A recent congressional hearing focused on the benefits of reauthorizing the Generalized System of Preferences, although there appears to be little momentum at present for such a move.
GSP provides duty-free treatment for imports of thousands of products from 119 developing nations. It expired Dec. 31, 2020, meaning GSP-eligible goods have been subject to U.S. tariffs since then. Congress must act for the program to be reauthorized, but lawmakers have failed to do so despite traditional bipartisan support for GSP due to disagreements over whether and how much it should be reformed.
Earlier this year dozens of GSP beneficiary countries urged the leaders of the Senate Finance and House Ways and Means committees to renew the program in light of its benefits to both their own economies and U.S. producers. In May Senate Majority Leader Chuck Schumer, D-N.Y., announced plans to develop a legislative package aimed at further boosting U.S. competitiveness with China that he said could include a renewal of GSP and a number of other trade-related provisions that lawmakers approved before they were ultimately dropped from the CHIPS and Science bill signed into law in 2022. In July a bipartisan group of lawmakers urged the majority and minority leaders of the Ways and Means Committee to reauthorize GSP because its duty breaks could facilitate supply chain shifts out of China and into GSP beneficiary countries.
In a Sept. 20 hearing before the House Ways and Means Trade Subcommittee, lawmakers and private sector representatives touted the benefits of the nearly half-century-old program. Subcommittee Chair Adrian Smith, R-Neb., said “there’s no question the GSP program has a proven track record” of creating and supporting domestic jobs, lowering costs for businesses and consumers, and preserving U.S. production by excluding import-sensitive products. Witnesses said GSP also aids beneficiary countries by helping them draw higher-value investment, diversify their economies, integrate into global supply chains, and create employment in value-added industries.
At the same time, there is a general acknowledgement that GSP can be improved to aid current policy goals. For example, Smith asserted that a strategic reform of GSP “can help shift key supply chains out of adversarial nations like China.” One way this could be done is allowing beneficiary countries to count value added by inputs from the U.S., U.S. free trade agreement partners and perhaps non-FTA allies, and/or other GSP beneficiaries to help meet the program’s 35 percent value-added rule of origin, possibly coupled with an increase in that threshold.
However, Ed Gresser, a former official with the Office of the U.S. Trade Representative who oversaw GSP, said that to most effectively achieve this goal Congress should approve a reauthorization term of at least five years, create some additional real-world benefits for users that provide more incentive to shift supply chain, and instill some confidence that removal of benefits based on eligibility criteria would be a last resort in serious cases of noncompliance. Gresser also cautioned against adding a large number of new criteria for participation in the program, which could limit its use by the countries it is designed to benefit.
For more information on GSP and current prospects for its renewal, please contact David Olave at (202) 730-4960 or via email.
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