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Preference Programs Have Aided Decline in Poverty, USTR Says

Friday, July 08, 2016
Sandler, Travis & Rosenberg Trade Report

A recent report from the Office of the U.S. Trade Representative finds that U.S. trade preference programs have made a “valuable contribution” to the “remarkable” declines in poverty and undernourishment over the past decade.

The Generalized System of Preferences, the African Growth and Opportunity Act and the Caribbean Basin Economic Recovery Act waive tariffs on thousands of goods sourced from developing countries meeting certain eligibility criteria. In 2015 these three programs provided duty-free treatment to about $27 billion worth of goods from 126 beneficiary countries and territories, accounting for about 1.3 percent of the $2.2 trillion in total U.S. goods imports and 13 percent of the $212 billion in all goods sourced from beneficiary countries. 

The report finds that over the last four decades these trade preference programs have had significant success in helping smaller and poorer countries – even those that make only modest use of these programs – to compete, develop value-added industries and support higher-quality employment. By helping to promote economic growth through trade they have made a contribution to the larger effort to alleviate poverty and reduce hunger in the developing world. The report states that they are likely to retain this role through the next decade for many beneficiary countries, particularly least-developed countries that do not yet have the capacity to negotiate and implement comprehensive free trade agreements. In addition, preference programs remain an important element of U.S. trade and development policy and are important to U.S. relationships with beneficiary countries.

At the same time, the report adds, there are limitations to the benefits of these programs. The impact of the duty-free treatment they provide on the reduction of poverty and hunger may begin to wane in light of an overall drop in tariff rates worldwide, including through the negotiation of free trade agreements. In addition, economic research and available data suggest that preferences are only one element in the larger set of trade policies that help promote development. Opening national markets and undertaking internal reforms to address supply-side constraints such as slow and expensive port transits, costly telecommunications, the time and expense of managing overly complicated trade paperwork, inefficient internal transport and logistics bottlenecks, and other challenges will also be essential to success in trade, the report states. It will therefore be important to help beneficiary countries not only fully utilize preference programs in their formative years but also, over time, look to advance beyond preferences to more stable, reciprocal arrangements that can more fully integrate them into the global economy.

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