Appendix A of 2001 ATPA Report
I. THE ANDEAN TRADE PREFERENCE ACT
A. PROVISIONS OF THE ACT
The Andean Trade Preference Act (ATPA) was signed into law by the President on December 4, 1991. The Act provides trade-related incentives aimed at promoting economic alternatives to coca production and drug trafficking in the Andean countries of Bolivia, Colombia, Ecuador, and Peru. A centerpiece of the Act is the unilateral provision of duty-free treatment for a wide range of U.S. imports from the region. No countries were designated as a beneficiary country until July 2, 1992. The ATPA will expire after 10 years on December 4, 2001 unless the program is renewed.
The ATPA is patterned after the Caribbean Basin Economic Recovery Act (CBERA) of 1983, which granted duty-free treatment to certain U.S. imports from designated Central American and Caribbean nations. Section 202 of the ATPA grants the President authority to extend duty-free treatment to all U.S. imports subject to duty, with certain exceptions, from those Andean nations designated by the President as beneficiary countries. The criteria for countries to be designated as beneficiaries are set forth in Section 203 of the ATPA. Section 204 establishes which articles may enter the U.S. duty-free under the program and provides safeguard provisions in the event that increased U.S. imports from beneficiary Andean nations cause, or threaten to cause, injury to a domestic industry.
B. BENEFICIARY COUNTRIES
Section 203 lists four countries which the President may consider in designating "beneficiary countries" under the program. These four countries are:
Bolivia and Colombia were designated as beneficiary countries on July 2, 1992, Ecuador on April 13, 1993, and Peru on August 11, 1993.
In this report, the term "beneficiary countries" refers to these four countries. Since the dates on which these countries became eligible for ATPA benefits differs, the historical data presented for 1991 through 2000 are for these four countries although some were not eligible during part of the time period covered.
C. ELIGIBLE PRODUCTS
To be eligible for duty-free treatment under the ATPA, articles grown, produced, or manufactured in a beneficiary country must meet the following rules of origin requirements:
Articles which do not meet these rules of origin requirements are subject to normal U.S. import duty rates. Certain articles are not eligible for duty-free treatment under the ATPA. Ineligible products include:
Finally, those items which were subject to import relief pursuant to Section 203 of the Trade Act of 1974 (the escape clause provisions) at the time when duty-free treatment of products under the ATPA became effective were also excluded from eligibility. However, the President is authorized to reduce or terminate such relief with respect to imports from ATPA-beneficiary countries pursuant to the criteria and procedures in Section 203 of the Trade Act of 1974.
Of approximately 10,000 tariff line items, 5,150 were eligible for ATPA duty-free treatment during 2000. Another 91 items (largely apparel) were eligible if they satisfied certain material content specifications. In addition, 50 leather items were eligible for reduced duties. Although approximately 5,150 tariff-line items are eligible for ATPA duty-free treatment, the ATPA countries exported to the United States only 1,105 of these items during 2000.
D. REDUCED DUTIES FOR LEATHER ITEMS
U.S. imports of leather products, excluding footwear, from the ATPA-beneficiary countries are subject to reduced duties. Duties on these products were reduced over five years (beginning in 1992) by 20 percent on goods with MFN (Column 1) rates of 12.5 percent or less and by 2.5 percentage points on goods with MFN rates greater than 12.5 percent. Thus by 1996, these reduced duties were phased in fully. Approximately 50 tariff-line items (the 8-digit HTS level)are eligible for these reduced duties; however the ATPA countries exported to the United States only 33 of these items.
The ATPA provides safeguards to domestic industries in the event that increased imports from beneficiary Andean nations cause, or threaten to cause, injury to U.S. industries.
Since the inception of the ATPA, there have been no instances of suspension of duty-free treatment of imports from beneficiary Andean nation countries arising from the normal escape clause safeguards. Similarly, there have been no suspensions pursuant to the safeguard for perishable products or requests for such suspension.
F. ATPA SPECIAL ACCESS PROGRAM FOR APPAREL PRODUCTS
On February 20, 1986, the President announced a new Special Access Program (SAP) for U.S. imports of certain textile and apparel items from the CBERA-beneficiary nations. The ATPA nations were included in the program as of August 1995. However, only Colombia of the ATPA nations is affected by the GAL program since apparel imports from the other ATPA nations (Bolivia, Ecuador, and Peru) are not subject to quotas; however, Colombia did not export under the SAP during 2000. The program, provided for under HTS 9802.00.8010, covers clothing and made-up textile products, but not other textile products such as fabrics, yarns, etc. The program makes available a 'two-tier' quota system for participating countries. Bilateral agreements are negotiated with each government (not with individual suppliers) and cover an entire textile category. Guaranteed Access Levels (GALs) assure access to the U.S. market for Andean-fabricated apparel products assembled from fabric formed and cut in the United States. Designated Consultation Levels (DCLs) or Specific Limits (SLs) for each product subject to quantitative restraint determine the level applicable to textile products, whether or not assembled solely from U.S. formed and cut fabrics. In general, GALs permit a much larger quantity of goods to be imported into the United States than DCLs or SLs. This is to encourage beneficiary producers to use U.S. formed and cut fabrics. Allocation of GALs within exporting countries is entirely at the discretion of the participating country. Imports not certified as GAL-eligible are counted separately and subject to normal textile and apparel call procedures.
G. COMPARISON OF THE ATPA AND THE CBERA
Although the Andean nations are not eligible for the duty-free provisions of Caribbean Basin Economic Recovery Act (CBERA), the ATPA was patterned after the CBERA and a comparison of the two may be useful. The items that are eligible for duty-free treatment under the two programs are quite similar; approximately 5,150 items are eligible for CBERA or ATPA duty-free treatment. Approximately 100 tariff line textile items which were added to the Multifiber Agreement (MFA) between 1983 and 1992 are eligible for duty-free treatment in some cases for the CBERA but not the ATPA beneficiaries. Both the CBERA beneficiaries and the ATPA nations (as of August 24, 1995) are eligible for Guaranteed Access Levels (GALs) which assure market access for apparel assembled from fabric formed and cut in the United States if the beneficiary nation has a bilateral textile agreement with the United States. The ATPA nations, unlike the CBERA beneficiaries, are not required to submit a food production plan in order to obtain eligibility for duty-free exports of certain agricultural products. The ATPA nations can use any CBERA-beneficiary value-added contained in their products in order to satisfy the domestic 35 percent rule of origin value-added requirement, while the CBERA nations may not include ATPA value-added. The ATPA nations are not allowed to use the Section 222 provision which allows duty-free imports of CBERA-beneficiary items which are wholly produced from U.S. components. Also the CBERA-beneficiaries are exempt from paying the U.S. customs user fee while the ATPA nations are not. Finally, the CBERA program is permanent while the ATPA is scheduled to expire in December of 2001; the permanence of the CBERA program could be significant in attracting foreign investment into the CBERA nations.
II. THE GENERALIZED SYSTEM OF PREFERENCES
A. GENERAL PROVISIONS AND COUNTRY ELIGIBILITY
Title V of the Trade Act of l974, which established the U.S. Generalized System of Preferences (GSP), authorized the President to grant duty-free treatment to eligible merchandise imports from beneficiary developing countries for a period of ten years beginning on January 1, 1976. All ATPA-eligible countries were initially designated in 1975 as GSP beneficiary developing countries. The program was extended to July 4, 1993 by the Trade and Tariff Act of l984, and extended for an additional 15 months by the Budget Reconciliation Act in August 1993; the program expired August 1, 1995 but was renewed (until May 31, 1997) on August 20, 1996 and made retroactive to the expiration date. During the period in which the GSP program had expired, importers were required to deposit duties at the NTR (MFN) rate. Since these items were eligible for duty-free treatment under the ATPA program, most importers which had been using the GSP program switched to the ATPA program in order to avoid having to deposit duties (or pay them in the event that the GSP was not renewed). Since May 31, 1997 the program has been extented and expired several times; when the extension was made after the expiration date, the extension was always made retroactive. The GSP program expired again on September 30, 2001; expectations are that the program will be extended.
B. PRODUCT ELIGIBILITY
The product coverage of the GSP program is periodically reviewed and items may be added or withdrawn from the eligible list. During 2000, approximately 3,500 (of a total of about 10,000) HTS items were eligible for GSP duty-free treatment. In 2000, $145.5 million entered duty free under the GSP from the ATPA-beneficiary nations; this was composed of approximately 900 tariff-level items. While there is substantial overlap in the products covered under the GSP and ATPA programs, product eligibility under the latter is more extensive. Under the ATPA, approximately 5,150 items are eligible for duty-free treatment; included are a range of manufactured products (e.g., electronic articles, steel products, and glass articles) and agricultural items which are excluded from such treatment under the GSP.
In order to receive GSP duty-free treatment, eligible items must be imported into the United States directly from a beneficiary developing country and meet certain rule of origin requirements. The GSP rules of origin are more restrictive than the ATPA rules in several ways. While the GSP rules stipulate that 35 percent of the value of the product must be added by a single beneficiary country, the ATPA rules provide that the 35 percent value-added requirement can be met through processes which may take place in several ATPA-beneficiary countries, the Caribbean Basin (CBERA) beneficiary countries, Puerto Rico or the U.S. Virgin Islands. In addition up to 15 percent of the 35 percent ATPA value-added requirement may be accounted for by the value of U.S.-made components.
The GSP program sets limits (referred to as the competitive-need limit) on the amount that may enter duty-free while there are no limits under the ATPA. A country loses GSP status for a product if in the preceding calendar year exports of that item: (l) exceeded in value an absolute dollar limit which is adjusted annually ($90 million in 1999, and $95 million in 2000), or (2) accounted for 50 percent or more of the value of U.S. imports in that category. If imports exceed the competitive-need limit during a calender year then the nation loses preferential treatment for that item beginning on July 1 of the following year.
Under provisions contained in the GSP program, these competitive-need limits are lowered when a beneficiary country is determined to have reached a sufficient degree of competitiveness. No ATPA-eligible country has been found sufficiently competitive in any article; and hence, all ATPA-eligible countries are subject to the higher GSP competitive-need limits.
A de minimis provision exists which allows the President to waive the 50 percent competitive-need limit in cases where total U.S. imports of an item do not exceed a certain dollar level which is adjusted annually ($14.5 million in 1999 and $15 million in 2000). The de minimis waivers provision was not in effect for the period covering July 1, 1995 to October 1, 1996, but was restored on the latter date.
During all of 2000, 27 products were ineligible for GSP treatment for at least one ATPA country because these items exceeded the competitive need limits in previous years. Beginning July 1, 2000, 6 additional products from at least one ATPA country became ineligible for GSP treatment through June 30, 2001 because they exceeded the competitive need limits during 1999.
Since imports under the ATPA program are not subject to any maximum limit, it is possible for products that are normally eligible for GSP, but currently subject to competitive-need limits, to enter (if eligible) under the ATPA program. Since only five HTS items are eligible for GSP but not ATPA, and there were no imports of these products during 1992-94 and very few during 1995-2000, the ATPA has made the competitive need limits of the GSP functionally irrelevant. Thus the ATPA "extends" the GSP by 1) increasing the number of products eligible for duty-free treatment, 2) relaxing the rule of origin requirement, and 3) eliminating any competitive-need limits.
The Harmonized Tariff Schedule of the United States contain two provisions 9802.00.60 and 9802.00.80 (formerly items 806.30 and 807.00 under the old Tariff Schedules of the United States) that extend special duty treatment to U.S. imports, from any country, which contain U.S.-made components or parts. These items are subject to U.S. duty only on the foreign value-added to the product.
Item 9802.00.60 of the HTS applies to nonprecious metal articles which have been manufactured or processed in the United States, exported from the United States for more processing, and then returned to the United States for further processing. Similarly, item 9802.00.80 applies to articles assembled abroad in whole or in part of components that have been manufactured in the United States, and then imported into the United States. While these provisions do not eliminate duties, they do offer the opportunity for duty reductions on items containing U.S.-made components that are not eligible for either ATPA or GSP benefits (e.g., certain textile, apparel, and leather items), or for eligible items which do not meet rules of origin requirements.