No matter how many new incentives are added or how much direct help is given or new processes are created to ensure a fair outcome, there likely will be examples where GSP countries cannot or will not meet the eligibility criteria. Yet GSP termination is a blunt instrument. It can hurt the workers in developing countries that eligibility criteria (e.g., labor rights protections) are meant to help, while often having little impact on the “bad” actors. It can reduce U.S. leverage in other areas covered by the GSP criteria, including areas where countries have made progress. And it can raise tariffs on U.S. companies whose practices go above and beyond the eligibility criteria, hurting both their American workers and at their suppliers. Avoiding such collateral damage to the greatest extent possible should be a primary goal when punitive actions are deemed necessary.
Some basic facts
- The GSP statute allows for “partial” suspensions, but historically full terminations have been more common. In practice, this means giving up leverage across a range of issues due to concerns in one area. As more criteria are added, sacrificing multiple goals over punishment for one issue becomes more likely.
- The GSP statute doesn’t include the “impact on workers” or anything similar among the criteria for deciding on country removals. Workers directly benefiting directly from GSP may have the least power to influence their government’s practices and policies, yet are most likely to feel the pain if GSP benefits are revoked. The on-the-ground impacts should be a consideration before actions are taken.
- When products lose GSP benefits, they do so at a tariff-line basis and there is no mechanism for “good actors” to retain (or regain) GSP. By using an axe instead of a scalpel, current GSP reviews risk harming those that meet or exceed the program’s development goals, as well as American companies and workers that rely on imports from those good actors. Similarly, there is no consideration given to whether such products are available from other sources.
- Even basic protections in the GSP statute do not provide enough time for importers’ current orders to arrive, let alone identify and start buying from new suppliers. Past surveys of importers have shown that most companies place orders at least 90 days before they arrive in the United States, yet the current GSP statute only requires 60-days notice to terminate GSP (and no notice for a partial suspensions). As a result, American companies that have been accused of no wrongdoing may be on the hook for significant tariffs on orders place before actions were even announced.
Collectively, limited efforts to minimize the collateral damage from punitive GSP actions means that those who have done nothing wrong (e.g., workers in exporting firms, companies in sectors unrelated to problem areas, American workers maintaining high standards) bear the brunt of termination pain. Conversely, those whose actions the U.S. government would like to change often face little to no impacts from lost GSP.
Real-world example #1: Loss of GSP over one thing eliminates leverage in other areas
There is considerable interest in adding women’s economic empowerment provisions to GSP. The Senate-passed bill includes it as a new criteria, and the House Democratic proposal includes new reporting requirements to learn more about women’s rights in GSP countries. If enacted, Turkey’s recent decision to withdraw from the Council of Europe Convention on Preventing and Combating Violence Against Women and Domestic Violence, better known as the Istanbul Convention, likely would have provided an early test for using the new GSP criterion as leverage.
However, Turkey recently lost its GSP under questionable circumstances (i.e., a “market access” review was launched then Turkey was removed for “sufficient economic development” – during in a recession). While President Biden issued a statement calling the Istanbul Convention decision “deeply disappointing,” the 2019 GSP removal decision means that the U.S. government has one less tool (e.g., a GSP review) in the toolbox to respond today.
It doesn’t matter if you care only about the environment or only about market access. Anytime GSP benefits are wholly removed for one issue, it leads to loss of leverage over others. Or in the case of Turkey, unforeseen issues that may arise in the future. Partial suspensions, which have occurred on limited occasions in the past, maintain some leverage and therefore should be used more widely.
Real-world example #2: No consideration of impact on workers hurts artisans in India
The loss of GSP benefits for India had a particularly big impact on American Fair Trade importers – and the workers they support. In 2020, an original member of the Fair Trade Federation wrote “While we are committed to supporting these communities through purchases of handmade goods, tariffs of up to 18% tariffs on some items we import make them unprofitable without GSP. Our imports of jewelry, bells, and percussion instruments from India have declined since it lost GSP in 2019 due to our having to increase prices and lose sales, reducing our ability to support artisans there.”
Another Fair Trade company in Pennsylvania wrote: “When India lost its GSP status we significantly reduced our orders. Sales dropped off when we tried to pass the extra cost on to our customers which, in turn, forced us to cut production.”
For a development program, it seems strange to exclude worker impacts from the decision criteria.
Real-world example #3: No possibility of exemptions for “good” actors
Recent Section 232 national security tariffs had an exclusion process for products deemed not a threat to national security. This makes sense, as imposing tariffs on these products would hurt Americans without furthering the laws’ intended goals. Under GSP, there is no such exemption processes regardless of how much development continued duty-free may promote, or how much development harm the lost of GSP would have.
Once again, the Fair Trade companies above are a good example. Many of them operate in GSP countries to help overcome labor, environmental, or especially women’s rights shortcomings. Other U.S. development programs recognize that treating “the people” and “the government” as one will hurt the most vulnerable populations within countries. For example, USAID did not stop aid to Burma following the February coup, it redirected aid “that would have benefited the Government of Burma…to support and strengthen civil society.” The positive actors within GSP countries should be viewed as similarly advancing U.S. priorities, not punished with higher tariffs.
Real-world example #4: No possibility of exemptions for needed products
Section 301 tariffs are meant to punish for exporters to change other countries’ policies. Yet even for China, a process was created to exempt individual products that didn’t have alternative sources or that are needed for Covid response. In both cases, it was clear that tariffs would harm U.S. companies and workers more since imports would continue (or even surge) regardless of the new tariffs. The GSP statute provides for no such considerations.
New tariffs on Covid-related products are a good example of GSP reviews disregarding the U.S. need for certain imports. The United States announced in October 2019 that Thailand would lose GSP for about 1/3 of its imports over labor rights concerns. Higher tariffs on products such as cloth face masks didn’t seem relevant in October 2019, but the world was very different when the tariffs took effect in late April 2020 and mask imports from Thailand (and others) were surging. The United States issued a blanket Section 301 exemption for imports from China on the USITC’s Covid-related product list, but nothing for imports facing higher tariffs due to GSP reviews. And Americans continue to pay: compared to January-May 2019, tariffs paid on GSP-eligible, Covid-related products are 9x higher for India and 10x higher than Turkey.
Given the strong, bipartisan support for GSP – and clear bipartisan concern over China relations – it seems odd to take much stricter positions against GSP countries than China in similar situations (e.g., imposing punitive tariff on Covid-related products).
Four recommendations to minimize collateral damage when punitive actions are deemed necessary
Add a Sense of Congress that full terminations should be last resort. Taking partial actual will ensure that the United States does not lose leverage over all issue areas due to shortcomings in one area. This is particularly important if the number of issue areas that could lead to lost GSP expands significantly (e.g., to include corruption, good governance, environment, women’s rights, etc.).
Add “impact on workers currently benefiting from GSP” under the considerations for country removals. If the goal is helping workers in developing countries, there is no good justification for excluding impacts on those workers from the decision process. None. It is akin to prescribing medicine without any consideration given to whether it will make the patient better or worse.
Establish a process whereby GSP benefits can be maintained (or restored) even if the country loses some or all GSP eligibility. Eligibility criteria are meant to prevent a “race to the bottom,” but automatically grouping all developing country exporters with the “worst” actors in their country or sector may perpetuate it instead. Why should a factory take positive steps that will increase its production costs but be ignored during the GSP review decision process? Creating a mechanism for good actors to avoid punitive tariffs could better incentivize a race to the top because companies see the individual value of taking such positive steps. An exemption process should be available before punitive tariffs are imposed, but the Thailand/Covid example shows there also should be mechanisms to consider changed circumstances and avoid self-inflicted pain.
Extend the notice required before tariffs take effect to 180 days. The current 60 days’ notice does not reflect the business reality that orders are placed much further in advance. As a result, American companies can be liable for significant tariff payments even if orders stop after any announcement. Extending the implementation period would eliminate the issue for (most) companies and let them to start identifying new suppliers (if possible). It also could provide time for the Administration to undertake recommended exemption processes.
Taken together, these four changes could ensure that punitive GSP actions hit their intended targets and minimize collateral damage, both in developing countries and the United States. When actions are necessary, a goal should be furthering GSP’s development benefits to the greatest extent possible.
Read more on how Congress should: