Yesterday, House Ways & Means Trade Subcommittee Chairman Blumenauer released legislation to renew GSP. Introduction of a House bill is welcome, but there are concerns with provisions in the bill and almost no time to address them. As such, program users continue to believe the best way to avoid painful new taxes on American companies is an as-is extension followed by broad stakeholder discussions in the next Congress.
Put simply, letting GSP expire should not be an option: Americans will lose jobs in the middle of a recession, Americans will lose critical benefits like health insurance in the middle of a pandemic, and American companies will cancel job-creating investments.
Regarding the Blumenauer proposal:
We’re concerned the extension length – only 6 months – provides very little certainty to users. GSP importers place orders months in advance. They’re placing orders today for delivery well into 2021. Not paying tariffs on January 1 is important, no doubt, but not being able to count on GSP beyond June 2021 limits the ability to plan for post-pandemic growth. If you’re a small business owner seeing the light at the end of Covid tunnel – but possibly $10K-$20K per month in new taxes starting in July – would you hire new employees or make big investments?
We’re concerned the biggest proposed changes in a generation were introduced just 24 days before expiration (with Congress in session for less than half of those). Change isn’t inherently bad: nearly 300 American organizations sent a letter to Congressional leaders expressing their eagerness to discuss ways to improve GSP. For example, we’re unaware of any opposition to codifying the triennial country reviews (one of the proposals). But there are lots of outstanding questions about provisions, definitions, and most importantly – impacts on program users – that haven’t been answered and likely can’t be in the coming days.
We’re concerned the new Administration complicates these for purely process reasons. The legislation calls for major reports by May 1, presumably new negotiations between May 1 and June 30, and passage of new legislation (again, presumably with more changes) before June 30. These are ambitious timelines in any scenario, but consider that USTR Lighthizer didn’t assume his role until May 15, 2017. How can USTR be expected to publish major report to drive change discussions and potentially engage in those discussions if the relevant appointees may not yet be in place? Even if a new GSP is in place by May, GSP is unlikely to be their top trade priority, casting further doubt on the ability to get the attention needed to meet such ambitious deadlines.
Finally, we’re concerned that not enough thought has been given to how GSP and its eligibility criteria function in practice. Eligibility criteria are inherently difficult due to the disconnect in whose practices they seek to change (foreign governments) and who is punished if they do not (American companies). Having criteria does not raise standards, countries attempted compliance with criteria does. If countries don’t view GSP benefits as “valuable enough” to attempt compliance, the result will be lose-lose: no improvement (and maybe backsliding) in developing countries and higher taxes on American companies. It’s not hypothetical: Americans hundreds of millions of dollars due to lost GSP for India/Turkey/Thailand, but there are no policy or development achievements to show for it. This suggests countries won’t bend over backwards to meet US demands with the sole purpose of retaining GSP, and adding new eligibility criteria could lead more countries to determine that maintaining GSP just isn’t worth it. Making eligibility criteria more effective is not an intractable problem, but can’t be solved in days and definitely won’t be solved by simply adding new requirements.
There are lots of ideas and proposals in the Blumenauer bill that can and should receive thoughtful consideration. Stakeholders should have a role in those talks. If Democratic and Republican negotiators can agree on changes to the current statute as part of a renewal bill, program users hopefully could support those enthusiastically. But the first priority must be avoiding painful expiration for American companies and workers.