As Congress officially kicks off the House-Senate Conference negotiations on a China competition bill, a bipartisan group of 54 House Members sent a letter to Congressional leaders urging inclusion of the CNL Update Act (HR 6171) provisions in the final bill. Representatives Stephanie Murphy (D-FL) and Jackie Walorski (R-IN), the lead sponsors of the CNL Update Act, were joined by 30 Democrats and 22 Republicans across the ideological spectrum in calling for the changes to be a part of GSP renewal (full list below).
Earlier this month, about 270 American companies and associations endorsed inclusion of the CNL Update Act in a similar letter to Congressional leaders.
The House letter states the “geostrategic significance of GSP has increased in recent years, as U.S. policymakers seek to encourage American companies to move supply chains out of China and into other countries, including GSP beneficiary countries. In addition, because GSP has a downward effect on prices, it is especially vital at a time of rising inflation for American consumers.”
The letter supports changes to competitive need limitations, or CNLs, that “are arbitrary dollar-value caps that Congress has not adjusted in 25 years” and whose “current rules lead to frequent GSP loss but very rarely to waiver or restoration.“
CNLs undermine efforts to shift supply chains out of China, making changes particularly relevant for the China competition bill. Raising tariffs on GSP countries, as CNLs do, make Chinese exporters more competitive. Furthermore, CNLs prevent companies and industries from using GSP to move *too much* trade out of China. CNLs punish companies for doing exactly what Congress seems to want. Companies must know that GSP benefits will remain to expand or establish new suppliers. Updating CNL rules would help.
CNLs undermine efforts to fight inflation, and current CNL rules amplify the impact of inflation, creating a vicious cycle. When CNLs were last updated in 1997, the annual increase was 6.7%, or about 3 times higher the inflation rate. CNL increases covered inflation and allowed room to grow trade volumes. That has flipped: CNL growth is just 2.5% in 2022 and inflation is over 8%. CNL growth rates decline a little each year, so even if inflation returns to “normal” levels around 2% the current CNLs will never allow room to grow. Rapidly rising import volumes, commodity prices, and labor costs create a perfect storm for pushing GSP imports over the current CNL caps now, which in turn will lead to even higher prices in the future.
As noted in the letter, the CNL Update Act would make a couple key changes, including:
- changing the way the annual CNL threshold is calculated so that it increases at a more reasonable rate than under current law;
- modifying the relevant federal law to say that GSP benefits “should”—rather than “may”—be restored for a country product if that product falls below the CNL threshold in subsequent years; and
- providing the executive branch with new authority (but not new mandates) to restore GSP benefits as part of the Annual Review process.
It’s hard to get a bipartisan group of 50 Members of Congress to agree on any trade issue, and Congress shouldn’t squander this opportunity to make changes advancing multiple policy goals as part of GSP reauthorization and the China competition bill.
All letter signers: Reps. Stephanie Murphy, Jackie Walorski, Paul A. Gosar, D.D.S., David Schweikert, Ruben Gallego, Eric Swalwell, Tony Cárdenas, Ted Lieu, Norma Torres, Young Kim, J. Luis Correa, Michelle Steel, Scott Peters, Diana DeGette, Jim Himes, John H. Rutherford, Al Lawson, Darren Soto, Gus M. Bilirakis, C. Scott Franklin, Brian Mast, Ted Deutch, Debbie Wasserman Schultz, Frederica S. Wilson, Mario Diaz-Balart, Carlos A. Gimenez, María Elvira Salazar, Earl L. “Buddy” Carter, A. Drew Ferguson, IV, Rick W. Allen, David Scott, Cindy Axne, Andre Carson, C.A. Dutch Ruppersberger, Dean Phillips, Michelle Fischbach, G.K. Butterfield, Deborah K. Ross, David Price, Kathy Manning, Alma S. Adams, Ph.D., Ann M. Kuster, Dina Titus, Andrew R. Garbarino, Steve Chabot, Brad R. Wenstrup, D.P.M., David P. Joyce, Brian Fitzpatrick, Madeleine Dean, Susan Wild, Mike Doyle, Beth Van Duyne, Robert J. Wittman, and Elaine G. Luria