Congress Should Renew Preferential Tariff System Before It Expires

The U.S. Congress should move with haste to renew the Generalized System of Preferences (GSP) before the program expires at the end of July. Without it, U.S. companies will end up paying an extra $2 million a day in tariffs on imported goods (at 2012 import levels), which would hurt U.S. consumers and dent American small and medium-size companies. It would also hamper the economies of some U.S. developing country friends.

The GSP program was launched in 1976 to promote economic growth in developing countries by providing preferential duty-free entry for almost 5,000 products when imported from one of nearly 130 countries. Last year, U.S. companies imported nearly $20 billion worth of goods under the program, many of which were used by American manufacturers. A 2005 study by the U.S. Chamber of Commerce estimated that 80,000 jobs are created in the United States by moving GSP products from ports to manufacturers, farmers, and stores.

Three Southeast Asian countries—Indonesia, the Philippines, and Thailand—are major beneficiaries of the program because it increases the competiveness of their exports to the United States. Last year, Thailand was the second-largest beneficiary in the world, exporting $3.7 billion worth of goods under GSP, including processed food, car tires, rubber gloves, microwave ovens, and fans. Indonesia was fourth with $2.2 billion of exports, including rubber tires, aluminum, plywood, cocoa paste, and musical instruments. The Philippines was sixth with $1.2 billion of exports of items like measuring instruments, sugar, insulated electric conductors, and radial tires. Cambodia also benefits from GSP, but to a far lesser degree.

Ed Gresser, head of the Progressive Economy think tank that conducts research on trade and globalization issues, says the GSP program helps recipient countries in Southeast Asia compete with the low-cost manufactured products coming out of China, creates jobs, and provides extra income for women and artisans.

Several Southeast Asian countries are not eligible for GSP. Singapore and Malaysia are too developed. Vietnam, whose president is visiting Washington this week, officially asked to receive GSP benefits in 2008 but was not admitted into the program because its labor unions are seen as dominated by the ruling Communist Party, limiting internationally recognized worker rights. Vietnam’s protection of intellectual property rights is also viewed as inadequate.

A subcommittee of the Office of the U.S. Trade Representative held a public hearing in June to gather testimony regarding the eligibility of Myanmar and Laos for GSP trade benefits. As part of the U.S. rebalance to Asia, which includes an effort by the United States to be more economically engaged with Southeast Asia, Congress and the administration ought to qualify Vietnam, Myanmar, and Laos for GSP benefits. Because most apparel and footwear are ineligible for duty-free treatment under the program, U.S. manufacturers need not fear a sudden surge of such products if those countries are given GSP treatment.

The current GSP program expires on July 31. In recent weeks, both the House of Representatives and the Senate have taken steps to extend the measure. On July 17, Republican and Democratic leaders of the House Ways and Means Committee drafted legislation to reauthorize GSP. They said it would be put up for a vote if the Senate approves a bill disallowing amendments to the trust fund bill to which the GSP legislation will be attached. A day or two later, the Senate Finance Committee chairman and the ranking Republican member announced similar legislation extending GSP for two years, but it is not clear that all senators have agreed to drop their plans for amendments to the trust fund legislation.

For the most part, there is strong bipartisan support in both the Senate and the House for the GSP program. Still, there are concerns among U.S. companies and GSP-recipient countries that the high level of distrust between the leaders of the House and the Senate could result in Congress leaving Washington on August 2 for its long recess without extending the GSP program. Two years ago, a single senator managed to block GSP renewal for months when he tried to protect a sleeping bag company in his state against imports from Bangladesh.

Allowing GSP to expire would add an average tariff of 3.8 percent to the almost $4 billion worth of tariff-free products imported from Thailand alone—a significant amount in the highly competitive global supply chain, particularly for small and medium-size U.S. firms. Progressive Economy’s Gresser says a long delay in congressional renewal of the benefits could prompt some U.S. companies to shift their long-term sourcing to China and other non-GSP countries.

Chris Nelson of the Nelson Report, a widely read daily online newsletter focusing on Asia and trade issues, suggested recently that U.S. Trade Representative Michael Froman and Commerce Secretary Penny Pritzker ought to invest an hour to remind key senators that the House is ready to renew GSP if the Senate agrees to attach it to the larger trust fund legislation without allowing amendments.

It would also help if President Barak Obama and Secretary of State John Kerry made some calls suggesting to key senators that renewing GSP would help bolster the U.S. rebalance to Asia ahead of the president’s October trips to Brunei for the East Asia Summit and to Indonesia for the Asia-Pacific Economic Cooperation (APEC) summit.

(This Commentary originally appeared in the July 25, 2013, issue of Southeast Asia from the Corner of 18th & K Streets.)

Murray Hiebert is senior fellow and deputy director of the Sumitro Chair for Southeast Asia Studies at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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