More than three years after its expiration, the Generalized System of Preferences (GSP)—America’s largest and oldest trade preference program—is up for discussion again.
Rep. Adrian Smith (R-Ne.) introduced the GSP Reform Act in Congress on Monday in the hope of reviving the long-lapsed program, which is designed to promote economic development in 119 underserved countries across the globe. GSP provides beneficiaries with duty-free access to the U.S. market on thousands of products not generally produced stateside, while supporting worker rights and intellectual property protections.
Smith’s bill would reauthorize GSP through Dec. 31, 2030, and it also proposes “the largest reforms to the GSP program since inception.”
No. 1 on that list would be permanently banning China from utilization. The reform bill sets new country eligibility criteria mostly centered on ensuring that beneficiary developing countries (BDCs), and the U.S., are aligned in values and see mutual advantages. In order to qualify for GSP benefits moving forward, BDCs must exhibit fair treatment for American agricultural exports as well as fair digital and tax treatment of U.S. companies and workers. They must also be democratic and exhibit satisfactory governance and anti-corruption standards.
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Traditionally, BDCs are selected by the president on the basis of established eligibility criteria, and the Commander in Chief can terminate, suspend or limit a BDC’s GSP status at any time if they notify Congress two months in advance of the action, making it a point of leverage in trade relationships.
The newly proposed revision of GSP also contains provisions that speak to America’s national security and foreign policy interests. It removes countries that demonstrate growing economic or military ties with China, and when it comes to qualifying product, amendments would increase the rule of origin from 35 percent to 50 percent over time. It also incentivizes BDCs to use more U.S.-grown or derived content in their GSP-eligible products. This would ensure that GSP beneficiaries see the upsides of the program—not third countries.
Rep. Smith’s bill updates GSP’s competitive needs limitations (CNLs), which are “quantitative ceilings” for imports accepted under the GSP program. The GSP Reform Act increases the dollar threshold from $215 million to $500 million and indexes it to inflation in order to improve usefulness and utilization—and encourage more supply chain shifts out of China.
The bill also calls for the International Trade Commission to provide Congress with a fresh economic analysis of the products eligible for duty-free treatment. Currently, that list does not include most footwear, apparel and textile products—but it does include travel goods and handbags, which were the top import category in 2020 before the program lapsed, accounting for more than $1.9 billion in imports.
Since it was established as a part of the Trade Act of 1974, the GSP program has enjoyed broad bipartisan and bicameral support. The program was first authorized for a decade, expiring in 1985, and has subsequently required Congressional reauthorization every two to three years.
According to the Congressional Research Institute, GSP has lapsed prior to its reauthorization 10 of the 14 times it was extended—but Congress’ practice has been to extend GSP retroactively from its expiration date, guaranteeing that importers are refunded without interest for any duties they incurred during the program’s lapse. That’s what brands, retailers and trade groups hope will happen this time around.
“GSP has always had bipartisan support, and the record long lapse has been unexplainable and damaging to American businesses, American workers, and beneficiary countries alike, all while handing a huge trade win to China,” Steve Lamar, president and CEO of the American Apparel and Footwear Association (AAFA), said Monday. “This retroactive renewal is far more effective at making our trusted partners more competitive than misapplied tariffs will ever be.”
According to Lamar, the passage of the GSP Reform Act “is also helpful to mitigate the costs faced by our nation’s supply chains during this time of continuous disruption.”
“Once renewed, this can have a very real impact on the cost and offering of everyday goods such as luggage for summer travel and backpacks for school in the fall,” he added.
Beth Hughes, the group’s vice president of trade and customs policy, said AAFA was “pleased to see several proposed reforms, including measures to update the competitive need limitation (CNL) mechanism and open a process to consider currently ineligible products.”
“Such reforms are vital if GSP is to be properly equipped to help companies invest in supply chains as they diversify from China,” she added.