GSP Renewal Hearing Covered CNL Reform, Stricter ROO, Eligibility Rules

House Ways and Means Trade Subcommittee Chairman Adrian Smith, R-Neb., underscored the need to lower tariffs through the Generalized System of Preferences benefits program for American businesses during high inflation at a hearing on reforming GSP, and asked his colleagues to "move forward with open minds and the urge to get things done."

However, the tenor of questions from the panel and the testimony from the witnesses showed divisions on the best way to restore GSP. Some members and witnesses felt that restoring the program, making it easier for countries to strengthen export competitiveness in certain products, and expanding into apparel and footwear would all be the best ways to use GSP to help importers move out of China.

Full committee Chairman Jason Smith, R-Mo., who sat in on the trade subcommittee hearing Sept. 20, told Fabian Garza, vice president of operations for outdoor equipment manufacturer Black Diamond, "Your company chose to move production out of China, thank you, I hope more companies do that as well, but to what extent was the GSP program an incentive for you to make that decision, and how could the program be improved to encourage others to also move production and supply chains out of China?

Garza replied that "GSP is one of the main tools for us to drive down our product costs." He said that tariffs on backpacks run about 20% and sourcing from GSP countries saved substantial money for the company. Since the program's expiration nearly three years ago, Black Diamond has paid more than $1 million in duties it used to avoid through GSP. The outdoor industry nationally has paid $1.7 billion in tariffs, he said.

"The dependability of the program is essential. Three years on, three years lapsed, and repeat is very, very difficult for us to plan around," he said in his opening statement. He had two suggestions for improvements -- first, either eliminate competitive need limits, or raise them. He said Indonesia has already sold too many backpacks to stay in GSP in that product, and the Philippines, where Black Diamond sources, is near the limit. "As I mentioned, supply chains are not Lego pieces. You cannot just pick them up and drop them into place and pick them up again," he said. His other suggestion is to consider adding more tariff lines to GSP, and he suggested outdoor recreation footwear, which he said is not an area where there is much U.S. manufacturing.

"You would see a tremendous amount of shift [from China], it would be a huge win for our industry," he said.

Rep. Carol Miller, R-W.Va., also suggested apparel should not be considered sensitive, and said sweaters should be included in GSP.

But Jason Smith also asked questions that implied he'd like to make it harder for importers to use GSP. He told Democratic witness Roy Houseman, legislative director for the United Steelworkers, that "our trade policy should support American jobs at every opportunity," and suggested that he supported Houseman's proposal that the 35% rule of origin be increased -- and that U.S. content be credited in that rule.

He also suggested that beneficiary countries' participation should be evaluated based on "more specific criteria on agriculture market access when it comes to non tariff barriers like food safety and biotechnology regulations."

Witness Ed Gresser, from the Progressive Policy Institute think tank, told the committee there is a tension between wanting to encourage GSP use as a tool to shift supply chains and the desire to add more eligibility requirements to get beneficiary countries to implement policies lawmakers prefer. He oversaw GSP for six years when he was a career staffer at the Office of the U.S. Trade Representative.

He said in his written testimony that if lawmakers' primary goal is to encourage shifting out of China, the renewal should be longer-term -- at least five years -- and there should be "some confidence that removal of benefits based on eligibility criteria would be a last resort in serious cases of noncompliance." He noted that removing eligibility from some Thai products and removing India entirely over trade disputes didn't get results. He suggested adding more products could also help drive sourcing to GSP countries. GSP generally covers only about 11% of exports to the U.S. from beneficiary countries. Globally, GSP covered $20 billion worth of imports, less than 1% of total imports.

The eligibility criteria should be clearly defined, he said, and said that some eligibility conditions in the African Growth and Opportunity Act do not meet that standard.

The subcommittee's ranking member, Rep. Earl Blumenauer, D-Ore., defended his GSP bill. He turned to Adrian Smith and said, "We advanced a GSP proposal that was completely congruent with what this committee had passed before; we offered that up as a way to break the gridlock. I’m sad that it was not good enough and instead people wanted to hold GSP hostage. We don’t."

Democrats were not interested in renewing GSP and the Miscellaneous Tariff Bill when they held the majority in the House, because they couldn't get bipartisan agreement on renewing Trade Adjustment Assistance (see 2211160068). Several members of the subcommittee mentioned the need to renew TAA during this hearing, as well.

Blumenauer also said he hopes the rule of origin will be hiked.

Adrian Smith said at the end of the hearing that he wants to "break the logjam" on both GSP and MTB. He said a past GSP renewal bill had ambiguous language that would have been difficult to enforce.

To Houseman, he said, "Your concerns, I hear those, and I think a lot of those concerns we could address in future trade agreements that are enforceable that have high standards, are rules based and have some market access."

Rep. Jimmy Panetta, D-Calif., said the long lapse is undermining GSP's goals, and production is moving back to China, in spite of Section 301 tariffs. Panetta said he supports improvements, but that he doesn't want differences among committee members to prevent renewal. He suggested he supports a longer renewal. Rep. Brad Wenstrup, R-Ohio, also pointed to the need for a longer renewal. He called for a six-year extension "with reasonable reforms."

Rep. Suzan DelBene, D-Wash., a leader in the pro-trade New Democrat caucus, complained that across the last 14 renewals of GSP, it was allowed to expire 10 times. She said an almost three-year expiration damages U.S. reliability in the eyes of its trading partners.

She said that while GSP needs updating, "we need to move quickly."

She told Gresser that CNLs hike prices for businesses in her district, and Gresser said a reform bill introduced in the last Congress (see 2112100058) was a good approach to address the problem.

She asked him if it made sense to impose a tighter rule of origin.

Gresser said that while the 35% ROO has been in place for a long time, it's not sacred. However, he suggested Congress wait to change it after seeing economic modeling on its effects. He said it's possible that with a higher ROO, production would shift back to China. Even if much of the value in a Southeast Asian backpack is from China, when it used to be made in China, all of the content was Chinese, he noted.

"I think it’s something worth exploring and looking at; do it in a rigorous way so we understand the implications and likely results," he said.