Congress Must Fix Failed GSP Trade Program

December 11, 2020

Congress has a lot on its plate right now.

But one of the most controversial decisions it faces is whether or not to renew the Generalized System of Preferences (GSP) tariff program established in 1974. Judging by the current state of the U.S. economy, however, it seems clear that the GSP must be drastically reformed in order to continue.

[Michael Stumo | December 11, 2020 | Inside Sources]

Essentially, the GSP is a Cold War holdover. Originally established by the Trade Act of 1974, the program was intended to aid many of the world’s poorest countries. Its main objective was to eliminate duties on thousands of products imported from any of 119 designated beneficiary nations.

Now, with almost half a century of hindsight, it’s apparent that the program has failed.

One of the major justifications for the GSP was the expectation that increased trade would lead to widely shared economic gains for participating countries.

However, the GSP has demonstrated a poor record of creating middle-class economies in countries as disparate as Afghanistan, Equatorial Guinea and Somalia. The GSP has also failed to improve labor conditions in countries like Kazakhstan, the Philippines, and Egypt.

Part of the problem was the naïve assumption that participating governments would enforce the program’s requirements. But corrupt regimes and repressive governments have simply enjoyed the benefits of duty-free exports to the U.S. — without returning much to their working populations.

And the multinational companies that have exploited the GSP in countries, like Cambodia and Indonesia, have felt little pressure to revise their profitable — and exploitative — labor practices.

This points to a larger problem in U.S. trade policy — the continual offshoring of America’s industrial production to low-wage, poorly regulated nations.

This often places domestic U.S. manufacturers in competition with imports manufactured through shoddy and unsafe conditions. However, advocates for the GSP — particularly importers and multinationals — continue to seek the lowest-priced goods from the lowest-wage countries.

It’s time for Congress to reform the GSP. This will require meaningful revisions.

First, countries that continue to use forced labor should be ineligible. It’s astounding that 48 of the 119 GSP nations are currently included in the Department of Labor’s list of goods produced by child labor or forced labor.

Clearly, the GSP review process is insufficient. GSP countries have had over 45 years to clean up their act. Those who have not addressed labor issues should not be eligible to continue in the program.

Second, GSP preferences should be limited to only the poorest countries. The world of 2020 looks far different from 1974.

Major competitive economies such as Brazil, Indonesia, the Philippines, and Thailand have enjoyed many years of GSP benefits, continually growing their industrial sectors at the expense of U.S producers. Going forward, only the least-developed nations should receive GSP preferences.

Third, it’s time to condition GSP access on reciprocal tariff and non-tariff treatment. The U.S. established the GSP to unilaterally extend zero-tariff treatment to many countries — without requiring reciprocal access to their markets. Going forward, if a GSP country extends a preferential tariff rate to another country, it must also extend the same preference to the United States.

Fourth, rule-of-origin requirements should be tightened to combat customs fraud. At present, the GSP has grown outdated because it allows third countries like China to benefit from the program even though they don’t actually qualify. Countries with GSP beneficiary status should partner with the U.S. to tackle transshipment fraud. This has grown more severe since China frequently evades tariffs by trans-shipment through GSP countries.

Fifth, the U.S. should expand the list of ineligible goods. The United States has lost many important industrial supply chains over the past 20 years. It’s time to ensure that the GSP excludes products — including auto parts and electronics — that comprise key parts of America’s remaining industrial base.

At present, some in Congress are prepared to simply rubber-stamp the continuation of the GSP. But America’s manufacturers and workers can’t afford to see the GSP renewed in its current form. What matters is restoring key U.S. industries while fighting against overseas labor abuse.

Going forward, Congress has a duty to finally rewrite the GSP in order to advance America’s longstanding economic and human rights goals.

Read the original article here.

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