No sense that Congress won’t renew GSP, but importers should plan just in case
At face value, the Generalized System of Preference (GSP) and the Trans-Pacific Partnership agreement (TPP) could be siblings, albeit ones with a 40-year age gap.
Traits common between the two agreements include promotion of economic growth, the elevation of living standards, the reduction of poverty in signatories’ countries, and measures to lower both non-tariff and tariff barriers to trade.
The GSP provides duty-free treatment to certain goods of designated beneficiary countries. The program grew out of international aid discussions and was intended to close the gap in global trade that excluded the developing countries of the world. GSP, implemented Jan. 1, 1976, was authorized by the Trade Act of 1974 to encourage growth and participation of these countries in global trade.
Crucially, however, GSP periodically expires and must be renewed by Congress to remain in effect.
The TPP is intended to foster trade between its twelve signatory participants. The agreement is an expansion of the 2005 Trans-Pacific Strategic Economic Partnership Agreement between Brunei, Chile, New Zealand, and Singapore. When the agreement’s final draft was issued in 2015, Australia, Canada, Japan, Malaysia, Mexico, Vietnam, Peru, and the United States had joined, making TPP the largest proposed trade agreement ever.
As most know, in early 2017, the United States withdrew from the TPP. The impact of the possible growth, quality of life, and preferential tariff treatment will never be known. But GSP, on the other hand, has driven imports to nearly double since its inception. It has provided opportunity to lesser developed countries who are now longer considered so. The program’s impact to multilateral trade is without a doubt, positive.
It’s important to note that both the TPP and the GSP hinge on U.S. Congressional approval. TPP was never was approved by Congress, and ran into a U.S. Presidential election where both candidates committed to opposing the deal.
The GSP program, however, has expired twice since 2010 with congressional renewal taking months to obtain both times. The 2015 GSP reauthorization (H.R. 1295) will expire Dec. 31.
During the expired time frames, eligible importers benefitting from duty-free GSP transactions were required to pay full duty on all imports. Though all GSP renewals that have taken effect after a lapse have included a retroactive clause providing refunds to importers of eligible goods imported during the lapse period, note there is no guarantee of the refund and that retroactive reimbursement also requires congressional approval.
Though all GSP renewals that have taken effect after a lapse have included a retroactive
clause providing refunds to importers of eligible goods imported during the lapse period,
note there is no guarantee of the refund and that retroactive reimbursement also requires
And in the meantime, a lapse in GSP renewal would at a minimum require an outlay of cash that importers would otherwise keep.
In light of this, it’s instructive to examine the Office of the United States Trade Representative (USTR) recently announced annual review of the GSP. Certain products will be removed from the GSP program where the country is sufficiently competitive and no longer needs tariff preferences to compete in the U.S. market, Certain travel goods have been added to the GSP program, and Bolivia is being reviewed for compliance with the GSP eligibility related to concerns over child labor.
Though there are no indications that GSP renewal will be delayed, it is highly recommended to plan for action should this occur. Having GSP go the way of the TPP would be hugely impactful and harm decades of positive growth and trade between our allies.
U.S. importers currently benefitting from the GSP program can run a free report via the Automated Commercial Environment (ACE) to determine the GSP impact to their organization. Importers can prepare for the expiration by:
1. Developing an offensive strategy: Meet with finance and strategize for the potential loss, temporary or permanent, of GSP savings.
2. Preparing a defensive strategy: Should there be a delay in GSP renewal, develop an accrual program with your finance team to easily identify deposited duties. This will greatly facilitate retroactive reimbursement at the point of renewal.
3. Contacting your congressional representative: Ensure they are aware of the importance of the GSP benefit, and inquire about renewal or potential of renewal prior to expiration
4. Knowing your numbers: Use BPE Global’s Fiscal Impact Calculator to easily obtain the GSP savings currently received by your company
Ultimately, GSP is an asset to the United States trade position. Congressional involvement is key. Know your numbers, share your numbers, and do not let GSP go the way of the TPP.