Overview of the GSP
The U.S. General System of Preferences is a program that provides duty-free tariff treatment on over 3,500 products that are imported from beneficiary countries that are underdeveloped. The GSP helps progress in third world countries by encouraging worker rights and labor laws. It also helps American companies to grow as essential goods are being brought into the country in abundance and in an affordable way.
According to the Office of the U.S. Trade Representatives, the United States benefits from the program by “boosting American competitiveness by reducing costs of imported inputs used by U.S. companies to manufacture goods in the United States. The GSP is especially important to U.S. small businesses, many of which rely on the programs’ duty savings to stay competitive.â€
The program has been active since it was first authorized under the Trade Act of 1974 and came into effect on January 1, 1976. Thereafter, it has been reactivated 14 times with a duration of 3 or 4 years by period. The current GSP is set to expire on December 31st. The debate regarding the effectiveness of the program and whether to reform it continues.
The GSP is meant to increase trade with and promote economic growth among developing countries.
Lessons from the Expiration of the GSP in 2013 and 2017
Companies faced increased costs. When the GSP expired for two years in 2013, companies paid $1.3 billion in extra tariffs.
“Another lapse in December 2017 that lasted nearly four months cost businesses $145 million in the first two months of 2018 alone. This cost continued to grow until the GSP went back into effect in April 2018,†wrote the Heritage Foundation in a September 2020 report.
My take…
- Authorizing the GSP for a longer time period would provide greater predictability when making decisions about sourcing goods and lead to greater progress for the exporting beneficiary countries
What steps should the U.S. importer take?
- Pay the normal duty rates on any GSP items they import after midnight on December 31, 2020.
- When importing these items, importers should make sure to continue to mark these entries with the special tariff code A or A+.
Pamela Flores served as a marketing and research intern with GRIIT in the fall of 2020.
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