GSP Subcommittee's detailed review of submissions by Motorola and other interested
parties and its receipt of economic advice from the U.S. International Trade Commis-
sion. The waiver for Malaysian transceivers took effect three months later and, in
that same year, U.S. imports from Malaysia under the subject HTS subheading totaled
$99.8 million, exceeding the then-applicable competitive need limit of $92.7 million.
However, because of the waiver, the Malaysian product was able to avoid the loss of
As shown above, U.S. imports from Malaysia under the applicable subheading
totaled $120 million in 1992, almost all of which entered free of duty under the GSP
program. As detailed below, these GSP imports are making an important contribu-
tion to the competitiveness of Motorola's transceiver line generally and, in particular,
to the extensive U.S. manufacturing and employment associated with the Malaysian
U.S. manufacturing operations tied to Motorola *s GSP imports
The linkages between Motorola's Malaysian transceiver production and its U.S.
operations are extensive and are summarized by the production flow chart presented
in the Appendix. As the chart shows, these linkages fall into sue areas: first, Motor-
ola's U.S. production of components which are shipped to Malaysia for incorporation
into the transceivers; second, Motorola's U.S. production of parts such as battery units
that are added to the transceivers once they return to the United States; third, the
finishing operations performed by Motorola's U.S. employees on the Malaysian
transceivers; fourth, Motorola's U.S. production of related equipment such as battery
chargers; fifth. Motorola's U.S. production of base stations and other transceivers
fitting elsewhere in its product line; and finally, Motorola's extensive sales and service
network and extensive research and development activities.
Motorola provided business confidential information regarding the value of its
U.S. production and its U.S. workforce associated with each of these sue phases to the
interagency Trade Policy Staff Committee in a submission dated May 20, 1992,
responding to the Administration's solicitation of public comment on the renewal of
the GSP program. The data show that, in the aggregate, Motorola maintains over $1
billion in U.S. production and employs several thousand workers in operations directly
related to the company's Malaysian transceiver production. It should be noted that
these figures reflect Motorola operations only, and do not include the substantial U.S.
exports and employment associated with inputs sourced from unrelated U.S. compa-
Phase I - Motorola sources transceiver assemblies and many components in the
United States and ships them to Malaysia. These inputs, which include hybrid
integrated circuits, transformers and printed circuit boards, are sourced both from
Motorola's U.S. plants and from other U.S. manufacturers.
Phase II - In Malaysia, the U.S.-made assemblies and components, along with others
sourced worldwide, are assembled into basic transceiver units which are then shipped
to the United States. Meanwhile, Motorola produces in the United States parts such
as batteries which will ultimately be added to the transceiver units.
Phase III - Once the Malaysian-assembled transceivers are back in the United States,
Motorola employees perform finishing operations on the units. These operations
include attaching the parts manufactured in Phase II, testing, and programming the
Phase TV - Motorola has many other U.S. operations linked to its Malaysian transcei-
ver operations, such as the production of equipment related to transceivers. This
manufacturing, which is conducted at several Motorola plants, involves antennas,
towers, transmission lines, battery chargers and repeaters.
Phase V â€¢ Motorola also produces a substantial volume of transceivers in the United
States that complement those manufactured by Motorola in Malaysia to give the
company a full product line. These are either units which are expensive to ship
because of their large size, are high-end models that demand extremely sophisticated
programming, or are produced by a highly automated process.
Phase VI - Finally, Motorola maintains a large U.S. sales force to market transceivers
manufactured by Motorola; several thousand additional workers are engaged in after-
market service and parts.
The GSP could expand Motorola's U.S. operations
The availability of duty-free GSP treatment was an important factor in Moto-
rola's selection of Malaysia over other foreign countries as the investment site for its
transceiver assembly operations. However, since U.S.-made components accounted
for such a large portion of the appraised value of the transceivers imported from
Malaysia, the company found that it would be difficult to satisfy the GSP's require-
ment that at least 35 percent of the value be from the beneficiary country.
Faced with this situation, Motorola decided to expand the degree of assembly
performed in Malaysia to the point where the product's U.S.-made components would
be viewed by U.S. Customs as having undergone a dual transformation. Under the
GSP's origin rules, the full value of inputs meeting the dual transformation test may
be counted as though they are of beneficiary country origin and thus credited toward
the 35 percent threshold. By stretching the degree of assembly in Malaysia to meet
the dual transformation requirement, the beneficiary country content in the transceiv-
ers imported from Malaysia surpassed the 35 percent level.
Ironically, the increased level of assembly in Malaysia that was prompted by
the GSP's value-added requirement has come at the expense of Motorola's U.S.
operations. Were it not for the duty considerations, Motorola could find that it is
more cost effective to import the Malaysian transceivers back into the United States
in a less finished condition and to perform a greater degree of final assembly opera-
tions at its U.S. facilities (i.e., to expand the U.S. operations outlined in Phase III
above). Unfortunately, this is not an option given the importance of the GSP's cost
savings to Motorola's competitiveness vis-a-vis foreign suppliers.
This situation, which clearly is contrary to general U.S. economic interests as
well as Motorola's cost competitiveness, could be fully remedied by amending the
GSP statute to allow the value of U.S.-made inputs to be credited toward the 35
percent value-added requirement. The benefit of such an amendment to U.S.
production and employment could be quite significant.
Amending the GSP's Value-Added Requirement
to Allow U.S. Content Will Further Promote U.S. Manufacturing
Motorola urges that statutory provisions for the renewed GSP program be
amended to allow U.S. content to be credited towards the GSP's value-added
requirement Under the current rule requiring that 35 percent of the product's value
be of beneficiary country origin, there is no incentive to source parts and components
from U.S. manufacturers or, as in the Motorola situation described above, to maxi-
mize the level of final assembly performed in the United States.
At best, the current situation fails to take advantage of a logical opportunity to
promote sourcing of American products. At worst, the situation encourages manufac-
turers in developing countries to source their inputs from Japan or other GSP donor
countries that, unlike the United States, will give them credit for incorporating their
nation's components and materials.
To remedy this situation, Motorola urges that the GSP's value-added require-
ment be amended to adopt a provision relating to U.S. content equivalent to that for
the Caribbean Basin Initiative (CBI). While this proposal has the disadvantage of
limiting the credit for U.S. content to 15 percent of the import's appraised value, it
recognizes the desire by U.S. Customs authorities to harmonize U.S. rules of origin
wherever possible and the attendant contributions made by such harmonizations to
improved understanding by beneficiary country manufacturers and U.S. importers.
This approach also reflects the political reality that the U.S. government is unlikely to
adopt rules of origin for the GSP program that are more liberal than those under the
Allowing U.S. content in the GSP's value-added calculation could have an
immediate positive impact on U.S. manufacturing and employment. Motorola is not
alone in seeking the allowance of U.S. content in the renewed GSP program. During
its solicitation of public comment on the program's renewal, the TPSC received com-
ments in support of such an amendment from many diverse parties. Clearly, this
modification of the GSP's rules of origin would have widespread benefits to U.S.
economic interests, and we urge that it be incorporated into the renewed GSP
Amending the GSP's Value-Added Requirement
to Allow U.S. Content Is Consistent With Other
Trade Regimes Maintained by the United States
and Our Major Trading Partners
Most trade regimes employing a value-added rule of origin make extensive use
of the donor-country-content principle. The following reviews the use of donor-
country content by the world's four leading traders ~ the United States, the European
Community, Japan and Canada. As indicated, the countries make extensive use of
the donor-country content concept in almost every situation for which value-added
origin rules are applied. This is particularly true for our major trading partners' GSP
and other tariff preference programs, most of which provide strong incentives for
incorporating donor-country content
As the country making the greatest use of value-added rules of origin general-
ly, Canada is also the most frequent user of donor-country-content provisions. Unlike
other major trading countries, Canada employs a value-added test for purposes of
granting MFN treatment, requiring that at least 50 percent of a product's total cost of
production be attributable to the originating, MFN -eligible country.
In calculating whether a product meets this requirement for MFN treatment,
cumulation is allowed for value originating from any MFN countries or from Canada.
A parallel provision giving credit for Canadian content is also incorporated in the
country's two preferential regimes with other industrialized countries: the British
Preferential Tariff and the Australia-New Zealand preferences.
In its preferential programs for developing countries, Canada relies on a nega-
tive rule of origin specifying the maximum content allowed from non-originating
countries. Under Canada's GSP program (the "General Preferential Tariff" (GPT),
no more than 40 percent of the ex-factory price of the goods can be of foreign
content attributable to non-GPT countries. The value of any content originating in
Canada or any GPT-eligible country can be cumulated with the originating-country
A similar provision is contained in Canada's Least Developed Developing
Country (LDDC) program. Here, however, cumulation is restricted to the content
from Canada and LDDC beneficiaries.
While the United States relies on a substantial transformation requirement as
its primary rule of origin, it also makes relatively extensive use of value-added
requirements and, within those, of provisions recognizing donor-country content Two
prominent examples are the U.S. -Canada Free Trade Agreement which, for certain
products, requires that U.S. and/or Canadian operations account for at least SO
percent of the product's value of materials plus its direct cost of processing and
assembly, and the proposed North American Free Trade Agreement
In each of its tariff preference programs with developing countries or regions
except its GSP program, the United States credits donor-country content Most of
these programs are based on the Caribbean Basin Initiative (CBI) which, like the
GSP program, requires that products be substantially transformed and have at least 35
percent of their value derived in a beneficiary country. Unlike the GSP, however, the
CBI provides that materials from the United States may constitute up to IS percent-
age points of the 35 percent value-added requirement
Provisions identical to the CBI's allowing the inclusion of U.S. content are
contained in the Andean Trade Preferences Act and in the U.S.-Israel Free Trade
Agreement Finally, the United States also maintains a de facto donor-country-
content credit for products from insular possessions that are not part of the U.S.
customs territory. These products, which are normally subject to MFN duties, can
enter free of duty if foreign materials constitute no more than 70 percent of the
article's total appraised value (50 percent for articles that are ineligible for CBI
The European Community's primary rules of origin involve substantial
transformation and change -of-tariff-heading approaches. The EC employs value-
added rules only on a supplemental basis for its five major types of tariff treatment
and, even then, it does so only for certain product groups.
For those situations in which value-added rules do apply, the EC makes
frequent use of donor-country-content provisions. Under the EC's Lome Convention
and its trade agreements with Maghreb countries, cumulation is allowed for content
from the EC and among all beneficiary countries. The EC's free trade agreements
with EFTA and its non-Maghreb Mediterranean agreements also allow the inclusion
of content from the EC, but not from other eligible countries.
The value-added tests contained in the EC's GSP program do not recognize
donor-country content However, the impact of this omission is limited by the fact
that the EC's GSP program utilizes value-added requirements only as a supplemental
requirement to its primary change -of-tariff-heading rule of origin and, even then, only
for certain products. Also, a large portion of the imports theoretically covered by the
ECs GSP program enter under the more liberal Lome Convention or other preferen-
tial programs that incorporate donor-country-content provisions.
Japan, which uses a change -of-tariff-heading requirement as its primary rule of
origin, makes the least use of a value-added rule of origin of the major trading
countries. Japan's value-added requirements are restricted to its GSP program, which
relies upon a negative value-added rule limiting the amount of non-originating
country content These limits vary from product to product but generally range be-
tween 40 and SO percent In calculating this value-added requirement cumulation is
allowed for Japanese content
For the foregoing reasons. Motorola urges that the U.S. GSP program be
renewed. Motorola further urges that the GSP statute be amended to allow U.S.
content to be credited towards the program's value-added requirement
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STATEMENT OF THE
NATIONAL GRAIN AND FEED ASSOCIATION
TO THE SUBCOMMITTEE ON TRADE
COMMITTEE ON WAYS & MEANS
U.S. HOUSE OF REPRESENTATIVES
April 27, 1993
The National Grain and Feed Association (NGFA) appreciates the opportunity to submit
comments for the hearing record on the President's decision to seek an extension of fast-track
negotiating authority for the Uruguay Round trade negotiations. The NGFA endorses strongly
and without reservation fast-track extension and urges the expeditious completion of negotiations.
The NGFA is the national nonprofit trade association of more than 1 ,000 grain, feed and
processing firms comprising 5,000 facilities that store, handle, merchandise, mill, process and
export more than two-thirds of all U.S. grains and oilseeds utilized in domestic and export
markets. Founded in 1896, the NGFA's members include country, terminal, and export
elevators; feed mills; cash grain and feed merchandisers; commodity futures brokers and
commission merchants; processors; millers; and allied industries. The NGFA also consists of
40 affiliated state and regional grain and feed associations whose members include more than
10,000 grain and feed companies nationwide.
The Uruguay Round negotiations of the General Agreement on Tariffs and Trade (GATT)
have been a source of both hope and consternation for several years. From the beginning of the
talks, the NGFA has strongly supported a comprehensive agreement which, among many other
goals, would phase out or phase down trade-distorting agricultural policies worldwide.
Specifically, we believe that the discipline of a multilateral GATT agreement is needed to bring
agricultural export subsidies under control.
We firmly believe the time has come for all subsidizing nations to move away from such
practices. Given multilateral agreement on that point and enforceable rules, U.S. fanners and
agribusiness will benefit greatly by taking advantage of our own competitive advantages over
other countries. Because we have the world's most productive farmers and the world's most
efficient and comprehensive marketing and transportation system, the United States is extremely
well-positioned to capitalize on enhanced market opportunities.
The release in December, 1991, of the Dunkel text was a landmark event. The NGFA
was optimistic then that the Dunkel text would provide a framework for conclusion of the
Uruguay Round. Similarly, when the Blair House agreement was reached by U.S. and EC
negotiators last year, hopes were again raised that agreement could be near. While such
agreement has been slow in materializing, we still believe that concepts embodied in the Dunkel
text and the Blair House agreement are the foundation for successful completion of the Uruguay
Furthermore, we still believe a sound agreement is of paramount importance for U.S.
agriculture. Estimates are that an agreement based on the Dunkel text would increase farm cash
receipts by about $5 billion. Net cash farm income is projected to rise about $1 billion. In
addition, U.S. exports would increase by $4-5 billion. It seems clear that a successful GATT
agreement would bring significant financial benefits to U.S. agriculture, a fact that becomes
increasingly important as federal budget pressures mandate cuts in commodity price support
programs. A successful agreement would allow both fanners and agribusiness to seek an
increasing share of their incomes from the marketplace rather than from government programs.
Fast-track extension is an integral component of a successful agreement. By requesting
fast-track extension, President Clinton has sent a message to our trading partners and our
competitors that he is serious about seeking an end to the gridlock that has enveloped the
Uruguay Round. Congressional approval of the President's request would strengthen the hand
of negotiators as they seek the best deal for the United States. Perhaps even more importantly,
fast-track rules preclude loading down an agreement with numerous crippling amendments when
the proposed agreement is ultimately considered by Congress for approval.
In conclusion, the NGFA supports fully President Clinton's request for an extension of
fast-track negotiating authority. We look forward to working with the subcommittee and the
Administration for fast-track approval and the long-awaited successful conclusion of the Uruguay
National Retail Federation
701 PENNSYLVANIA AVENUE. N.W. â™¦ SUITE 710 â™¦ WASWMGTOK DC 20004 â™¦ (202) 783-7971
April 16, 1993
The Honorable Sam M. Gibbons
U.S. House of Representatives
2204 Raybura House Office Building
Washington, DC 20515
Dear Congressman Gibbons:
I am writing on behalf of the nation's retailers to urge you to support an extension of the
Generalized System of Preferences (GSP) program, due to expire on July 4, 1993.
Since its implementation in 1976, the GSP program has permitted imports from
developing economies to enter the United States duty-free. While "import sensitive" products
such as textiles and apparel are expressly exempted, a number of other retail products greatly
benefit from the program, thus allowing American consumers to enjoy high quality, imported
goods at relatively low prices. Our retail members import from as many as 20 developing
countries, which not only promotes economic growth in these countries, but has proven to be an
effective trade tool in the protection of intellectual property rights and recognition of worker
The July expiration of this program comes at a particularly bad time for retailers, as we
are already locked into orders for the Christmas season, with inventory shipments expected to
arrive July through October. Our catalogs and advertising promotions for the Christmas
season are already in production, which also locks us into the value prices we receive under the
GSP program. One of our members has estimated the company will have to pay up to $3 million
in additional duties this year alone if the program expires. As you can see, a lapse in the
program will drastically impact our bottom line at a time of fragile economic recovery.
We urge you to support approval of the GSP extension the Administration is expected to
send to the Congress soon. The program is beneficial to American consumers and our trading
partners and merits a prompt extension.
By way of background, NRF is the nation's largest trade group which speaks for the retail
industry. The organization represents the entire spectrum of retailing, including the nation's
leading department, chain, discount, specialty and independent stores, several dozen national
retail associations and all 50 state retail associations. The Federation's membership represents
an industry that encompasses over 1.3 million U.S. retail establishments, employs nearly 20
million people and registered sales in excess of $1.9 trillion in 1992.
Thank you for your consideration.
RETAIL SERVICES DIVISION â™¦ 100 WEST 31 n STREET. NEW YORK. NY 10001 . (212) 244-8780
SAFRA international inc.
1500 Lancaster Avenue. Suite 201
Paoii. Pennsylvania 19301 U.S.A.
Telephone^ (21SI 296-7660
Fax: (2151 296-7462
The Honorable Dan Rostenkowski , Chairman
House Ways and Means Committee
U.S. House of Representatives
Washington, D.C. 20515
Dear Representative Rostenkowski :
I am writing on behalf of SAFRA International, Inc.,
of which I am President, to urge you to support the
continuation of the Generalized System of Preferences (GSP)