GSP Trade Agreement Bill Passes House Ways & Means Along Party Lines

GSP Trade Agreement

After three years of languishing in limbo, the Generalized System of Preferences (GSP), a quasi-free trade deal with more than 100 developing nations, will move out of the House Ways & Means Committee to the full House.

The GSP Reform Act (H.R. 7986) passed along party lines with 25 Republicans in favor and 17 Democrats against. Two attempts by Democrats to add additional amendments to the bill to strengthen environmental protections failed, also along party lines.

The bill was introduced on April 15 by Adrian Smith (R-NE-3), Chairman of the House Ways & Means Subcommittee on Trade, and did not get any Democrat votes because they wanted Trade Adjustment Assistance (TAA) funding added to the bill. There was some heated debate on why it could not be added, with Chairman Jason Smith (R-MO-8) saying the TAA was not germane to GSP reform and was a side issue. “If the Democrats only want GSP reform with TAA I guarantee you it will never pass this Committee,” he said.

Nebraska Congressman Adrian Smith said that “if this was a big trade deal with a large market then perhaps we could do something with TAA.”  

Trade Adjustment Assistance is a Department of Labor program that helps fund retraining for people displaced by international trade.

The GSP Reform Act includes labor and environmental standards modeled on those in the USMCA, but also asks GSP member countries not to increase their economic integration with China, and not sign any agreements to build new Chinese military bases, like GSP eligible nation Djibouti in Africa. It is unclear how these countries will abide by this, especially in Southeast Asia where Chinese economic integration and investment continues to grow.

For those on Capitol Hill, the consensus is that not renewing GSP means these smaller markets – be them on China’s border or far away in poor southeastern Europe – a Chinese Belt and Road destination – will move closer to China. They fear that such a trend erodes U.S. soft power and economic influence as its corporations get beat out by Chinese rivals. In addition, some representatives of farm states believe GSP will help their constituents sell more agricultural goods.

GSP was last renewed in 2018 with bipartisan support and without labor and environmental standards added. There is widespread agreement on the Hill that GSP should be reformed and extended, but disagreement on how. Stronger labor and environmental standards were agreed upon by both parties, with some caveats. Even so, on labor rights, how does a U.S. furniture worker compete on wages with Albanians, for example, a GSP country whose average monthly wages are around $877. Even if Albania doubled their pay with the best unions on the planet they would still be far below U.S. labor cost.

The new bill would allow for the International Trade Commission (ITC) to add more products to qualify for duty free entry to the U.S. It would also require local content to go from just 35% to 50%, to which Committee member Lloyd Dogget (D-TX-35) asked, “So if Cambodia makes us something and it’s 50% Cambodian and 50% Chinese it can come in here duty free.”

Rep. Nicole Malliotakis (R-NY-11) voted for the bill in Wednesday’s markup session and said she wanted the ITC to add apparel to the list of duty free items, something that is already flowing into the U.S. duty free thanks to Chinese e-commerce retail powerhouse Shein, among others.

If the GSP Reform Act becomes law, it would not be up for renewal until 2030. 

“GSP is a tacit admission by those Congress members who vote for it that they don’t really believe in reshoring U.S. manufacturing,” said Jeff Ferry, chief economist for CPA. 

In hearings in both the House and Senate this week, USTR Katherine Tai continually said that she does not want workers competing against workers on wages, and that when lower income trading partners wages rise, it is better for Americans because it reduces the labor equation for offshoring corporations. The problem with GSP is that these are some of the poorest countries in the world, where there is no way the U.S. could even come close to competing on labor. If the labor equation remains a vital one to offshoring decisions, the more the U.S. is open to low cost labor, the more attractive imports and offshoring will be. 

“This new version of GSP, if it becomes law, will lead to a new wave of offshoring by U.S. multinationals, as they seek out new low-cost production centers that appear to be safe from geopolitical attention,” said Ferry. “At the same time, these new low-cost production sites will find ways to accept Chinese goods and Chinese investment dollars. It is impossible for the U.S. to police what small, poor countries do within their own borders. We also typically find that wages do not go up when U.S. multinationals invest in poor countries. What usually happens is a new crop of local billionaires are created. The winners in all this will be the U.S. multinationals.”


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