- The Washington Times - Sunday, July 23, 2006

Force isn’t the only means the United States has at its disposal to persuade other nations to act responsibly. There’s trade.

For the last 30 years, the United States has been running a trade assistance program called the Generalized System of Preferences (GSP). Its purpose, like other taxpayer-sponsored development efforts such as USAID, is to “promote growth in the developing world.” Last year, the program conferred duty-free status worth $27 billion on imports from about 140 nations.

Using trade to help poor countries makes sense. But a large chunk of the benefits of GSP access go to countries which aren’t really poor — and which, in some cases, actively oppose American interests, including sound global trade policy.

Sen. Charles Grassley, Iowa Republican, who chairs the committee in charge of renewing GSP authorization later this year, recently signaled his readiness to block India and Brazil, two of the three largest recipients, from getting program benefits starting in 2007. At a Hudson Institute forum July 11, I asked Everett Eissenstat, assistant U.S. trade representative for the Americas, whether this office supported ending GSP access for those countries, as well as for two other miscreants —? Venezuela and Argentina.

Mr. Eissenstat would say only USTR believes there “needs to be a robust discussion” of the merits of GSP access in Congress in the coming months.

Absolutely. Mr. Grassley’s beef with India and Brazil is simple. They have undermined the U.S. position on the Doha Round by refusing to lower barriers to manufactured goods from the U.S. and other developed countries. One reason developing nations see no reason to reduce their own barriers to trade is that the United States already offers them GSP access for a total of 5,000 products.

Brazil and India criticize the U.S. for high agriculture trade barriers, but Brazil’s average tariff on farm goods is 37 percent; India’s, 112 percent; America’s, 12 percent.

India and Brazil have misbehaved in other ways. They have been among the world’s leaders in flouting rules that protect intellectual property, which accounts for 15 percent of U.S. economic output and 10 percent of employment. Unlike outsourcing, IP theft really does steal American jobs and threatens our economic and military security.

The top 25 beneficiaries in the GSP program reads like a Who’s Who of oil dictators, cartelists, serial counterfeiters and faux democracies: Venezuela, whose president, Hugo Chavez, has hurled personal insults at American officials (“don’t mess with me, girl,” he said of Secretary of State Condoleezza Rice); Argentina, which willfully incurred a massive bond default in 2001 and still owes Americans more than $10 billion; and Zimbabwe, whose horrendous President Robert Mugabe has thrust the country into famine and poverty.

Congress will vote this fall on what to do with the GSP program — to extend it another four years or alter it so it functions truly as a development assistance program for truly developing countries. Congress should consider first whether it makes sense to withdraw GSP benefits from nations thriving economically like India and Brazil, which clearly don’t need this kind of assistance. Ranked by “purchasing power parity” — that is, according to GDP adjusted for how much the local currency can buy at home — India is the world’s fourth-largest economy. Brazil is tenth and Argentina twenty-second. Venezuela ranked only fifty-third, but it is a small country awash in oil revenues, and, last year, economic output grew more than 9 percent.

The benefits of GSP access are heavily weighted toward a few nations like these. The top three in 2005 — India, Thailand and Brazil — received a whopping 43 percent of the program’s benefits. The next six countries in order — Indonesia, the Philippines, Turkey, South Africa, Venezuela and Argentina — received another 23 percent. So less than one-third of the benefits go to the other 131 countries in the program. The needs of the poorest countries in Africa are being eclipsed by the appetites of some of the world’s largest economies.

I’m a strong supporter of lowering U.S. trade barriers, not only to benefit worthy nations exporting to our country but also to benefit Americans, who get the advantage of lower prices and a wider variety of goods. But it’s perfectly legitimate to hold out the carrot of trade benefits to encourage good behavior and to use the stick of denying duty-free access to punish bad behavior.

Congress and the Bush administration should build on Mr. Grassley’s ambitious call to remove countries from this program this year. A first step would be to eliminate the top 10 beneficiaries. In addition, Congress should add new guidelines into the reauthorized bill that precludes any GSP beneficiary from “endangering the economic interest of the United States or its industries.” That would give the USTR the flexibility to react to changing circumstances.

When the USTR decided to give Brazil another extension of its preferred position under the GSP, Rep. Mark Foley, Florida Republican, blasted the administration for a decision that “flies in the face of all logic.”

It’s time to reserve GSP access to nations that truly deserve it — nations that are poor but striving, that support our position on the Doha Round and respect intellectual property and the rule of law.

James K. Glassman is a resident fellow at the American Enterprise Institute and editor in chief of its magazine.

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