Bipartisan Competitive Needs Limitation Proposal Introduced
The Generalized System of Preferences benefits program has been expired for almost a year, but Rep. Jackie Walorski, R-Ind., and Rep. Stephanie Murphy, D-Fla., are suggesting that reauthorization include changes to how Competitive Need Limitations are calculated so that fewer products are removed from the tariff benefit, and so that products may be more easily restored if the import levels no longer qualify.
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The rationale behind the CNL is that once a country becomes dominant in a particular product -- for example, India in gold necklaces -- it no longer needs the tariff break, because its exports are sufficiently competitive. Other countries in GSP, like Thailand, then are able to export duty free in that category, but India is not.
In 2020, the last year the program was in effect, the threshold for a CNL was either more than 50% of the exports of the product from all GSP beneficiaries was from one country, or any country that sold more than $195 million worth of the product in the year. That dollar amount rises by $5 million a year.
The bill would change how the dollar amount is calculated, so that it would grow 6.5% a year. So, instead of $200 million, it would be $207,675,000.
For context, all GSP-covered products sales' totaled $21 billion in 2019, but those countries exported $235 billion worth of goods to the U.S. that year.
Competitive Need Limitations do not apply to countries that are part of the African Growth and Opportunity Act (AGOA) or least developed countries within GSP.
Most recently, due to CNLs, Ecuador lost its GSP eligibility for Taro; Brazil for gum, wood or sulfate turpentine and diesel-powered electric generating sets.
Walorski said in the press release announcing the bill's introduction that “GSP plays a key role in reducing costs for Hoosier job creators, but its expiration for almost a year has left manufacturers hanging. I urge Congress to immediately pass a long-term reauthorization of GSP, while also including improvements like the CNL Update Act, to reduce burdens on our job creators, strengthen trade relationships, and protect Hoosier manufacturing.”
The Coalition for GSP endorsed the bill, which it said would lower costs for manufacturers and consumers, advance GSP's development goals, and increase the administration's leverage as it seeks to tie GSP eligibility to more criteria.
The bill also advises the administration on how to decide whether it should punish a country for not meeting criteria by excluding some or all of its exports from the program. It says that the administration should "take all available steps to facilitate continued duty-free treatment for products where the imposition of duties is likely to slow or reverse progress made toward meeting the criteria."
It also asks the administration to "explore the feasibility" of keeping duty benefits for specific companies if a particular country's product is removed or suspended from the list.
Dan Anthony, who leads the Coalition for GSP, also praised language in the bill that says the administration should restore goods that had been subject to CNLs, rather than "may." He said that 95% of products that had earlier been removed due to CNLs would no longer be removed under current thresholds, "but restoration almost never happens." He said there haven't even been 10 products restored in the last 14 years.
"As a result, product-specific exclusions such as CNLs now eliminate as much as 1/3 of all potential GSP benefits annually (e.g., more trade from Brazil is excluded by these rules than still covered by GSP)."