US Trade Policy Shouldn’t Pit Developing Countries Against Each Other

This blog post originally appeared on World Politics Review. 

The global economy is gradually healing from the economic blows dealt by the coronavirus pandemic, but the recovery remains fragile and halting. Reduced trade is more a symptom than a cause of those trends—and what governments do in terms of additional fiscal stimulus will do far more to determine the shape of the recovery in the United States and other countries. Still, trade policy could be a factor, supporting or undermining the nascent recovery.

President Donald Trump’s trade wars have already complicated the direct response to COVID-19 infections—by making imports of some critical products more expensive or harder to find—and made the road to recovery steeper. If the House of Representatives passes a bipartisan resolution currently under consideration that opposes tariff exemptions to developing countries in certain sectors, it would be another sign that the United States is moving in the wrong direction.

Generalized System of Preferences programs were adopted in most rich countries in the 1970s—and more recently in major emerging markets such as China and India—to encourage trade and support industrialization and job creation in developing countries. These so-called GSP programs allow designated imports from eligible developing countries to enter without payment of the normal tariff. Almost all of them have weaknesses, however, that undermine their effectiveness, such as exclusions in key sectors or rules of origin for determining product eligibility with which poorer countries struggle to comply.

The US GSP has long been one of the least generous and has become relatively less so over time. Now, with much of the world—and developing countries in particular—facing high unemployment and struggling to recover from the economic as well as health effects of the coronavirus, some in Congress want to lock in that miserliness. From the beginning, Congress statutorily excluded certain “sensitive” products from eligibility, including the clothing and footwear sectors, where many developing countries have a comparative advantage. Not coincidentally, those are also products for which trade preferences are particularly valuable because they face relatively high tariffs when entering the American market.

When Congress passed legislation extending the GSP program in 2015, it authorized the president to grant eligibility for previously excluded textile and leather products, including handbags and luggage. Now, as the House faces a year-end deadline to once again authorize continuation of the GSP program, Democratic Reps. Albio Sires, Adriano Espaillat, and Karen Bass, along with Republican Rep. Mario Diaz-Balart, have introduced a resolution to get the House on the record opposing any extension of these benefits to textiles, clothing, or footwear.

In introducing the resolution, the bipartisan sponsors are in effect lining up with the National Council of Textile Organizations in a policy debate that pits some developing countries against others. Mexico, Central America, Haiti, and a handful of countries in South America—along with a number of sub-Saharan African countries—are already accorded at least some duty-free access for their clothing and footwear exports under existing bilateral trade agreements or special, regional preference programs. With encouragement from the textile industry association, these countries are opposing the expansion of tariff exemptions to other countries because it could increase competition and erode the benefits of preferential access they currently enjoy.

Their preferential access under these arrangements, however, is conditional. To be eligible for them, Western Hemisphere exporters typically have to meet onerous rules of origin that force them to use American textiles and other inputs in the clothing they produce for export. African countries exporting preferentially under the African Growth and Opportunity Act have an exemption allowing them to import fabric and other inputs from whatever source is most efficient. That was necessary for the program to work because the transportation and other costs involved in having to use US inputs would be prohibitive. The American textile industry accepts this carve-out because African exports are not significant enough to pose a threat, and the visible support to exporters from poorer African countries serves as useful cover for the industry’s underlying protectionist stance.

The congressional resolution’s sponsors are genuinely concerned about the potential impact that generalized exemptions could have on trade partners in Latin America and Africa. But instead of opposing them across the board, they should explore alternatives that could shield these countries while improving access to the U.S. market for other low income countries.

One such compromise solution would be to provide additional benefits only to United Nations-designated “least developed countries,” as other rich countries—notably Canada and the European Union—have done. To further protect current beneficiaries from “preference erosion,” such an expansion might exclude selected textile or apparel items on which African and Latin American expoters are particularly dependent. Congress might also choose to limit new benefits in sensitive sectors to countries that are deemed particularly vulnerable and meet certain conditions in terms of protecting workers’ rights and the environment, as the EU does with its GSP+ program. Or, as proposed in a recent Center for Global Development paper, improved access in sensitive sectors might be granted to vulnerable countries hosting large numbers of refugees and agreeing to grant them legal rights to employment.

Worldwide, the poor within and across countries are disproportionately feeling the economic effects of the coronavirus pandemic. Governments in developing countries typically have far less fiscal space to mitigate the costs for the most vulnerable. Expanded trade preferences are a way to support developing countries while also lowering costs for American consumers and manufacturers. Congress should not take that possibility off the table.