Tag: generalized system of preferences

With Friends Like Sen. Sessions, Free Trade Is in Trouble

According to a story in Politico today, Senator Jeff Sessions of Alabama has been whipping his Republican colleagues to vote in favor of the China currency legislation that appears to be headed for passage in the Senate. (My Cato colleague Dan Ikenson has explained  why raising tariffs on imports from China would be a mistake.)

The Politico story says that Sessions is “traditionally a proponent of free trade,” but his actual voting record indicates otherwise. According to the trade vote data base we maintain on the home page of the Herbert A. Stiefel Center for Trade Policy Studies at Cato, Sen. Sessions has voted in favor of lower trade barriers on a bare majority (26 out of 49) of the significant trade votes we’ve recorded.

Since 1997, Sen. Sessions has voted in favor of protectionist farm bills (2002, 2007, 2008), banning safety-certified Mexican trucks from U.S. roads (2007), country-of-origin labeling (2003), the WTO-illegal Byrd amendment (2003, 2005), the original Schumer-Graham bill to impose a 27.5 percent tariff against imports from China (2005), sugar import quotas (1999, 2000, 2001), and steel import quotas (1999)

Meanwhile, he’s voted against the Morocco free-trade agreement (2004), trade promotion authority (1998, 2002), and normal trade relations with Vietnam (2001) and China (1997, 1999).

And to top it all off, it was Sen. Sessions who single-handedly scuttled renewal last year of the Generalized System of Preferences, the long-standing program that had allowed certain imports from poor countries to enter the United States duty free. As my Cato colleague Sallie James has chronicled (here and here), the good senator refused to allow the program to be renewed because of a dispute affecting a small number of his constituents who are employed making sleeping bags.

Like too many of his fellow senators, Sen. Sessions supports our freedom to trade only as long as it does not affect any noisy special interests in his own state.

A Most Frustrating Press Release

My colleagues and I see many questionable quotes and policy pronouncements from members of Congress, but one crossed my desk recently that really pushes the envelope.

Senator Jeff Sessions (R -AL) – he who caused some important trade policies to expire in December – is attempting to “right” that wrong by introducing new legislation (S. 433) to reinstate the policies. Essentially, he is trying to succeed where others (thankfully) failed, i.e., to carve-out legislatively certain products (sleeping bags) made in his state. In so doing, however, he filled his March 2 press release with a retinue of half-truths, disingenuous mis-interpretations and damaging dog-whistles.  Let’s examine them one at a time, shall we? (All emphases are mine.)

WASHINGTON¬—U.S. Senator Jeff Sessions (R-AL) today introduced a bill that would modernize and reauthorize the Generalized System of Preferences (GSP) through 2012, along with the Andean Trade Preference Act.

By “modernize”, Senator Sessions means “set a damaging precedent of individual members of Congress being allowed to create loopholes from law to favor certain constituents.”

The GSP, originally authorized to avoid domestic job losses,…

From my fairly extensive reading about the GSP, I can find no explicit intention to avoid domestic job losses, even though the exceptions for textiles and steel (and other products) were probably driven by those considerations.

extends duty-free benefits to products in developing countries that do not compete with products made in the United States.

This part is misleading. The program has no provision to say it applies only to goods that do not compete with U.S.-made products (perhaps Senator Sessions is getting the GSP confused with the Miscellaneous Tariff Bill?).

When Congress originally authorized GSP in 1974, it explicitly excluded many sensitive products, such as textiles and steel. However, due to a loophole in the law, foreign sleeping bags are allowed duty-free treatment even though they compete directly with American manufacturers, therefore threatening American jobs.

When Senator Sessions says that sleeping bags can enter the United States duty-free because of a “loophole in the law,” it depends on what he considers the loophole to be. If he means sleeping bags are a textile product and therefore should be exempt from the program, he might have a reasonable case to make on definitional grounds, even if I think it would be poor policy. (Update:: A reader of our blog has pointed out the following: “You don’t need to concede anything on the fact that sleeping bags are textile products… The GSP statute does not exclude textile products from the program, so there are no definitional grounds. The GSP statute excludes products “subject to textile agreements.” As the USITC pointedly noted in its most recent advice to the US Trade Representative…sleeping bags are not and never have been subject to textile agreements.” A publicly released, redacted version of the USITC report is available here, and the note about sleeping bags not being subject to textile agreements is in footnote a to the table on page 2-1.) If, however, he means the “loophole” exists because the sleeping bags compete with U.S. products, then I’ve explained above why no such condition applies in the GSP. No loophole is needed to allow sleeping bags to enjoy the benefits of duty-free status.

In other words, sleeping bags are in a unique situation by being forced to compete with a foreign competitor that pays no taxes under the GSP.

From what I can tell of this case, sleeping bags are not in a unique situation. Many U.S. producers compete with imported products (of course, many also benefit from having access to imports). It is not clear to me why sleeping bag manufacturers deserve special treatment.  Sleeping bags have been through a number of administrative reviews, and each time were found to be subject to the general provisions of the GSP. Not to be dissuaded, however, the sleeping bag manufacturer in question has asked for yet another review.

Senator Sessions’s dog-whistle about a foreign (ooh, scary!) competitor that “pays no taxes” is reprehensible, even if nationalistic rhetoric is commonplace in public debates about trade policy. And in fact, it is the importers of these products (i.e., Americans) who pay no import duties. His statement, however, implies that somehow the Bangladeshi company is avoiding “tax”. Yes, tariffs are taxes – if only more politicians would recognize that! – but his choice of words is confusing at best.

“The current loophole in the GSP is an unfair policy and an injustice to American industries,” Sessions said.

Even if you think having to compete with imports is an injustice – and I surely do not –  I can find only one company and at most one “industry” (and not “industries,” plural) that would suffer it. But “an inconvenience to a company in my constituency” doesn’t sound nearly as good in a press release, does it?

Members on both sides of the aisle have acknowledged this is a threat to American workers.

I’m assuming he’s referring to the Casey-Brown bill (named for two Democratic Senators) that tried last month to carve out sleeping bags from the GSP, but from what I can tell, the Senators included the carve-out because they wanted the larger bill (about the Trade Adjustment Assistance program and, to a lesser extent, the Andean Trade Preference Act) to pass and needed to get around Senator Sessions’s objections that caused the programs to expire in the first place. The main “threat” of which these senators appeared to be afraid was that emanating from Senator Sessions’s office.

The legislation introduced today would not only fix this loophole in the GSP but also reauthorize the program to allow for trade to continue in a fair way….

On the contrary, Senator Sessions is seeking to create a loophole in favor of the Alabama manufacturer.

…The Exxel Outdoors Plant located in Haleyville, Alabama is the largest sleeping bag manufacturer in the United States. Exxel Outdoors nearly shut down this past year because of unfair competition from a Bangladesh company that imported sleeping bags to the United States.  Sessions blocked the trade bill in December because of this unjust loophole.

There was nothing in the administrative reviews to suggest the competition from the Bangladesh manufacturer was “unfair” in the sense it is normally meant in trade policy (i.e., the imports are subsidized or dumped).  Maybe Senator Sessions is seeking to paint the competition as “unfair” in the general sense of the word.

If all that hasn’t left you exhausted, and you still want to know more about the Generalized System of Preferences, including it’s flaws, then my recent study is a good place to start. The Coalition for GSP, an advocacy group, also has an interesting blog.

Eternal Vigilance Needed on Trade Carve-Outs

A bill that would have set a troubling precedent indeed was killed in the Senate last week. I’ve written previously about the Trade Adjustment Assistance program, and its fate has been tied up with the Generalized System of Preferences, a scheme by which certain developing countries gain duty-free access to the U.S. market for many of their goods. Congress was trying – and failed – to pass an extension of the programs together, along with the Andean Trade Preference Act.

Well, in an effort to extend for eighteen months the stimulus-enhanced TAA program (they were less fulsome in their enthusiasm for the other part of the bill; the barrier-reducing ATPA), Senators Bob Casey (D-PA) and Sherrod Brown (D-OH) introduced what they deemed to be a legislative “fix” to the thorny problem of how to extend all these programs in the face of Sen. Jeff Sessions (R-AL) opposition to the GSP so long as sleeping bags were included in the program (there just happens to be a sleeping bag manufacturer in his state).  Their solution? Just carve out sleeping bags from the GSP.

Section 202 of the proposed bill was literally titled “Ineligibility of Certain Sleeping Bags for Preferential Treatment Under the Generalized System of Preferences”. The Senators didn’t even go to the trouble of carefully wording and designing the provision so that it – oh, hey, look at that! – just happened to pertain to exactly the product for which a carve-out was being sought. No, in this case all subtleties were thrown to the wind. They even, should any confusion remain, helpfully provided the specific H.S. number (the code used by customs officials to identify a good) for the sleeping bags in question.

(I should note here that administrative reviews – processes built into the GSP to avoid what legislators deem undue harm to domestic interests – had already shown that the conditions for GSP ineligibility for sleeping bags were not met. )

While this bill thankfully failed, it serves as a timely reminder that legislators will not allow anything so minor as the rule of law (in this case an administrative review) to prevent them from seeking favors for certain constituents. Thank goodness that effort was thwarted this time: a precedent whereby any Senator (or House member, for that matter) can get a carve out from general trade liberalization for their special interest friends would see the post-war progress on freer trade – imperfect though that may be – quickly unravel.

An additional note: in their press releases, Senators Casey and Brown both alluded to the “fact” that the TAA helps workers “either get back to work or regain some measure of the financial security that has been stripped from them due to unfair foreign trade.” [emphasis mine]  TAA has no such condition attached: workers eligible for the stimulus-enhanced TAA didn’t even have to prove that they lost their job because of a trade agreement, let alone any condition that the trade was “unfair” (i.e.,  a result of dumping or subsidization – and see here why those charges are themselves  canards).  Unless, of course, the Senators consider any trade that threatens domestic producers’ interests to be “unfair”.

Congress: Where 20 Jobs = $580m

When talking to groups about the political economy of trade protection, I always mention concentrated benefits versus diffuse costs. Public choice theory explains many bad policies, of course, but tariffs and subsidies are excellent examples of interventions that benefit the few at the expense of the many.

Congress, or specifically two members of that esteemed body, have recently provided me with a textbook example. The Generalized System of Preferences is a federal program that offers duty-free access to the U.S. market to certain goods from certain developing countries. Or, I should say, was a federal program, because it expired on December 31. My opinion of the program is ambivalent at best, but one cannot deny that the program brings real cost savings to American consumers and businesses – to the tune of $580 million a year – through lower import duties.

But those duty savings are, apparently, worthless in the face of special interest politics. From Inside U.S. Trade on January 6 [$]:

An Alabama sleeping bag manufacturer that benefited from the expiration late last year of the Generalized System of Preferences (GSP) program is now taking further steps in an attempt to ensure that Congress does not renew the program this year in the same form.

Exxel Outdoors CEO Harry Kazazian this week said his company is in the process of expanding its U.S. plant by adding workers and increasing production, and that this expansion is occurring as a direct result of the fact that Congress allowed the GSP program to expire on Dec. 31.

Under GSP, Bangladeshi sleeping bags that competed with the Exxel Outdoors product were able to enter the U.S. duty-free. On behalf of Exxel Outdoors, Sen. Jeff Sessions (R-AL) last year refused to let any renewal of GSP pass that would not remove at least some sleeping bags from the scope of the GSP program (Inside U.S. Trade, Dec. 23).

With the future of the GSP program still uncertain, Kazazian said he is now expanding his Alabama plant in part to put pressure on Congress to either not renew the GSP program, or renew it in a modified form that would exclude imported sleeping bags from its scope.

Kazazian said that if GSP is renewed in its old form, he would have to reverse his expansion plans. He reasoned that members of Congress may be more willing to accommodate Sessions and remove sleeping bags from GSP if faced with the prospect that renewing the program in its full form would lead to the firing of U.S. workers.

“I can’t see how anyone would make any decisions against us,” he said in an interview this week. “We are going to work as hard as we can to make sure sleeping bags are exempted from the GSP.”

These expansion plans must be really something if they can justify holding up such a broad program, right?

Kazazian said that he plans to hire 20 additional employees to start a fourth production line at the Alabama plant. He said he will commence the first phase of its expansion this month by investing in additional equipment and retooling the plant’s operations.

That’s right, readers. The GSP expired and millions of U.S. consumers and businesses (not to mention developing country exporters) are being penalized to save a hypothetical 20 (that’s two-zero) jobs that don’t even exist yet. The jobs being lost by businesses that depend on the GSP to keep them competive are, apparently, not worth consideration. And as for consumers’ buying power being eroded, well forget it.

Come back, Mancur Olson. Your country needs you.