US House of Representatives Approves Renewal of Trade Preference Programme

15 February 2018

On Tuesday 13 February, lawmakers in the US House of Representatives voted to approve a bill renewing the US Generalized System of Preferences (GSP), a programme with implications for developing countries that trade with the US. 

The House voted 400-2 to extend the programme for an additional three years and to refund duties collected for the period when GSP coverage was expired. The legislation, H.R. 4979, was introduced last week and enjoyed bipartisan support.

To become law, identical legislation would need Senate approval and presidential signature. If a different version is passed in the other chamber, then the changes would need to be reconciled between the two and revised versions voted on again.

The GSP, which expired on 31 December 2017, involves a framework of reduced tariffs on designated products imported from beneficiary countries aimed at promoting economic development and shoring up the competitiveness of US firms.

Set up by the 1974 Trade Act, the unilateral scheme allows exporters in qualifying developing countries to benefit from preferential access to the American market. The US scheme offers concessions to 120 countries, with additional latitude built in for 44 least developed countries (LDCs) that are part of this list.

In 2016, total US imports under the GSP amounted to US$18.7 billion, with thousands of tariff lines eligible for duty-free entry, according to a factsheet issued last year by the Office of the US Trade Representative. Motor vehicle parts, precious metal jewellery, rubber tires, and non-alcoholic beverages ranked among the top products in 2016.

Trade lawmakers in the House welcomed the vote on Tuesday, calling for swift action from their Senate counterparts. “Today’s overwhelmingly bipartisan vote is a win for our businesses, consumers, and communities,” said Kevin Brady, the Texas Republican who serves as House Ways and Means Committee Chairman.

“I urge the Senate to pass this bill as soon as possible and join the House in renewing this pro-growth, pro-family trade programme for the American people,” he added.

Experts note that the programme has traditionally enjoyed solid support from Republicans and Democrats alike, but have noted that this does not necessarily translate to urgency in the legislative process.

“Broad support means that the prospects are positive for relatively rapid passage in the Senate. But the shallowness of the support also means that extensions are a relatively low priority and often get lost in the shuffle of more urgent congressional business,” said Kimberly Elliott, Senior Fellow at the Washington-based Center for Global Development in comments to Bridges.

Potential impacts

David Reichert, a Republican from Washington state who serves as the Ways and Means Trade Subcommittee Chairman, similarly celebrated the outcome of the vote. He was also among several to highlight the importance of deeper US trade ties with developing economies.

“By renewing GSP and providing tariff relief, we are creating opportunities for American businesses to growth and re-invest here at home and to compete globally,” he said. “At the same time, we are strengthening our partnerships with developing countries and ensuring that our trading partners meet the standards of the GSP programme.”

“GSP is common sense legislation that achieves two aims: increasing the competitiveness of US firms and workers and supporting growth in developing countries that benefit under the programme,” said Trade Subcommittee Ranking Member Bill Pascrell, a Democrat from the US state of New Jersey, highlighting in particular the boost to small- and medium-sized enterprises (SMEs) that rely on GSP-eligible goods for their operations.

The GSP provides sources of low-cost parts and components and intermediary goods for many US industries. Two-thirds of US imports under the GSP are either raw materials, parts and components, or machinery used in manufacturing in the US, according to estimates from the US Chamber of Commerce.

“Less money spent on tariffs means more money that our job creators can use to hire new workers, grow pay-checks, and invest in our communities,” Brady said, also noting knock-on effects lowering prices for consumers. 

Modifications to the GSP

The bill introduces a new provision updating the process for obtaining waivers from “competitive need limits” based on present-day production figures. Under these limits, any product exceeding 50 percent of the value of total US imports of that good the previous year are barred from duty-free treatment, or if these imports surpass a set value.

Ultimately, it is the US executive branch that retains discretion over the products and countries deemed eligible for the scheme. This limited product coverage does not guarantee that the goods where developing countries have a comparative advantage are captured.

The legislation also includes a reporting requirement aimed at ensuring stringent review of the enforcement of the criteria to qualify for GSP status. Inclusion on the list of beneficiary countries is made conditional on criteria tied to, among other issues, compliance with environmental and labour regulations and respecting intellectual property laws.

“The GSP eligibility criteria provide an important enforcement tool to require our trading partners to meet standards established by Congress in regard to opening their markets to US goods and services, intellectual property protection, and child labour and worker rights,” Reichert said, according to a press release issued by the House Ways and Means Committee on 8 February, when the bill was introduced in the House.

“The legislation we introduced today includes a new reporting requirement that will improve the effectiveness of Congressional oversight of enforcement of the eligibility criteria,” he added.

It has been a long-standing question whether GSP coverage should be limited to LDCs, or whether to continue including large emerging markets, for example India and Brazil who have consistently been among the top beneficiaries from the US GSP. In 2016, India exported goods worth US$4.7 billion to the US under the GSP and Brazil an additional US$2.2 billion. Seychelles, Uruguay, and Venezuela are among those countries that have recently graduated from the scheme.

In addition, experts say that the temporary nature of preference scheme can create uncertainty. The most recent extension of the GSP was agreed only in 2015 and, given that the timing of renewal can often be unclear, companies are less ready to invest for export.

“As these votes often go, the lapse in the GSP programme was relatively short this time around. But the relatively short renewal term and repeated uncertainty around the programme reduce the utility of the programme for US importers and developing country exporters alike,” Elliott said.

ICTSD reporting; “What is GSP and why does it matter for U.S. trade?” THE WASHINGTON POST, 25 January 2018; “US poised to let emerging markets trade pact expire,” FINANCIAL TIMES, 24 December 2017; “GSP renewal legislation introduced in House,” AMERICAN SHIPPER, 9 February 2018.

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