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

American businesses: “By lowering tariffs for American companies that import under GSP, it supports jobs and investments in the United States.”

(WASHINGTON) – Over 430 American businesses and associations from across the country that currently use the Generalized Systems of Preferences (GSP) program to help sustain and grow their businesses today wrote to Congressional leaders asking their help in delaying a recent decision to terminate the program for India and Turkey. In their letter, the American businesses pointed out that just last year, Congress voted nearly unanimously to renew the GSP program for all eligible countries and that their help is needed in ensuring that the recent termination decisions reflect Congressional intent in overwhelmingly agreeing to continue the program.

“As representatives of American companies that would pay higher tariffs as a result of these decisions – and similar ones that could come in the future – we urge you to request a delay beyond May. This would provide Congress time to work with the Administration and ensure the decisions match both the letter and the spirit of the GSP law.” the letter states. By lowering tariffs for American companies that import under GSP, it supports jobs and investments in the United States, particularly at U.S. small businesses. Congress showed the strong bipartisan support for GSP when it reauthorized the program for three years in 2018.”

The GSP programs was established in 1974 to both promote economic development and provide duty-free imports to help American small businesses compete. As the U.S Trade Representative’s office website states, GSP: “Supports tens of thousands of jobs in the United States.  GSP also boosts American competitiveness by reducing costs of imported inputs used by U.S. companies to manufacture goods in the United States.  GSP is especially important to U.S. small businesses, many of which rely on the programs’ duty savings to stay competitive.” India and Turkey currently provide roughly a third of total GSP imports.

The businesses that sent the letter to Congress represent the profile of the average American business that benefits from the program which tend to have 20 or fewer employees and depend greatly on duty-free imports to support those employees and their overall business. The Coalition for GSP, a group of American companies, small businesses and trade associations organized to educate policy makers and others about the important benefits to American companies, workers, and consumers of the Generalized System of Preferences (GSP) program helped organize today’s letter.

The full text of the letter:

Dear Chairmen Grassley and Neal and Ranking Members Wyden and Brady:

We are writing to express our grave concerns with the Administration’s recent announcement of intent to terminate Generalized System of Preferences (GSP) program for India and Turkey. The decisions could take effect as soon as May 4, 2019. As representatives of American companies that would pay higher tariffs as a result of these decisions – and similar ones that could come in the future – we urge you to request a delay beyond May. This would provide Congress time to work with the Administration and ensure the decisions match both the letter and the spirit of the GSP law.

GSP is a 45-year old program created to promote economic development. By lowering tariffs for American companies that import under GSP, it also supports jobs and investments in the United States. Congress showed strong bipartisan support for GSP when it reauthorized the program for three years in 2018. The House of Representatives voted 400-2 in favor of GSP renewal legislation, which was then enacted into law as part of the Consolidated Appropriations Act, 2018. Congress has not just reauthorized the program in recent years but expanded it significantly in 2015 by removing the statutory prohibition on eligibility for travel goods.

Multi-year reauthorizations and expansions have had a positive impact on American companies and workers, which saved a record $1.03 billion in eliminated tariffs in 2018. Yet the Administration’s use of country practice reviews threatens to undermine Congress’ intent in reauthorizing GSP and the benefits to program users like us. About one-third of GSP savings for American importers result from the inclusion of India and Turkey in the program. Another third result from eligibility for other countries under review, such as Indonesia and Thailand.

The India decision was based on failure to resolve market access issues. The GSP statute does not require a perfect trading relationship, just assurances of reasonable and equitable treatment. There are reports that India offered significant proposals that would improve US market access for a range of products and industries. By terminating GSP, the Administration has chosen higher barriers for US imports and exports instead of more-open markets for two-way trade. This does not match the intent of the GSP program or its eligibility criteria.

The Turkey decision was based on sufficient economic development, including “rising Gross National Income (GNI) per capita.” Yet the facts do not support this decision. While Turkey has made significant strides to diversify its exports and reduce levels of poverty, according to the World Bank, Turkey’s GNI per capita declined each year from 2014 to 2017. Further declines are expected as Turkey entered recession in 2018 for the first time since the global financial crisis. This action is diametrically opposed to GSP’s original intent. Preference programs were created to promote development by giving countries a hand up, not imposing new barriers when they are down.

The decisions even are worrying to GSP program users that do not import from India or Turkey. Eight other countries are subject to pending country practice reviews, and those decisions could be announced at any time. USTR also will announce soon whether any new country practice reviews will be self-initiated for GSP beneficiaries in Europe and the Western Hemisphere soon. If the Administration chooses to terminate GSP benefits despite efforts from beneficiary countries to address U.S. concerns, and can graduate countries based on positive economic development when data suggest otherwise, what countries’ benefits are not at risk?

It is not an exaggeration to suggest that when GSP comes up for reauthorization in next year, it could be a shell of the program that so many Members of Congress supported just a year ago. The India and Turkey announcements raise serious questions about whether the Administration is enforcing congressional intent, or misusing its discretion to eliminate tariff benefits that Congress has expressly granted.

We urge you to ensure that GSP decisions follow both the letter and the spirit of the law. Jobs at our companies depend on it.

Sincerely,

VIEW ALL 438 LETTER SIGNERS HERE