The Generalized System of Preferences (GSP) program about which I wrote in a prior post is currently expired (as of March, 2021). This won’t be a first as the program has expired and been renewed in the past. In fact, GSP periodically expires and must be renewed by Congress to remain in effect.
GSP Expirations & Renewals
The challenge for importers and exporters who rely on the program has been the loss of benefits when the program has been allowed to expire for several months at-a-time. The program has lapsed prior to reauthorization on 10 occasions, December 31, 2020 being the last occasion.
A second challenge has been the uncertainty that surrounds the program. The fact that the program has in the past been allowed to lapse at all, rather than being renewed to ensure its continuity is one aspect of that uncertainty. Just as importantly, the periods of renewal have been growing shorter with the periods for which the program remains lapsed growing longer. When first enacted in the Trade Act of 1974, the program term was ten (10) years. Recent renewals have sometimes been for only a year.
During these lapsed periods, GSP-eligible products can continue to enter the United States but are assessed the normal MFN tariff rates applied to goods arriving from US trade partners. There have been a few consolations: (1) renewals have been made retroactive to cover the lapsed period, allowing traders to claim refunds on tariffs paid that they would have avoided had GSP been in effect. (2) products arriving from certain countries that benefit from regional preferential programs – the African Growth & Opportunity Act (AGOA) and Caribbean Basin Initiative (CBI) — have remained available during these periods of lapses. However, the scope of the GSP is much larger than these regional programs, providing benefits to countries such as India, Brazil, Indonesia, and Russia.
This broad scope is, in fact, what accounts for the hiccups that the program has been experiencing.
Considerations for GSP Reform
The US Congress has been considering a general overhaul of GSP for several years now. Unfortunately, the Members of Congress have not yet been able to agree on a way forward, and so have been leaving the program in limbo with these short-term renewals. Here are the key policy considerations:
Emerging Economies No Longer Need the GSP
Most Members of Congress probably agree that the more advanced beneficiary countries no longer need GSP, or not as it is currently structured. In 2012, India and Brazil were the 1st and 3rd largest importers, respectively, under GSP. Other BRICS countries are not far behind, along with countries like Argentina and Turkey. Members believe these countries should instead negotiate reciprocal trade agreements with the United States. They find support for their position in the growth of these economies and in the independence that these countries assert in the World Trade Organization. Removing or limiting access to GSP, they believe, can act as a spur to these countries to negotiate at the WTO or in an FTA so they can receive continued access, but this time in return for the access that U.S. businesses want to their markets.
More Benefits for Least-Developed Countries (LDCs)
Most Members also agree that they would like to see the the world’s poorest countries, LDCs, get greater benefit from GSP. The program, which is intended as a spur to development, has remained underutilized by this group. The challenge has been how to structure the program to accomplish that desirable goal:
- Eligible LDCs in Africa also have AGOA, so some Members want to focus on countries in Asia and the South Pacific, like Afghanistan and Bangladesh. Examples include the Asia-South Pacific Trade Preferences Act periodically introduced to accomplish just that.
- Other Members want to extend duty free, quota-free access (DFQF) to all LDCs.
- Or, perhaps instead, it would be best to focus US attention on helping these to become competitive, say others.
Allow GSP to Expire
There are Members who believe GSP has outlived its utility and should just be allowed to expire. However, the program is supported by many U.S. businesses that rely on imports from developing countries, as shown by this current list of GSP supporters compiled by the Coalition for GSP. Many companies determine the countries from which they will source components or products based on the availability of these duty-free benefits. This practice results in lower costs which can be passed on to consumers. GSP is particularly important for small businesses that operate with small margins of profit.
The Renew GSP Today Blog managed by the Coalition for GSP, has stated that “If GSP expires, American companies will face an extra $2 million per day in new taxes”.
Then, there are companies like Exxel Outdoors, which in 2010 petitioned for the removal of non-down sleeping bags from GSP eligibility with the claim that the company was being harmed by imports of duty-free sleeping bags from Bangladesh, an LDC with a 2019 GDP per capita of US$1856.00. Should a country’s products be made ineligible for GSP just as it is achieving success?
The U.S. Congress has appeared unable to sort through these options and enact the needed reform. It remains to be seen whether this can be accomplished in 2021. Otherwise, the best that we may be able to hope for is another one-year retroactive renewal of the program.