DUTY-FREE PROGRAM HAS ALLIES BUT FACES A TROUBLED FUTURE

CAROL EMERT

WASHINGTON (FNS) -- Frozen-vegetable importers will have to pay regular tariff rates, as high as 25%, if a federal duty-free trade program scheduled to expire July 31 is not renewed.

The program, the Generalized System of Preferences, allowed 2.5 million kilograms of frozen vegetables into the United States duty-free in 1994. However, its future is cloudy because of Washington's volatile mix of deficit-reduction fervor, anti-"corporate welfare" sentiment and unpredictable Congress.

The GSP was established in 1974 to allow duty-free entry of certain imports from poor nations, which now number more than 140. Each year, the product list -- which includes some consumer electronics, ceiling fans and other goods besides frozen vegetables -- is reviewed by Congress and federal trade agencies to exclude merchandise that might compete with domestically produced goods.

The program is generally non-controversial, since it encourages poor countries to prosper through industry instead of relying on foreign aid. But it is projected to cost the U.S. Treasury $2.3 billion in tariff revenues over the next five years.

Frozen vegetables face some of the highest tariffs of any commodity. Importers of frozen corn, for example, would be subject to duties of 25% without GSP. Roughly 22% of the imports of a category called "miscellaneous vegetables," which includes corn, were brought in under GSP last year from Caribbean nations, Chile, Malaysia and Thailand, said Laura Baughman, president of the Trade Partnership, a Washington consulting firm.

Last year, 20% of imported frozen potatoes came in under GSP, all from Colombia. They are subject to a 10% tariff without the special program. About 18% of the string beans imported last year came from such GSP countries as Guatemala, El Salvador and Peru. The tariff typically is 7.8%.

About 40% of the chick peas brought in last year got a GSP break from the regular 2.7% duty. Most of the imports were from Turkey. Okra importers will have to pay a 17.5% duty without the special program. About 4% of the okra imported last year came in under GSP, mostly from Guatemala.

Slow action by Congress allowed the GSP to lapse in 1993 and 1994. But when it was renewed several months later, the law was made retroactive so importers could get tariff refunds from the Customs Service.

Because of the new winds in Washington, however, the retroactive application and the renewal itself are "extremely up in the air right now," said Robin Lanier, vice president, trade and the environment, with the International Mass

Retail Association.

Even if the law is made retroactive, getting a tariff refund can be a hassle, and the interest paid on the money is lower than rates importers could get by investing it elsewhere, Lanier said.

Although GSP does not expire until the end of July, it is certain that it will not be extended by that date because no more revenue bills are expected out of the House of Representatives until fall. Congressional procedures mandate that tax legislation like the GSP provision be attached to a House revenue bill.

Importers had hoped that a GSP amendment could be tacked onto the Contract with America tax bill, but that proved impossible. The next revenue legislation due out is the annual budget reconciliation bill, which usually moves from the House to the Senate in September.

If Congress refuses to attach the GSP provision to the budget bill, importers will try a second tack: amending legislation that would give the president authority to negotiate a new trade pact with Chile. But that bill will not come out of the House until late this year at the earliest, Lanier said. And like the GSP bill, it is not clear whether Congress will cotton to freer trade with Chile.

"If it doesn't make it onto the budget reconciliation bill, I think GSP is gone for a long time -- maybe forever," said Lanier.

"Realistically, people could not have it [GSP benefits] for a year, at least," he said. "So it's very important for people to be prepared for the fact that GSP is going to lapse after the 31st [of July]."

For years, retailers and others in Washington have been lobbying to convince Congress to authorize the GSP program for five years to avoid the annual dance, and the Clinton administration supports that idea. But the chance of a multi-year extension happening in 1995 "are very slim just because of money," Lanier said.

The House Ways and Means Committee held a hearing on renewing GSP earlier this year, and the Senate Finance Committee is planning a hearing in June. Nevertheless, "there's no bill and no vehicle and no [spending] offset, and nothing that indicates this is going anywhere," Lanier said.