Floor Situation

On Thursday, June 11, 2015, the House will consider the House Amendment to the Senate Amendments to H.R. 1295, the Trade Preferences Extension Act of 2015, under a unanimous consent agreement.  The Senate replaced the text of the previously passed House bill (the IRS Bureaucracy Reduction and Judicial Review Act), and approved the amended version of H.R. 1295 by a vote of 97 to 1 on May 14, 2015.

Bill Summary

H.R. 1295 reauthorizes and revises the African Growth and Opportunity Act (AGOA) and the Generalized System of Preferences (GSP), and extends the preferential duty treatment program for products from Haiti. The bill also includes provisions to expand opportunities for U.S. businesses in recreational performance outerwear and footwear.

The major provisions of the bill are as follows:

Title I—Extension of Africa Growth and Opportunity Act

Title I reauthorizes the Africa 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 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—Tariff Classification of Certain Articles

Title IV 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 IV:

• 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 V—Miscellaneous

Title V 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 VI—Offsets

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

• Strikes the 0.25 percent sequester of Medicare spending in 2024 included in the Trade Act of 2015.[7]
• 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.
• Strikes the Senate’s proposed new reporting requirements that would provide the IRS with additional information on individuals’ checking accounts, even if the accounts earn little or no interest income.

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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.
[7] See H.R. 1314, Trade Act of 2015 at Section 212.

Background

The African Growth and Opportunity Act (AGOA), passed by Congress in 2000, is a trade preference program,[8] 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.[9]  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.[10]

“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.”[11]

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.”[12]

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.”[13]

AGOA includes the following key provisions:[14]

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.”[15]

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.”[16]

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.”[17]

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.

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[8] Trade preference programs give nonreciprocal duty-free U.S. market access to select exports of eligible less developed countries.
[9] See CRS Report—“African Growth and Opportunity Act (AGOA): Background and Reauthorization,” at 1.  April 22, 2015.
[10] Id. at Summary.
[11] Id.
[12] Id.
[13] Id.
[14] See CRS in Focus—“African Growth and Opportunity Act,” at 1 and 2.  April 22, 2015.
[15] Id.
[16] See CRS Report—“Generalized System of Preferences: Background and Renewal Debate,” at 1.  April 21, 2015.
[17] See Committee on Ways and Means—“Section-by-Section Summary of House Amendment to the Senate Amendments to H.R. 1295,” at 6.

Cost

A Congressional Budget Office (CBO) cost estimate is currently not available.

Additional Information

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