A Little Help From GSP

Two U.S. companies long embroiled in a fight with the Argentine government over its refusal to honor arbitral awards under a bilateral investment treaty have turned to a new tactic: petitioning for the withdrawal of Argentina’s status as a beneficiary developing country under the Generalized System of Preferences.

Frustrated at their failure to secure payment through negotiations with the Argentine government, Blue Ridge Investments and Azurix have tactfully employed this statutory strategy to pressure the U.S. and Argentine governments to address their concerns. U.S. exporters should take note and consider employing this effective but seldom-exercised tool to address market-access problems.

The U.S. uses several trade preference programs to assist many countries, usually in the developing world, through enhanced access to the U.S. market.

Designed to promote economic growth, they provide preferential duty treatment for thousands of products from more than 100 designated beneficiary countries and territories. But beneficiary countries must meet statutory mandatory requirements to qualify for preferential treatment.

Every preference program reviews country and product eligibility annually. Public comments on the eligibility of countries to receive the trade preference benefits are solicited. The reviews offer highly underutilized opportunities for U.S. companies to turn up the heat on the U.S. government and the foreign government to address a market access issue.

The reviews can serve as an effective pressure point for four key reasons:

-- The mandatory criteria for country eligibility under most preference programs address some of the most common and troublesome market access issues U.S. exporters face. For example, all of the preference
programs prohibit intellectual property violations such as patent, trademark and copyright infringement. Likewise, discretionary criteria for all the preference programs include the degree to which a country provides access to its markets. These statutory mandatory and discretionary criteria provide the legal basis for a submission challenging the GSP benefits of a country that does not meet the criteria. This is important because it arms the company with a legal hook to approach the U.S. government.

-- More pressing market access problems arise in developing countries. Other than China, these countries are the most likely to lack proper enforcement mechanisms for intellectual property and licensing rights and where U.S. companies are most likely to face piracy.

-- Beneficiary countries are sensitive to any challenge to their GSP benefits. These benefits account for millions of dollars in trade, so making a challenge to a country’s eligibility to receive these duty preferences can be an effective way to highlight your issue. Likewise, given the number of domestic stakeholders in the subject country who rely on these benefits for their U.S. exports, making noise regarding GSP benefits also can lead to domestic pressure from exporters to address your issue.

-- Given the current administration’s emphasis on market access enforcement, U.S. companies are better positioned than ever to make strong country review petitions for the various trade preference programs.

Azurix and Blue Ridge used the 2009 review of the GSP, the biggest and most well-known preference program in the U.S., as a tool to address their investment arbitration issue. The GSP promotes economic growth in the developing world by providing preferential duty-free entry for about 4,800 products from 131 designated beneficiary countries and territories.

The U.S. government, through the GSP Subcommittee, conducts an annual review of the list of articles and countries eligible for duty-free treatment. U.S. companies may petition the GSP Subcommittee to make modifications to the list of GSP-eligible countries. Petitions accepted for review are subject to public hearings and a full review by the major executive branch departments having a role in U.S. trade policy.

Azurix and Blue Ridge took advantage of the statutory framework for GSP benefits by highlighting Argentina’s failure to meet eligibility criteria in the annual GSP review. By doing so, they availed themselves of an audience before the U.S. government through a formal process required by statute. This is critical because when it comes to problems U.S. companies face with foreign governments, the U.S. company is often powerless without the backing of the U.S. government.

Many U.S. exporters facing barriers to trade in goods and services find themselves in a similar position to Azurix and Blue Ridge in that they have a problem with a foreign government that they are unable to solve alone. They would be well-served to familiarize themselves with the various trade preference programs, their reporting opportunities, and their eligibility requirements.

Filing a petition challenging preference benefits alone may not completely rectify the issue, as the president ultimately determines which countries and products are eligible for GSP benefits, and political and diplomatic forces will always come into play. But a petition provides an important leverage point in a company’s arsenal while forcing the U.S. government to play a role in addressing the issue.

Andres Castrillon is an associate at Hughes, Hubbard & Reed, specializing in international trade. Contact him at castrill@hugheshubbard.com.

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