H.R. 1295, Trade Preferences Extension Act of 2015

H.R. 1295

Trade Preferences Extension Act of 2015

Sponsor
Rep. Paul Ryan

Committee
Ways and Means

Date
June 25, 2015 (114th Congress, th Session)

Staff Contact
John Huston

Floor Situation

On Thursday, June 25, 2015, the House will consider the Senate amendment to the House amendment to the Senate amendment to H.R. 1295, the Trade Preferences Extension Act of 2015, under a rule. The House previously passed a House amendment to a Senate amendment to H.R. 1295 by a vote of 397 to 32 on June 11, 2015.  The Senate amendment under consideration adds Trade Adjustment Assistance and language identical to Title V of H.R. 644, which strengthens antidumping and countervailing duty laws, to the previously-passed House bill.

Bill Summary

H.R. 1295 reauthorizes and revises the African Growth and Opportunity Act (AGOA) and the Generalized System of Preferences (GSP), extends the preferential duty treatment program for products from Haiti, reauthorizes Trade Adjustment Assistance (TAA), and strengthens the enforcement of antidumping and countervailing duty laws.

The major provisions of the bill are as follows:

Title I—Extension of African Growth and Opportunity Act

Title I reauthorizes the African Growth and Opportunity Act (AGOA), first created as part of the Trade and Development Act of 2000.[1]  Specifically the Title:

  • Extends AGOA until September 30, 2025.
  • Promotes improving U.S. trade and investment with sub-Saharan African countries by advocating for decreasing tariffs and increasing the region’s ties to the global economy.
  • Encourages the adoption and implementation of World Trade Organization (WTO) agreements, including WTO Trade Facilitation Agreement.
  • Provides flexibility to the Administration to withdraw, suspend, or limit benefits under AGOA, if it determines that such action would be more effective in promoting compliance than terminating benefits.
  • Commits the United States to work with AGOA beneficiaries in the development and implementation of strategies to improve the effectiveness of the program
  • Allows the United States Trade Representative (USTR) to initiate an out-of-cycle review of a country’s eligibility and directs it to initiate such a review of South Africa within 30 days of enactment.
  • Includes provisions to promote the role of women in social and economic development, including the expansion of agricultural trade technical assistance with a focus on sectors that support women.
  • Improves transparency and participation in the AGOA review process, creating a petition process in which interested parties may file a petition with the USTR regarding the compliance of any AGOA beneficiary country.

Title II—Extension of Generalized System of Preferences

Title II reauthorizes the Generalized System of Preferences (GSP), a U.S. trade preference program first authorized by Title V of the Trade Act of 1974 that now applies to more than 120 developing countries.  The most recent authorization for GSP expired on July 31, 2013.[2]  Specifically the Title:

  • Extends the GSP until December 31, 2017 and provides retroactive relief to eligible products that were imported during GSP’s lapse in authorization.
  • Implements U.S. WTO commitments by authorizing the President to designate certain cotton articles as eligible articles for countries designated as Least-Developed Beneficiary Developing Countries (LDC’s)[3] under the GSP program.
  • Authorizes USTR to designate certain travel goods, including purses, briefcases, attaché cases, and backpacks, to be eligible under GSP.

Title III—Extension of Preferential Duty Treatment Program for Haiti

Title III amends the Caribbean Basin Economic Recovery Act to extend duty-free benefits programs for Haiti through September 30, 2025.[4] These programs were established by the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 (HOPE), the Food Conservation and Energy Act of 2008 (HOPE II), and the Haiti Economic Lift Program of 2010 (HELP).[5]

Title IV—Extension of Trade Adjustment Assistance (TAA)

 The bill reauthorizes Trade Adjustment Assistance for workers, farmers, and firms, as provided in the Trade Act of 1974, with certain changes, until June 30, 2021. The bill further provides for the reporting of certain performance and accountability measures to evaluate the successfulness of TAA programs. In general, TAA is a program that provides federal assistance to dislocated workers, farmers, and firms that have been adversely affected by international trade. The bill provides certain budget off-sets to ensure the legislation does not increase the deficit or debt, or raise taxes.

The bill makes changes to previous TAA authorizations, some of which are below:

  • Several underperforming programs are not authorized or have been cut from 2009 levels or converted from entitlement to discretionary spending.
  • Does not reauthorize TAA for Community Colleges program, which was funded through the Affordable Care Act reconciliation legislation at $500 million per year.
  • States are given increased latitude in determining the most appropriate training and work supports for TAA recipients, given local employment needs.
  • Funding for administration and services other than benefit checks is consolidated and reduced by 22 percent (from $575 million per year under 2009 and 2011 legislation, to $450 million per year under this agreement). Additionally, administrative funding is capped at no more than 10 percent (down from 15 percent).
  • Certain other process improvements to prioritize direct services for participants over administrative spending.
  • Performance goals under the bill are aligned with other job-training programs.
  • Public-sector workers are not covered under the agreement.

Extension of the Health Coverage Tax Credit (HCTC), with reforms—the legislation retroactively extends the Health Coverage Tax Credit (HCTC), from 2014 through 2019, at 72.5 percent. The HCTC is also modified to prohibit individuals from claiming the HCTC and certain other premium subsidies for the same coverage period, and to prevent use of the HCTC to purchase insurance through an Affordable Care Act Exchange.

Title V—Improvements to Antidumping and Countervailing Duty Laws

Title V provides the Department of Commerce flexibility to select appropriate facts available or adverse facts available when a foreign party fails to cooperate with the agency’s request for information in a proceeding relating to the enforcement of Antidumping and countervailing duty laws. The bill also provides that where a particular market situation exists that distorts pricing or cost in a foreign producer’s home market, the Department of Commerce has flexibility in calculating a duty that is not based on distorted pricing or costs.

The bill removes the existing requirement under law that a party allege that a foreign producer has made sales below its costs before the Department of Commerce initiates an investigation of sales below cost. The bill also clarifies that the Department of Commerce can disregard prices or costs of inputs that foreign producers purchase, if the Department of Commerce has reason to believe or suspect that the inputs in question have been subsidized or dumped.

Title VI—Tariff Classification of Certain Articles

Title VI amends the tariff classification of certain articles.  The Harmonized Tariff Schedule (HTS) classifies a good based upon its name, use, or materials used in its construction and is maintained by the U.S. International Trade Commission (ITC).[6] Specifically, Title VI:

  • Creates new, revenue-neutral HTS subheadings for recreational performance outwear.
  • Creates a new category of product called “protective active footwear,” which includes products such as certain water-resistant hiking shoes, trekking shoes, and trail running shoes.
  • Amends HTS to reduce the duty rate from 37.5 percent to 20 percent on protective active footwear.
  • Requires that any staged reductions in duties as may be required by U.S. free trade agreements for athletic footwear will also apply to protective active footwear.

Title VII—Miscellaneous Provisions

Title VII includes a provision requiring the President, not later than one year after the date of enactment, to submit a report assessing the contribution of U.S. trade preference programs to the reduction of poverty and elimination of hunger.

Title VIII—Offsets

Title VIII includes provisions to fully offset spending in the bill. Specifically, Title VIII:

  • Amends various federal user fee and tax provisions regarding timelines and collections to increase compliance, including a provision that increases the penalties the IRS may impose on taxpayers that fail to file correct information returns by the due date (e.g., IRS form 1099). The multi-tier penalty structure remains based upon the duration of delinquency, the size of the taxpayer, and the taxpayer’s intent.
  • A temporary extension of the 2011 increase in the Merchandise Processing Fee (from 0.21% to 0.34% of import value) paid on products from countries with which the Unites States does not have a free trade agreement. The purpose of this fee is to offset the costs incurred by U.S. Customs and Border Protection (CBP) for the inspection and processing of merchandise that is formally entered or released.
  • A temporary extension of the COBRA (Consolidated Omnibus Budget Reconciliation Act) fee, which is used to ensure all carriers and passengers entering the United States are compliant with U.S. Customs laws.
  • A short acceleration of corporate estimated tax payments.
  • Conforms the rules for the Additional Child Tax Credit (ACTC) — e., the refundable portion of the child credit — with the rules for the Earned Income Tax Credit (EITC) by denying the ACTC to taxpayers who elect the Foreign Earned Income Exclusion (FEIE). This provision prevents taxpayers earning six-figure incomes and who have no tax liability from receiving a check from the government for the ACTC because they appear to have low earned income.
  • This bill does NOT include provisions relating to a sequester cut on Medicare mandatory spending.

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[1] See Congressional Research Service AGOA report, April 22, 2015.
[2] See Congressional Research Service report, December 16, 2014.
[3] See Congressional Research Service report, December 16, 2014 at 5 and 11.
[4] See 19 U.S.C. 2703a.
[5] See “Trade Preference Programs for Haitian Textiles and Apparel,” International Trade Administration.
[6] See “Introduction to the Harmonized Tariff Schedule,” US ITC, January 29, 2015.

Background

Trade Preferences—The African Growth and Opportunity Act (AGOA), passed by Congress in 2000, is a trade preference program,[7] which among other things, provides duty-free treatment of certain products to “help spur market-led economic growth and development in sub-Saharan Africa (SSA) and deepen U.S. trade and investment ties with the region.[8]  Congress has amended AGOA five times since its enactment.  The current authorization expires on September 30, 2015.

AGOA is similar to the Generalized System of Preferences (GSP), a U.S. trade preference program that applies to more than 120 developing countries, in terms of tariff benefits and general eligibility criteria.  However, AGOA covers more products and includes additional eligibility criteria beyond those in GSP.  Additionally, AGOA includes trade and development provisions beyond its duty-free preferences.[9]

“U.S. imports from AGOA beneficiary countries represent a small share (1 percent) of total U.S. imports and are largely concentrated in energy-related products. Oil is consistently the top duty-free U.S. import from AGOA countries, accounting for 68 percent of such imports in 2014.”[10]

Among non-energy products, apparel is the top export for a number of AGOA countries. “U.S. apparel imports typically face relatively high tariffs and are excluded from duty-free treatment in GSP, but are included in the AGOA preferences, giving AGOA countries a competitive advantage over other apparel producers.  A handful of countries, primarily Lesotho, Kenya, and Mauritius, make significant use of the apparel benefits.”[11]

Other than apparel and energy products, “South Africa accounts for the bulk of U.S. imports under AGOA. As the most economically advanced country in the region, South Africa also exports a much more diverse range of manufactured goods than other AGOA countries; vehicles in particular have become a major South African export under AGOA.”[12]

AGOA includes the following key provisions:[13]

Trade Preferences—the primary component of AGOA is the duty-free treatment of U.S. imports of certain products from beneficiary countries. These tariff savings can potentially help AGOA exporters compete with lower-cost producers in other countries.

Relation to the Generalized System of Preferences—the Generalized System of Preferences (GSP) is another U.S. preference program, but unlike AGOA, GSP is not regionally based. The AGOA preferences include all products covered by GSP, as well as some products excluded from GSP, such as autos and certain types of textiles and apparel. In both GSP and AGOA, additional benefits are granted to least-developed countries.

Apparel and Third-Country Fabric Provision—AGOA’s duty-free treatment of certain apparel products is significant because (1) apparel articles face relatively high U.S. import tariffs; (2) they are excluded from GSP; (3) they can be manufactured in developing countries as their production utilizes lower-skilled labor and requires little capital investment; and (4) production in this sector can be a first-step toward higher value-added manufacturing. “The third-country fabric provision in AGOA . . . allows some U.S. apparel imports from least-developed sub-Saharan African countries to qualify for duty-free treatment even if the yarns and fabrics used in their production are imported from non-AGOA countries.”[14]

Trade Capacity Building—AGOA directs the President to provide U.S. government technical assistance and trade capacity building (TCB) in AGOA beneficiary countries. This assistance is designed to encourage governments to (1) liberalize trade policy; (2) harmonize laws and regulations with WTO membership commitments; (3) engage in financial and fiscal restructuring; and (4) promote greater agribusiness linkages.

Executive Branch Initiatives—AGOA encourages the President to seek partners in the region for reciprocal free trade agreements (FTAs). Until the provision expired in 2008, AGOA also required the President to report annually to Congress on U.S. trade and investment policy toward sub-Saharan Africa and AGOA implementation.

AGOA Forum—AGOA requires the President to convene an annual forum to discuss expanding trade and investment relations and the implementation of AGOA.

The Generalized System of Preferences (GSP) Program “gives unilateral, nonreciprocal preferential tariff treatment to certain products imported from designated beneficiary developing countries (BDCs). The United States, the European Union, and other developed countries have implemented such programs since the 1970s in order to promote economic growth in developing countries by stimulating their exports.”[15]

The program’s authorization expired on July 31, 2013.  Section 201 of the House Amendment to the Senate Amendments to H.R. 1295 extends the GSP program until December 31, 2017, and “retroactively applies to goods imported on or after July 31, 2013, that would have been eligible for duty-free treatment under the GSP program as of the date of enactment.”[16]

Click here for a Congressional Research Service report detailing implementation of the GSP by the United States and the program’s provisions regarding eligible countries, eligible products, and oversight.

Antidumping and Countervailing—“Two major U.S. trade remedies, each set out in Title VII of the Tariff Act of 1930, are antidumping (AD) law, which combats the sale of imported goods at less than their fair market value, and countervailing duty (CVD) law, which is aimed at offsetting foreign government subsidization of imported items. If dumped or subsidized imports are found to cause material injury, or threat, to a domestic industry, and the dumping margin or the net subsidy is not de minimis, antidumping or countervailing duties will be imposed.  Both remedies are available when goods are imported from competitor countries that have free market policies. Since 1984, however, only AD law had been applied to goods from nonmarket or other “transitional” economies. With the continued economic growth of some of these economies, such as China and Vietnam, pressure has increased on the U.S. government to utilize both domestic trade remedies more aggressively against unfair imports from these countries.”[17]

AD law has been used and amended several times since its inception with the Antidumping Act of 1921. CVD law has not been widely used, particularly against nonmarket or “transitional” economies (NMEs). World Trade Organization (WTO) agreements, together with the WTO Accession Protocols of China and Vietnam, acknowledge that AD and CVD duties may be imposed on these countries’ goods, and that surrogate country data may be used to calculate dumping margins or subsidization.[18] This surrogate approach, codified in the Trade Act of 1974, allows comparable prices and costs from similarly situated third countries to be substituted for the NME country’s data to determine fair market value.[19]

Trade Adjustment Assistance (TAA)—is a program that provides federal assistance to dislocated workers, farmers, and firms that have been adversely affected by international trade. TAA has routinely been reauthorized alongside trade legislation and was last reauthorized in 2011.

Trade Adjustment Assistance for Workers—is a program that provides federal assistance to dislocated workers who have been adversely affected by international trade. Its primary benefits are funding for retraining and weekly income support payments only if affected workers are enrolled in retraining programs. In order to receive benefits, a group of workers must apply to the Department of Labor (DOL) proving that, among other things, international trade “contributed importantly” to their job loss.

TAA for Workers authorizes funding for several training programs for workers adversely affected by trade, though the most common is occupational training. The code stipulates that funding can only be made available for such programs if there is reasonable expectation of employment following completion of the training.

Workers who have met the aforementioned DOL requirements and have also exhausted their regular unemployment insurance (UI) benefits are eligible to receive a Trade Readjustment Allowance (TRA), or a weekly payment equal to the workers last UI payment. Workers are eligible to receive either TRA or UI benefits for the duration of their training program or up to a combined maximum of 117 weeks, with up to an additional 13 weeks available only if a worker can show a need for additional training and a worker has “substantially met the benchmarks” of the training program. In FY 2013, 71 percent of participants entered employment in the first quarter after exiting the program.[20]

TAA for Workers was set to be phased out beginning January 1, 2015, but H.R. 83, the Consolidated and Further Continuing Appropriations Act, 2015[20]  provided $711 million in funding for the full operation of the program through FY 2015.[21] Congress last reauthorized the program in 2011, aligned with the passage of free trade agreements with Columbia, Panama, and South Korea.[22]

Trade Adjustment Insurance for Farmers—is a discretionary program designed to provide technical assistance and payments to trade-affected agricultural producers. “To be certified, a group must show that imports were a significant cause for at least a 15 percent decline in one of three factors: the price of the commodity, the quantity of the commodity produced, or the production value of the commodity. . . From 2009 to 2011, the United States Department of Agriculture (USDA) certified 10 of 30 petitions filed by producers of five commodity groups—shrimp, catfish, asparagus, lobster, and wild blueberries. The USDA approved TAA for Farmers benefits for about 4,500 individual producers in FY 2010, and for about 5,700 producers in FY2011.”[23] The programs last received funding in the first quarter of FY 2011.

Trade Adjustment Assistance for Firms—is a discretionary program designed to help workers and firms adjust to import competition and dislocation caused by trade agreements. The program provides technical assistance, on a cost-sharing basis, to help eligible businesses create and implement targeted business recovery. The TAA for Firms received $12.5 million in funding in FY 2015.[24]

The House and Senate have considered several additional bills relating to trade in the 114th Congress, including:

  • H.R. 2146, the Trade Priorities and Accountability Act of 2015. The bill, which included Trade Promotion Authority, passed the House on June 18, 2015, by a vote of 218 to 208 and the Senate on June 24, 2015, by a vote of 60 to 38.
  • H.R. 1314, the Trade Act of 2015. The bill included TPA and TAA. Pursuant to the rule for its consideration, the question on adoption of the bill in the House was divided into separate votes on Title I (TPA) and Title II (TAA) and provided that if any remaining portion of the divided question should fail, then the House shall be considered to have made no disposition on the bill. On June 12, 2015, the House voted on Title II of the bill, which failed by a vote of 126 to 302. The House then voted on Title I of bill, which passed by a vote of 219 to 211. Speaker Boehner then made a motion to reconsider the vote on Title II. The House subsequently postponed the motion to reconsider until any time through July 31, 2015.
  • H.R. 644, the Trade Facilitation and Trade Enforcement Act of 2015. The bill provided tools to facilitate legitimate trade, improves customs enforcement, measures progress within U.S. Customs and Border Patrol, strengthens TPA legislation, and bolsters U.S.-Israel trade and commercial ties. The bill also included provisions strengthening the antidumping and countervailing duty laws, which are now included in Title V of H.R. 1295. The House voted to agree with an amendment to the Senate amendments on this bill by a vote of 240 to 190 on June 12, 2015.

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[7] Trade preference programs give nonreciprocal duty-free U.S. market access to select exports of eligible less developed countries.
[8] See CRS Report—“African Growth and Opportunity Act (AGOA): Background and Reauthorization,” at 1.  April 22, 2015.
[9] Id. at Summary.
[10] Id.
[11] Id.
[12] Id.
[13] See CRS in Focus—“African Growth and Opportunity Act,” at 1 and 2.  April 22, 2015.
[14] Id.
[15] See CRS Report—“Generalized System of Preferences: Background and Renewal Debate,” at 1.  April 21, 2015.
[16] See Committee on Ways and Means—“Section-by-Section Summary of House Amendment to the Senate Amendments to H.R. 1295,” at 6.
[17] See CRS report, “U.S. Trade Remedy Laws and Nonmarket Economies: A Legal Overview,” January 31, 2013 at 1.
[18] Id. at 1.
[19] See CRS Report “Trade Adjustment Assistance for Workers,” January 27, 2015, at 2.
[20] See Public Law 113-235 at 325.
[21] http://www.doleta.gov/tradeact/
[22] See CRS Report “Trade Adjustment Assistance for Workers,” January 27, 2015, at 1.
[23] See CRS Report “Trade Adjustment Assistance for Farmers,” December 15, 2014, at 1.
[24] See CRS Report “Trade Adjustment Assistance for Firms,” January 30, 2015 at 1.

Cost

The Congressional Budget Office (CBO) estimates that enacting H.R. 1295, as amended by the most recent Senate amendment, would reduce the deficit by $52 million over the 2015 to 2025 period.

Additional Information

For questions or further information please contact John Huston  with the House Republican Policy Committee by email or at 6-5539.