Deals need to support U.S. workers, fight overseas labor abuse.
by MICHAEL STUMO
For the past 50 years, the United States has provided economic assistance to dozens of countries.
Central to this effort has been “trade liberalization” — the idea that the United States can help developing countries by importing more of their goods. Its proponents call this “trade, not aid.”
But in reality, these efforts have failed to boost living standards overseas. Instead, they’ve benefited multinational firms seeking the lowest-wage labor — and enriched the corrupt oligarchs that still control much of the developing world.
Because this aid has proved fruitless, the Generalized System of Preferences tariff program, known as the GSP, that initiated it has not been renewed since 2020. But as Congress returns to session, some call for new efforts to help struggling nations. Resuming the GSP, however, should not be one of them.
The GSP is a Cold War holdover. It was established in 1974 to eliminate thousands of import duties for 119 designated beneficiary nations. Proponents claimed that the GSP would lead to economic gains for participating countries.
But it’s clear that the GSP has failed to create middle-class economies in countries as disparate as Afghanistan, Equatorial Guinea and Somalia. It has failed to improve labor conditions in countries such as Kazakhstan and Egypt.
Part of the problem is the naive assumption that participating governments would enforce the program’s requirements. But regional oligarchs and corrupt regimes are the only ones that have actually enjoyed the benefits of duty-free exports to the U.S.
Sadly, many poor countries have failed to stabilize their political systems over the past 50 years. Corruption remains rife in developing economies — a situation easily exploited by multinational producers seeking cheap, unregulated labor. Such problems must be solved internally; duty-free exports to the U.S. can hardly fix an entrenched status quo.
It’s doubly unfortunate that the GSP program has frequently put domestic U.S. manufacturers in direct competition with imports. But that’s what happens when importers and multinationals continually source the lowest-priced goods from the lowest-wage countries.
If policymakers hope to offer new aid programs to developing countries, they must find a better approach — or vastly reform the GSP.
For starters, countries that continue to use forced labor should be ineligible for any assistance. But an astounding 48 of the 119 GSP nations are on the Department of Labor’s list of goods produced by child labor or forced labor. Despite 50 years of help, these countries have never cleaned up their act.
GSP preferences should also be limited to the poorest countries. There’s little justification for extending further GSP benefits to competitive economies such as Brazil, Indonesia, the Philippines and Thailand. These countries have enjoyed decades of GSP assistance. They can now stand independently.
Lawmakers should also condition GSP aid on reciprocal tariff treatment. The GSP has unilaterally extended zero-tariff treatment to many countries and never required reciprocal access for U.S. exporters.
The world is far different than it was in 1974, and such an approach no longer makes sense. If a GSP country extends a preferential tariff rate to another country, it must also offer the same preference to the United States.
Rule-of-origin requirements should also be tightened to combat customs fraud. A key failing of the GSP is that its domestic-content threshold for production in these countries is a mere 35%. That means China can manufacture most of a product and then trans-ship it through a GSP country to the United States.
This is egregious. It makes no sense to aid developing countries that are simultaneously helping manufacturers in China.
There are also America’s own struggles to consider. The United States has lost many important industrial supply chains over the past 20 years. The GSP should no longer include products such as auto parts and electronics that make up key parts of America’s remaining industrial base.
To truly use trade as a tool, lawmakers must ensure that it functions as a two-way street — simultaneously benefiting U.S. workers and fighting overseas labor abuse. The GSP hasn’t helped many struggling nations, and it hasn’t advanced America’s global goals. A better path is needed.