outs are spread throughout the HTS providing duty-free treatment for specifically described articles which are "certified for use in civil aircraft" in accordance with general note 3(c)(iv). That note defines "civil aircraft" as all aircraft other than that purchased by the Department of Defense or the U.S. Coast Guard and sets out the three criteria for an imported aircraft product to qualify for duty-free treatment. The importer must certify that— (1) the article has been imported for use in civil aircraft; (3) that the article has been approved for such use by the Administrator of the Federal Aviation Administration or by the airworthiness authority in the country of exportation (if the FAA recognizes it as an acceptable substitute) or that application for such approval has been made to and accepted by the FAA. Section 234 of the Trade and Tariff Act of 1984 enacted on October 30, 1984, gave the President the authority to make additional tariff breakouts in designated TSUS items in order to provide dutyfree coverage comparable to the expanded coverage provided by all other signatories to the Aircraft Agreement pursuant to the extension of the Annex to the Agreement agreed to in Geneva on October 6, 1983. This duty treatment has been continued in the special rates subcolumn of the HTS for the relevant articles. Generalized System of Preferences TITLE V OF THE TRADE ACT of 1974, as AMENDED The concept of a Generalized System of Preferences (GSP) was first introduced in the United Nations Conference on Trade and Development (UNCTAD) in 1964. Developing countries asserted that one of the major impediments to accelerated economic growth and development was their inability to compete on an equal basis with developed countries in the international trading system. Through tariff preferences in developed country markets, the LDCs claimed they could increase exports and foreign exchange earnings needed to diversify their economies and reduce dependence on foreign aid. After several international meetings and long internal debate, in 1968 the United States joined other industrialized countries in supporting the concept of GSP. As initially conceived, GSP systems were to be: (1) temporary, unilateral grants of preferences by developed to developing countries; (2) designed to extend benefits to sectors of developing countries which were not competitive internationally; and (3) designed to include safeguard mechanisms to protect domestic industries sensitive to import competition from articles receiving preferential tariff treatment. In the early 1970's, 19 other members of the Organization for Economic Cooperation and Development (OECD) also instituted and have since renewed GSP schemes. In order to implement their GSP systems, the developed countries obtained a waiver from the most-favored-nation (MFN) clause of Article I of the General Agreement on Tariffs and Trade (GATT), which provides that trade must be conducted among coun tries on a nondiscriminatory basis. A 10-year MFN waiver was granted in June 1971 and was made permanent in 1979 through the "enabling clause" of the Texts Concerning a Framework for the Conduct of World Trade concluded in the Tokyo Round of GATT Multilateral Trade Negotiations. The enabling clause, which has no expiration date, provides the legal basis for "special and differential" treatment for developing countries. The enabling clause also requires that developing countries accept the principle of graduation, under which such countries agree to assume "increased GATT responsibilities as their economies progress." U.S. GSP basic authority Statutory authority for the U.S. Generalized System of Preferences is set forth in title V of the Trade Act of 1974, as amended.7 Authority to grant GSP duty-free treatment on eligible articles from beneficiary developing countries (BDCs) became effective under that Act on January 3, 1975, for a 10-year period expiring on January 3, 1985. The program was actually implemented on January 1, 1976 under Executive Order 11888. Relatively minor amendments to the statute were made under section 1802 of the Tax Reform Act of 1976 8 and section 1111 of the Trade Agreements Act of 1979.9 Title V of the Trade and Tariff Act of 1984 10 renewed the GSP program for 81⁄2 years until July 4, 1993, with significant amendments effective on January 4, 1985, particularly in the criteria for designating beneficiary countries and limitations on dutyfree treatment. The U.S. Trade Representative (USTR) administers the GSP program through an interagency committee to advise the President on GSP product and country eligibility. Section 501 of the Trade Act of 1974 as amended authorizes the President to provide GSP duty-free treatment on any eligible article from designated beneficiary developing countries, subject to certain conditions and limits, having due regard for (1) the effect of such action on furthering the economic development of developing countries through the expansion of their exports; (2) the extent other major developed countries are undertaking a comparable effort to assist developing countries by granting generalized preferences on their products; (3) the anticipated impact on U.S. producers of like or directly competitive products; and (4) the extent of the BDC's competitiveness with respect to eligible articles. The program currently provides duty-free treatment on imports of about 4,100 articles from 136 developing countries. Designation of beneficiary developing countries The following developed countries are prohibited under section 502(b) as amended by the 1984 Act from designation as BDCs: Australia Austria Czechoslovakia European Economic Community 1 Public Law 93-618, approved January 3, 1975, 19 U.S.C. 2461-2465. 8 Public Law 94-455, approved October 4, 1976, 19 U.S.C. 2462. 9 Public Law 96-39, approved July 26, 1979, 19 U.S.C. 2462-2464. 10 Public Law 98-573, title V, approved October 30, 1984. Iceland New Zealand Norway Republic of South Africa Switzerland Union of Soviet Socialist The President is also prohibited from designating any country for GSP benefits which: (1) Is a communist country unless (a) its products receive nondiscriminatory (MFN) treatment; (b) it is a Contracting Party to the GATT and a member of the International Monetary Fund; and (c) it is not dominated or controlled by international communism. (2) Has nationalized or expropriated U.S. property, including patents, trademarks, or copyrights, unless the President determines and reports to Congress there is adequate compensation, negotiations underway to provide compensation, or a dispute over compensation is in arbitration. (3) Fails to recognize as binding or enforce arbitral awards in U.S. favor. (4) Affords "reverse preferences" to other developed countries likely to have a significant adverse impact on U.S. com merce. (5) Is a member of OPEC or other arrangement and withholds supplies of vital commodity resources or raises their price to unreasonable levels, causing serious disruption of the world economy. Under a 1979 amendment, countries which entered bilateral product-specific agreements with the United States prior to January 3, 1980 (i.e., Venezuela, Ecuador, and Indonesia) are exempt from this condition unless they subsequently interrupt or terminate oil supplies to the United States. (6) Aids or abets international terrorism. (7) Has not taken or is not taking steps to afford internationally recognized workers rights to its workers. 11 The President may waive conditions (2), (3), (6), and (7), if he determines and reports with reasons to the Congress that designation of the particular country is in the national economic interest. In addition, the President must take certain other factors into account under section 502(c) as amended by the 1984 Act in designating BDCs: an expressed desire of the country to be designated; the country's level of economic development; whether other major developed countries extend GSP to the country; the extent the country has assured the United States it will provide "equitable and reasonable access" to its markets and basic commodity resources and refrain from engaging in unreasonable export practices; the extent the country is providing adequate and effective means for foreign nationals to secure, exercise, and enforce exclusive rights in 11 Defined by amendment under section 503 of the 1984 Act for purposes of GSP to include: "(A) the right to association; "(B) the right to organize and bargain collectively; "(C) a prohibition on the use of any form of forced or compulsory labor; "(D) a minimum age for the employment of children; and "(E) acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health". intellectual property; the extent the country has taken action to reduce distorting investment practices and policies and reduce or eliminate barriers to trade in services; and whether the country has taken or is taking steps to afford its workers internationally recognized worker rights. Before designating any beneficiary country, the President must notify the Congress of his intention and the considerations entering his decision. Before terminating designation of any beneficiary, the President must provide the Congress and the country concerned at least 60 days advance notice of his intention, together with the reasons. The President must withdraw or suspend the designation if he determines the country no longer meets the conditions for designation. The countries currently designated as BDCs of GSP are listed under general note 3(c)(11) of the Harmonized Tariff Schedule of the United States. Eligible articles The President designates articles under section 503 eligible for GSP duty-free treatment after considering advice required through public hearings, from the International Trade Commission (ITC) on the probable domestic economic impact, and from Executive branch agencies. GSP duty-free treatment is prohibited by statute on textile and apparel articles subject to textile agreements; watches, except those watches entered after June 30, 1989, that the President specifically determines after public notice and comment, will not cause material injury to watch or watch band, strap, or bracelet manufacturing and assembly operations in the United States insular possessions; 12 import-sensitive electronic articles; import-sensitive steel articles; footwear, handbags, luggage, flat goods, (e.g., wallets, change purses, eyeglass cases), work gloves, and leather wearing apparel which were ineligible for GSP as of April 1, 1984; and import-sensitive semi-manufactured and manufactured glass products. Articles are ineligible for GSP during any period they are subject to import relief under section 201-203 of the Trade Act of 1974 or to national security actions under section 232 of the Trade Expansion Act of 1962. The President must also exclude any other articles he determines to be import sensitive in the context of GSP. In order to administer this requirement, the USTR has established by regulation an interagency procedure for annual review of petitions from any interested party to have new articles added to, or removed from, the GSP list. The committee also considers modifications on its own motion. GSP duty-free treatment applies only to an eligible article which meets the following rule-of-origin requirements: (1) The article must be imported directly from a BDC into the U.S. customs territory; and (2) The sum of (a) the cost or value of materials produced in a beneficiary country, plus (b) the direct cost of processing per 12 This amendment was made by section 1903 of the Omnibus Trade and Competitiveness Act of 1988 Public Law 100-418, approved August 23, 1988. formed in such country is not less than 35 percent of the appraised value of the article when it enters into the U.S. customs territory. Materials and processing costs in two or more countries which are members of the same association of countries which is a customs union or free trade area may be treated as one BDC and cumulated to meet the 35 percent minimum local content. Materials imported into a BDC may be counted toward the 35 percent minimum valued-added requirement only if they are substantially transformed into new and different articles in the BDC, before they are incorporated into the GSP eligible article. Up until a recent court decision, Customs Regulations on GSP product eligibility required that, in addition to the statutory 35 percent added-value requirement, the imported article itself must be a product of the exporting BDC (i.e., have undergone there "substantial transformation" in such BDC), which is not specifically required in the GSP statute. The regulation was challenged in the U.S. Court of International Trade (Madison Galleries, Ltd. v. U.S.), which in June 1988, decided that only the 35 percent addedvalue requirement needs to be fulfilled. The decision was appealed by the U.S. Customs Service and affirmed on March 8, 1989, by the U.S. Court of Appeals for the Federal Circuit. Limitations on preferential treatment The President has general authority under section 504(a) to withdraw, suspend, or limit application of GSP and restore MFN duties with respect to any article or any country after considering the factors in section 501 and 502(c), but he cannot establish any intermediate rates of duty. Since 1981, this authority has been used in the context of the annual interagency review process for "discretionary graduation" from GSP of particular products from particular countries which have demonstrated their competitiveness and to promote a shifting of benefits to less advanced developing countries. Pursuant to the authority of this section, the President on January 29, 1988, notified the Congress of his intention to remove Hong Kong, the Republic of Korea, Singapore, and Taiwan from their status as beneficiaries under the GSP program. 13 This so-called graduation was effective on January 2, 1989, and was based on the President's assessment that these countries had "achieved an impressive level of economic development and competitiveness, which can be sustained without the preferences provided by the program." In addition to the annual review of petitions on article eligibility and discretionary graduation of particular products from particular countries, section 504 as amended by the 1984 Act applies statutory "competitive need" limitations of GSP duty-free treatment, subject to waiver under certain conditions. The basic purposes of the competitive need limitations are to (1) establish a benchmark for determining when products from particular countries are competitive in 13 Message from the President of the United States transmitting notification of his intent to remove Hong Kong, the Republic of Korea, Singapore, and Taiwan from the list of beneficiary developing countries under the Generalized System of Preferences (GSP), pursuant to 19 U.S.Č. 2462(a), House Document 100-162, February 1, 1988. |