The Caribbean Basin Trade Preferences Act (CBTPA) and the Generalized System of Preferences (GSP) programs which give products from developing countries duty-free and other preferential access to the US market expire this year. It is time to renew US trade preferences.
Caribbean Basin Trade Preferences Act (CBTPA)
CBTPA is the component of the Caribbean Basin Initiative (CBI) which provides preferential access to the US market for products that are excluded from CBI’s primary component, the Caribbean Basin Economic Recovery Act (CBERA). CBTPA provides duty-free entry for qualifying cotton, wool, and man-made fiber apparel classified in HTSUS chapters 61 and 62; textile luggage assembled from U.S. fabrics made of U.S. yarns/fabrics; and NAFTA treatment for eligible petroleum and petroleum products, tuna, footwear, leather goods, and watches and watch parts. While CBERA has no expiration date, absent legislative action CBTPA is set to expire on September 30, 2020.
CBI “is intended to facilitate the development of stable Caribbean Basin economies by providing beneficiary countries with duty-free access to the U.S. market for most goods.” Both programs enjoy bipartisan support and there is little doubt that CBTPA will eventually be renewed. Time is, however, of the essence.
A hearing of the House Ways and Means trade subcommittee held on September 10, 2020 indicates just how important the program is to the region’s economy, particularly Haiti’s. In 2017, Haiti exported about 80% of its products to the United States, almost 90% of which were textiles, courtesy of CBTPA. For this reason, Haiti’s Ambassador to the United States, Herve Denis, has urged lawmakers to renew the CBTPA quickly. Even before the COVID-19 pandemic, he explained, orders for products from Haiti’s garment industry were on the decline because of the pending CBTPA expiration date. With cheaper products available in Asia, CBTPA’s benefits are the primary draw for buyers and investors. Without CBTPA benefits, the products become more expensive to import and therefore more costly to consumers. If the program does expire it is likely to be renewed retroactively, allowing buyers to claim the duties they paid while the program was expired. Nevertheless, buyers are apparently unwilling to make any purchases requiring them to pay those additional costs while the program’s future remains uncertain.
The hearing on HR 991, which aims to renew CBTPA until September 30, 2020, also revealed bipartisan support for the program. However, there was disagreement over whether to renew CBTPA on its own or enact legislation to renew both CBTPA and GSP which expires in December (2020).
Generalized System of Preferences (GSP)
GSP provides duty-free entry into the US market for products of beneficiary developing countries. The program operates on the same premise as CBI and other trade preferences – lowering importers’ costs which are passed on to US consumers, raising the competitiveness of US companies, and raising the attraction of eligible products from the beneficiary countries. Rep. George Holding (R-NC) noted during the CBTPA hearing that, “In 2019 the GSP reduced import costs by $24 million in North Carolina alone and this year so far, the GSP has saved North Carolinians $8.5 million.” GSP expires on December 31, 2020. Buyers and investors who rely on GSP are also troubled by the program’s pending expiration.
At the same time, GSP beneficiary countries range from war-torn Afghanistan to Brazil, making the program much more controversial than CBTPA. Unable to agree on how to reform GSP, Congress has repeatedly allowed the program to expire and renewed it in two-year increments. The Trump Administration has expressed concern about renewing GSP for developing countries which have signed free trade agreements with other developed countries but not with the United States. Consequently, GSP renewal could be subjected to debate and delays.
Absent clearer and more positive signals on GSP, HR 991 to renew CBTPA before it expires on September 30th should be enacted immediately. As a result of COVID-19, Caribbean countries are expected to experience negative growth by as much as 10% in 2020, perhaps even entering a recession. It is time to renew US trade preferences for the Caribbean.
With respect to GSP, there is some recognition of and sympathy in Congress for the devastating impact that COVID-19 will have on all developing countries. Policy considerations include the ability to control the eligibility criteria and provide a counter to China’s growing influence. These factors provide support for the eventual renewal of GSP, though not necessarily in a timely manner.
What you can do. Write to your Congressional representative to urge prompt action on CBTPA and GSP renewal. Express support for the broader review of trade preference programs to occur in a deliberate way that does not threaten current access to their benefits. African Growth & Opportunities Act (AGOA) trade preferences are scheduled to expire in 2025. That date could provide a good target for concluding such a review so that AGOA is not also threatened by Congressional inaction.
Contact us to learn how to maximize your use of trade preference programs.