Last week, we wrote about how American companies have paid about $800 million in extra tariffs due to recent GSP country terminations but there has been no progress on any of the issues raised in country reviews. Proposed GSP renewal bills include many new proposed eligibility criteria. If policymakers want to create an environment where those criteria are more likely to raise standards – and avoid lose-lose outcomes like other recent cases – Congress must incorporate positive changes into GSP renewal legislation too. Yesterday we wrote about ways to make countries care more about keeping GSP benefits. Today we want to focus on possible ways to help countries make progress on the new (and existing) criteria.
Some basic facts
- There are no direct linkages between GSP benefits and traditional “foreign aid.” This is not actually surprising, as GSP was conceived as an alternative to direct foreign aid and even used the slogan “trade, not aid.” But the original GSP program, as created by the Trade Act of 1974, did not include the types of eligibility that countries had to strive to meet. Criteria were much more black and white: you could not be communist or a member of OPEC or have nationalized U.S. companies’ property without compensation. More subjective eligibility criteria (labor rights, intellectual property protections, etc.) have been added at later dates, but assistance to meet the criteria were never included.
- More recent programs, such as AGOA and even USMCA, provide for explicit help – and funding – for countries to meet new standards. Again, a common refrain is “updating” GSP criteria to match programs like AGOA. But the original AGOA statute called for a whole-of-government approach to assist sub-Saharan African (SSA) countries that has never existed for GSP countries. Even Mexico, which is a much more developed and wealthier country than nearly all GSP beneficiaries, received dedicated funding to meet new labor and environment criteria under USMCA.
It is one thing to say “GSP should be more like AGOA,” but it’s something very different to say “GSP countries should meet AGOA criteria – and then some – without any of the financial and technical assistance provided to AGOA countries.” Or that lesser-developed GSP countries can meet higher standard when higher-income countries like Mexico need financial assistance.
Real-world example #1
The original AGOA statute shows what a whole-of-government approach to promote development in addition to tariff preferences looks like. For example:
- Section 122 called on the Executive Branch to provide technical assistance to help increase trade.
- Section 123 called on the Overseas Private Investment Corporation (OPIC, now U.S. International Development Finance Corporation or DFC) to create equity funds to “expand opportunities for women and maximize employment opportunities for poor individuals.”
- Section 124 called on the Ex-Im Bank to expand “financial commitments in sub-Saharan Africa under the loan, guarantee and insurance programs of the Bank.”
- Section 127 called on USAID to invest in development, including in areas such as rule of law and good governance that were added as eligibility criteria to AGOA, as well as promoting sustainable economic development through environmental protection.
Not only does the technical assistance and funding make AGOA compliance more achievable – the trade promotion activities make the potential AGOA benefits themselves more valuable. GSP has no such linkages – and it shows. While GSP is more than twice as old and covers about three times as many countries as AGOA:
- a search of the USAID website returns 133 results for “African Growth and Opportunity Act” versus just 4 results for “Generalized System of Preferences.”
- a review of DFC’s current list of actively funded projects for 2020/2021 shows nearly $3 billion in commitments to AGOA countries versus $1.3 billion in commitments to GSP countries.
Clear congressional guidance on these issues obviously matters.
Real-world example #2
More recently, Congress passed the USMCA, which included new labor and environmental requirements on Mexico – and hundreds of millions of dollars in funding to help achieve those goals. According to the House report, USMCA included:
- “$180 million in capacity building for grants issued by DOL to support the implementation of Mexico’s labor reform, which will go a long way toward ensuring the potential of Mexico’s labor reform”
- “a capital increase authorization for the North American Development Bank (“NADBank”) and $215 million for NADBank over five years for environment infrastructure projects” and “$300 million over four years of additional appropriated funds for EPA grants under the Border Water Infrastructure Program to address pollution needs” and “$8 million for NOAA over four years to address marine debris in North American waters.”
Congress obviously recognizes the need to provide assistance for countries to meet higher standards. Without such help, GSP countries likely will have a much harder time achieving higher standards regardless of their willingness or desire to make changes.
Two recommendations to help countries make progress on the new criteria
Establish more explicit links to development funding (e.g., USAID) to help meet GSP eligibility criteria and/or otherwise utilize program. Ideally, Congress would provide explicit funding for technical and capacity building assistance for countries to make progress in specific areas. However, the AGOA/USAID example appears to show that simply telling the agencies to prioritize such projects, even out of existing funds, could lead to more assistance in this area.
Provide a phase-in or grace period for countries to try to meet the new criteria. It will take time to understand the new rules, let alone for countries to take the steps that may be necessary to comply with them. One recent proposal to add a women’s economic empowerment criteria from Senators Bob Casey (D-PA) and Catherine Cortez Masto (D-NV) required 5 years of reporting on progress toward new standards before punitive actions to allow countries to make an effort. Without such a provision, countries could be removed before they are able to take the necessary steps to improve standards. Removing countries before they have a chance to make good faith efforts to comply with new rules would harm GSP’s development goals and undermine the justification for new criteria (i.e., to raise standards).
Read more on how Congress should: