July 18, 2013
Congress Needs to Act on GSP

GSP – the Generalized System of Preferences program, or duty-free treatment of selected imports from developing countries – has long been a popular program in Congress. Liberals like it because it helps people in developing countries sell their products here. Conservatives like it because it is essentially a tax cut – lowering tariffs on imports. Labor likes it because it excludes the most sensitive items (mostly textiles and apparel) and has a process whereby labor can challenge the other country's labor practices, potentially leading to a denial of benefits. Consumers like it, or would like it if they knew it existed, because it leads to lower prices for them.

So, if everybody likes it, why is it once again about to expire (July 31)? This is not a new development. Congress has frequently let GSP lapse only to renew it with retroactive application later on, apparently assuming that if they make a mess and clean it up six months or a year later, nobody will notice. Wrong. We live in a world of global supply chains. Companies are busy looking for high-quality low-price sources of supply for parts and components or ingredients so they can be more competitive in the global marketplace. An important part of finding those pots of gold and building their supply chain is certainty – knowing that the company you're contracting with will be able to supply the product at a competitive price for a long time. Making sure that developing country manufacturers can consistently produce to our standards and deliver on time takes a lot of work and frequently requires an investment. GSP eligibility can make a significant difference in price, but when the program is suspended due to Congressional inaction or renewed for only a short period, U.S. companies will go elsewhere because they have no confidence they will get the GSP benefits for a period long enough to justify their investment.

When that happens, it's lose-lose-lose. The U.S. Company loses because its supply chain breaks, and it has to go somewhere else on possibly less favorable terms. The developing country and its workers lose because the work disappears. The American consumer loses because prices go up.

So, again, why can't we get this done? As so often seems to happen in Congress these days, the problem is the elusive "extraneous matter" – other stuff that might get attached to a GSP renewal bill as it makes its way through the process. Because it is a revenue bill, it is a magnet for amendments, and the Senate is historically the culprit because that body's rules permit nongermane amendments. As a result, the House, which under the Constitution must originate revenue bills, is reluctant to send it over for fear of what it might attract on the way. Their tactic appears to be to persuade the Senate to act first and then hold the bill at the desk waiting for the House vehicle, which hopefully would be identical. That has worked before, although it's ironic because it essentially surrenders the House's prerogative to initiate these bills to the Senate.

Of course, those of you who have read this far have probably realized that, once again, the real problem is trust. The House, with some reason, does not trust the Senate to act responsibly. The Senate, also with some reason, is not always confident that the House will hold up its end of the bargain if this kind of deal is struck (although that doesn't seem like a problem in this case). This is a cautionary tale for those out there who argue that divided government is a good thing. It seems to be a good thing in only two cases: where the two parties do trust each other and are prepared to work together, or where you don't want to get anything done. The tragedy of divided government is that in the absence of trust, good programs that help people here and abroad like GSP are going to die.
By Bill Reinsch
Tags: GSP, global supply chain, Generalized System of Preferences, NFTC

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