As Congress considers GSP renewal legislation, there is no question that new eligibility criteria will be added. There are lots of questions about whether they new criteria will help raise standards or simply lead to more lost benefits/higher tariffs on Americans. As noted, American companies have paid about $800 million in extra tariffs due to recent GSP country suspensions but there has been no progress on any of the issues raised in country reviews.
We’ve written about changes Congress can pass to make countries care more about keeping GSP benefits and help countries meet the new criteria. But process matters too, and even the best-intentioned criteria can be abused or misapplied if there is not a robust, transparent process for conducting reviews and ensuring outcomes reflect the facts of the case. Perhaps ironically given that “good governance” is one of the GSP criterion that Congress plans to add as part of renewal, the current GSP statute is severely lacking when it comes to transparency and oversight.
Some basic facts
- The GSP statute doesn’t require a review before taking punitive actions against countries.
- Even if reviews are opened, the GSP statute doesn’t require punitive actions to be related to opened reviews.
- The GSP statute doesn’t require notice for partial suspensions, only full country terminations.
- The GSP statute doesn’t require the Administration to detail alleged violations, or country’s attempts to come into compliance, when punitive actions are taken.
- There are no options to contest decisions besides petitioning (again) under the same flawed rules.
Collectively, the limited rules governing reviews and lack of transparency into decisions creates a ripe environment for potential abuse – or at least misapplication – of any and all GSP criteria. The “black box” nature of GSP reviews can raise questions about whether actions are taken due to GSP violations, or the GSP rules are used to justify actions taken for reasons unrelated to GSP itself.
Due to those same “black box” issues, it is quite hard to “prove” misuse of criteria, but here are possible examples.
Real-world example #1: Ukraine’s delayed GSP restoration
On October 24, 2019, the Washington Post reported that the Trump administration withdrew plans to restore GSP benefits to Ukraine. Twice. During a period when some other Ukraine-specific decisions were drawing attention. Within a day of that story being published, the Administration reversed again and announced a partial restoration of GSP for Ukraine (among other announcements).
The background: Ukraine lost some GSP in 2018 over failure to protect intellectual property rights (IPR). Ukraine then tried to remedy the situation by passing a new law to improve IPR protections. As reported, “U.S. officials, with industry support, thought it made sense to reward Ukraine’s efforts by restoring to duty-free status some of the products that had been eliminated last year.”
So far, so good. Ukraine’s new law is the outcome intended by GSP country reviews. And restoration of GSP is exactly as intended, too.
But the U.S. end of the bargain – restoration – didn’t happen. Twice. Until press reports tied it to possible impeachment hearings, and then it happened immediately. The timeline raises serious questions about whether the GSP eligibility criteria themselves were the most relevant factors to Ukraine’s GSP benefits.
Real-world example #2: Turkey’s late-initiated review, and removal for unrelated reasons
In October 2017, USTR announced a new triennial review process of all GSP countries to self-initiate reviews for countries that may not be meeting the eligibility criteria. (All the proposed GSP renewal bills would make this informal process part of the statute.) In April 2018, after its internal review and receiving petitions from stakeholders, USTR announced full country reviews of India, Indonesia, and Kazakhstan.
Any possible certainty provided by the self-review process was short lived: despite having gone through an extensive inter-agency process, USTR launched a new “market access” review of Thailand in mid-May. Then another new market access review of Turkey in early August. For Turkey, the issue was its (WTO-notified) tariffs on U.S. exports in response to U.S. Section 232 tariffs on steel and aluminum.
The legality of U.S. Section 232 tariffs/retaliation aside, the outcome was even stranger: Turkey didn’t lose GSP for failure to comply with the market access eligibility criterion, either related to Section 232s or other issues raised in hearings. It was “graduated” for sufficient economic development despite having just entered a recession and having a GDP per capita that has (now) fallen in 6 consecutive years (the metric used for automatic country graduations).
Once again, the mismatch between the actions taken and the facts on the ground raise serious questions about whether eligibility criteria compliance drive the decisions, or whether GSP criteria are simply a fig leaf.
Real-world example #3: Rejecting all requests without review
A slightly different context – product vs country reviews – but further evidence that GSP reviews are not constrained by statute or even USTR’s self-imposed rules. USTR Regulations state that product requests “for which petitioners have demonstrated a good faith effort to obtain information in order to meet the requirements set forth above, and for which further consideration is deemed warranted, shall be accepted for review” (emphasis added).
Yet according to the USTR’s 2021 Trade Policy Agenda and 2020 Annual Report, every single new competitive needs limitations (CNL) waiver and redesignation request was rejected without review. Is it really plausible that not a single request – there were 16 different products covered by petitions – “demonstrated a good faith effort” or “warranted further review”?
But it’s a catch-22 situation for petitioners. The only “recourse” is to wait a year and petition again under the same unreliable and subjective process, which is hardly any recourse at all. It is worse still in country reviews, where companies have no recourse to a country-wide decision (e.g., no exclusion processes like are possible with Section 301 or Section 232 tariffs).
Four recommendations to prevent abuse/misapplication of new and existing criteria
Require public reviews and comments before country-specific actions can be taken. Positively, this is included in the Senate-passed bill and should be included in any final deal as well.
Require advanced notice for partial suspensions, not just full terminations. Again, this was included in the Senate-passed bill and should be included in any final deal as well.
Require detailed reports on terminations or suspensions, including efforts or formal proposals submitted by GSP countries to reach compliance. Both the Senate-passed bill and the House bills call for USTR to “publish in the Federal Register a notice of, and the rationale for, any determination” to accept or deny petition, continue eligibility reviews, or suspend/terminate benefits as part of country reviews. It’s a start, but it is hard to imagine the actual reasons for decisions making it into the Federal Register as opposed to the lowest common denominator info. Current announcements generally are a restatement of the criteria itself along lines of “GSP requires beneficiaries to provide reasonable market access and I determined COUNTY XX does not provide reasonable market access.” Is that technically a rationale? Yes. Have we learned anything? No. Congress should require additional, even if confidential, reports to the Ways and Means and Finance Committees with details on any formal discussions or requests made, actions taken, offers made, etc. Knowing that key Members of Congress would see the details of negotiations could encourage countries to put their best offers on the table (especially if they think the Administration has a predetermined outcome in mind). If countries are truly unwilling to engage or try to resolve the issues, Congress would know and be more likely to support the Administration’s decision as justified.
Extend “rationale” requirements to product reviews in addition to country reviews. The same “black box” issues affect both country and product reviews, and the Administration should be required to provide more info on why specific products were granted or denied benefits.
Read more on how Congress should: