Section 6: Trade Policy
Our final section returns to trade policy with three narrower but equally important articles – the first in regard to US renewal of GSP benefits and the tension between the Biden administration's promise to protect US workers while achieving climate goals. The last article, “Make Buy America Real - Biden To Seek Stronger Qualifying Rules,” is a useful reminder of where we started this project: US international trade policy will reflect the priorities of an Administration taking office in a time of domestic economic turmoil.
GSP Reauthorization Up in the Air
The Generalized System of Preferences (GSP) program expired on December 31, 2020. Congress could renew it in 2021, although the retroactivity of the renewal would need to be specifically addressed in the renewal. The roles of the United States Trade Representative (USTR) and the president may also impact GSP benefits.
GSP Benefits and Renewal Status
- GSP provides nonreciprocal, duty-free tariff treatment to certain products imported from qualifying developing countries. It is the largest and oldest U.S. trade preference program, allowing duty-free entry into the U.S. for over 3,500 products from 119 designated beneficiary countries.
- GSP Reauthorization Bill. There is a debate in Congress on whether to reauthorize the program “as is” or revise the GSP eligibility criteria to include environmental and labor conditions. Because these differences could not be worked out in time, the program has lapsed temporarily. This is not the first temporary lapse in benefits and Congress has typically granted retroactive relief in these situations.
- USTR Eligibility Reviews. The USTR conducts eligibility reviews of GSP beneficiary countries on its own initiation or based on stakeholder petitions. As a result of these reviews, the USTR suspended GSP benefits for $817 million in US imports from Thailand based on lack of market access for US pork products, effective December 30, 2020. USTR also concluded reviews for Georgia, Uzbekistan, Indonesia, and Laos with no changes in status, and opened two new GSP reviews for Eritrea and Zimbabwe-based on worker rights concerns.
- Presidential Authority. The president may suspend, terminate, withdraw, or limit a country’s GSP status through a 60-day prior notice to Congress based upon a country’s lack of compliance with one or more of the GSP statute’s eligibility requirements. Such changes to GSP country eligibility or product coverage are made at the discretion of the president, drawing on the advice of the International Trade Commission (ITC) and the USTR.
What to Know
- Although the GSP program expired on December 31, 2020, Congressional practice has been to extend the program retroactively from the expiration date, allowing refunds on the duties incurred during the program’s lapse.
- USTR GSP eligibility reviews for Eritrea and Zimbabwe are ongoing, and this could affect the duty-free status of certain imports as was the case with Thailand.
- Last year, President Trump terminated India’s eligibility for GSP for failure to provide equitable and reasonable market access, and the question now is whether the Biden administration will look to leverage this into a trade deal with India.
A Hidden Cost of Curbing Carbon Emissions - Countervailing Duties
The US Department of Commerce (DOC) recently issued a pair of final decisions finding the European Union’s Emissions Trading System to confer countervailable subsidies to companies who receive more than a baseline level of carbon credits. These decisions add to a line of decisions in which governmental programs designed and proven to curb greenhouse gas emissions have been found to confer countervailable subsidies.
- Like most cap-and-trade systems, the ETS awards a level of CO2 emission credits free of charge based on industry or sector-specific emission profiles. Free credits prime the trading market and enable political support to initiate the programs.
- For the ETS, the base-line level of free credits equals 44.2% of the emissions for the most efficient installation in an industry or economic sector.
- Companies or installations deemed to be at the greatest risk of “carbon leakage” are awarded credits equal to 100% of the emissions from the most efficient installation in their sector. This group consists of installations and industries for which the cost of compliance with the base-line standard would likely cause production to shift to countries with less demanding or no emissions standards.
- The EU’s list of industries and activities presenting a significant risk of carbon leakage includes: steel, aluminum, cement, mining, textiles, and a wide array of manufacturing. The current significant carbon leakage list is here.
What to Know
- The DOC ruled that the widely available base-line level of free credits (the 44.2% level) is not countervailable. But the additional credits provided to companies on the list of industries and activities posing a significant risk of carbon leakage were found to be specific and to confer a countervailable benefit.
- We expect that the DOC’s decision will be appealed and so is not the last word on the issue.
- We also expect to see more decisions applying countervailing duties to programs and incentives designed to limit GHG emissions.
- Companies buying, selling, producing, importing, or exporting manufactured goods should be aware that government incentives to help them convert to greener processes or reduce GHG emissions may raise the specter of offsetting countervailing duties, thereby raising the cost of compliance.
- The current pattern of program-by-program litigation putting trade interests ahead of environmental concerns is cumbersome, time and resource-consuming, and inconsistent with the larger public goal of reducing GHG emissions.
“Make Buy American Real” - Biden To Seek Stronger Qualifying Rules
President-elect Joe Biden’s plan to ensure that future US government purchases are “Made in all of America” presents new considerations for companies selling to the federal government, particularly those procured from foreign countries. While short on specifics, the plan does present important clues.
What to Know from the Biden Administration’s Plan for Buy American
- The objective will be to “crackdown on waivers to Buy American requirements”.
- The plan proposes to “tighten domestic content rules,” “require more legitimate US content,” and “update the trade rules” on the international stage.
- In short, company executives should be prepared for:
- Fewer “eligible” products for waivers in US federal procurement opportunities
- Higher content thresholds to satisfy other exceptions to the Buy American Act (BAA)
- More scrutiny of products claiming to qualify under the Trade Agreements Act (TAA) waiver exception
Current Waivers to the BAA
- The longstanding BAA sets specific rules of product origin for government procurement by establishing a preference for US goods and adding an increased cost differential to certain foreign bids.
- To qualify as a US domestic end product, goods must satisfy a certain level of domestic content or qualifying content threshold and be “produced” in the United States.
- Under the TAA, Buy American restrictions for certain products can be waived but these only under already severe conditions.