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Estimated Impacts of the
U.S. Generalized System of Preferences
to U.S. Industry and Consumers







November 1, 2006
1
Estimated Impacts of the U.S. Generalized System of
Preferences on U.S. Industry and Consumers


Executive Summary




The U.S. Generalized System of Preferences (GSP) program is a trade
preference program that extends duty-free treatment to selected goods imported
from specified developing countries. Its purpose is to promote economic
development in developing countries by expanding their trade with the United
States. Congress established GSP in 1974 and legislation authorizing the
program has been in effect for the last 32 years. By 2005, U.S. imports under
GSP totaled $27 billion.


Over its 30 years of operation, GSP has become an important component
of the competitiveness of American manufacturers and an integral part of
sourcing for those who sell a range of consumer goods to American families.
This study examines the impacts of GSP from the U.S. perspective. It finds:


GSP keeps American manufacturers and their suppliers competitive. In
2005, three quarters of U.S. imports using GSP were raw materials, parts
and components, or machinery and equipment used by U.S. companies to
manufacture goods in the United States for domestic consumption or for
export. Electrical equipment and parts, and transportation vehicle parts
are significant imports under GSP.


American families also benefit from GSP. Finished consumer goods
typically sold by retailers accounted for 25 percent of GSP imports in
2005. Jewelry sold at lower price points was the most significant item.


GSP is particularly important to U.S. small businesses, many of whom rely
on the programs duty savings to compete with much larger companies.


We estimate that annual sectoral benefits to consumers of GSP products
range up to $273 million.


GSP imports support U.S. jobs. We estimate that direct and indirect jobs
associated with moving aggregate GSP imports from the docks to the
retail shelves totaled nearly 82,000 in 2005.




2
Estimated Impacts of the U.S. Generalized System of
Preferences on U.S. Industry and Consumers
*



I. Introduction


The U.S. Generalized System of Preferences (GSP) program is a trade
preference program that extends duty-free treatment to selected goods imported
from specified developing countries. Its purpose is to promote economic
development in developing countries by expanding their trade with the United
States. Congress established GSP in 1974 and legislation authorizing the
program has been in effect for the last 32 years.
1
By 2005, U.S. imports under
GSP totaled $27 billion.



Many have attempted to examine the economic impacts of GSP on
beneficiary developing countries.
2


Estimates of the effect of the GSP program
on U.S. imports from developing countries range from increases of 11 percent to
64 percent.


Over its 30 years of operation, GSP has become an important component
of the competitiveness of American manufacturers and an integral part of
sourcing for those who sell a range of consumer goods to American families.
While the enormous size of the U.S. economy relative to total U.S. imports under
GSP limits the national economic impact of GSP, at the sector-specific level, the
impact can be significant. This study updates and expands earlier research that
measures that U.S. economic impact of GSP from the perspective of U.S.
national welfare, and jobs supported. We focus on U.S. sectors that account for
75 percent of total non-oil U.S. imports under GSP in 2005 (see Table 1). These
industries represent a wide range of products, from popular consumer goods

* This study was prepared for the U.S. Chamber of Commerce by The Trade
Partnership and Dr. Kara M. Reynolds, Assistant Professor of Economics, The American
University.

1

A detailed description of the U.S. GSP program can be found in The Trade
Partnership, The U.S. Generalized System of Preferences Program: An Update,
March 2006, www.tradepartnership.com/pdf_files/2006_GSP_update.pdf, as well as
Office of the U.S. Trade Representative, U.S. Generalized System of Preferences
Guidebook, January 2006,
www.ustr.gov/assets/Trade_Development/Preference_Programs/GSP/asset_upload_file
890_8359.pdf.

2

See, for example, R.E. Baldwin and T. Murray, "MFN Tariff Reductions and
Developing Country Trade Benefits Under the GSP," The Economic Journal 87: 30-46,
1977; Craig R. MacPhee and Victor I. Ogulego, "The Trade Effects of the U.S.
Generalized System of Preferences, Atlantic Economic Journal 19: 19-26, 1991.

3
(e.g., jewelry and televisions) to basic raw materials (e.g., ferroalloys and
plastics) used to produce other goods in the United States. In fact,
approximately 75 percent of all GSP imports are non-finished goods that U.S.
companies and workers use to stay competitive in world markets; the remaining
25 percent are finished consumer goods typically sold by retailers directly to
American families.

The analysis illustrates the extent to which GSP products lower costs for
consumers, not only of finished products sold by retailers, but also of raw
materials used by U.S. manufacturers to produce goods in the United States.
Section 2 of this study outlines those benefits. The analysis also indicates that
the GSP program supports many thousands of jobs in the United States,
particularly in small businesses, one of the primary drivers of employment
growth. Section 3 estimates U.S. employment related to total GSP imports.
Appendix A describes the methodology used to estimate the economic effects of
GSP by sector; Appendix B describes the methodology used to estimate the
number of U.S. jobs linked to imports under GSP.


Table 1
Leading U.S. Imports Under GSP by Sector, 2005
(Millions)


Customs
Tariff
Share of Non-
Products
Value
Savings
Oil Imports

Jewelry and jewelry parts
$3,584.8
$202.5
17.2%
Electrical equipment and parts
2,224.4
75.9
10.6
Transportation vehicle parts
1,617.4
40.6
7.7
Chemicals
1,351.6
60.5
6.5
Plastics and plastic products
1,350.2
65.9
6.5
Iron and steel materials and products
1,253.1
45.6
6.0
Wood and wood products
921.8
47.4
4.4
Machinery and parts
907.2
26.3
4.3
Aluminum mill products
791.6
26.9
3.8
Copper and copper products
653.6
15.5
3.1
Rubber and rubber products
619.5
21.3
3.0
Stone and plaster products
487.6
19.1
2.3

TOTAL, Top 75% of GSP Imports
$15,762.6
$647.5
75.4%
TOTAL, All GSP Imports
$26,747.1
$923.3
100.0%


Source: The Trade Partnership from official statistics of the U.S. Department of Commerce






4
II.
Effects of GSP: U.S. Sectoral Perspective

Twelve sectoral categories accounted for 75 percent of non-oil GSP
imports in 2005. Among those categories, jewelry is the only product primarily
sold direct to American consumers, although consumer goods fall within several
other categories as well (e.g., televisions under electrical equipment, picture
frames under wood products). The other 11 categories primarily represent raw
materials, components or other goods (like machinery) used by American
manufactures in U.S.-based production.

A.
Jewelry and Jewelry Parts

Jewelry and parts were the most significant (in terms of total value) single
product category that benefited from GSP duty-free treatment. Imports of these
products reached more than $3.5 billion in 2005 (see Table 2). Most ($3.4 billion,
or 96 percent) of the goods imported in this sector were precious metal jewelry
items, notably diamond rings from India largely sold at relatively low retail prices
($50 to $300). Extension of GSP to this product in 2001 made it possible to
supply consumers who find this range of price points attractive consumers who
previously could not afford diamond engagement rings because of their cost.
GSP benefits are also important for purchases of costume and imitation jewelry,
the second-largest category of jewelry products imported under GSP. U.S.
jewelry retailers and those who supply them rely on India for low-cost diamond
jewelry (50 percent of total U.S. GSP jewelry imports), Thailand for colored stone
jewelry (23 percent), and Turkey for gold jewelry (11 percent).

Tariff savings afforded by GSP are significant for these