Led by Representatives Neal Dunn (R-FL) and Jake Auchincloss (D-MA), both members of the House Select Committee of the CCP, the letter’s large and diverse group of signers demonstrates strong support for a renewed (and improved) GSP program across the political spectrum. Letter signers include:

• 34 Republicans and 32 Democrats from 30 different states
• Nearly all members of the Select Committee on the CCP, including Chairman Mike Gallagher (R-WI) and Ranking Member Raja Krishnamoorthi (D-IL)
• The chair and/or ranking member from numerous other House committees

The letter highlights the critical role GSP can play in helping U.S. companies diversify supply chains by providing “tariff advantages as high as 45 percent for key products compared to China.” It also notes that “China is benefiting significantly from GSP expiration, which has led to over $2.5 billion in extra tariffs on $45 billion in imports from China’s developing country competitors.”

The letter states that “Legislation to renew GSP, including smart changes to make GSP countries more viable alternatives to China, would enjoy broad, bipartisan support.” For example, more than 50 House Members signed a bipartisan letter supporting updates to GSP’s “competitive need limit” (CNL) rules in the last Congress. CNLs can terminate duty free treatment for a specific product if imports from a GSP country increase too much, which in turn can disincentivize shifting too much trade outside of China.

What they are saying:

“With the Chinese Communist Party becoming more aggressive each day, reducing America’s reliance on China is more critical than ever,” said Congressman Neal Dunn. “China benefits from the expiration of the GSP program, and our companies pay the price. We know GSP works. We know that it has bipartisan support. Legislation to renew the program is long overdue.”

“GSP supports a strong middle class,” said Congressman Jake Auchincloss. “Renewal of the GSP program would facilitate supply chain shifts out of China, spur investments in partner and allied countries, and strengthen American businesses.”

“Congress clearly wants American companies to buy less from China, but imposing billions of dollars in extra tariffs on other countries due to GSP expiration makes that much harder” said Dan Anthony, Executive Director of the Coalition for GSP. “We thank Congressmen Dunn, Auchincloss and the other signers for demonstrating the bipartisan support an ambitious GSP renewal bill would enjoy. GSP is a proven means for helping American companies and workers remain competitive while building diverse, resilient supply chains.”   

“We had an advantage from no duties on Indonesian jewelry from GSP, but since it has not been renewed some customers are canceling purchase orders and buying direct from China,” said George Nazarian, owner of small business Novita in Monrovia, California. “We’ve taken on a huge debt to pay the tariffs, and if GSP is not renewed soon we have no choice but to close our 40-year old family business.”

“We moved production from China to the Philippines because GSP tariff savings more than offset the higher unit costs,” said Matthew Cagle, owner of Rig’Em Right Outdoors, a family-owned business in Morehead City, North Carolina. “Now we pay higher prices plus added duties, so our costs are MUCH higher. With rising costs of supplies, warehousing, shipping and labor in the US too, we simply have no choice but to consider moving production back to China.”

“We lost our two largest customers because funds needed to promote our product and maintain inventories were instead used to pay tariffs,” said Laurie Sebestyen, co-owner of Mike’s Curry Love in Boise, Idaho. “The ripple effect is overwhelming and we’re on the verge of throwing in the towel. “We never imagined that GSP renewal could take so long.”  

“GSP expiration’s added 10% tariff on our goods from Thailand has forced us to source more from China, which continues to lead the world in low-cost production of ceramic mugs,” said Jan Reid, CEO of small business Xpres LLC in Winston-Salem, North Carolina. “Congress says they want companies to buy less from China, but without GSP the numbers just don’t work.”

“There is no question that the expiration of GSP has caused us to rethink our production outside of China,” said Lawrence Mikuta, Vice President of Sourcing & Production at HOBO Bags in Annapolis Junction, Maryland. “The GSP tariff savings are critical to offset the challenges working in those countries, such as longer development and lead times and higher minimum purchases, compared to China.”

While is it positive that both the America COMPETES Act and the USICA bill contain provisions that would renew GSP and refund tariffs paid to date, the GSP Coalition has serious concerns about how some of those provisions may effect the long-term viability of the GSP program, both for workers and companies in developing countries and the United States.

There are several apolitical areas where the USICA language is clearly preferable to the America COMPETES Act language:

• The America COMPETES Act reauthorizes GSP for two years less (December 31, 2024 vs January 1, 2027) than USICA, creating more uncertainty for program users in GSP countries and the United States.
  
• The America COMPETES Act lacks new provisions in the USICA language requiring public review and comment before punitive actions against countries can be taken, a basic good governance issue to prevent abuse of the (current and proposed) eligibility criteria by some unknown future Administration.
  

The are several areas where the America COMPETES Act language, no matter how well-intentioned, presents greater risks of lost GSP (and AGOA) even if countries make good-faith efforts to comply:

• A recent Progressive Policy Institute (PPI) report notes that, under proposed criteria to “effectively afford” labor rights and/or “effectively enforce” environmental obligations found in the America COMPETES Act, program administrators “may find it necessary to remove most beneficiary countries from the system (or at least most of the low-income and least-developed countries unable to fully implement standards which lack provisions for good-faith but only partially successful efforts).” (emphasis added)
  
• Policy impacts may not be limited to GSP benefits: the PPI report notes widespread GSP loss “would also depopulate AGOA, since a core AGOA eligibility rule is qualification for GSP.“ Other U.S. programs, such as the Development Finance Corporation, currently require GSP eligibility for funding too. From the development perspective, it would be a truly perverse outcome if countries making good-faith efforts lose GSP anyways over a lack of resources, which in turn results in even less resources for trying to raise standards.
  
• The PPI report includes several useful examples of how enforcement can harm those that criteria are meant to help, such as when Madagascar lost AGOA under a “rule of law” provision that may be added to GSP, “effectively punished the young women in the garment industry benefiting from AGOA for the irresponsibility of national political leaders, but had little effect on the coup-makers.“
  

The America COMPETES Act missed an opportunity to incorporate bipartisan GSP changes such as the “CNL Update Act” introduced by Ways & Means Members Stephanie Murphy (D-FL) and Jackie Walorski (R-IN):

• The CNL Update Act would help promote a race-to-the-top on trade by clearing stating the Sense of Congress that administrators should seek to preserve GSP benefits for “good actors” and trade clearly furthering GSP’s development goals even if some punitive actions are deemed warranted under the eligibility criteria.
  
• The CNL Update Act would better-incentivize countries to meet eligibility criteria by raising the threshold at which non-sensitive products may lose GSP benefits (even if there is no U.S. production) and stating that administrators “should” restore GSP benefits for non-sensitive products below the new thresholds (an action that is allowed but almost never taken under the current statute).
  

Fortunately, none of these issues are insurmountable:

• The GSP provisions in USICA, which were included in an amendment that passed 91-4 last year, shows the opportunity for bipartisan compromise in areas such as adding environmental and women’s economic empowerment issues to GSP.
  
• The PPI report suggests some tweaks – not wholesale revisions – that could help ensure the likely outcomes of GSP changes match the stated goals of those changes (and that criteria don’t harm those they are meant to help).
  
• The Murphy-Walorski bill provides useful additions to both the USICA and America COMPETES provisions that would improve GSP for workers and companies in GSP countries and the United States.
  

The Coalition will continue working with Democrats and Republicans in both the House and Senate on compromise GSP reauthorization legislation that promotes a race-to-the-top on trade.

“By helping restore GSP for non-sensitive imports, these commonsense changes will further GSP’s development goals, lower costs for American manufacturers and families, and increase the Administration’s leverage as it implements new GSP eligibility criteria,” said Coalition for GSP Executive Director Dan Anthony. “GSP can be a powerful economic development tool, both in GSP countries and at home. The CNL Update Act complements bipartisan efforts to reauthorize GSP in a manner that better promotes a race-to-the-top in trade. We urge Congress to include it 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 since 1997, and the growth rate for CNLs has declined every year since. Furthermore, while the GSP statute says the benefits “may” be restored if trade levels fall below the CNL thresholds in the future. In recent years, over 95% of affected products were below CNL thresholds, but restoration almost never happens (e.g., less than 10 products since 2007). As a result, product-specific exclusions such as CNLs now eliminate as much as 1/3 of all potential GSP benefits annually (e.g., more trade from Brazil is excluded by these rules than still covered by GSP).

The CNL Update Act would make several changes to CNL rules, including setting a fixed rate for CNL thresholds to grow each year and establishing that the President “should” restore duty-free treatment for products that fall below the CNL thresholds. Changes would not impact products removed from GSP following a country practice review or a petition alleging harm to the domestic industry, which are covered by different sections of the GSP statute. The Administration would retain final discretion in all review decisions.

Additionally, the CNL Update Act includes the Sense of Congress that the Administration should “take all available steps to facilitate continued duty-free treatment for products where the imposition of duties is likely to slow or reverse progress made toward meeting the [various GSP eligibility criteria]…or result in severe economic harm to United States entities, particularly small businesses.” It also says the Administration should create a process to mitigate potential harm, including “exploring the feasibility of preserving duty-free eligibility on a case by case basis for qualifying companies” if punitive action is deemed warranted. Again, the Administration would retain final discretion in all review decisions.

Authorization for the GSP program expired on December 31, 2020, and Congress is considering changes to GSP eligibility criteria and others provisions as part of reauthorization. GSP expiration cost American companies at least $873 million in extra tariffs through October 2021 and costs continue to grow by nearly $3 million per day. In September, over 300 American organizations sent a letter to Congress urging swift GSP renewal, including changes such as those proposed in the CNL Update Act.

“Earlier this year, Ambassador Tai said creating a race-to-the-top in trade would require ‘taking a look at rules that were devised when our world, frankly, looked and operated differently, and maybe think about where those rules need to be tightened or loosened,’ added Anthony. “That characterization could apply to many aspects of the GSP program. We thank Representatives Murphy and Walorski for their leadership on this important issue that impacts so many workers and communities around the world.”

The China/Section 301 diversion is real. So far in 2021, GSP imports are up 12% for products where Chinese imports face Section 301 tariffs but down 7% for products where Chinese imports don’t face any new Section 301 tariffs. It is impossible to know how much more GSP imports might be up (or Chinese imports down) if GSP expiration hadn’t forced American companies to pay tariffs for those products too. We wrote about how GSP renewal must be a part of any “China trade” conversation here.

Imports into 38 states (plus Puerto Rico) paid at least $1 million in tariffs due to GSP expiration. The map below shows estimated tariffs paid for products claiming GSP by state.

It is critical that Congress renew GSP – with refunds for tariffs paid – as soon as possible. We strongly encourage GSP importers hurt by expiration to answer our new survey here. As always, no company-specific details will be published without permission.

The letter was led by House Ways and Means Committee Members Suzan DelBene (D-WA) and Brad Wenstrup (R-OH) and letter signers include:

• 43 Democrats and 32 Republicans in 34 different states
• 19 Ways and Means Members (10 Democrats and 9 Republicans)
• 7 of 11 Democrats and 5 of 8 Republicans on the Ways and Means Trade Subcommittee

“The letter shows that strong, bipartisan support remains for win-win outcomes on trade, such as restored GSP for India” said Dan Anthony, Executive Director of the Coalition for GSP. “Program users are hopeful the letter will help advance U.S.-India discussions as well as refocus attention on the need for Congress to renew GSP.”

The letter supports a framework to restore GSP soon after Congress renews the program if there can be tangible progress on resolving market access issues that led India to lose its GSP back in 2019.

But the facts show that restored GSP for India would help American workers, manufacturers, farmers, etc. in its own right:

• Americans have paid up to $800 million in extra tariffs due to lost GSP for India. For example, one of the categories facing the most tariffs are agricultural chemicals, hurting both the manufacturers that turn bulk products into retail forms and the farmers that must pay more for the end product. One repeated refrain from companies: tariffs didn’t move sourcing out of India, but higher costs led importers to scale back expansions or other domestic manufacturing plans. In part because…
  
• Tariffs from lost GSP for India disproportionately harms American manufacturers. Over 75% of (previously) GSP-eligible imports from India are raw materials, components, and parts used to produce other things in the United States. For the current GSP countries, the figure is closer to 50%. The imports-as-inputs shares are even higher in big manufacturing states such as Texas (83%), Ohio (84%), Pennsylvania (89%), and Michigan (95%). Lost GSP for India make American manufacturers less competitive in the US and export markets.
  
• The pain appears very one-sided – on the wrong side – as imports from India are rising (likely due to China tariffs). Americans are paying more and scaling back investments, but imports of (previously) GSP-eligible imports from India are up 20%+ compared to before GSP was terminated. Why? Probably because 92% of those imports would face Section 301 if imported from China. New 4% tariffs on India don’t seem so bad compared to 25% tariffs on China for similar products. Imports from India of products facing 25% when imported from China have driven recent import growth.
  
• India is still very much a developing country, and Covid has made the situation worse. According to the World Bank, in 2019 India’s per capita income was just $2,120 – about the same as Ghana, Nigeria, and East-Timor. According to Pew Research, the number of people in India with incomes of $2 or less a day increased by 75 million, with a total of 134 million now living on less than $2 a day. Another 1.162 billion people in India – 3.5 times the entire US population – live on between $2-10 per day.

Some facts on GSP expiration:

• American companies paid at least $760 million in extra taxes from January to September 2021 due to GSP expiration. The breakdown of tariffs paid by state is available here.
  
• Tariffs due to GSP expiration primarily affect small businesses. Past research has shown the typical GSP importer has 10-15 employees and saves $100,000-$200,000 annually as a result of the GSP program. Small businesses – often supplying niche products – dominate the over 300 American organizations that sent a letter to Congressional trade leaders urging retroactive GSP renewal in late September.
  
• Retroactive GSP renewal would provide meaning relief to companies dealing with supply chain disruptions, higher freight costs, and other inflationary pressures. While tariffs are not the driver of these issues, refunding tariffs paid would help small businesses in particular that do not have the resources to pay tariffs without passing the costs along in the form of higher prices.

In the first six months of expiration, American companies paid at least $480 million in extra taxes as a result of GSP expiration. Companies in 34 states (plus Puerto Rico) paid at least $1 million in tariffs from January-June 2021 due to GSP expiration. The map below shows estimated tariffs for products claiming GSP paid by state in that period.

June was the most expensive month of GSP expiration yet for 12 states: Alabama, Colorado, Delaware, Iowa, Maine, Maryland, Minnesota, New Hampshire, Ohio, Oklahoma, Rhode Island, and South Carolina. For Alabama, Colorado, and Delaware, each new month has been the most expensive one yet (e.g., June was more than May, which was more than April, which was more than March…).

The data on tariffs paid is a conservative estimate, and the real figure likely is higher. Why? Estimates only capture products that continued to claim GSP despite expiration. Yet imports of many products that traditionally get GSP have not claimed it in 2021. Tariffs paid on those imports still would be eligible for refunds in the event of a retroactive renewal, but importers would need to file manual requests.

It is critical that Congress renew GSP – with refunds for tariffs paid – as soon as possible. We strongly encourage GSP importers hurt by expiration to answer our new survey here . As always, no company-specific details will be published without permission. Companies that want to help the Coalition for GSP educate policymakers on the importance of GSP should also join the Coalition for GSP and/or add their name to the free GSP supporter list.

GSP benefits have become even more important in recent years since Altus Brands completely stopped buying this product from China due to 25% Section 301 tariffs. In 2020, GSP saved Altus Brands over $25,000 in eliminated tariffs. The company’s imports also further GSP’s development goals: it purchases from a factory that offers benefits and higher pay than other local factories. It’s good for workers in the Philippines and the United States, since the high-quality products command a higher price and help support other Made in the USA product lines.

But GSP expiration threatens all of this. Altus raised prices to cover the $14,000 (and growing) in extra tariffs paid. It has lost sales at home and in export markets (e.g., Canada, Germany, and Russia), which in turn led to reduced purchases from the Philippines.

According to company president Gerand Lemanski, it could get worse yet: “Without renewal of GSP my product is not competitive in the US market and I will have to cease selling this product within a year. That will result in letting one production person go.”

Unfortunately, Congress recently recessed until mid-September. Altus Brands’ experience shows why it must make GSP renewal an immediate priority when it returns.

Note: this example came from a new Coalition survey on expiration impacts. It was published with permission. GSP importers are encouraged to take the survey here – no company-specific details will be published without such permission.

“I have had to switch suppliers, as I can no longer afford to do business with Thailand. Most of the new development went to China and a little to Viet Nam. I am still doing some re-orders with Thailand, but as I discontinue products there is nothing more in the pipeline for them.”

Every day that GSP remains expired is a win for producers in China. Congress should renew GSP immediately and update its rules to help American companies shift sourcing from China to GSP countries – not the other way around.

Note: the quote came from a new Coalition survey on expiration impacts. GSP importers can take the survey here.

Some basic facts

• GSP covers a very small share of beneficiary countries exports. GSP covered just 11% of U.S. goods imports from GSP countries in 2020. Factoring in services exports to the United States and exports to other countries, and GSP covers only about 1% of total exports from GSP countries in any given year.
  
• Even compared to other U.S. preferences, GSP benefits are very limited. A common refrain is “updating” GSP criteria to match programs like AGOA. But AGOA covers an extra 1,400 products eligible only for least-developed countries (LDCs) in GSP, plus apparel and footwear and agricultural products wholly excluded from GSP, and has no import caps (e.g., GSP’s “competitive need limitations”, or CNLs). The result: excluding Section 232 tariffs, average tariffs on imports from GSP countries were more than 20x higher than tariffs on AGOA countries in 2020.

It is one thing to say “GSP should be more like AGOA,” but it’s something very different to say “GSP should adopt AGOA criteria – and then some – but not receive any of the AGOA benefits.” Because the lack of benefits has severely limited GSP’s effectiveness as a “stick” on multiple occasions in recent years.

Real-world example #1

Bangladesh is the textbook example of how GSP coverage limitations eliminate any leverage that U.S. policymakers may wish to exert through GSP reviews. Bangladesh lost GSP in 2013 for failure to address freedom of association violations and ongoing safety issues in the garment sector. Yet impacts were more symbolic than economic. Despite being an LDC, GSP covered just 0.7% of U.S. imports from Bangladesh in 2012. Put differently, GSP termination was wholly irrelevant to 99.3% of Bangladeshi exports to the United States, including for the sectors (e.g., apparel) of greatest concern.

The prospect of restored GSP for improved labor conditions remains economically irrelevant today. Excluding face masks, not a single one of Bangladesh’s top 100 exports to the United States in 2020 would benefit from restored GSP benefits.

Real-world examples #2-4

Perceived lack of impact is not limited to Bangladesh, but don’t take our word for it: nearly all press reports within GSP countries cite the lack of product coverage and/or import caps such as CNLs as reasons why. Here are some examples:

• An October 2019 Bangkok Post article cited a Thai government report showing expected exports would drop by about $30 million, or 0.01% of exports to the world, due to suspending GSP for 1/3 of covered products from Thailand. A private analyst said GSP suspensions would not impact publicly listed companies “because major Thai agro-industrial food and seafood conglomerates, such as Thai Union Group Plc (TU) and Charoen Pokphand Foods Plc (CPF), do not receive any GSP privileges for exporting shrimps, tuna and animal feed.” Seafood and agricultural industries were the major areas of concern, so like in Bangladesh the impacts of expiration don’t fall on the sectors where the United States is most keen to see change.
• A June 2019 article in the India’s The Diplomat noted that excluding apparel and footwear “has often limited the expansion and diversification of exports from developing countries,” while CNLs “created a lot of uncertainty and confusion related to the re-designation of the GSP status of a particular product after the export volumes have gone below the threshold.” Also in June 2019, CRISIL (a subsidiary of S&P Global) wrote that GSP suspension “will have limited impact on India’s overall export trade” and noted “pharmaceuticals and textiles & apparel would be relatively unscathed.”
• A March 2019 article in Turkey’s Daily Sabah stated “Another important point is that the Turkish textile and apparel sector will not be exposed to any additional tax increases since it is not already covered by the GSP system, just like the processed agricultural products sector.“

Two recommendations to make countries care more about keeping GSP benefits

Update “competitive need limitation” rules, particularly related to product restoration, to bring more products non-sensitive back under the program. CNL rules have eliminated as much as 1/3 of GSP benefits over the past 25 years due to ever-smaller threshold increases and the practice of not restoring GSP benefits even when products fall below the thresholds in future years. Over 90% of excluded products would not be at risk of losing GSP today because imports since GSP loss. As discussed in more detail here, some simple CNL changes that could have a big impact include:

• Reset the benchmarks to match original growth rates;
• Make reinstated GSP for products below CNLs the norm;
• Make reinstated GSP for products above CNLs an option, and
• base CNL calculations only on products claiming GSP.

An underappreciated point: if moving from “bad” actors that lose GSP based on new criteria to “good” GSP actors causes imports from good actors to exceed CNLs, the current rules incentivize companies to continue sourcing from bad actors. Effective leverage requires viable sourcing alternatives, but CNL rules limit those options.

Create a process for identifying/adding non-sensitive apparel and footwear products to GSP. In 2020, the United States imported $15 billion in apparel and footwear from GSP countries that were subject to duties and ineligible for GSP. Excluding oil, that was more than 2x as much as imports subject to duties/ineligible for GSP of all other products combined – and would be much higher if counting imports from countries like Bangladesh and India that may really strive for GSP restored with potential benefits for apparel and footwear. Apparel and footwear are politically sensitive – for producers in FTA partners, other preference program beneficiaries, and the United States – but finding a subset of products to add to GSP should not be impossible.

A two-part check could eliminate concerns of current FTA/preference country and U.S. producers alike:

• Check #1 (for foreign producers): limit new GSP apparel/footwear petition to products where less than 10% of imports claimed any sort of duty-free treatment;
• Check #2 (for domestic producers): create an MTB-like process to further limit benefits to products without sufficient domestic production.

Those criteria could protect sensitive supply chains/domestic production while (likely) opening up billions of dollars in apparel/footwear trade to GSP benefits. They also could encourage new sourcing of products currently not made in the US/FTA/preference countries from GSP countries instead of non-beneficiaries like China. All while increasing GSP countries’ incentives to comply with new and existing GSP eligibility criteria significantly.

Read more on how Congress should:

• make countries care more about keeping GSP benefits (this post)
• help countries make progress on the new criteria
• prevent abuse/misapplication of the new criteria
• minimize collateral damage when actions are necessary

Due to GSP country terminations of Turkey (May 2019) and India (June 2019) and partial suspensions of Thailand (April 2020, December 2020), American companies have paid about $800 million in extra tariffs. Despite costs to American companies and workers rapidly approaching $1 billion, there has been no progress on any of the issues raised in those country reviews.

With GSP expired for six months, why are we worried about old country reviews? Because the Senate-passed GSP renewal legislation, the House Republican companion bill, and a separate House Democratic bill, all add numerous criteria that could be justified to revoke a country’s GSP status but nothing providing direct help or indirect incentives for countries to comply. If history is a guide, new tariffs on Americans are much more likely than U.S. policy “wins” in GSP countries. Congress should do everything in its power to avoid setting up such lose-lose situations as part of its GSP renewal bill.

Tariff trends make the (lack of) outcomes look even worse. If exporters in India/Turkey/Thailand were suffering, you’d expect to see U.S. tariffs faced falling over time as American companies cut back orders and found alternative sources in other countries. The opposite has happened, with tariffs paid on (previously GSP-eligible) imports from all three countries hitting new highs in April and/or May 2021. While American companies pay $50+ million per month in extra tariffs, the exporters in India, Turkey, and Thailand are thriving. American companies and workers clearly have borne the brunt of GSP terminations.

It’s worth reiterating: there has been no resolution of – or even tangible improvements on – any of the issues raised during the country reviews. There have been no “victories” for American companies or interests, only losses. That includes export losses given that India stopped delaying imposition of Section 232 steel/aluminum retaliatory tariffs immediately after GSP talks collapsed.

This is not to suggest that eligibility criteria can’t or shouldn’t be added. But if policymakers want to create an environment where new criteria are more likely to raise standards – and avoid lose-lose outcomes like these recent cases – Congress should incorporate other changes into GSP renewal legislation to:

• make countries care more about keeping GSP benefits
• help countries make progress on the new criteria
• prevent abuse/misapplication of the new criteria
• minimize collateral damage when actions are necessary