Proposed reforms to the US’s largest and longest-running trade preference programme threaten to freeze out some of the south-east Asian countries that rely on it for duty-free access to the American market.
The Generalized System of Preferences was established in the 1970s to help developing countries by reducing tariffs on up to 5,000 products, ranging from bags and jewellery to mattresses and car parts. It plays an important role in regional manufacturing — its top five beneficiaries include Thailand, Indonesia, Cambodia and the Philippines.
However, the scheme, which covered about $16bn in imports in 2020, has been inactive since the end of that year, when its most recent extension expired.
Renewal lags are not uncommon. The GSP, which includes 119 countries, must be regularly reauthorised by Congress. Out of the 14 times it has been renewed, 10 came after lapses of varying lengths. In each of those cases, the programme was enforced retroactively, with importers reimbursed for the extra tariffs.
The current delay, now approaching 18 months, has cost companies at least $1.4bn in extra taxes, according to US-based lobby group Coalition for GSP. The group points out that large companies can absorb the extra hit for the duration of the expiry, but smaller firms are struggling.
There is bipartisan support to renew the programme. But, marking a major shift from previous lapses, there are also efforts to change it.
Proposed legislation to renew the programme introduces new eligibility criteria on top of previous provisions that centred on labour rights. New “mandatory criteria” would bar countries that violate human rights or fail to enforce environmental laws.
Further proposed clauses would see a country’s respect for rule of law, its poverty reduction and anti-corruption efforts and its progress on women’s empowerment taken into consideration when determining eligibility.
Critics, including the importer lobby group, warn the shift could disqualify a significant number of participants and thus undermine the scheme’s mission. They want the programme to recognise “good-faith efforts” by beneficiary countries to address deficiencies.
Edward Gresser, formerly an official at the Office of the US Trade Representative who oversaw the programme, said overloading eligibility requirements would make the GSP difficult to administer.
While differences in language exist between the senate and house versions, both propose new requirements that could see unintended consequences, said Gresser, now vice-president and director for trade and global markets at the Progressive Policy Institute.
“Some scenarios could mean you have to remove almost all of the low-income countries based on lack of government capacity,” he told Nikkei Asia. “I don’t think that’s what Congress wants, but I do think there hasn’t been a lot of close vetting of this language for its implications.”
For now, the final wording of the GSP reauthorisation and its timeframe remain uncertain.
Its renewal is bound up in the bipartisan innovation and competition legislative package dubbed HR 4521 that is in committee as lawmakers work to reconcile differences between house and senate versions.
The wide-ranging bills, which propose hundreds of billions of dollars in spending, are ostensibly aimed at countering competition from China, but cover a vast array of provisions, from semiconductors to seafood imports.
Josh Teitelbaum, senior counsel at Akin Gump Strauss Hauer & Feld, said if Congress missed its informal deadline of end-July, it would likely not be passed until after midterm elections in November.
Teitelbaum said the proposed eligibility changes to the GSP should be balanced.
“My preference would be that, since we’re adding sticks to the programme, we also add additional incentives, by expanding product eligibility including things like apparel,” he said.
“That would be a huge incentive for countries in south-east Asia to try and comply with the programme because that’s one of their top exports to the United States.”
There are also efforts to loosen “Competitive Need Limitation” rules that cap how much of a GSP product a country can export to the US.
But, as the congressional process drags on, companies that rely on the programme are under increasing pressure.
Piet Holten, chair of Pactics, a Cambodia-based manufacturer that ships products to the US market, said the GSP lapse had contributed to a “disastrous” situation together with hits from Covid-19 and ballooning transport costs.
The company is among several in Cambodia that moved into travel goods after they were included in the GSP in 2016. The expiry of the programme led to costs increasing by hundreds of thousands of dollars last year and forced the company to sign new deals asking buyers to cover half of import duties until refunds are available.
The importance of the GSP, and similar preference programmes by other developed countries, was huge for the region, said Holten, particularly with an increasing preference for nearshoring amid global logistics snarls.
“South-east Asia, it’s not all a pretty picture,” he said. “[The GSP] was one of the big ways for us to be in Cambodia and compete with China. Everything in Cambodia is more expensive than in China except for the labour. So it’s very tough to compete.”
A version of this article was first published by Nikkei Asia on June 29 2022. ©2022 Nikkei Inc. All rights reserved.
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Source: Economy - ft.com
