US GSP Program Gasping for Breath after Expiry in Dec 2020

· Bill in Senate to Revive measure to Help Poor Countries

THE NUMBERS:

GSP imports, 2020 –

8 tons of Ukrainian pickles

3,700 traditional Mongolian ger (nomadic living tents)

11,900 liters of Georgian wine

1.5 tons of Pakistani spice mix

$5 million in Namibian stonework

412 tons of taro root from Tonga and Samoa

90,000 Rwandan travel bags

492 tons of Fijian ginger (candied and sushi-grade)

1 million dog collars and leashes from Cambodia

14,000 Senegalese wicker baskets

15 tons of vegetable oil from Timor-Leste

$9.5 million in Armenian-made golden jewelry

217 tons of South African essential oils (eucalyptus, orange, lemon, grapefruit)

27.3 million Thai orchids

870,000 Haitian-woven flags

32,700 Bolivian-made wooden doors

What They Mean:

The U.S.’ oldest and largest effort to help the poor abroad is the “Generalized System of Preferences”, or “GSP” for short. Dating to 1974, it waives tariffs on about 3,500 types of products (more precisely, on 3,500 “tariff lines”) from 119 low- and middle-income countries meeting 15 eligibility criteria covering cooperation against terrorism, labor standards, intellectual property, expropriation, trade policy, and other issues. The law authorizing GSP benefits lapsed at the end of 2020, so for a year the program has been stopped. As Congress works on renewal, PPI Vice President Ed Gresser – who among other things directly oversaw GSP system administration from 2015-2020 – has observations and ideas in PPI’s newest policy paper:

By way of background, GSP is fairly simple. By waiving U.S. tariffs – 7.0% on flags, 9.6% on pickles, 2.3% on fresh taro root, etc. – imposed on things made or grown in places like Haiti, Ukraine, and the Pacific Islands, it encourages buyers otherwise drawn to the EU, China, or other larger suppliers to these smaller and poorer countries, helping them diversify their economies and create better job opportunities. Australia, EU, Canada, Japan, and other high-income countries have their own GSP programs launched around the same time as the U.S. GSP; other countries such as China, Taiwan, Chile, and Korea have created their own similar systems more recently.

The program’s scale is modest. Imports of variously picturesque and mundane GSP products totaled $16.9 billion in 2020 – 0.8% of the U.S.’ $2.351 trillion in total goods imports, and (more relevant) 11.1% of the $152 billion in imports from the 119 participating countries – but the impact is useful. Reviewing the results in 2016 (along with those of regional preference programs AGOA and CBI) the Obama administration concluded that “U.S. trade preference programs have encouraged exports from developing countries, with particular effect in value-added and labor-intensive goods … This is corroborated by a large body of economic literature [which has] also found that U.S. trade preference programs have made a contribution to the reduction of poverty.”

Gresser’s paper applauds Congressional interest in renewing the system – the Senate has passed a reauthorization bill and House Democrats have introduced one which differs in some areas from the Senate bill but shares much with it – noting that reauthorization will be good for the countries participating in the system and, in a small but tangible way, for the Biden administration’s effort to show that America “is back”. It also endorses Congress’ interest in rethinking aspects of the program. GSP’s list of “eligibility criteria” (that is, a set of policy goals a country needs to meet to qualify for tariff waivers) mainly dates to the 1970s and 1980s. So does its list of “import-sensitive” products excluded as overly competitive with U.S. goods and its “Competitive Need Limits” on the levels of particular products a country is allowed to send duty-free. All these could probably use a fresh look.

On the other hand, the paper expresses concern about a large proliferation of new eligibility rules in both the Senate and House Democratic bills. It argues for dialing this back a bit and balancing new rules with new product coverage (as a complementary proposal by Representatives Stephanie Murphy (D-Fla) and Jack Walorski (R-Ind) suggests). Three thoughts as Congress moves ahead:

1. Set priorities when adding new eligibility rules.

The current list of 15 eligibility criteria includes some moribund issues (“domination by the international Communist movement”), misses some contemporary concerns, and overall is a bit of a hodge-podge. But it also has some virtues, including brevity: the list is short enough to set clear priorities, so governments of GSP countries know what they need to do to retain benefits. Both reauthorization bills risk losing this virtue by adding many new criteria: human rights, poverty reduction, environment, gender policy, anti-corruption, economic reform, microcredit availability, political participation, rule of law, digital trade, and others. Though all appear well-intended, expansion on this scale can overload a small system, and risk forcing wholesale unintended expulsions of countries which fall short on one or two of many criteria, or pushing administrations into unsystematic and essentially arbitrary enforcement to avoid such an outcome.

2. Recognize good-faith effort.

A second virtue is that the current eligibility criteria are flexibly written, enabling officials administering the system to recognize good-faith if imperfect efforts to comply. Overly strict rules for low-income countries can be unrealistic: “low-income countries often have well-trained and well-intentioned leaders and senior bureaucrats who design good policies ... [but] few such countries have the deep and professional civil services needed to effectively [implement] these policies uniformly and nationwide.” Whether adding new criteria or updating old ones, good-faith effort by well-intentioned governments should continue to get credit.

3. Balance new eligibility rules with broader benefits.

Finally, new looks at old eligibility rules should go together with new looks at old limits on benefits. GSP rules set in the 1970s excludes some significant categories of goods (clothes, shoes, glassware, watches) and also, under an unusual feature known as “Competitive Need Limitations”, remove products from a country’s GSP portfolio when it becomes too good at making them. The paper suggests reconsidering some of the product exclusions, for example that of shoes not made in the United States, and applauds the Murphy/Walorski proposal’s reforms to the ”Competitive Need Limitation” feature of GSP.