The other day, we received an email from a bicycle manufacturer in Cambodia that has been hurt by GSP expiration. Typically, we focus only on the impacts to American companies here, but this is a story that should be told.
As background, Cambodia is one of the poorest countries in the world with an average incomes of just $760 in 2010. According to the most recent statistics, more than half of its population lives on less than $2 per day. Yet despite its status as a least-developed country (LDC) and additional GSP benefits, average U.S. tariffs on imports from Cambodia (16.4 percent) in 2010 were higher than those on imports from any other country.
This company exports not only to the United States, but also to Canada and the EU, so it has experience working with multiple GSP schemes. It says the Canadian system is the easiest to export under, as “there is no sign of any expiry or renewal period,” and noted that recent EU changes make it “very easy” for LDCs to receive duty-free treatment. The U.S. GSP “has always been the hardest to work within,” which isn’t surprising given that GSP expired seven times between 1992 and 2002.
The company has reduced prices to keep its customers from shifting sourcing to China. If Congress does not renew GSP soon, the company fears it will lose both U.S. market share and sales to Canada and the EU. That’s because it is not economical to “dual source” the bicycles, so customers with worldwide operations will likely consolidate all purchases from the new Chinese suppliers.
This example is disheartening on several levels. When in place, U.S. GSP preferences are hard to use and don’t cover a lot of the products made by the poorest countries. When Congress allows GSP to expire, it threatens not only sales to the United States, but can undermine preferences offered by other developed countries like Canada and the EU.