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American Shipper

Duty drain

Duty drain

Importers feel pressure to shift sourcing due to GSP expiration.



By Chris Gillis



   U.S. importers these days, especially small ones, are counting every penny, and the dragged-out expiration of a long-time duty-free program for certain goods sourced from developing countries is starting to take its toll.

   Capitol Hill lawmakers allowed the so-called Generalized System of Preferences to expire on Dec. 31, and have yet to reauthorize the program, despite mounting pressure from the Obama administration and import industry.

   The intent of GSP is for the United States to lower its trade barriers to increase developing countries' economic activity. Importers get the benefit of working with a variety of sources and bringing goods into the country at zero duties. Without GSP, most of these imports would be assessed duties in the range of 1 percent to 9 percent.

   'Lower-cost imported raw materials, components and machinery keep U.S. manufacturers competitive in a tough global economy, where they face competition not only in the U.S. market from imported finished products, but also in international markets to which they export,' said the Coalition for GSP.

   According to the coalition, the total value of U.S. imports under GSP in 2010 amounted to $22.6 billion, and importers saved about $688.8 million in duties over that period.

   Since GSP's expiration, it's estimated U.S. importers are paying as much as $2 million a day in duties. In the first two months of 2011, these companies have already spent about $100 million in import duties, said Daniel Anthony, director of research and government relations at The Trade Partnership, which manages the coalition's lobbying activities.

   Lisa Victoria Waller, vice president of Elgin, Ill.-based customs broker BDG International, said she's already seeing importer customers wince under the pressure of having to pay duties on imports previously exempt under GSP.

   'GSP's expiration hurts our customers,' Waller said. 'The government needs to understand that people depend on this program for their livelihoods.'

   The coalition set up a Web site (www.renewgsptoday.com) that keeps GSP proponents up to date on legislative activities, as well as allows them to comment on the expiration's plight to their businesses.

   In an April 1 blog posting on the Web site, Donna von Hoesslin, owner of jewelry and fashions boutique Betty Belts in Ventura, Calif., said she has already had to raise her prices because of GSP's expiration.

   'I can see this being the final nail in the coffin of many small businesses like my own,' she warned.

   'This program helps countries like India, Indonesia, Philippines and Bangladesh have a competitive edge over China,' Waller said. 'When we take away GSP we are taking away the incentive to work with the developing and underdeveloped countries. Importers will naturally turn to China.'


'GSP's expiration hurts our customers. The government needs to understand that people depend on their program for their livelihoods.'
Lisa Victoria Waller
vice president,
BDG International

   Waller highlighted that when the import quota for textiles from China was lifted, within months developing countries with textile manufacturing bases watched large percentages of this industry succumb to China. The United States, realizing this damage, soon reinstated textile import quotas on Chinese textiles and apparel.

   'GSP has proven to spread manufacturing throughout the world,' Waller said. 'By spreading manufacturing, we spread jobs, strengthen economies, increase knowledge about GSP countries, and help reduce poverty.'

   Even U.S. firms, such as Wal-Mart, Caterpillar and General Electric, are ardent GSP supporters. Yet these companies are less impacted by the program's expiration with their large import buying power and wider sourcing nets.

   Congress established GSP in the 1974 Trade Act. For the first 18 years, GSP has been a stable trade program. But starting in the early 1990s, annual congressional renewals of the program often resulted in delays lasting months, and in one case well over a year from August 1995 to October 1996. Fortunately for importers, these GSP renewals provided retroactive refunds on duties paid during the expiration period.

   In the 2002 Trade Act, Congress renewed GSP for five years and for two years in the 2006 Tax Relief and Health Care Act. These longer renewals again offered importers and their GSP beneficiaries a stable platform on which to conduct business. However, starting in 2009, Congress has renewed GSP on an annual basis.

   Anthony of The Trade Partnership said many U.S. companies and trade associations had taken their eye off GSP during the 2010 legislative period. 'There was a sense of complacency in the industry since the renewals generally came, even right to the final hours of expiration,' he said.

   GSP's renewal last year was halted by Sen. Jeff Sessions, R-Ala., who claimed that sleeping bags imported duty-free from Bangladesh under GSP had nearly shut down Exxel Outdoor's plant in Haleyville, Ala. He has maintained this stance although the U.S. International Trade Commission found no evidence of injury to Exxel from these imports.

   'We definitely didn't think (the expiration) would last this long,' said Michael Wallach, controller for Winston-Salem, N.C.-based Xpres, a company which specializes in decorating ceramic mugs.

   The company imports 95 percent of its mugs from Thailand under GSP. Since the program's expiration, Xpres has been subject to a 10 percent duty rate on these mug imports. 'That's a lot of money, especially when you're a small business,' Wallach said.

   Nearly 130 countries and territories maintain GSP status. GSP applies to about 3,400 of the more than 10,500 imported products into the United States. GSP-eligible products are mostly from manufacturers and semi-manufacturers of consumer electronics, machinery and parts, and selected agricultural and industrial goods.

   Forty-two of the countries in GSP are considered least developed, and some of the poorest in the world. They are eligible for benefits on an additional 1,400 products, including foods, household porcelain, glassware, VCRs, radios, clocks, fishing rods and brooms.

   GSP is also highly regulated by the U.S. government. The White House may withdraw duty-free benefits for a country when a 'high income' status is reached, or on any individual product if the U.S. imports of that product exceed certain thresholds that are deemed to constitute 'competitiveness.'

   For example, Trinidad and Tobago graduated from GSP in 2010 for reaching the high income status, followed by Croatia and Equatorial Guinea in January 2011.

   Products excluded from GSP are:

   ' Most textile and apparel products.

   ' Certain watches.

   ' 'Import-sensitive' electronics, glassware and steel products.

   ' Various footwear, handbags, luggage and other leather products.

   ' Agricultural goods that exceed a tariff-rate quota.

   ' Products subject to any escape clause or security action.

   Meanwhile, the coalition continues its lobbying on Capitol Hill to renew GSP. The Renew GSP Today Web site in early April touted more than 150 company and trade association supporters.

   U.S. Trade Representative Ron Kirk and Secretary of State Hillary Clinton recently sent a letter to the Senate and House leadership urging the renewal of GSP, the Andean Trade Preference Act and the Trade Adjustment Assistance program.

   'If the programs are not reauthorized soon, many U.S. importers may be forced to find other sources for their GSP and ATPA imports, raising costs for all and undermining the development objectives of the programs,' the letter said.

   Anthony said it's uncertain if Congress will renew GSP separately or as part of a larger trade programs package.