PRESIDENTIAL POLICY DIRECTIVE-- GSP PROGRAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90G01353R000400400008-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 16
• Document Creation Date: December 27, 2016
• Document Release Date: August 19, 2013
• Sequence Number: 8
• Publication Date: February 5, 1988
• Content Type: MEMO

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THE FOLLOWING DOCUMENTS
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Execu uve Secretary
9 Feb '88
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3637 (10-81)
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THE WHITE HOUSE
WASHINGTON
tflegtrj
88-0421x
CABINET AFFAIRS STAFFING MEMORANDUM
Date: Feb. 5, 1988 Number:
490,727.
Due By:
Subject: Presidential Policy Directive -- GSP Program
ALLCABINETMEMBERS
Vice President
State
Treasury
Defense
Justice
Interior
Agriculture
Commerce
Labor
HHS
HUD
Transportation
Energy
Education
Chief of Staff
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Attached is a memorandum from James A. Baker, III
concerning the GSP Program.
21/Nancy J. Risque
Cabinet Secretary
456-2823
(Ground Floor, West Wing)
o Associate Director
Office of Cabinet Affairs
456-2800
(Room 235,0E08)
e-soy-ff
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THE WHITE HOUSE
WAS
February 2, 1988
MEMORANDUM FOR THE ECONOMIC POLICY COUNCIL
SUBJECT: Presidential Policy Directive --
GSP Program
Pursuant to the Economic Policy Council memorandum of January 29,
1988, the President has decided to graduate Korea, Taiwan, Hong
Kong, and Singapore from the GSP program effective January 2,
1989.
4444.44
James A. Baker, III
Chairman Pro Tempore
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&A" nilThe etr intelligence
Washington,D.C.2050
National Intelligence Council
MEMORANDUM FOR THE RECORD
NIC 00342-88
26 January 1988
SUBJECT: EPC Meeting, 26 January on. Generalized System of Preference
1. The Economic Policy Council (EPC) decided unanimously to lift the
Generalized System of Preference (GSP) benefits for South Korea, Taiwan,
Hong Kong, and Singapore roughly one year from now but definitely before the
end of this administration. The announcement will be made 24 hours after
the President ratifies the EPC decision.
2. As a side issue, Deputy Secretary Martin suggested South Korea be
given a benefit for good economic performance such as OECD membership.
Deputy Secretary McPherson said Treasury was studying such a proposal.
Under Secretary Wallis said, "not a chance."
3. On Canadian free trade, Secretary Baker will meet with Bentsen,
Rostenkowski, Byrd, and Wright to urge early consideration of the bill.
Baker hopes to send it up for a 90-day fast track consideration (no changes
allowed) no later than 25 February.
cc:
D/DCI-DDCI Exec Staff
DD/OEA
AC/NIC
NIO/EA
,,,5,DXF11171AL
Deane E. Hoffmann
CL BY SIGNER
DECL OADR
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THE WHITE HOUSE
WASHINGTON
CABINET AFFAIRS STAFFING MEMORANDUM
Date: Jan. 25, 1988 Number: 490,724
Subject: Economic Policy Council Meeting
Due By:
Tuesday, January 26, 1988
Room 208 Old Executive Office Building -- 1:00 p.m.
ALL CABINET MEMBERS
Vice President
State
Treasury
Defense
Justice
Interior
Agriculture
Commerce
Labor
HHS
HUD
Transportation
Energy
Education
Chief of Staff
OMB
UN
USTR
CEA
FYI
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REMARKS:
RETURN TO:
The Economic Policy Council will meet on Tuesday,
January 26, 1988, at 1:00 p.m. in Room 208, Old
Executive Office Building. The agenda and background
materials are attached for your review.
EKancy J. Risque
Cabinet Secretary
456-2823
(Ground Floor, West Wing)
o Associate Director
Office of Cabinet Affairs
456-2800
(Room 235,0E0B)
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THE WHITE HOUSE
WASHINGTON
January 2.5, 1988
MEMORANDUM FOR THE ECONOMIC POLICY COUNCIL
FROM: EUGENE J. McALLISTER
SUBJECT: Agenda and Paper for the January 26 Meeting
The agenda and paper for the January 26 meeting of the Economic
Policy Council are attached. The meeting is scheduled for 1:00 p.m.
in Room 208 of the Old Executive Office Building.
The first agenda item will be a review of GSP benefits for
several newly industrialized countries. A paper prepared by the
TPRG, outlining the issue and offering some options, is attached.
Secretary Baker would also like to take a few minutes to discuss
the trade bill conference and the role of the Economic Policy
Council in developing Administration responses to the trade
conference actions.
CONFIDENTIAL ATTACHMENT
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ECONOMIC POLICY COUNCIL
January 26, 1988
1:00 p.m.
Room 208, Old Executive Office Building
AGENDA
1. GSP Benefits
2. Trade Legislation
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-MIEN IfiL
GRADUATION OF ADVANCED DEVELOPING COUNTRIES
FROM THE GSP PROGRAM
ISSUE
A majority of the Trade Policy Review Group has determined that,
based on levels of economic development and competitiveness, the
"graduation" of Korea, Taiwan, Hong Kong and Singapore from the
GSP program is appropriate. However, the timing of such graduations
has not yet been decided.
OPTIONS
1. THAT ALL 4 OF THESE COUNTRIES BE GRADUATED AT THE SAME TIME
-- ON JULY 1, 1988 (OR ALTERNATIVELY ONE YEAR FROM THE DATE
OF THE PRESIDENT'S DECISION).
Pros
-- These countries are sufficiently developed and competitive in
such a broad range of manufactured and semi-manufactured products
as to warrant graduation from the GSP program.
-- The four Asian countries are receiving disproportionate
benefits under this program, accounting for 58 percent of GSP
imports, thereby compromising the objective of the program.
Their graduation would bring the program more into line with its
original intent, i.e., to help the countries most in need.
-- Graduation is not likely to harm the economies of these
countries, since the average tariff on GSP eligible items is only
about 5 percent.
-- Graduation of all 4 countries at the same time is less likely
to provoke strong reactions from these countries, which compete
on many products, since none will perceive the action as creating
a competitive advantage or disadvantage between them.
Cons
-- Will not significantly impact on our bilateral trade deficits
with these countries.
-- Would negatively impact hundreds of U.S. firms that rely on
GSP duty-free imports.
-- Some domestic interests (e.g., the intellectual property
rights lobby) have expressed concern about the loss of GSP
"leverage" over the affected countries.
-- Graduation could undercut our credibility as "good faith"
negotiators, having just completed two years of GSP consultations
-k.;.L.A6.3.1-FIED
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Utli I 111
that resulted in politically sensitive commitments by some of
these countries under the assumption that such commitments would
enable them to continue to enjoy duty-free access to our market.
2. THAT KOREA AND TAIWAN BE GRADUATED ON JULY 1, 1988; SINGAPORE
AND HONG KONG WOULD BE GRADUATED ON JULY 1, 1989.
Pros
-- Korea and Taiwan maintain restrictive practices affecting many
U.S. exports, while enjoying enormous bilateral trade surpluses with
us. Singapore and Hong Kong, on the other hand, maintain open
markets and have been cooperative with the United States on trade
matters. Differentiation between the timing of graduation would
send a clear signal that the United States rewards team players.
-- Takes into account differences between the economies of the 4
countries. Korea and Taiwan have larger, more diversified,
economies. Hong Kong and Singapore are city-state economies.
-- U.S. GSP legislation and the GATT :Enabling Clause state that
advanced developing countries are expected to undertake greater
responsibilities in the trading system commensurate with their
relatively higher level of economic development. Hong Kong and
Singapore have undertaken greater responsibilities; Korea and
Taiwan have resisted undertaking responsibilities.
- USTR has received a great volume of mail opposing the graduation
of the NICs. A number of these letters encourage the Administration
to distinguish between Singapore and the other 3 Asian NICs, since
the U.S. electronics industry has heavily invested in component
production facilities in Singapore. Allowing greater adjustment
time for Singapore could benefit the U.S. electronics industry.
.
Cons
-- Would be perceived by the affected countries as providing
competitive advantages to some at the expense of the others.
-- Would be perceived by some as punitive, and ,therefore, could
result in charges that our action violates GATT rules, which
require non-discriminatory treatment of beneficiaries under GSP
programs.
-- Differentiation between the timing of graduations could be
perceived as inconsistent with the notion that the Administration's
graduation decision will be based on a set of fair and impartial
indicators. Hong Kong and Singapore have significantly higher
GNP per capita than Korea and Taiwan.
-- Would have negative consequences for our bilateral relationships
and could negatively impact our attempts to cultivate support for
our Uruguay Round initiatives.
CQNRfiENT1AL
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3. THAT NO COUNTRIES BE GRADUATED.
Pros
-- There would be no disruption of our bilateral relationships
with these Asian countries.
-- The U.S. importing community would not be adversely affected.
-- The intellectual property rights community would be pleased
since they have lobbied against "graduation."
The U.S. could not be accused by any of the four Asian countries
as "bad faith" negotiators which has been there major criticism.
"Graduation" could not be used by any of the four Asian
countries to undermine our Uruguay Round objectives.
Cons
-- Since these countries have achieved a relatively high level of
development and competitiveness, particularly when compared to
the vast majority of the other beneficiary developing countries,
to not graduate them would compromise the objectives of the GSP.
-- The U.S. firms that are competing with these countries in a
broad range of manufactures and who have questioned why these
countries are still receiving preferential tariff treatment would
"wonder" about the resolve of the Administration.
-- To not graduate these countries may send a signal that the
U.S. is not firm in its resolve to "push" the advanced developing
countries to take on increasing responsibilities in the international
trade and economic system.
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BACKGROUND ON GRADUATION OF CERTAIN ADVANCED DEVELOPING COUNTRIES
FROM THE GSP PROGRAM
The Program
The Generalized System of Preferences (GSP) is a temporary,
unilateral scheme of U.S. tariff preferences for developing
countries. It is designed to promote the economic development of
such countries by providing trade incentives in the form of duty-
free access to the U.S. market, rather than foreign aid. The
program covers some 3,000 products from 141 designated beneficiary
countries.
The GSP program is administered by the Office of the U.S. Trade
Representative. Any interested party may petition the GSP
Subcommittee of the Trade Policy Staff Committee, which is
chaired by USTR, to request modifications in the list of products
or countries eligible for GSP treatment. Petitions must be
submitted to the Subcommittee no later than June 1 to be considered
in that year's annual review. Petitions accepted for review are
subject to public hearings and a full review by the major Executive
Branch agencies having a role in U.S. trade policy. Modifications
made pursuant to the annual review are announced by executive
order or Presidential Proclamation on or about April 1 of the
following year and implemented on July 1.
In addition to changes resulting from petitions submitted in the
Annual Review, a country will automatically lose its GSP eligibility
with respect to a particular product if the so-called competitive
need limits are exceeded. These are statutory limitations
whereby if imports of a particular product from a particular
country account for 50 percent or more of total imports of the
product or exceed a certain dollar value in a calendar year, the
country will automatically lose its GSP eligibility on that
product the following year on July 1.
The President's Legal Authority
The President has plenary authority to "withdraw, suspend, or
limit" GSP preferences for any beneficiary country at anytime.
Prior, to withdrawing or suspending a beneficiary, the President
must notify the Congress and the beneficiary at least 60 days
before taking such action and outline the "considerations entering
into such decision." There are no other legal constraints on the
President and no specific criteria need be met to justify such
action. In addition, an implementing Proclamation would be
required.
However the law does provide for the removal of beneficiaries
from the GSP program after they exceed an indexed per-capita GNP
figure which is based at $8,500 (the actual 1986 figure is
$9,000). This provision was included in the law with the passage
CON IAL
77. TIT
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UUYMEN I IIAL
of the Trade and Tariff Act of 1984. When a beneficiary exceeds
the per-capita GNP figure, the law requires that their benefits
be reduced by half (i.e., "competitive need limits" are cut in
half) in July of the calendar year succeeding the year in which
the determination is made. These reduced benefits remain in
effect for two years after which the beneficiary is completely
removed from the program. None of the major beneficiaries of the
GSP program have exceeded or are expected to exceed this figure
in the near future.
Major GSP Beneficiaries
Attachment A provides relevant trade data, including GSP imports
for the 4 major Asian beneficiaries. The top six beneficiaries in
rank order are: Taiwan, Korea, Hong Kong, Mexico, Singapore and
Brazil. The Asian beneficiaries have clearly economically
outperformed Mexico and Brazil as well as the other important
beneficiaries of the GSP program (e.g., Israel, Thailand, Yugoslavia
and the Philippines).
GATT Considerations
GSP programs are autonomous and unilaterally offered, but as
derogations from the MFN principle of Article 1, are permitted only
within the terms of decisions by the Contracting Parties (CP's)
taken in 1971 and 1979 that allow "non-reciprocal and non-discri-
minatory" preferences to be offered to developing countries.
Removal of some beneficiaries from GSP eligibility would be seen
by some to violate the non-discriminatory aspect of the program.
However, the U.S. could argue that the 1979 Decision allowing
GATT CPs to offer such preferences also states that developing
beneficiaries benefitting from the special treatment are expected
to progressively take up greater responsibility in the GATT
system as their economies and trade situations improve. On that
basis, the U.S. could argue that removal of the more developed,
successful beneficiaries from GSP eligibility is consistent with
GATT.
pliergIAL
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I II1L
Country
Taiwan
Korea
Hong Kong
Singapore
Total,
Country
Taiwan
Korea
Hong Kong
Singapore
Totall
Country
Taiwan
Korea
Hong Kong
Singapore
Country
Taiwan
Korea
Hong Kong
Singapore
Total
RELEVANT TRADE DATA
Total U.S. Imports
1985
$16.3 bil
$9.9 bil
$8.4 bil
$4.2 bil
$38.8 bil
1986
$19.8 bil
$12.7 bil
$8.8 bil
$4.7 bil
$46 bil
Attachment A
1987(11 months)
$22.5 bil
$15.3 bil
$9.1 bil
$5.6 bil
$52.5 bil
U.S. Bilateral Trade Balances
1985
-$12 bil
-$4.3 bil
-$5.8 bil
-$901 mil
-$23 bil
U.S. GSP Imports
1985
19.6%
16.5%
14.3%
15.8%
1986
-$14.7 bil
-$6.8 bil
-$6 bil
-$1.4 bil
-$28.9 bil
1987(11 months)
-$16.5 bil
-$8.6 bil
-$5.7 bil
-$2.1 bil
-$32.9 bil
as a % of Total U.S. Imports
1986
19.0%
17.5%
16.0%
15.4%
1987(11 months)
17.4%
15.0%
17.3%
20.9%
U.S. GSP Duty-free Imports
1985
$3.2 bil
$1.6 bil
$1.2 bil
$674 mil
$6.7 bil
1986
$3.7 bil
$2.2 bil
$1.4 bil
$730 mil
$8.0 bil
CON TIAL
1987(11 months)
$3.9 bil
$2.3 bil
$1.6 bil
$1.2 bil
$9.0 bil
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GNP PER-CAPITA FIGURES FOR MAJOR GSP BENEFICIARY COUNTRIES
Country
1986 GNP per-capita Rank as Beneficiary(1987)
Taiwan $4,000
Korea $2,370
Hong Kong $6,800
Mexico $2,080*
Singapore $7,200
Brazil $1,640*
* 1985
2
4
5
6
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