As President Joe Biden works to repair America’s image internationally, it is Congress’ responsibility to promote trade policies that strengthen the U.S. economy, while also bolstering our international relationships.
As our home-state Sen. Tom Carper explained, Congress has an oversized role on trade issues and, for too long, Congress has ceded that authority. It is time for members of Congress to work together to support smart trade policies that promote American competitiveness, diversify supply chains away from China and incentivize more secure supply chains with America’s allies.
A great place to start is by updating the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR) and the Generalized System of Preferences (GSP).
The United States has long-supported free-trade policies to boost economic development in key regions. For example, GSP allows certain products exported from low-income countries to enter the U.S. tariff-free. This policy was aimed at promoting economic growth in developing countries — trade, not aid — which increases stability in those countries and therefore improves safety for Americans.
Unfortunately, this mutually beneficial free trade provision, much like CAFTA-DR, didn’t work as intended. In fact, before the GSP provision lapsed, over 90 percent of the products that we imported from GSP-eligible countries did not receive the tariff-free treatment that would boost trade.
In particular, GSP excluded textiles like shoes and clothing — and according to The Washington Post, this was solely because of political pressure. Instead, Americans paid, on average, a 13.4 percent tax rate on shoes and clothing imports.
CAFTA-DR has a similar structural issue when it comes to textiles, which should be fixed by an act of Congress. For most products, only a specified percentage of a product’s value must originate from a member country in order for these goods to be tariff-free for those in the United States.
With clothing, however, these products must be made with yarn and fabric that was entirely produced by a country in the agreement to qualify for this trade benefit. This is despite the fact that the majority of the materials in the clothes we wear are produced in other countries.
This “rule of origin” requirement on clothing is a hindrance to economic development in the region, and only benefits a small number of suppliers who manufacture a narrow range of products and charge a price premium that hinders the entire supply chain. As a result of this rule, it is usually cheaper and easier for companies to produce clothing and create jobs in China — which is the exact opposite goal of CAFTA-DR.
Updating this apparel-related rule of origin requirement would stimulate economic growth in Central America, while also diversifying supply chains and making clothes and shoes more affordable for families in America. As our economy looks to recover from the pandemic-induced recession, and families face rising inflation, decreasing the costs of everyday goods like clothes should remain a priority for Congress.
But just as important, our trade agreements should seek to boost free and fair trade, not stifle it. Unfortunately, as written, GSP and CAFTA-DR contain provisions that actually encourage companies to do business with China and not our regional neighbors and allies. Hopefully, Sen. Carper, who fundamentally understands the important role that Congress plays in addressing trade issues, will work with his colleagues in the Senate to update detrimental provisions in CAFTA-DR and GSP. In doing so, Congress can promote economic growth and stability in the region while helping working-class families more easily afford the products we need here at home.