Earlier this week, a coalition of 628 companies and trade organizations submitted a letter to the U.S. Congress imploring lawmakers to immediately reinstate the Generalized System of Preference (GSP) with a retroactive provision. The preferential duty program expired on July 31, 2013 and the group claims that since it lapsed, American businesses have paid in excess of $1 billion in additional duties while awaiting congressional reauthorization.
First authorized in 1974, the GSP grew out of international aid discussions in the 1960s and was designed to promote trade in developing countries around the world. The scheme allows for selective exemption from the Most Favoured Nation principle that obliges World Trade Organization member countries to treat the imports of all other WTO countries equally. Supporters of the program claim that it is “a time-tested tool for advancing international economic development while also helping U.S. businesses, workers, and consumers by lowering the costs of imported goods, including those used as inputs for U.S. manufacturing.”
In their letter, the coalition complains that “GSP expiration has forced many American companies to lay off workers, delay new hires, cut benefits, and cancel job-creating investments,” adding that “the longer GSP remains expired, the worse it gets.” The group, which consists mostly of small businesses but also includes some of the world’s largest corporations, states that what they share in common is “the terrible impact of GSP expiration” that has “had a chilling effect on our ability to grow and compete in the global marketplace.”
Not everyone is a fan of the GSP, however. In a blistering editorial in Forbes earlier this month, Michelle Wein, a Trade Policy Analyst with the Information Technology and Innovation Foundation, derided the program as having “evolved into a free pass for nations with egregious trade mercantilist practices that hurt U.S. companies and U.S. jobs.” Among such practices, Wein included “forcing local production as a criterion for market access, subsidizing exports, stealing intellectual property and favoring domestic companies over foreign ones.”
Accordingly, critics of the program such as Wein and the conservative Heritage Foundation have suggested that before Congress renews the GSP, it needs to fundamentally reform the program in order to ensure that countries with highly problematic trade practices can no longer benefit from it as they have done with impunity in the past.