Pro-consumer trade program Faces Challenges in Congress
February 10, 2006So what is the Generalized System of Preferences? It sure is a mouthful to say. Well, beyond its long title, the GSP program was put in place many decades ago as a means of promoting economic growth in poor countries by making their imports less expensive to American consumers by eliminating border taxes (or tariffs) on them. Tax-free imports under GSP save consumers a lot of money on a broad range of products, from flashlights to cheese--literally millions of dollars annually in hidden sales taxes.
Consumers benefit significantly from GSP. For example, the U.S. border taxes on flashlights are now 12.5%. That means that a $20 flashlight from Bangladesh will cost you $22.50 if GSP lapses at the end of this year. The additional $2.50 basically amounts to a hidden sales tax. Consumers save on an array of other products such as: jewelry, electrical equipment, furniture and leather.
In addition to the savings that consumers enjoy when purchasing products made in GSP countries, we also save from the reduced cost of inputs for goods made in the U.S. Two-thirds of the products entering the U.S. through GSP are raw materials like iron, aluminum and steel that are used by U.S. manufacturers to make products that consumers buy. So, the GSP program not only benefits Consumers of U.S.-made goods, but it also helps to support jobs in the United States, by helping to make U.S. manufacturers more competitive. All in all, the savings from eliminating border taxes amounted to more than $800 million in 2004.
Equally important to the U.S. benefits, the GSP program is an engine for economic development in some of the poorest countries of the world--places like Bangladesh, for instance. So, when an American Consumer or manufacturer buys a GSP product, they are helping people and workers in some of the word's poorest countries.
The GSP was last renewed in 2002 for a five year period. This five-year renewal allowed trade under the program to expand significantly, because it allowed companies that use the program to make plans with the expectation that they would be able to import products into the U.S. without border taxes. Between 1993 and 2002--almost nine years--the GSP program had been subject to a series of six lapses and retroactive renewals. The stop and go nature of the program during this period proved costly to just about everyone--consumers, U.S. businesses, and poorer nations. When GSP was renewed for five years in 2002, the longest GSP renewal period in almost 17 years, it had broad support from both parties and the administration.
Now Unless Congress acts by December of this year, this little engine for economic development will expire and U.S. consumers will face higher prices, U.S. workers will be harmed, and workers in less developed countries will face difficult times. Unfortunately, though, the GSP program is facing some serious challenges in Congress.
Chief among these is the slow progress being made as part of the multilateral trade negotiations that are known as the "Doha round," being undertaking by the members of the World Trade Organization (WTO). Some members of Congress are peeved with developing nations, because these poorer countries have been holding the trade talks hostage over the issue of agriculture policy (see related story, this issue). These congressional leaders have talked about using the lapse of GSP as a means for pressuring developing countries to make concessions in the trade talks.
CWT has been meeting with
members of Congress and their staff to inform them of the benefits to consumers
of this program and of the necessity of its renewal. There is a lot to be
gained from the renewal of Generalized System of Preferences. CWT encourages
you to contact your representative and senators to express your support for
the renewal of this program.