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Foster Development through Trade and Aid
Tuesday, August 15, 2017 - 9:00pm
With most of the world’s population and economic growth squarely centered in the developing world, U.S. companies are increasingly reliant on emerging economies. In fact, over half of U.S. exports now go to developing countries.
Accordingly, the U.S. business community has lent growing support to a broad-based development agenda that fully leverages both trade and aid programs. The U.S. Chamber strongly supports a robust international affairs budget, often referred to as the “Function 150” account.
Representing about 1% of the federal budget, the international affairs budget provides the U.S. government with the basic tools to meet the economic, diplomatic, and humanitarian challenges of the 21st century. The Chamber is a proud supporter of the U.S. Global Leadership Campaign, a broad-based national coalition of businesses, humanitarian organizations, and community leaders that advocates for a strong U.S. international affairs budget.
The international affairs budget is a critical tool, first and foremost, to ensure America’s national security. Many programs funded by the international affairs budget prove the old adage that an ounce of prevention is worth a pound of cure. These initiatives are designed to stabilize weakened states, deter threats before they reach the United States, strengthen international anti-terrorism coalitions, combat weapons proliferation, and fight global crime and narcotics trafficking.
Second, the international affairs budget underscores America’s humanitarian values. It does so by supporting global health initiatives, alleviating poverty around the world, and strengthening democratic institutions. Over the years, this has included such programs as the U.S. President’s Emergency Plan for AIDS Relief (PEPFAR) to combat HIV/AIDS globally. The Chamber supported this initiative from its inception.
Third, the international affairs budget plays a key role advancing U.S. economic interests overseas. This part of the federal budget helps increase economic opportunities through trade, promote U.S. business interests around the world, and create U.S. jobs through increased international trade and investment. The “Function 150” account funds the State Department, whose diplomats advocate for policies that will open foreign markets to U.S. businesses; U.S. export promotion agencies such as the Export-Import Bank, Overseas Private Investment Corporation, and U.S. Trade and Development Agency; and other efforts to build safe, stable, and open international markets.
One area where the international affairs budget and the American trade agenda intersect is in programs dubbed “trade capacity building” or “aid for trade.” Trade capacity building is development assistance that builds the necessary capacity—from improvements in infrastructure and customs administration to enforcement of labor and environmental laws—that allows developing countries to take advantage of open markets.
The United States is the largest single-country donor of this kind of assistance. These funds are coordinated with other donors through the WTO, the World Bank, and other multilateral development banks. The U.S. Agency for International Development plays a central role in U.S. “aid for trade” efforts, and working through over 70 missions around the world, has dramatically increased the percentage of trade-related assistance that is provided to developing countries in recent years.
Trade capacity building is a priority for the U.S. business community, which believes success in this area is more likely when a true public-private partnership is in place. In Guatemala, for example, express delivery companies worked through CLADEC Guatemala, their local association, to help Guatemala’s customs authorities retool their express clearance procedures.
The upshot was that clearance times were reduced from days to hours, with significant benefits for Guatemala’s international competitiveness. The U.S. and Canadian governments and the World Bank and the World Customs Organization provided technical assistance, but funding and a great deal of know-how came directly from the private sector and Guatemala’s tax agency. Clearly, the best model for trade capacity building brings together government, business, and often academia to implement best practices.
Finally, it’s worth noting the important role trade preference programs play in U.S. efforts to foster development globally. More than 125 developing countries around the world enjoy preferential access to the U.S. marketplace through trade preference programs, which continue to enjoy broad bipartisan support.
The largest of these programs is the Generalized System of Preferences (GSP), which was launched in 1976. Additional programs extend preferences to specific countries in Africa (the Africa Growth and Opportunity Act, or AGOA) and the Caribbean (the Caribbean Basin Initiative, the Caribbean Basin Trade Partnership Act, and the Haitian Hemispheric Opportunity through Partnership Encouragement Act).
GSP is an example of how these trade preferences offer benefits to both developing economies and the United States. GSP suspends tariffs on nearly 5,000 products from more than 120 developing countries. This helps developing countries create formal sector jobs, and products imported under GSP generally do not compete with U.S.-made goods. While the program was renewed in mid-2015, it will expire on December 31, 2017, absent congressional action.
GSP also boosts the competitiveness of American manufacturers by lowering their costs while providing real savings for U.S. consumers. Approximately three-quarters of U.S. imports under GSP are raw materials, parts and components, or machinery and equipment used by U.S. companies to manufacture goods in the United States for domestic consumption or for export.
GSP also helps American families stretch their budgets by providing preferential access to the U.S. market for a variety of consumer goods, often at low prices. U.S. consumers enjoyed nearly $750 million in savings on import duties last year under the GSP program.
The program’s benefits for the United States are tangible. U.S. importers enjoy savings of approximately $2 million on import duties every day under the GSP program. A 2006 study commissioned by the U.S. Chamber found that more than 80,000 American jobs are associated with moving GSP imports from the docks to farmers, manufacturers, and retail shelves.
GSP’s eligibility criteria provide the U.S. government with leverage to encourage beneficiary countries to protect intellectual property, treat U.S. investors fairly, and improve labor practices, among other reforms. For all of these reasons, the GSP program has long enjoyed bipartisan support.
AGOA provides similar benefits at home and abroad. In fact, since it was enacted in 2000, AGOA has become the cornerstone of the commercial relationship between the U.S. and Africa. By extending AGOA through 2025 in legislation approved in June 2015, Congress has acted to provide the long-term confidence necessary for to build stronger trade and business ties between the U.S. and Africa. The Chamber also supported the recent extension of special trade preferences for Haiti, the poorest country in the Western Hemisphere, through September 30, 2025.
In the long run, the American public has made clear its preference for fair trade based on reciprocal market openings. Bilateral and regional trade agreements can unleash growth and development in ways that unilateral trade preferences cannot. But while the United States pursues reciprocal trade accords, we should continue to secure the benefits of these longstanding preference programs.