GSP imports, 2020 –
8 tons of Ukrainian pickles
3,700 traditional Mongolian ger (nomadic living tents)
11,900 liters of Georgian wine
1.5 tons of Pakistani spice mix
$5 million in Namibian stonework
412 tons of taro root from Tonga and Samoa
90,000 Rwandan travel bags
492 tons of Fijian ginger (candied and sushi-grade)
1 million dog collars and leashes from Cambodia
14,000 Senegalese wicker baskets
15 tons of vegetable oil from Timor-Leste
$9.5 million in Armenian-made golden jewelry
217 tons of South African essential oils (eucalyptus, orange, lemon, grapefruit)
27.3 million Thai orchids
870,000 Haitian-woven flags
32,700 Bolivian-made wooden doors
The U.S.’ oldest and largest effort to help the poor abroad is the “Generalized System of Preferences”, or “GSP” for short. Dating to 1974, it waives tariffs on about 3,500 types of products (more precisely, on 3,500 “tariff lines”) from 119 low- and middle-income countries meeting 15 eligibility criteria covering cooperation against terrorism, labor standards, intellectual property, expropriation, trade policy, and other issues. The law authorizing GSP benefits lapsed at the end of 2020, so for a year the program has been stopped. As Congress works on renewal, PPI Vice President Ed Gresser – who among other things directly oversaw GSP system administration from 2015-2020 – has observations and ideas in PPI’s newest policy paper:
By way of background, GSP is fairly simple. By waiving U.S. tariffs – 7.0% on flags, 9.6% on pickles, 2.3% on fresh taro root, etc. – imposed on things made or grown in places like Haiti, Ukraine, and the Pacific Islands, it encourages buyers otherwise drawn to the EU, China, or other larger suppliers to these smaller and poorer countries, helping them diversify their economies and create better job opportunities. Australia, EU, Canada, Japan, and other high-income countries have their own GSP programs launched around the same time as the U.S. GSP; other countries such as China, Taiwan, Chile, and Korea have created their own similar systems more recently.
The program’s scale is modest. Imports of variously picturesque and mundane GSP products totaled $16.9 billion in 2020 – 0.8% of the U.S.’ $2.351 trillion in total goods imports, and (more relevant) 11.1% of the $152 billion in imports from the 119 participating countries – but the impact is useful. Reviewing the results in 2016 (along with those of regional preference programs AGOA and CBI) the Obama administration concluded that “U.S. trade preference programs have encouraged exports from developing countries, with particular effect in value-added and labor-intensive goods … This is corroborated by a large body of economic literature [which has] also found that U.S. trade preference programs have made a contribution to the reduction of poverty.”
Gresser’s paper applauds Congressional interest in renewing the system – the Senate has passed a reauthorization bill and House Democrats have introduced one which differs in some areas from the Senate bill but shares much with it – noting that reauthorization will be good for the countries participating in the system and, in a small but tangible way, for the Biden administration’s effort to show that America “is back”. It also endorses Congress’ interest in rethinking aspects of the program. GSP’s list of “eligibility criteria” (that is, a set of policy goals a country needs to meet to qualify for tariff waivers) mainly dates to the 1970s and 1980s. So does its list of “import-sensitive” products excluded as overly competitive with U.S. goods and its “Competitive Need Limits” on the levels of particular products a country is allowed to send duty-free. All these could probably use a fresh look.
On the other hand, the paper expresses concern about a large proliferation of new eligibility rules in both the Senate and House Democratic bills. It argues for dialing this back a bit and balancing new rules with new product coverage (as a complementary proposal by Representatives Stephanie Murphy (D-Fla) and Jack Walorski (R-Ind) suggests). Three thoughts as Congress moves ahead:
1. Set priorities when adding new eligibility rules.
The current list of 15 eligibility criteria includes some moribund issues (“domination by the international Communist movement”), misses some contemporary concerns, and overall is a bit of a hodge-podge. But it also has some virtues, including brevity: the list is short enough to set clear priorities, so governments of GSP countries know what they need to do to retain benefits. Both reauthorization bills risk losing this virtue by adding many new criteria: human rights, poverty reduction, environment, gender policy, anti-corruption, economic reform, microcredit availability, political participation, rule of law, digital trade, and others. Though all appear well-intended, expansion on this scale can overload a small system, and risk forcing wholesale unintended expulsions of countries which fall short on one or two of many criteria, or pushing administrations into unsystematic and essentially arbitrary enforcement to avoid such an outcome.
2. Recognize good-faith effort.
A second virtue is that the current eligibility criteria are flexibly written, enabling officials administering the system to recognize good-faith if imperfect efforts to comply. Overly strict rules for low-income countries can be unrealistic: “low-income countries often have well-trained and well-intentioned leaders and senior bureaucrats who design good policies … [but] few such countries have the deep and professional civil services needed to effectively [implement] these policies uniformly and nationwide.” Whether adding new criteria or updating old ones, good-faith effort by well-intentioned governments should continue to get credit.
3. Balance new eligibility rules with broader benefits.
Finally, new looks at old eligibility rules should go together with new looks at old limits on benefits. GSP rules set in the 1970s excludes some significant categories of goods (clothes, shoes, glassware, watches) and also, under an unusual feature known as “Competitive Need Limitations”, remove products from a country’s GSP portfolio when it becomes too good at making them. The paper suggests reconsidering some of the product exclusions, for example that of shoes not made in the United States, and applauds the Murphy/Walorski proposal’s reforms to the ”Competitive Need Limitation” feature of GSP.
>> PPI’s Gresser on GSP Renewal – “Trade, the Poor, and America is Back” – Read the Report
Background:
The U.S. Trade Representative’s GSP Guidebook explains GSP program goals, product coverage, eligibility rules, and country participation.
The Obama administration (2016) evaluates U.S. trade preference programs (including GSP and also the African Growth and Opportunity Act and the Caribbean Basin Economic Recovery Act) and their records on poverty alleviation.
Some beneficiaries:
The Embassy of Ukraine explains GSP benefits to potential U.S. customers.
The Fiji Sun reports on a U.S. official’s 2018 visit to a GSP-beneficiary ginger factory.
USTR presentation on benefits for Mongolia (tungsten concentrate, leather bags, pine nuts, traditional “ger” tents).
Ecuadoran Ambassador Ivonne Baki updates Quito press on GSP reauthorization.
… and a Delaware vendor of Mongolian “ger” (traditional tents).
Renewal proposals from:
Senate Finance Committee (included in larger bill and passed in 2021).
House Ways and Means Democrats.
… and for comparison, the current GSP statute.
And some international comparisons:
Japan’s Ministry of Foreign Affairs explains the Japanese GSP.
The European Union.
China’s “least-developed country” tariff waiver.
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.