In an increasingly complex legislative and regulatory environment, there remains considerable focus on a range of trade issues that are of consequential impact to American businesses of all sizes. One of the top areas of concern is related to the reauthorization of the Generalized System of Preferences (GSP), a trade program providing duty-free treatment for specific U.S. imports from a set of developing countries. There has been a growing level of support from policymakers and a range of stakeholders for movement on this critical program – as demonstrated by this afternoon’s House Ways & Means Committee hearing on reforming and improving the program.
The Generalized System of Preferences was originally authorized by the Trade Act of 1974 as an effort to bolster economic growth for developing nations by facilitating trade with the U.S. The program was intentionally created to be both nonreciprocal and to allow for customs-free access to U.S. markets. Furthermore, this program was a multinational effort that was created in conjunction with United Nations allies, many of whom created their own GSP programs to advance a comprehensive effort to diversify the multilateral trading system. There are 119 developing countries that are beneficiaries of the U.S. GSP program, providing duty-free entry for over 3,500 products. In 2020, the program facilitated $16.9 billion worth of products entering the U.S. without duties – representing 11.1% of the total amount of products that entered the U.S. from GSP-eligible countries.
Since GSP’s original ten-year authorization, Congress has successfully reauthorized the program 14 times – 10 of which were after the program had already expired, but the reauthorizations were retroactive from the expiration date to allow importers to receive refunds on the fees that they paid prior to reauthorization.
The Generalized System of Preferences has currently been expired since December 31st, 2020 and there are increasing efforts across government, private entities, trade associations, and advocacy organizations to encourage both a renewal and improvement of the program. While there has typically been a clean reauthorization of the program, the current political focus is on reaching an agreement so that the next renewal of the GSP includes some substantial changes to fortify the program and ensure that it best serves both the U.S. economy and developing nations.
There are several forces at play that support GSP being reauthorized this Congress:
Bipartisan Interest from Congress: There is a growing movement of broad, bipartisan appetite for renewing GSP during the 118th Congress – from leaders of committees of jurisdiction and rank-and-file members alike. To that end, a bipartisan group of 66 House members sent a letter in late July that highlighted the importance of GSP in reducing the reliance of U.S. supply chains on China and enhancing U.S. competitiveness. Especially after today’s hearing, there could be even more momentum for legislative activity to ensure that an end-of-year package – either through NDAA or appropriations – could include language reauthorizing GSP.
Positioning the Issue as an Economic Solution Against China: Both the aforementioned letter and hearing placed GSP as a critical program to detangle U.S. supply chains from China. Especially at a time when there is uncertainty surrounding Section 301 tariffs and there continue to be concerns around Chinese influence on the U.S. economy, GSP reauthorization and enhancement provides a strong solution for reducing dependence on Chinese goods.
Historic Agreement on the Issue: Even over the past three years, there have continued to be efforts to reauthorize GSP with bipartisan support. While these initiatives have stalled due to higher priority being given to other areas of interest, it is positive that there has always been some level of support for the GSP program. The most recent comprehensive effort to reauthorize GSP was to attach its renewal to the China competition package that was enacted last Congress. While GSP reauthorization was included in the prior versions of the package (the U.S. Innovation & Competition Act and the America COMPETES Act), it was stripped from the final CHIPS and Science Act – largely due to political pressures requiring that only provisions directly related to R&D and semiconductors be kept in the final legislation.
Advocacy from an Array of Stakeholders: Especially over the past several months, there has been an increasing level of focus on GSP from a wide array of businesses and organizations of all sizes – including large corporations and trade associations, as well as small businesses and nonprofits. Furthermore, this engagement also comes from a broad spectrum of industries, ranging from outdoor recreation to traditional manufacturing to more. With this level of diverse advocacy, there will be pressure on Congress from all spheres to act on this issue.
Continued Support Across Government: While the program has lapsed due to inactivity from Congress over the past three years, the GSP program largely holds support from its agencies of jurisdiction within the federal government. For example, the Office of the U.S. Trade Representative has emphasized the importance of the program – writing that GSP “promotes economic growth in the developing world, supports U.S. jobs, keeps American companies competitive, and promotes American values.”