Earlier this month, the Senate approved the 2021 United States Innovation and Competition Act, which includes a significant trade amendment called the Trade Act of 2021. The amendment renews two tariff-cutting trade programs, the Generalized System of Preferences and the Miscellaneous Tariff Bill.
While the renewal of these programs would represent a huge tax savings for American businesses and families, the Trade Act of 2021 also includes new burdensome requirements for imports to qualify for the Generalized System of Preferences.
The Generalized System of Preferences reduces tariffs on goods from developing countries and saves American families and businesses more than $1 billion annually. The Generalized System of Preferences expired on Dec. 31 of last year. Americans paid roughly $308 million in costly tariffs between January and April this year as a result.
The Trade Act of 2021 renews and expands the Generalized System of Preferences, for better and worse. Past bills renewed the program for two years while the Trade Act of 2021 extends it for six years. A step in the right direction, renewing the program for six years will allow businesses to plan and function without the uncertainty caused by tariff threats.
Unfortunately, the Trade Act of 2021 also revises Generalized System of Preferences’ requirements by making it more difficult for countries to qualify for Generalized System of Preferences’ benefits.
For example, under this Trade Act, countries that do not promote “women’s economic empowerment” could be ineligible for Generalized System of Preferences’ benefits. These requirements are ambiguous, unnecessary, and unrelated to trade.
Regarding these extended requirements, the Generalized System of Preferences’ Coalition stated it “has concerns that this bill contains many new ‘sticks’ but no new ‘carrots’ to incentivize GSP countries to meet proposed higher standards.” The Generalized System of Preferences is meant to increase trade between the U.S. and developing countries. This version could do the opposite.
Miscellaneous Tariff bills eliminate tariffs on goods not available domestically. The 2018 Miscellaneous Tariff Bill expired on Dec. 31. Since then, Americans have paid more than $1.3 million per day in unnecessary tariffs to import products that would be tariff-free. Many of these imports are raw materials and other intermediate goods—inputs—that American companies use to create finished goods.
The Trade Act of 2021 modifies tariffs for more than 3,000 miscellaneous imports for two years, until December 2023. Furthermore, it reauthorizes the American Manufacturing Competitiveness Act to preserve the Miscellaneous Tariff Bill petition process until 2025.
In its current form, the Trade Act of 2021 could jeopardize the savings that American businesses and families enjoy from Generalized System of Preferences by holding them hostage to issues unrelated to trade.
As the House of Representatives evaluates the broader United States Innovation and Competition Act package, members should consider stripping the new General System of Preferences’ regulations from the legislation but keep the renewal of both trade programs intact. Doing so would allow the tariff savings of the Generalized System of Preferences and Miscellaneous Tariff Bill programs to be fully experienced by Americans.
Should the United States Innovation and Competition Act fail or get delayed in the House, Congress should still pursue renewal of these trade programs in new legislation that places the focus where it needs to be—on reducing tariffs to help the competitiveness of American businesses—rather than placing unnecessary and unrelated regulations on the benefits that tariff reductions provide.
To read the full commentary from The Heritage Foundation, please click here.