The Washington Post

Trade with developing countries just got more expensive, thanks to Tom Coburn

The United States has a few ways to help out poor countries. It can just give them money, in the form of direct aid. It can give them stuff -- such as food, technology and weapons. Or it can simply stop taxing the goods they sell us, allowing their industries to grow and elevate the country on its own.

Since 1975, we've done the last part through a trade program called the General Systems of Preference, a schedule of products that can be imported tariff-free from a bunch of developing countries. It's generally a well-regarded program, liked by free marketeers for reducing trade barriers and do-gooders for helping global underdogs build their capacity -- Thailand, for example, now has a thriving jewelry export business in part because it's able to sell preferentially to the United States.

On Aug. 1, at the end of a three-year sunset period, it went away. Dissatisfied with the way the bill proposed to make up the foregone tariff revenue, Sen. Tom Coburn (R-Okla.) placed a hold, condemning it to non-action for the rest of recess and instantly putting tariffs back on thousands of products from scores of countries.

So, what's the impact? Well, the actual amount of goods coming in through the GSP program is relatively small, at $19 billion in 2012 (or just about 2 percent of U.S. imports). And theoretically, the tariffs get refunded when the program is finally reauthorized, so no big deal, right?

Maybe for big businesses. For small ones, which might not have planned for a budgetary hit from goods that suddenly cost more, it creates a serious cash flow issue.

"They need to pay out of pocket for an undetermined amount of time," says Daniel Anthony, research director at the Coalition to Renew GSP, which has 320 member companies with a median number of 18 employees each. "It's no different to saying 'it's okay, we're not going to pay your salary for six months, but when we get around to it, we'll pay it all back.' "

And ultimately, usage of the program does shrink during gaps between renewal periods, which have occurred pretty much every time the program has expired (represented in this chart by the periods highlighted in pink):

Anthony estimates that GSP tariff breaks saved U.S. businesses some $750 million in 2012. Now, at least some of the extra costs from reimposed tariffs are expected to be passed on to consumers in some form by companies that can't absorb those costs until they get their refund checks. (The products most imported under the GSP include oil, tires and car parts, jewelry, aluminum and other metals.) Over the long run, the uncertainty makes investors less willing to back projects in GSP-covered countries, since part of the cost structure could break down every three years.

All of which isn't to say that the GSP regime is perfect.

In fact, there are substantial ways in which it doesn't help developing countries as much as it could. The GSP doesn't cover textiles or footwear, for example, which poor countries produce most frequently at early stages of industrialization. In favoring some products over others, it might encourage countries to develop industries in which they don't have comparative advantages, making trade less efficient. For that reason, some have argued it would be a better idea to institute multilateral, broad-based free trade agreements that allow products to come from the places best suited to making them.

But those kinds of agreements are much more difficult to negotiate -- witness the Doha Round, an ambitious project that started in 2001 and is now essentially dead. If Congress wants to tweak the GSP to have more or less impact, or to extract more behavior concessions from the countries it covers -- such as India, the GSP's biggest beneficiary but also increasingly protectionist -- there are several ways it could do so. In the meantime, U.S. consumers and producers bear the cost of inaction.

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.



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