The letter highlighted the hearing testimony of Allison Gill, Legal Director of Global Labor Justice, who said: “The most pressing need, fundamentally, is to reauthorize the program.” The vast majority of signers — which are headquartered in more than 35 states and operate in all 50 states — are small businesses struggling after nearly three and a half years of unexpected tariffs payments.

The letter also welcomed the statement from Finance Committee Ranking Member Mike Crapo (R-ID) that he is “ready to see GSP, AGOA and potentially other preference programs all passed as part of a package by…next month.” After 42 months of expiration, such an ambitious timeline is not just warranted, but long overdue. Swift renewal would benefit several Idaho companies that signed the letter, including Mike’s Organic Curry, Royal Tropics, and Boise Cascade.

The comments submitted by the Coalition for GSP as a preface to the letter noted the staggering financial costs of this unprecedented GSP lapse cannot show the true ham expiration has done to American companies, workers, and trading relationships with GSP countries:

• One letter signer, which has paid over $10 million in extra tariffs, laid off approximately 20% of its headquarters staff last week.
• One letter signer, a small business that has paid over $4 million in extra tariffs, has laid off three-quarters of its workers. The owners have accumulated over $3 million in personal debt to keep the company afloat but are now preparing to close for good.
• Numerous letter signers, mostly small business owners, have taken out loans against their homes while waiting for Congress to renew GSP, with high interest rates and continued congressional inaction making repayment nearly impossible.
• Many letter signers, after investing significant time and money to find suppliers outside of China, have been forced to return to China. One noted 100% of their products were Chinese before 2018, and it took 18 months to shift to 80% GSP (and 20% non-GSP, non-China), but they are back to 95% Chinese products due to GSP lapse.

GSP has always maintained strong, bipartisan support. The letter from 66 House Members, led by Reps. Neal Dunn (R-FL) and Jake Auchincloss (D-MA), is just one recent demonstration of support across the political spectrum. Many Ways and Means Members – Republicans and Democrats alike – have expressed frustration with the continued lapse and told GSP users they want to see it renewed as quickly as possible. This is their chance to prove it. 

This commonsense reauthorization supports American companies, promotes U.S. national interests, and includes labor and environmental provisions, so no one can claim this is a partisan bill. Just yesterday, Ambassador Tai cited five eligibility criteria updates “to reflect GSP’s purpose” the Biden Administration needs in order to support GSP renewal: human rights, anti-corruption, rule of law, labor standards, environmental standards. This bill addresses each of those issues. 

While much of the focus is on criteria, Ways and Means Members cannot ignore the tangible impacts of GSP expiration. For small businesses that depend on the program, GSP renewal has nothing to do with partisan victories:

• For Novita in Southern California, whose owners have accumulated over $3 million in debt to pay off $4.5 million in extra tariffs, it’s about avoiding bankruptcy and keeping their home. 
• For dZi Handmade in Ranking Member Richard Neal’s western Massachusetts district, it’s about lowering costs on their fair trade imports from artisans of Tibetan diaspora. 
• For Fast-Pak Trading in Secaucus, New Jersey, it’s about regaining large accounts it lost when it raised prices to cover GSP expiration costs. 
• For Triad Magnetics in California and Hiblow USA in Michigan, it’s about moving ahead with planned expansions that will add new US manufacturing capabilities.
• For Rig’Em Right Outdoors in North Carolina, it’s about restarting the supply chain migration out of China that came to a halt after GSP expired in 2020. 

No bill is perfect, including this one. But on the merits, it deserves bipartisan support to advance negotiations on a critical issue.

“We appreciate the introduction of the GSP Reform Act. The program has been expired for over 3 years, costing U.S. businesses over $3.5 billion in extra taxes over that time” said Dan Anthony, Executive Director of the Coalition for GSP. “The introduction starts an important process to renew GSP and refund those tariffs paid. GSP users look forward to working with Congress to address any ongoing concerns so the long overdue renewal can occur as quickly as possible.”

Since GSP expired, American companies in every have been forced to pay higher tariffs on qualifying products from GSP countries. The map below shows the estimated tariffs paid on imports into each state through February 2024.

GSP expiration punishes U.S. companies that reduced reliance on China. About 95% of the tariffs paid because Congress let GSP expire are for products subject to Section 301 tariffs if imported from China. For Maine, the figure is 99.98%. For all the talking about the importance of buying less from China, letting GSP remain expired for so long has actually pushed companies back to China, as highlighted by the Wall Street Journal.

The “real” cost of GSP expiration is likely much higher. Some importers may not know they are supposed to claim GSP despite the lapse. Many companies that are claiming GSP–especially small businesses–have been forced to take out loans or lines of credit to cover new tariff costs. For such businesses, the dollar cost of expiration includes both the direct tariffs and the interest payments needed to finance those costs for years. With dramatically higher interest rates today than when GSP first expired, the extended lapse could not come at a worse time.

It is critical that Congress pass a GSP reauthorization that refunds all tariffs paid and makes other positive changes as soon as possible. GSP users have big plans to invest in and grow their businesses, but often are frozen by the uncertainty of when Congress might act and what the renewal bill may include. Congress should include the bipartisan CNL Update Act and other provisions to help provide certainty to users that suffered from inaction for 3+ years.

As a result of GSP expiration 3 years ago, fun, old-fashioned family Christmas lights have faced up to $100 million in extra tariffs. Those high costs are the result of two main factors: 1) regular tariffs on Christmas lights are high (8%), and 2) GSP countries have become the dominant suppliers as companies seek alternatives to Chinese suppliers, which face 33% tariffs (8% regular tariff + 25% Section 301 tariff).

If U.S. policymakers want to see shifts out of China, letting GSP expire is a no good, rotten way to show it. As recently as 2017, China accounted for $399 million out of $472 million (84%) of all U.S. Christmas lights. Since GSP expired on December 30, 2020, American companies have imported over $1.25 billion in Christmas lights from GSP countries. That works out to over $9 in imports from GSP countries for every $1 from China — and unthinkable amount just 5-6 years ago. That helps explain why the House China Select Committee recently endorsed GSP renewal in its policy recommendation. Yet GSP remains expired and each shipment of twinkling holiday cheer gets hit with an 8% tax.

This shouldn’t be hard: GSP’s support is so broad and bipartisan that no sitting Member of the House of Representatives voted against GSP renewal when it last came up in 2018. And yet GSP expiration is about to enter year 4 and American companies already have paid well over $3.2 billion in extra tariffs.

While we definitely plan to watch Christmas vacation again in 2024, hopefully we won’t have to write another post like this.

Reauthorize the Generalized System of Preferences (GSP) program, which expired at the end of 2020, to promote economic development in the roughly 120 developing countries covered by GSP. In the reauthorization, Congress should modernize the program to accelerate supply chain shifts out of the PRC market, enhance rules of origin to limit PRC transshipment, and provide certainty for industry as they contemplate supply chain investment decisions outside of the PRC.

Since GSP expired, American companies have paid over $3.2 billion in extra tariffs on products that often compete directly with imports from China, which has never qualified for GSP treatment. In July, a majority of China Select Committee members, including Gallagher and Krishnamoorthi, signed a letter supporting GSP renewal with “smart changes” to make GSP countries a more viable alternative to China.

While the new report did not provide specific examples of policy changes, the new “CNL Update Act” from Reps. Blake Moore (R-UT) and Suzan DelBene (D-WA) is one such change. It would help preserve duty-free treatment for key products that have left China in recent years for GSP countries, such as travel goods. It also would help restore restore duty-free treatment for many products that lost GSP in the past under CNL rules. In many cases, those losses were followed by sharp increases in imports from China and declines from the GSP country — yet those products remain excluded from GSP many years later. Adopting the CNL Update Act provisions as part of GSP renewal is a critical step Congress can take to help provide certainty for American companies seeking new suppliers outside of China.

“For years, CNLs have undermined GSP’s effectiveness as a tool to promote development, lower costs for American manufacturers and families, and help companies diversify supply chains into beneficiary countries,” said Coalition for GSP Executive Director Dan Anthony. “The CNL Update Act’s bipartisan, commonsense changes will improve the GSP program, and we look forward to working with Representatives Moore, DelBene, and others to ensure its inclusion in any GSP renewal bill.”

CNLs are statutory thresholds that can trigger lost duty-free treatment under GSP even if there is no domestic production or concerns that imports harm U.S. industry. Congress has not updated the CNL thresholds in over 25 years, and the growth rate for CNLs has declined every year since. Despite the ongoing lapse of the GSP program, more and more products are being affected by CNLs as companies have sought to diversify sourcing outside of China in recent years. Some of the biggest GSP success stories, such as increased backpack imports from Indonesia, are at risk of losing GSP if Congress does not update the CNL provisions as part of renewal.

“Several economic sectors in Utah, including the outdoor recreation industry, rely on an effective and modernized Generalized System of Preferences program to do business,” said Congressman Blake Moore. “But Congress has not considered a significant overhaul of CNLs in the GSP program since 1996, which has led to outdated trade policies that impede production, limit growth, and harm U.S. economic and national security interests. This legislation will give Utah companies the flexibility they need to diversify their supply chains away from China and towards more reliable trade partners around the world.”

“Trade is a foundational part of Washington’s economy and supports over 40% of jobs in our state,” said Congresswoman Suzan DelBene. “The GSP program supports many American industries and helps spread our values abroad. However, aspects of the program are outdated. The legislation we’re introducing today would modernize the program, helping create more jobs at home, strengthen American leadership abroad, and reduce our dependency on China.” 

Similar legislation was introduced in the last Congress by former Representative Stephanie Murphy (D-FL) and the late Jackie Walorski (R-IN). Over 50 bipartisan House members supported inclusion of CNL updates as part of GSP renewal last year, but the larger package never came together. In November 2023, 20 bipartisan House members from Florida called for CNL updates in a letter to House Ways and Means Chairman Jason Smith (R-MO) and Ranking Member Richard Neal (D-MA).

The Florida House Member letter to Ways & Means Chairman Jason Smith and Ranking Member Richard Neal urged GSP renewal and supported updates to outdated rules such as CNLs. Congresswoman Debbie Wasserman Schultz, the Democratic letter lead, said “Renewing GSP is a win-win proposition for consumers, workers, and local businesses, especially in Florida. In addition to lowering operating costs and prices, preferential trade policies promise to continue lifting millions out of poverty and reducing China’s influence on U.S. supply chains.” Congressman Mario Diaz-Balart, the Republican lead, added “By reauthorizing GSP, we would revitalize our communities, bolster our economy, and counter China’s influence in our hemisphere.” The letter was signed by about 3/4ths of the Florida delegation, including Reps. Bean, Bilirakis, Buchanan, Castor, Cherfilus-McCormick, Dunn, Frankel, Franklin, Frost, Gimenez, Lee, Mast, Moskowitz, Rutherford, Salazar, Soto, Webster, and Wilson.

Separately, the New Democrat Coalition letter to President Joe Biden cited GSP renewal not once, but twice, in its eight-step policy plan to strengthen U.S. trade policy. In its section on ways to “Counter Competitive Threats and Abuses from China,” the New Democrats called for GSP reauthorization “to encourage companies to move production out of China and into developing nations.” The New Democrats also endorsed renewal of GSP and other programs in its section on ways to “Reduce Barriers to Trade that Increase Costs for Americans and Hurt U.S. Businesses.”

These are just the latest examples of Members of Congress speaking out about the need to renew GSP. In July, 66 bipartisan House Members sent a letter to Smith and Neal supporting GSP renewal as a way to “help facilitate supply chain shifts out of China.” Bipartisan support for GSP renewal was evident at the September House Ways and Means Committee GSP hearing.

The days’ meetings were followed by a memorable wine and cocktail reception at the Embassy of Argentina, graciously co-hosted by the Ambassadors of Argentina, Brazil, and Thailand. Attended by various GSP embassies, American companies and associations, and U.S. Congressional and Administration officials, it was a strong display the various groups with a stake in GSP renewal. Fun fact explaining the picture below: many Hawaiian leis are actually produced from orchids imported from Thailand under GSP!

While there is so much partisanship in Washington these days, GSP is an issue that transcends these partisan divides. With the limited time left in 2023, Congress should focus on passing legislation like GSP where this is broad bipartisan support.

As expected from the hearing title — and current congressional mood — promoting GSP countries as an alternative to China was a major theme. Yet that goal is inherently contradicted by some of the other major themes, such as making rules or origin more strict, adding eligibility criteria, and increasing enforcement of both new and existing criteria in a manner that could revoke more GSP benefits in the future.

It should be crystal clear: any changes that make GSP harder to use – or benefits easier to lose – undermine efforts to reduce reliance on China. As Fabian Garza from Black Diamond Equipment responded to a question from Chairman Jason Smith, “Supply chains are not like LEGO pieces. You do not just pick them up and place them. It takes a tremendous amount of resources. It takes a tremendous amount of time.”

It’s a balance, and failure to maintain that balance risks snowballing in a bad direction. If companies can’t claim GSP because the rules of origin are too strict, or a flurry of new eligibility criteria increase the likelihood of county eligibility loss, staking major investment decisions on GSP becomes much riskier. That’s for bad development, bad for using GSP as leverage, and terrible for encouraging U.S. companies to leave China in favor of GSP countries. As Mr. Garza noted, companies don’t want to make an investment decision and second-guess it three years later. Companies must know that GSP benefits driving investments today will be in place in 5+ years.

Fortunately, changes can snowball in a positive direction too. There was lots of talk about updating GSP’s “competitive need limitation” (CNL) rules. In response to a question from Congresswoman Suzan DelBene, Ed Gresser from the Progressive Policy Institute said “if the goal is to encourage buyers to source from other than China, the CNL concept is one that should be reexamined…It is definitely a part of that program that is dated.” Companies won’t move large quantities of trade from China to GSP countries if “success” results in GSP loss and higher tariffs.

Updating or eliminating CNLs would have many positive spill-over effects, like ensuring hard-won development gains don’t evaporate as buyers are forced to find lower-priced alternatives. Imports from the GSP country generally fall — often to zero — after GSP loss. Having more trade covered by the program also improves the leverage that GSP can provide during country practice reviews. Those are the types of win-win outcomes that Congress should seek as part of GSP renewal and reform.