The Andean Trade Preference Act: Background and Issues for Reauthorization

Report for Congress
The Andean Trade Preference Act: Background
and Issues for Reauthorization
Updated August 23, 2002
J. F. Hornbeck
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division


Congressional Research Service ˜ The Library of Congress

The Andean Trade Preference Act: Background and
Issues for Reauthorization
Summary
Following passage by the 102nd Congress, President George Bush signed into
law the Andean Trade Preference Act (ATPA) on December 4, 1991(P.L. 102-182,
title II), making it part of a multifaceted strategy to counter illicit drug production and
trade in Latin America. For ten years, it provided preferential, mostly duty-free,
treatment to selected U.S. imports from Bolivia, Colombia, Ecuador, and Peru.
ATPA’s goal was to encourage growth of a more diversified Andean export base,
thereby promoting development and providing an incentive for Andean farmers and
other workers to pursue economic alternatives to the drug trade.
On December 4, 2001, ATPA expired and U.S. tariffs were reimposed on
affected Andean exports. On February 15, 2002, the Bush Administration deferred
collection of these tariffs for 90 days in expectation that the 107th Congress would
either reauthorize ATPA or provide a short-term extension of its trade preferences.
In part because the ATPA legislation was eventually linked to the larger debate on
trade promotion authority (TPA), Congress was unable to complete work on the bill
before the deferral expired. The ATPA was eventually reauthorized as the Andean
Trade Promotion and Drug Eradication Act (ATPDEA), Title XXXI of the Trade Act
of 2002 (H.R. 3009), which was signed into law by President Bush on August 6,
2002 (P.L. 107-210). All duty reductions that were in place prior to ATPA’s
expiration were made retroactive to December 4, 2001 and presumably all those
duties collected are reimbursable.
In evaluating the ATPA program, its trade effects were shown to have been
relatively small, although there was some indication that the composition of trade
changed and that, with a few products, a case could be made that ATPA supported
this change. It is possible that the slightly altered composition of U.S. imports from
ATPA countries reflected broader change in what Andean countries were producing
and that this in turn pointed to some indirect evidence that resources once used for
drug-related activity were being redirected toward ATPA-eligible products. Isolating
ATPA’s role from other counternarcotics and economic diversification programs,
however, has been a difficult challenge, producing imprecise estimates.
Supporters of ATPA argued that its effects were evident and proposed that it be
reauthorized to reinforce the U.S. commitment to the “alternative development”
counternarcotics strategy and that preferential treatment be extended to other Andean
exports to broaden the program’s effects. In general, the 107th Congress appeared to
accept this position. To enhance the effects of ATPA, the reauthorization legislation
provides for an extension of trade preferences through December 31, 2006, extending
them to cover exports previously excluded, including certain textile and apparel
articles, canned tuna, watches and parts, petroleum, footwear, and selected leather
bags and goods. Congress was also careful to consider, and in many cases preserve,
the interests of domestic producers. ATPA may be only a small part of a large and
long-term counternarcotics effort, but Congress reasoned that expanding duty-free
provisions of ATPA to include more exports in growth industries may have a positive
effect on the region.



Contents
An Overview of ATPA’s Scope and Impact.............................1
U.S.-ATPA Country Trade..........................................2
Imports from ATPA Countries by Duty Status.......................4
Imports from ATPA Countries by Product Level.....................5
ATPA Program Effects:.............................................7
ATPA’s Economic Effects on the Andean Countries..................7
Bolivia and Peru...........................................8
Colombia and Ecuador......................................8
Coca Eradication and Crop Substitution........................8
ATPA’s Economic Effects on the United States......................9
Changes in Trade Composition...............................9
Consumer Welfare and Tariff Effects..........................9
Producer Welfare Effects....................................9
Policy Discussion ................................................10
Postscript: Legislation in the 107th Congress...........................12
Legislative Action............................................12
Changes to ATPA Provisions...................................13
Changes in Tariff Treatment................................13
Treatment of Textile and Apparel Articles.....................14
Discussion of Legislative Changes...............................16
Appendix 1. Original ATPA Program Details..........................18
Appendix 2. U.S.-ATPA Country Merchandise Trade, 1990-2000..........19
List of Figures
Figure 1. U.S. Imports from ATPA Countries by Product Category.......3
List of Tables
Table 1. Duty Status of U.S. Imports from ATPA Countries................5
Table 2. Major U.S. Imports Entering Under ATPA......................6



The Andean Trade Preference Act:
Background and Issues for Reauthorization
Following passage by the 102nd Congress, President George Bush signed into
law the Andean Trade Preference Act (ATPA) on December 4, 1991(P.L. 102-182,
title II), making it part of a multifaceted strategy to counter illicit drug production and
trade in Latin America. For ten years, it provided preferential, mostly duty-free,
treatment of selected U.S. imports from Bolivia, Colombia, Ecuador, and Peru.
ATPA’s goal was to encourage growth of a more diversified Andean export base,
thereby promoting development and providing an incentive for Andean farmers and
other workers to pursue economic alternatives to the drug trade.
ATPA expired on December 4, 2001 and U.S. tariffs were reimposed on
affected Andean exports. On February 15, 2002, the Bush Administration deferred
collection of these tariffs for 90 days, in expectation that Congress would either
reauthorize ATPA or temporarily extend the tariff provisions. Following a lengthy
debate, Congress did reauthorize the program (retroactively) in the Andean Trade
Promotion and Drug Eradication Act (ATPDEA), Title XXXI of the Trade Act of
2002 (H.R. 3009), which was signed into law on August 6, 2002 by President George
W. Bush (P.L. 107-210). This report provides a summary and analysis of the ATPA
program and final action taken by the 107th Congress. It will not be updated.
An Overview of ATPA’s Scope and Impact
ATPA was created as part of a broader Andean initiative to address the growing
drug trade from Latin America. It provided zero or reduced tariffs on certain U.S.
imports from Bolivia, Colombia, Ecuador, and Peru (see Appendix 1 for program
details) to complement crop eradication, interdiction, military training, and other
counternarcotics efforts. In 1992, when the program was implemented, supporters
expected that ATPA-induced export diversification and growth would encourage
economic alternatives to coca production and other drug-related activity, with one
estimate projecting as much as a three-fold increase in U.S. imports from ATPA
countries over a decade.1
Trade data alone, however, do not provide adequate measures of success, which
should link a decline in drug activity with the expansion of ATPA supported
industries. Indeed, there was some movement on the drug front. For example, total
coca cultivation fell by 13% from 1992 to 2000. This represented significant
declines in Bolivia (68%) and Peru (74%), but an offsetting large increase in


1 For more on early expectations, see: CRS Report 92-172 F, The Andean Drug Initiative:
Background and Issues for Congress, by Raphael F. Perl. February 13, 1992, p. 3.

Colombia (267%). Little coca is grown in Ecuador.2 Determining the role of ATPA
tariff preferences in this trend, however, presents a difficult challenge because their
effects must be isolated from other counternarcotics and economic development
efforts.
Studies by the U.S. International Trade Commission (USITC) of ATPA’s trade
effects suggest that overall, the program had a positive, but small influence on the
volume and composition of U.S. imports from ATPA countries. For example,
although total U.S. imports from ATPA countries on a dollar-value basis grew 85%
through the decade 1990-99, this was much less than some had hoped for and
represented no growth of ATPA imports relative to U.S. import growth worldwide.
Further, the composition of U.S. imports from Andean countries changed only
slightly in favor of products that were ATPA eligible. This suggests that there was
no major change in the production structure of ATPA economies, particularly in the
biggest ATPA beneficiary, Colombia, which actually experienced a large increase in
coca production in the 1990s.
One of the most telling indicators of ATPA’s limited influence was that U.S.
imports given preferential treatment exclusively under ATPA represented only 10%
of total imports from the four eligible countries.3 This constituted a small percentage
of trade and did not grow through the life of the ATPA program. Without legislative
change to the ATPA program, a larger response was thought to be limited in the short
run by the Andean export sector’s dependence on a few natural-resource based
products and simple manufactures, ATPA’s program exclusion of many major
Andean products (e.g. petroleum products, textiles, certain leather goods), and the
fact that many products were already eligible for duty-free or preferential treatment
under other trade arrangements.
In short, as elaborated below, although there was a positive response to the
ATPA preferential tariff provisions, the overall impact was small and operated at the
margin of Andean trade. Similarly, the tariff preferences had little effect on the
United States economy, suggesting the cost of these preferences was low.
U.S.-ATPA Country Trade
Colombia and Bolivia qualified as ATPA first beneficiaries in mid-1992, with
Ecuador and Peru following one year later. Despite ATPA, aggregate U.S. trade with
beneficiary countries remained small and grew in line, more or less, with the average
for U.S. trade worldwide. For the decade 1990 to 2000, U.S. exports to ATPA
countries rose by 84%, less than total export growth (see Appendix 2 for aggregate
trade data.) Relative to the rest of the world, U.S. exports to ATPA countries


2 United States Department of State. Bureau for International Narcotics and Law
Enforcement Affairs. International Narcotics Control Strategy Report (INCSR). March

2001. pp. II-11 and II-21.


3 U.S. International Trade Commission. Andean Trade Preference Act: Impact on U.S.
Industries and Consumers and on Drug Crop Eradication and Crop Substitution. Seventh
Report 1999. Publication No. 3358, September 2000. p. 34.

declined slightly to less than 1% of total exports, although there was an upward trend
in the mid-1990s. U.S. imports from ATPA countries, although rising by 105% in
dollar terms from 1990 to 2000, also declined slightly on a relative basis to less than

1% of total U.S. imports from the world.


In addition to trade volume, another indicator of ATPA’s possible effects is
change in the composition of ATPA imports. Figure 1 contrasts the composition of
U.S. imports from ATPA countries between 1994 and 2000. Because 1994 was the
first full year all four countries participated, it provides a base for comparison since
it is unlikely to reflect large changes in the trade composition due to ATPA given that4
insufficient time had passed for industries to have responded fully.
Figure 1. U.S. Imports from ATPA Countries by Product Category
For 2000, the major U.S. imports (approximately 80% of the ATPA countries
total), by harmonized tariff schedule (HTS) chapter were: HTS 27, mineral fuels
(81% of which is crude oil); HTS 71, precious stones and metals (43% gold); HTS

09, spices, coffee, and tea (99% coffee); HTS 08, edible fruit and nuts (91%


bananas); HTS 03, fish and seafood (69% crustaceans or shrimp); HTS 61 and 62,
knit and woven apparel (73% sweaters, shirts, and suits); HTS 06, live plants and
trees (99% cut flowers); and HTS 74, copper articles (94% unwrought refined and
alloy.)


4 1994 data from the U.S. International Trade Commission. Andean Trade Preference Act:
Impact on U.S. Industries and Consumers and on Drug Crop Eradication and Crop
Substitution. Seventh Report 1999, Publication 2995. September 1996, p. 8. Data for 2000
originated from the U.S. Department of Commerce as reported in World Trade Atlas.

A comparison of the two years suggests that on a broad product category basis,
the composition of U.S. imports from eligible countries changed only marginally
during the time that the original ATPA program operated. Most notable was the
addition of Peru’s refined copper cathode imports, which began in 1995 and were
ATPA eligible. Petroleum products, which were not eligible for ATPA tariff
preferences, remained a large portion of imports, but came predominantly from
Colombia. There was a contrasting relative decline in seafood and coffee imports.
In general, the minimal change in U.S. import composition during this time
period reflected three factors. First, most U.S. imports from ATPA countries were
natural-resource based products (petroleum, gold, fish, coffee, bananas, cut flowers)
or simple manufactures (knit apparel, sweaters, shirts, suits, copper cathodes), many
of which were not ATPA eligible. This trend is likely to continue regardless of
ATPA reauthorization. Second, the continuing large portion of oil imports on a
dollar-value basis in 2000 continued to skew import figures, reflecting in part the
worldwide surge in oil prices. Third, Colombia stands out as the dominant ATPA
trade partner, accounting for 62% of total U.S. imports from the group in 2000,
followed by Peru and Ecuador, both with 18%, and Bolivia trailing with only 2%.5
Given that the relative size and composition of ATPA imports, variables
expected to reflect the program’s effects, did not change during the course of the
program, little trade effect seems attributable to the ATPA provisions. A closer look
at the trade data at the sectoral level supports this conclusion, until the data are
further disaggregated by duty treatment and product type. These trends are in
keeping with economic reasoning that would suggest a program such as ATPA would
not affect the overall structure of trade, but might alter the composition of ATPA
imports at the margin and within very specific product categories.
Imports from ATPA Countries by Duty Status6
To determine which products were benefitting from ATPA, it was necessary to
ascertain what portion would have entered duty-free exclusively because of their
ATPA eligibility. Many imports qualified unconditionally as duty-free under general
tariff rates (e.g. coffee) or through other favorable tariff arrangements, such as the
Generalized System of Preferences (GSP), and could enter under more than one of
these arrangements. For example, some products eligible to enter under GSP came
in under ATPA. As shown in table 1, when these products are subtracted, it turns
out that imports eligible exclusively for ATPA preferences represented only 10% of
total U.S. imports from the ATPA countries.7 The table contrasts selected Andean
country import data in 1995 and 1999 to reflect changes that may have occurred


5 U.S. International Trade Commission, Andean Trade Preference Act, September 2000, p.

14.


6 For this section, it was necessary to rely on specialized data produced by the International
Trade Commission, which has not been updated for 2000.
7 Estimates by USITC, ibid, p. 34. It should be noted that the 10% figure was higher during
the mid-1990s when the GSP program lapsed on a few occasions, causing greater reliance
on the ATPA provisions.

during a time when the ATPA program was in full force. Duty-free imports rose
from 59% of total imports in 1995 to 66% in 1999, but because the ATPA-only
category is unchanged, the increase appears to have been due entirely to non-ATPA
trade arrangements (general rates, GSP, production-sharing arrangements, or other
smaller programs).
Table 1. Duty Status of U.S. Imports from ATPA Countries
(1995 and 1999 in $ millions)
Duty StatusBoliviaColombiaEcuadorPeruTotal% of
Total

1995 Total256.83,807.41,929.2965.46,958.7100%


Imports:
Dutiable 19.0 1,717.0 756.6 360.5 2,853.1 41%
Duty-Free 237.8 2,090.4 1,172.7 604.7 4,105.6 59%
(ATPA only)*nananana 699.010%
(Other Duty- nananana3,406.649%
Free)**

1999 Total216.85,476.21,798.61,781.89,273.6100%


Imports:
Dutiable 40.1 2,059.3 587.8 450.6 3,137.8 34%
Duty-Free 176.7 3,417.1 1,210.8 1,331.2 6,135.8 66%
(ATPA only)*nananana 939.010%
(Other Duty- nananana5,196.856%
Free)**
na = not available, per discussion with USITC.
* Includes value of both duty-free and reduced-duty ATPA imports. Reduced-duty imports
amounted to only 0.3% of total imports from ATPA countries in both years and so are not shown
sep a r a tely.
** Includes all other imports that entered the United States duty-free: 1) under general rates; 2)
under non-ATPA programs (e.g. Generalized System of Preferences (GSP) or production sharing
provisions) and/or; 3) under ATPA, but eligible to enter duty free under another program.
Data source: U.S. International Trade Commission. Andean Trade Preference Act: Impact on U.S.
Industries and Consumers and on Drug Crop Eradication and Crop Substitution. Publication No.
3358, September 2000. pp. 17 and 34.
The 10% figure is important because it shows first that the amount of imports
that entered duty-free exclusively under ATPA was a small portion of trade and
second that, over the life of the program, ATPA-eligible imports as a group did not
grow any faster than U.S. imports from the four Andean countries as a whole. This
was unlikely to change in the short run without legislative action given that many
imports already entered the United States duty free, other big items, such as
petroleum and textile products, were not eligible for duty-free treatment, and
economic diversification into new (ATPA-eligible) areas was a slow process.
Imports from ATPA Countries by Product Level
The major products that entered the United States under ATPA appear in table

2 in descending order of importance. Between 1995 and 1999, cut flowers, most of



which came from Colombia, were the largest import item. Copper cathodes from
Peru grew to become the second largest ATPA import, rising in 1999 to nearly 19%
of the total on a dollar-value basis. Precious metals, mostly jewelry and gold
products from Peru, were the third largest import group, comprising some 11% of the
total. Colombian pigments (9%), Ecuadoran non-canned tuna (5%), and Peruvian
zinc (5%) rounded out the major ATPA imports.
Table 2. Major U.S. Imports Entering Under ATPA
(1995 and 1999, in percent)
HTS*Article% 1995% 1999Beneficiary Country

06Live Plants (cut flowers)39.625.0Colombia - 80%


Ecuador - 20%

74Copper articles (cathodes)2.918.9Peru - 100%


71Precious metals18.910.7Peru - 70%


(jewelry/gold products)Bolivia - 30%

32Pigments0.39.3Colombia - 100%


16Tuna (non-canned)4.25.0Ecuador - 99%


Colombia - 1%

79Zinc0.84.8Peru - 100%


Other33.326.3
Total100.0100.0
* HTS = harmonized tariff schedule chapter.
Data source: USITC, Andean Trade Preference Act, September 2000, pp. 16-24, D-3.
The composition of ATPA imports changed some over the life of the program,
but not in clearly predictable ways. Cut flowers, for example, which remained the
largest U.S. import item on a dollar basis, actually fell from nearly 40% to 25% of
total ATPA imports. This trend reflected falling demand in the United States for cut
flowers and growth in other ATPA imports such as copper cathodes and pigments,
which represented new U.S. imports since the ATPA the program began. Although
there was a large increase in zinc products coming in under ATPA, this growth was
partially due to a shift in duty treatment of zinc products, which previously entered
the United States duty-free under the GSP provisions.8
The benefits of ATPA fell in line with the overall trade importance of the
countries. In 1999, Colombia and Peru benefitted most and had 45% and 36% of the
dollar value of ATPA imports, respectively. Colombia’s percentage fell slightly
since 1995, reflecting a decline in cut flower imports, offset some by an increase in
U.S. pigment imports. Peru was the fastest growing exporter under ATPA, reflecting
its new copper cathode manufacturing industry. Ecuador accounted for 15% of
ATPA imports in 1999, followed by Bolivia with only 4%. Ecuador accounted for
most of the tuna imports and a small portion of cut flowers. Bolivia exported mostly
gold jewelry items, which is the only major ATPA item it produces.9


8 Ibid., pp. 23-24.
9 Ibid., pp. 24-26, D-3. Bolivia also exports small amounts of wood products under ATPA.

Overall, the ATPA trade effects appear to be relatively small. Nonetheless, at
the product level there was some indication of a change in trade composition when
new products came on line, at least in part to take advantage of ATPA’s duty-free
provisions. This reflects some level of Andean economic diversification, but not a
net growth in the amount of Andean exports eligible under ATPA on a relative basis.
Given that total imports eligible exclusively under ATPA remained at 10% of total
U.S. imports from these countries, it appears that gains in some industries or products
offset declines in others.
ATPA Program Effects:
Andean and U.S. Responses
An evaluation of ATPA should indicate how any changes in trade patterns
affect the economies of the Andean countries and the United States. Two studies
required by the ATPA legislation tackled these questions. First, the U.S.
International Trade Commission ATPA report evaluated both the Andean and U.S.
responses to ATPA. The U.S. Department of Labor produced a separate targeted
evaluation of ATPA’s effects on U.S. workers. Both pointed to the marginal effects
of ATPA on the economies of participating countries and the United States.
ATPA’s Economic Effects on the Andean Countries
Although the trade effects of ATPA were relatively small, there was some
indication that the composition of trade changed and that, with a few products, a case
can be made that ATPA contributed to this change. It is possible that the altered
composition of U.S. imports from ATPA countries reflects broader change in what
Andean countries were producing and that this in turn points to some indirect
evidence that ATPA-eligible products were substituted for illicit coca.10
It is difficult to gauge the effects of ATPA on national economies because the
program has a small effect relative to other variables. National macroeconomic
policies, particularly in countries undergoing long-term economic reform, have a
much larger effect on economic trends. Domestic Andean government policies also
supported crop substitution, the effects of which were not easily distinguishable from
those of ATPA. In effect, they worked together. External shocks to the region’s
economies, such as repeated El Ninos and other natural phenomena, had devastating
effects on the agricultural sector that easily overshadowed incremental policy shifts
like ATPA. Isolating the marginal effects of ATPA, therefore, was an imprecise11


exercise.
10 The USITC also points out that the benefits of ATPA to eligible countries is declining as
the “margin of preference” declines for various reasons, such as the continuing phase-in of
other trade agreement tariff rate cuts from the Uruguay Round, as well as sectoral and
regional agreements. For details, see: ibid., pp. 33.
11 Ibid., pp. 53 and 55.

Bolivia and Peru. In its 2000 report, the USITC used Bolivia and Peru as
case studies to explore the possibility of a link between ATPA program effects and
changes in economic production. Bolivia showed some diversification in exports to
the United States that coincided with ATPA. In the mid-1990s, there was a marked
expansion of jewelry and, to a lesser extent, leather and wood product exports that
may have been related to the ATPA tariff reductions, but other domestic policy
changes (e.g. the tax code) also affected production incentives for these goods. In
any case, after 1996 this export growth trend slowed. In Peru, a broader array of
export growth was discernible over the past decade, with a noticeable increase in
copper cathodes and agricultural products, especially asparagus, all of which
benefitted from ATPA. Asparagus also stood out because it was grown near
traditional coca cultivation areas and was presumed to be an alternative cash crop,12
at least in part encouraged by ATPA provisions.
Colombia and Ecuador. In its 1999 report, the USITC evaluated ATPA’s
impact on Colombia and Ecuador. Of the ATPA-eligible products from Colombia
over the past decade, cut flowers increased the most as a proportion of U.S. imports,
but overall, the composition of Colombia’s exports to the United States did not
change dramatically since ATPA began, in part because of the dominance of
petroleum. Other nontraditional products, such as asparagus, presented some
potential for increased benefits from ATPA, but overall its benefits were considered
small. Ecuador had a similar profile, with little change in the composition of exports
to the United States, but some credited significant increases in the production of cut
flowers and seafood, both of which benefitted from ATPA, with encouraging export
diversification. The overall effect was still small given the myriad variables that
affected production capabilities and decisions.13
Coca Eradication and Crop Substitution. Alternative crop production
is a critical component of the coca eradication effort underway in the Andes.
Although there was some indirect evidence to suggest that crop substitution has
occurring, it was small overall and the effect of ATPA on this process was marginal
at best. Whereas larger substitution effects may be linked to the cut flower industry
in Colombia, there were many factors that allowed such alternatives to exist before
ATPA was even conceived. All the evidence points to ATPA’s supportive, but
relatively small effect, particularly given the magnitude of the problem and the
comprehensive effort needed to address the drug trade. For example, numerous
obstacles impeded the alternative development strategy including the high
profitability of coca production, lack of physical infrastructure required to support
alternative cash crops, and overt, often violent, guerrilla pressure to reject the14


program.
12 Ibid., pp. 55 and 62.
13 U.S. International Trade Commission. Andean Trade Preference Act: Sixth Report 1998.
USITC publication 3234, September 1999, pp. 106, 111-14, 118, 120-22.
14 Wilson, Scott. Colombia’s Anti-Drug Plan Fuels Fight in Coca Country. The Washington
Post, October 14, 2000, p. A14 and DeYoung, Karen. Colombia Plan Faces ‘Crunch Time.’
The Washington Post, December 22, 2000, p. A35.

ATPA’s Economic Effects on the United States
Although ATPA was created to influence the economic landscape of the Andean
region, Congress also requested analysis of how changes in trade patterns related to
ATPA might affect the United States. The USITC looked at three basic issues: 1)
consumer welfare gains from lower-priced imports; 2) the offsetting tariff revenue
losses; and 3) producer welfare losses (production displacement). The U.S.
Department of Labor produced a separate report dealing only with ATPA’s effects
on the domestic labor force.
Changes in Trade Composition. Given that only a very small share of
U.S. imports were involved in the ATPA program, its effects on the aggregate U.S.
economy were negligible. Therefore, measuring the gains and losses to the U.S.
economy must be done at the product/industry level. In 1999, copper cathodes, cut
flowers (roses and chrysanthemums), tuna, and gold compounds together accounted
for 83% of total imports that benefitted exclusively from the ATPA provisions.
Copper cathodes and cut flowers each contributed to approximately one-third of the
ATPA-exclusive imports. Hence, an analysis of the benefits and displacement costs
related to these products covers most of the effects ATPA had on the U.S. economy.15
Consumer Welfare and Tariff Effects. USITC market share data showed
that ATPA-imported copper cathodes, although growing briskly, still accounted for
only 7.4% of the U.S. market in 1999 and imported gold compounds claimed only
6.7%. Cut flowers, by contrast, accounted for up to 75% of the U.S. market. Based
on an partial equilibrium analysis, the USITC estimated that the consumer welfare
effects in all three cases were, nonetheless, small. In the first two, market penetration
was simply too small, but even in the case of Colombia’s dominance of the U.S. cut
flower market, the USITC suggested that U.S. consumers would have paid only 5.5%
more for flowers than they would have in the absence of ATPA. In addition, the
consumer benefits were offset, in many cases, by reduced tariff revenues. The net
welfare effects for the United States as a whole, therefore, were considered small.16
Producer Welfare Effects. Of greater concern to many were ATPA’s
effects on U.S. producers. To the extent that ATPA encouraged a marginal increase
in imports, those industries in the United States that produced competing products
were potentially “displaced” from the market. Given market share figures, the
USITC found that only cut flowers and asparagus caused “displacement” of over 5%
of the market. Asparagus imports were small and entered during the late summer and
fall months when domestic crop production was low and so had a clear benefit to
U.S. consumers. Because they did not directly compete with the U.S. growing17


season, however, they were not a primary target for concern over displacement.
15 U.S. International Trade Commission, Andean Trade Preference Act, September 2000, pp.

36-37.


16 Ibid., pp. 38 and 45.
17 Ibid., p. 38.

Cut flower imports have been a greater concern, but as the USITC points out,
Colombia, the major flower exporter, had established its market dominance before
ATPA, and the U.S. growers had already responded by differentiating their products.
The overall impact of ATPA flower imports was deemed small given domestic
industry adjustment. One indication that U.S. flower growers are no longer seriously
concerned with competition from Andean imports is their decision to discontinue
pursuing antidumping and countervailing duty remedies as of May and October 1999,
respectively. In short, should ATPA tariff preferences be eliminated, it appears there
would be little effect on the domestic cut flower industry.18
The U.S. Department of Labor (DOL) report targeted ATPA’s impact on the
domestic work force. It concluded that the overall effects of ATPA in 1998 were
negligible given the strong U.S. economy and employment picture, and the fact that
ATPA-eligible imports were so small that their effect on aggregate U.S. employment
was virtually unmeasurable.19 Based on an analysis of products that entered the
United States duty free exclusively from ATPA provisions, the Department of Labor
suggested that only the cut flower industry was likely to have presented any
adjustment problem. U.S. cut flower production had fallen by 11% in 1998 as ATPA
imports rose, perhaps indicating that ATPA may have had some effect on the
industry’s contraction, but the Department of Labor report was quick to note that
other factors may have affected cost competitiveness of the U.S. cut flower industry,
such as complying with worker protection standards, and that in any case, their
estimates were not precise.20
Of the workers potentially affected by layoffs in the flower industry, the DOL
noted that all were seasonal agricultural workers who often experience periods of
unemployment, have a very low wage level, and live predominantly in poverty.
Some 43% were estimated to be of “illegal, temporary, or unknown legal status.”
DOL did not estimate the “degree of adjustment difficulty,” but noted that the strong
U.S. economy should have been able to minimize any employment dislocation that
might have occurred. Adjustment costs faced by other industries from increased
import competition from ATPA were considered insignificant.21
Policy Discussion
ATPA was only a small part of the larger Andean counternarcotics effort. Coca
production was the primary target of these efforts and because it is a highly profitable


18 Ibid., p. 43.
19 U.S. Department of Labor. Bureau of International Labor Affairs. Trade and
Employment Effects of the Andean Trade Preference Act. Sixth Annual Report to Congress,
by Robert C. Shelburne. 1999. p 14.
20 Ibid., p. 10. The DOL report covers 1998 and so does not reflect the fact that in 1999 the
cut flower industry representatives dropped interest in antidumping and countervailing duty
investigations, suggesting doubt in their ability to make a strong case that the industry is
being materially harmed by ATPA-eligible imports.
21 Ibid., pp. 11-14.

undertaking and particularly enticing for poor areas of the world, a key element of the
strategy was supporting the cultivation of alternative cash crops.22 ATPA’s
supporters argued that reduced tariffs conceivably played a part of the “alternative
development” strategy by providing an additional financial incentive to substitute
legal crops for coca cultivation. The increase in non-agricultural exports (e.g. copper
cathodes), it was argued, may also have reflected, in part, ATPA’s preferential tariff
treatment.
Testimony before congressional committees expressed the desire by groups in
the United States and the Andean countries to reauthorize ATPA and consider
expanding the tariff preferences to more products and countries. These views were
summarized before Congress by representatives of the Bush Administration as well,
who stated that ATPA was achieving its goal of promoting “export diversification
and broad-based economic development that provides sustainable economic
alternatives to drug-crop production in the Andean region.”23
In considering the merits of ATPA, it is important to understand that the benefits
it provided were quantitatively small. ATPA’s influence should have been visible
in the changing composition of U.S. imports, which was marginal. Because many
imports were not eligible by law for ATPA duty-free treatment or entered the United
States under other preferential trade arrangements, only 10% of ATPA country
imports entered the United States exclusively under the ATPA provisions. This did
not change over time, suggesting that ATPA’s effect on trade was unlikely to
increase, unless the program’s parameters were modified.
Because the trade response has been small, so too have been ATPA’s likely
effects on the Andean economies. Still, indirect evidence suggests that it may have
supported economic diversification into products such as copper cathodes and
asparagus. Asparagus, for example, has been cultivated in larger quantities near
traditional coca producing regions. Although an encouraging sign, given the high
profitability of coca and active resistence by both armed guerrilla groups and
peasants, there were limits to what ATPA may have been expected to accomplish and
it was not clear that there is a strong direct link between increased ATPA-eligible
exports and any verifiable diminished drug-related activity.
In addition to the economic analysis, the debate over ATPA considered more
intangible policy benefits. For example, supporters argued that ATPA was an
expression of direct U.S. support for the regional counternarcotics efforts with
potentially positive side benefits in the area of economic development. They also
noted that it was a less expensive and invasive counter-drug option compared to the
large financial and military commitment of Plan Colombia.


22 U.S. Department of State, 2001 International Narcotics Control Strategy Report
(INCSR),pp. IV-6, 18, 27, 37.
23 Testimony of Ambassador Peter Allgeier, Deputy United States Trade Representative,
before the Senate Committee on Finance, Subcommittee on International Trade. August 3,

2001. p. 1.



Supporters of ATPA proposed at least three program initiatives. First,
reauthorize ATPA for an extended period of time to reinforce the U.S. commitment
to the alternative development counternarcotics strategy. Second, extend duty-free
treatment to other Andean exports, such as textile and apparel products, to broaden
the program effects, particularly in Colombia, which remains the most problematic
country. Third, include Venezuela as a beneficiary country, which although not
currently a major coca producer, is part of the larger drug trafficking problem.
Postscript: Legislation in the 107th Congress
On December 4, 2001, ATPA expired and U.S. tariffs were reimposed on
affected Andean exports. On February 15, 2002, the Bush Administration deferredth
collection of these tariffs for 90 days in expectation that the 107 Congress would
either reauthorize ATPA or provide a short-term extension of its trade preferences.
In part because the ATPA legislation was eventually linked to the larger debate on
trade promotion authority (TPA), Congress was unable to complete work on the bill
before the deferral expired. The ATPA program was reauthorized in the Andean
Trade Promotion and Drug Eradication Act (ATPDEA), Title XXXI of the Trade Act
of 2002 (H.R. 3009), which was signed into law by President Bush on August 6,
2002 (P.L. 107-210). All duty reductions that were in place prior to ATPA’s
expiration were made retroactive to December 4, 2001 and presumably all those
duties collected are reimbursable.
Legislative Action
In the House, H.R. 3009, the Andean Trade Promotion and Drug Eradication
Act was introduced on October 3, 2001 by Representative Crane (for himself and
Ways and Means Chairman Thomas). Hearings were held by the House Ways and
Means Committee on October 5, 2001. Chairman Thomas offered an amendment in
the nature of a substitute and the committee ordered the bill favorably reported, as
amended, by voice vote. On November 14, 2001, the bill was reported to the House
(H. Rept. 107-290). On November 16, 2001, the House Rules Committee reported
(H. Rept. 107-293) the rule (H. Res. 289) for consideration of H.R. 3009 by a vote
of 225 to 191. H.R. 3009 was passed by the House the same day by voice vote.
In the Senate, S. 525, the Andean Trade Preference Expansion Act (ATPEA)
was introduced by Senator Graham on March 13, 2001 and referred to the Committee
on Finance. The Subcommittee on International Trade held hearings on August 3,
2001. The amended House-passed version of H.R. 3009 was sent to the Senate on
November 16, 2001, where it was referred to the Committee on Finance. Full
committee consideration and mark up occurred on November 29, 2001, and by voice
vote, the language of S. 525, with some modifications, was offered in the nature of
a substitute for H.R. 3009, which was adopted, along with three amendments, and
reported to the full Senate (S. Rept. 107-126).
The Andean Trade Preference Expansion Act passed the Senate as Title XXXI
of the Trade Act of 2002. The Senate action was controversial because it adopted the
ATPA provisions by agreeing to S.Amdt. 3401, a substitute amendment for H.R.
3009, which also included a broader trade legislation package covering trade
promotion authority (TPA), trade adjustment assistance (TAA), and the Generalized



System of Preferences (GSP), among others. On June 26, 2002, following a heated
debate, the House voted 216 to 215 to agree to the Senate amendment with an
amendment incorporating House versions of the broader provisions added in the24
Senate, and requested a conference.
The conference report was filed on July 26, 2002 (H.Rept. 107-624). It was
agreed to in the House (215-212) on July 27, 2002 and in the Senate (64-34) on
August 1, 2002. President Bush signed the bill into law on August 6, 2002 (P.L. 107-

210).


Changes to ATPA Provisions
As passed into law, the Andean Trade Promotion and Drug Eradication Act
(ATPDEA) expresses the findings of Congress that extending and expanding trade
preferences to beneficiary countries continues to be an effective part of a broader
U.S. foreign policy to counter illicit drug trafficking from the Andean region. To
enhance the effects of the expired ATPA, it extends preferential treatment through
December 31, 2006 and expands it to cover many exports previously excluded. In
general, the provisions provided treatment similar to that received by Caribbean
countries under the Caribbean Basin Trade Promotion Act (CBTPA) and incorporates
customs procedures, including more relaxed certificate of origin rules, similar to
those found in the North American Free Trade Agreement (NAFTA). ATPDEA also
tightens transshipment and safeguard provisions to address concerns of U.S. textile
and apparel manufacturers.
Changes in Tariff Treatment. The major changes to the ATPA provisions
that were at the heart of much of the congressional debate involved consideration of
altering the tariff treatment of eight categories of goods that were excepted from
preferential treatment under the original ATPA legislation. To summarize:
1)selected textile and apparel articles, as defined in the next subsection, now
enter duty-free;

2)footwear (not eligible under the GSP preferences) enter duty-free;


3)tuna harvested by a U.S. or ATPDEA beneficiary country that is prepared
or preserved by an ATPDEA beneficiary country in an airtight container
weighing not more than 6.8 kilograms, enters free of duty and quantitative
restriction;

4)petroleum products under HTS headings 2709 or 2710 enter duty free;


5)watches previously excepted if they included material from HTS column

2 countries enter duty free;


6)selected leather goods (e.g. handbags, luggage, apparel) that previously
received reduced duty treatment, enter duty free;


24 For a side-by-side summary of the ATPA provisions in the House and Senate bills, see:
CRS Report No. RL31450, The Andean Trade Preference Act: A Comparison of House and
Senate Versions of H.R. 3009, by J. F. Hornbeck. June 27, 2002.

7)sugars, syrups, and sugar products subject to over-quota duty rates remain
exceptions to preferential treatment;
8)rum and tafia classified in subheading 2208.40 of the HTS also remain
exceptions to duty-free treatment.
Treatment of Textile and Apparel Articles. The number of apparel
articles that receive duty-free treatment has been expanded based on various product
categories differentiated by origin of fabric, yarn, and components used. Provided
the article is imported from an ATPDEA beneficiary country, it enters free of duty
and quantitative restriction if it qualifies under any of the following categories:
1)Apparel articles assembled from products of the United States or and
ATPDEA country, or products not available in commercial quantities –
Apparel articles sewn or otherwise assembled in 1 or more ATPDEA
beneficiary country or the United States, or both, exclusively from any one
or any combination of the following:
fabrics or fabric components wholly formed, or components knit-to-
shape, in the United States, from yarns wholly formed in the United
States or 1 or more ATPDEA countries (including felts and
nonwovens if formed in the United States). But, if the fabrics are
knit or woven fabrics, the apparel articles shall qualify under this
subclause only if all dyeing, printing, and finishing of the fabrics from
which the articles are assembled is carried out in the United States;
fabrics or fabric components formed, or components knit-to-shape,
in 1 or more beneficiary countries, from yarns wholly formed in 1 or
more beneficiary countries, if such fabrics (including fabrics not
formed from yarns if classified as felt or nonwovens) or components
are formed in chief value of llama, alpaca, or vicuna;
fabrics or yarns, to the extent that apparel articles of such fabrics or
yarns would be eligible for preferential treatment, without regard to
the source of the fabrics or yarns, under the North American Free
Trade Agreement (NAFTA) short-supply provisions (Annex 401).
2)Additional Fabrics – at the request of any interested party, the President is
authorized to proclaim additional fabrics and yarns as eligible for
preferential treatment under the immediately preceding paragraph if:
the President determines that such fabrics or yarns cannot be supplied
by the domestic industry in commercial quantities in a timely manner;
the President has been properly advised by a committee established
under Sec. 135 of the Trade Act of 1974 and the USITC;
within 60 days after the request, the President has submitted a report
to the House Committee on Ways and Means and Senate Finance
Committee that sets forth the action, the reasons for such action, and
the related advisory committee findings;



a period of 60 calendar days has expired , beginning with the first day
on which the president has met the congressional notification
requirements; and
the President has consulted with such committees regarding the
proposed action during the notification period.
3)Regional Fabrics – apparel articles sewn or otherwise assembled in 1 or
more beneficiary countries from fabrics or from fabric components formed
or from components knit-to-shape, in a beneficiary country, from yarns
wholly formed in the United States or in 1 or more beneficiary countries,
including felts and nonwovens, whether or not the apparel articles are also
made from any of the fabrics, fabric components formed, or components
knit-to-shape as defined in 1) above (page 14), unless the apparel articles
are made exclusively from any of the fabrics, fabric components, formed,
or components knit-to-shape described in 1) above.
this preferential treatment begins October 1, 2002 for a limited
quantity equal to 2% (measured in square-meter equivalents) of all
apparel articles imported into the United States during the previous
12 months for which data are available. This percentage increases to

5% over the next 4 one-year periods in equal increments.


4)Handloomed, handmade, and folklore articles – if certified as such by the
ATPDEA country in consultation with the United States.
5)Certain Other Apparel Articles – any article classified under HTS
subheading 6212.10 (brassieres), except for articles entered under sections
1), 2), 3), or 4) above, if the article is both cut and sewn or otherwise
assembled in the United states, or one or more ATPDEA country, or both,
with limitations.

6)Special Rules –


Findings and Trimmings – an article that is otherwise eligible for
preferential treatment shall not be considered ineligible so long as
findings and trimmings (buttons, zippers, lace, etc.) of foreign origin
do not exceed 25% of the cost of the components;
Interlinings – identical rule for selected interlinings of foreign origin.
Rule may be terminated if President determines that U.S.
manufacturers are producing such interlinings in the United States in
commercial quantities;
De Minimis Rule – an article that otherwise would be ineligible for
preferential treatment because it contains yarns not wholly formed in
the United States or an ATPDEA country shall not be ineligible if the
total weight of such yarns does not exceed 7% of the total weight of
the good;
Special Origin Rule – articles otherwise eligible for preferential
treatment under sections 1) and 3) above shall not be ineligible



because the articles contain nylon filament yarn (other than
elastomeric yarn) that is classifiable under various HTS 5402
subheadings (synthetic filament yarn) from a country that is a party
to an agreement with the Untied States establishing a free trade area,
which entered into force before January 1, 1995.
7)Textile Luggage – assembled in an ATPDEA country from fabric wholly
formed and cut in the United States from yarns wholly formed in the
United States that is entered under subheading 9802.80 of the HTS
(Mexico production sharing/maquiladora provisions), or assembled from
fabric cut in an ATPDEA country from fabric wholly formed in the United
States from yarns wholly formed in the United States.
Discussion of Legislative Changes
The 107th Congress developed a compromise position on ATPA reauthorization
that appeared to have broad support, although not all constituent concerns were
resolved. Expanding the tariff reduction provisions is expected to serve multiple
purposes: 1) provide similar tariff treatment to ATPA, NAFTA, and CBTPA
countries, thereby eliminating the relative competitive disadvantage of ATPA
countries; 2) deepen coverage of the tariff program to include products that compose
a larger portion of Andean exports and hence improve the chances for greater impact
on the region’s trade diversification, economic development, and counterdrug
activity; 3) encourage increased U.S. investment in ATPA countries; and, 4) address
possible negative repercussions to domestic apparel and textile manufacturers.25
Although it is possible that the beneficiary countries will respond more to these
additional incentives, they will not benefit equally. In dollar terms, Colombia may
benefit the most because it has the largest share of U.S. apparel imports from
beneficiary countries (49% in 2000). Peru, which constituted 46% of U.S. apparel
imports from these countries, uses mostly non-U.S. materials and so has lobbied for
removing restrictions on use of local fabrics and yarns. It should benefit
significantly. Ecuador and Bolivia have small apparel export industries, each26
accounting for only 2% of the ATPA country apparel exports to the United States.
Ecuador is a major tuna exporter and so will benefit from new tariff reductions on
canned tuna.
Concerns of U.S. domestic apparel and textile groups were critical aspects of the
debate to loosen tariff restrictions. Many of these concerns were addressed in the
detailed language related to these articles. In addition, it is worth reiterating that
apparel products accounted for only 7% of U.S. imports from ATPA countries in
2000, although this percentage doubled since 1994 (see figure 1). Also, ATPA
apparel imports accounted for less than 2% of the total sector’s U.S. imports in 2000.
Still, the United States is the primary market for Andean apparel, capturing 93% of


25 For more details, see: U.S. International Trade Commission. Apparel: Andean Countries
Seek Parity with Caribbean Basin Countries to Remain Competitive in U.S. Market.
Industry Trade and Technology Review, March 2001. pp. 9-13.
26 Ibid., pp. 2-7 and 9-10.

the region’s apparel exports.27 For this reason alone, although reauthorized ATPA
program may still be only a small part of a large and long-term U.S. counternarcotics
effort, expanding duty-free provisions to a larger portion of the region’s exports,
including its growth industries, may have a positive effect on the program’s
effect i v eness.


27 Ibid, p. 2.

Appendix 1. Original ATPA Program Details
The original ATPA program had two major facets. First, each nation had to be28
designated a “beneficiary country” by meeting legislated standards. Beneficiary
status could be denied if a country: 1) is a Communist country; 2) unfairly
nationalizes or expropriates U.S. property, tangible or intellectual, without due
recourse or commitment for compensation; 3) fails to act in good faith in recognizing
arbitral awards in favor of U.S. citizens or companies; 4) affords preferential
treatment to products from other developed countries that may have a significant
impact on U.S. commerce; 5) has a government entity that fails to follow copyright
agreements for broadcast materials; 6) is not a signatory to an agreement providing
for the extradition of U.S. citizens; or 7) is not taking steps to afford internationally
recognized workers rights as in the Trade Act of 1974. All conditions, except 4 and
6, may be waived by the President if conferring beneficiary status is deemed in the
economic or security interests of the United States. The President is also required to
consider other factors, among them the prospective beneficiary country’s: 1) interest
in ATPA; 2) economic conditions and development policies; 3) trade policies and
practices complying with rules defined in the World Trade Organization (WTO)
agreement; and 4) efforts to meet the narcotics cooperation certification criteria.
Second, eligible articles must be imported directly from a beneficiary country.
The content of materials and processing costs originating in CBTPA or ATPA
beneficiary countries, Puerto Rico, the Virgin Islands and up to 15 percentage points
of U.S. origin value must sum to at least 35% of the value of the article when it enters
the United States. Many products are denied duty-free treatment, including textile
and apparel products subject to textile agreements, crude and refined petroleum
products, canned tuna, and certain footwear, watches, sugars, syrups, molasses, and
rum products. Selected import sensitive products are eligible for only a 20-percent
reduction in duties, including certain handbags, luggage, flat goods, work gloves, and
leather wearing apparel. The President may suspend duty-free treatment under title
II of the Trade Act of 1974 (safeguard actions) or the national security provision (sec.

232) of the Trade Expansion Act of 1962, as amended (19 U.S.C. 1862). Other trade29


regulations apply, such as quotas and food-safety requirements.
ATPA operated in addition to the Generalized System of Preferences (GSP), a
program in place since 1976 giving duty-free treatment to certain developing country
imports to promote economic development. Where the two programs overlap, many
Andean exporters preferred to use ATPA because it covered more tariff categories,
tended to be more liberal and easier to qualify under, and had a ten-year authorization30


and so until recently, had not expired as had the GSP multiple times in the 1990s.
28 P.L. 102-182, title II, sec. 203, as amended (19 U.S.C. 3202). Because these benefits
would violate the WTO obligation to accord all WTO members equal (most-favored-nation)
treatment, they require a temporary waiver by the WTO. See: WTO General Council.
United States-Andean Trade Preference Act-Decision of 14 October 1996. WT/L/184.
29 Ibid., sec. 204 (19 U.S.C. 3203), including detailed provisions for “perishable products.”
30 See: CRS Report 97-389 E, Generalized System of Preferences, by William H. Cooper.

Appendix 2. U.S.-ATPA Country Merchandise
Trade, 1990-2000
($ millions)
U.S. Exports
% Change
Country199019921994199619982000 90-00
Bolivia 138 222 185 270 417 251 81.9%
Colombia 2,029 3,286 4,064 4,714 4,816 3,689 81.8%
Ecuador 678 999 1,195 1,259 1,683 1,037 53.0%
Peru 772 1,005 1,408 1,774 2,063 1,662 115.3%
Total ATPA3,6175,5126,8528,0178,9796,63983.6%
Total World393,592448,164512,627625,075682,138780,41998.3%
U.S. Imports
% Change
Country 1990 1992 1994 1996 1998 2000 90-00
Bolivia 203 162 260 275 224 191 -5.9%
Colombia 3,168 2,837 3,171 4,424 4,656 6,969 120.0%
Ecuador 1,376 1,344 1,726 1,958 1,752 2,210 60.6%
Peru 802 738 841 1,261 1,975 1,996 148.9%
Total ATPA5,5495,0815,9987,9188,60711,366104.8%
Total World495,310532,665663,256795,289911,8961,216,888145.7%
U.S. Balance of Trade
% Change
Country 1990 1992 1994 1996 1998 2000 90-00
Bolivia -65 60 -75 -6 193 61
Colombia -1,139 449 893 291 160 -3,280
Ecuador -697 -345 -532 -700 -69 -1,173
Peru -29 266 566 513 87 -334
Total ATPA-1,93043085298371-4,726
Total World-101,718-84,501-150,629-170,214-229,758-436,469
Data Source: U.S. Department of Commerce.