It should go without saying: if policymakers want U.S. companies to buy less from China and more from other countries, they shouldn’t also raise tariffs on those other countries. But since imposing Section 301 tariffs on China, that’s exactly what they did by:

1. Ending GSP benefits for major countries (e.g., terminating GSP for India and Turkey in 2019, suspending half of Thailand’s benefits in 2020; result: $800+ million in extra tariffs);
   
2. Ending GSP benefits for major products (some Brazilian chemicals/countertops and Argentine essential oils in 2018, jewelry from Indonesia and plywood from Ecuador in 2020; result: about 1/3 of all “GSP eligible products” are now excluded due to similar decisions), and
   
3. Letting the entire program lapse on December 31 (result: nearly $500 million in extra tariffs in the first half of 2021).

Given those actions, it should be no surprise that companies are abandoning suppliers in GSP countries to buy more from China. It is impossible to make long-term sourcing plans based on GSP when tariff benefits for your country, or product, or the entire program, may lose benefits at any time.

It doesn’t have to be this way. Congress can help U.S. companies shift supply chains by renewing GSP (for a long time) and updating product rules so that GSP countries become more viable alternatives to China. Or it keep tariffs on China’s competitors high by letting GSP remain expired.

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

To be clear: they’re not paid by the countries and haven’t achieved any other U.S. policy goals and won’t be refunded if benefits are reinstated. They’re just $500 million in new taxes on U.S. companies at a time of unprecedented economic collapse and job losses.

Above is the breakdown of estimated tariffs paid by state. Imports into California and New Jersey have faced about $50 million in new tariffs each. Companies in traditional – or newfound – election battleground states Texas, Georgia, Florida, Pennsylvania, Michigan, and Ohio were all in the top 10 of tariffs paid, collectively paying up to $168 million in extra taxes.

And the taxes paid continue to climb.

The bulk of taxes – up to $366 million from June 2019 to August 2020 – have been paid on imports from India. The typical GSP importer from India had 14 employees and saved $100,000 per year. The burden falls overwhelmingly on small businesses struggling to make it through the pandemic, not the large multinational that can rapidly shift sourcing to suppliers in other countries. A report from April 2019 profiled many U.S. companies that would be hurt by termination for India (and others).

Up to $111 million in tariffs have been paid on imports from Turkey from May 2019 to August 2020. In similar comments submitted as part of the Turkey review, we noted the typical GSP importer from Turkey had 14 employees and saved about $150,000 annually. The Turkey review was launched over “market access” issues, but there were no known discussions about resolving issues. Instead, Turkey was “graduated” for sufficient economic development despite just entered a recession and having a GDP per capita that has now fallen in 5 consecutive years (the metric used to determine if countries should be graduated from GSP automatically).

Up to $23 million in tariffs have been paid on imports from Thailand from May 2020 to August 2020. Importers from Thailand tend to be a little bigger – but far from large! – with the typical importer having 28 employees and savings $183,000 annually under GSP. Most unhelpfully, the product facing the most tariffs appear to be face masks. Higher tariffs on face masks may not have seemed like a big deal when Thailand’s partial suspension was announced in October 2019, but we’re in a very different world with mask imports surging due Covid-19.

Potential GSP renewal legislation is highly unlikely to address country-specific issues, but the impacts from terminations are no less real for American companies than the prospects of expiration. If Congress considers changes to the GSP programs in the future, ensuring importers interests are not ignored in the country review processes should be a top priority.

For many years, TRI’s GSP savings funded multiple full-time salaries. Despite loss of GSP for products imported from India and Turkey, GSP “still saves our company the equivalent of more than a full-time employee’s annual salary.”

Watch TRI Executive Vice President and CFO Jeff Wright explain how “maintaining full employment, full wages, and employee benefits is our top priority as is supporting our US customers who are trying to do the same for their American workers” – and how GSP renewal would help them do it.

If you’re a GSP importer, submit your own video testimonial here.

While California is far-and-away the #1 state for GSP savings, Texas edges it out for most tariffs paid this year due to country suspensions – companies in each state have paid up to $18.6 million in extra taxes. Companies in New Jersey are not far behind, having paid up to $18.2 million in extra taxes due to country suspensions.

The costs are driven by different Trump administration actions. Texas is the top state in tariffs paid due to India’s suspension, New Jersey has paid the most due to Turkey’s suspension, and California has paid the most due to Thailand’s partial suspension. The table at the very bottom shows tariffs paid, by country suspension and total, for all states.

Including the tariffs paid due to suspensions, both in 2019 and 2020, drastically changes the state savings trends. Instead of the sea of dark red states with declines of over 20% shown yesterday (and below, right), only a 5 states are likely to have seen such declines without country suspensions. Similarly, there would be savings growth for states in every region of the country instead of limited to the Mountain West.

Swings states, including big states not traditionally in play in Presidential or Senate elections, account for some of the biggest dollar swings. Without country suspensions:

• Texas companies’ savings would’ve increased up to $2.4 million instead of declining by $12.7 million, a $15+ million swing
• Georgia companies’ savings would’ve increased up to $3.1 million instead of declining by $5.8 million, nearly a $9 million swing

In more traditional swings states, maintaining full GSP eligibility for all countries would have mitigated declines likely associated with the Covid-19 pandemic. For example:

• Florida companies’ savings would’ve declined by $4.3 million instead of $12.6 million, an $8+ million swing
• Pennsylvania companies’ savings would’ve declined by $350,000 instead of $8.2 million, nearly an $8 million swing
• Michigan companies’ savings would’ve declined by $3.2 million instead of $8.2 million, an $5+ million swing

Swings were even bigger on a percentage basis in states where GSP savings are traditionally lower:

• Instead of declining by 47%, New Mexico companies’ savings would’ve increased by up to 161%, a 200+ percentage point swing
• Instead of declining by 60%, Minnesota companies’ savings would’ve increased by up to 17%, nearly an 80 percentage point swing

These are real costs to real American companies and workers – many in places that will be hotly contested in the 2020 elections – on top of the challenges related to the Covid-19 pandemic and economic fallout. In addition to congressional reauthorization of GSP, administration decisions to restore lost GSP eligibility would provide significant benefits to struggling American companies.

The estimate is based on an analysis of GSP imports and tariff savings for products flagged in the USITC’s recent report COVID-19 Related Goods: U.S. Imports and Tariffs, which was requested by House Ways and Means Chairman Richard Neal and Senate Finance Committee Chairman Chuck Grassley. This is a narrow definition that likely discounts savings on a wide range of indirectly-related products, as made clear by responses to the Coalition for GSP’s Covid-19 survey (take the survey here, see results to date here).

Tim Smith, President of HIBLOW USA in Saline, Michigan, reported “98% of the air pumps we sell to American OEM’s for medical devices come from the Philippines.” Specific medical applications for HIBLOW’s pumps include respiratory devices, bariatric air mattresses, and immunity/ blood examination equipment. GSP eliminated several million in tariffs on air pumps in 2019, but the pumps themselves are not considered medical products in the USITC report.

Another respondent expects increases in their imports of acrylic plastics from Indonesia and Thailand in 2020. The plastics are used to make sneeze guards for supermarkets and retail locations, which are in high demand due to Covid-19. But again, acrylics are not really “medical” products and do not appear on the USITC list. GSP eliminated several million in tariffs on acrylic plastics in 2019.

The Covid-related product list also shows the harm from seemingly unrelated GSP decisions by the Administration.

GSP would have eliminated $31 million in tariffs in 2019 on the Covid-19 products if the Administration had not terminated eligibility for India and Turkey. Due to the decisions, American companies paid those $7 million in tariffs.

More recently, the Administration suspended GSP benefits for about 1/3 of imports from Thailand, including products on the USITC list such as safety goggles and textile articles. The decision went ahead despite warnings that the suspension list contained products related to Covid-19 response.

That’s right: in the middle of a pandemic the Administration chose to impose new tariffs on products deemed necessary to fight the pandemic.

Looking only at products still eligible for GSP today (i.e., no savings for products from India, Turkey, or on the Thailand partial suspension list), GSP savings for Covid-19 related products in drops to $17 million. Obviously the Administration did not eliminate GSP benefits with the intent of adding $14 million in tariffs annually to Covid-19 related products, but that is the practical impact of their actions.

If Congress wants to promote a cost-effective response to Covid-19, it should immediately extend GSP’s authorization and push to restore benefits that have been lost over the last year.

Shifting trade from China to countries like India does not appear to be a byproduct of recent actions, but instead one of President Trump’s explicit goals:

And it’s working: GSP saved American companies $105 million in March, an increase of $28 million (36%) from March 2018 and the second highest level on record. In the first quarter of 2019, GSP saved American companies $285 million. That is $63 million more than the first quarter of 2018 – itself a record-shattering year.

Products hit by Section 301 tariffs when imported from China account for 90% of increased GSP imports in 2019. Overall, GSP imports rose by about $760 million, with $672 million coming on products on China Section 301 lists. GSP imports of products on those Section 301 lists increased 19%, while GSP imports of other products increased by just 5%.

As shown last week, imports from China subject to new tariffs are down significantly. The chart below shows countries from which GSP imports of products on China Section 301 lists have increased the most in the first quarter of 2019.

For India, 97% of increased 2019 GSP imports are on the China Section 301 lists. GSP imports on Section 301 lists increased by $193 million (18%), while imports of everything else increased by just $7 million (2%).

Similarly for Turkey, 97% of increased 2019 GSP imports are on the China Section 301 lists. GSP imports on Section 301 lists increased by $40 million (13%), while imports of everything else increased by just $1.2 million (less than 1%).

For the Philippines, GSP imports of products on China 301 lists growth helped offset declining GSP imports of all other products. South Africa, Brazil, and Egypt saw similar increases in Section 301-affected products offset losses of other products.

GSP imports from Indonesia grew *only* twice as much on affected products. Yet even here growth rates are faster for products on the Section 301 lists: GSP imports of products affected by new China tariffs grew by 22%, while imports of other products grew by 15%.

Not only would terminating GSP for India, Turkey, or others under review (Thailand, Indonesia) hurt many American companies and workers that have relied on GSP for years. It also would reduce viable sourcing options for companies looking to buy less from China in response to Section 301 tariffs – thereby undermining the President’s own objectives.

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

Even before upward revisions, U.S. companies’ tax benefits from GSP showed massive increases from past years: American companies saved nearly $20 million per month more in 2017 because of GSP compared to just two years earlier.

Through the first half of 2018, GSP savings are up an additional 18 percent and on track to crack $1 billion for the year. While Congress renewed GSP through 2020 to give companies the certainty necessary to encourage such growth, the Trump administration has launched a number of country “eligibility reviews” that could raise taxes for American companies that depend on GSP – by a lot.

There are GSP reviews underway for India, Indonesia, Kazakhstan, Thailand, and Turkey. American companies saved $544 million last year due to GSP for those countries. Collectively, they accounted for 61 percent of GSP savings on imports from all countries.

Given the risk of lost GSP, we strongly encourage companies importing from those countries to sign up for our GSP supporter list and take our review impacts survey, which are both free.

In terms of specific revisions based on the new data, New Jersey saw the biggest jump in savings by value, followed by Florida, California, Georgia, and New York.

Montana saw the biggest jump in GSP savings by percent, followed by Utah, Maine, Florida, and Nevada.

For supplier countries, the largest revision in US savings came on imports from the Philippines, followed by Indonesia, India, Thailand, and Brazil.