are Greece, the People's Democratic Republic of Yemen, Spain, and Uganda.

111 Source: STR Computerized information on the GSP.

112 GATT Doc . GATT/1,134 (1973), reprinted in 12 ILM 1533 (1973) and in GATT, 20th Supp. B.I.S.D. (1974).