Last Thursday, the House introduced a bill to renew the Generalized System of Preferences (GSP). A vote on the bill is expected to take place this week.
GSP provides duty-free treatment to goods of eligible "designated beneficiary countries." The program is designed to promote economic growth in the developing world. It provides preferential duty-free treatment for over 3,500 products from a broad range of such designated beneficiary countries. An additional 1,500 products are eligible for GSP treatment when imported from "least-developed beneficiary developing countries." The program, which was established in 1976 under the Trade Act of 1974, is subject to periodic renewals by Congress.
While GSP reauthorization normally attracts broad bipartisan support, Congress has often allowed GSP to expire prior to passing legislation to reauthorize GSP, which results in a gap period wherein importers cannot claim GSP. This last occurred on December 31, 2017, when Congress allowed the GSP program passed in 2015 to expire, causing duty rates to revert to Most Favored Nation (MFN) rates.
The new GSP bill, if passed by Congress, will extend GSP until December 31, 2020. The bill also includes a provision allowing Customs to apply GSP retroactively to entries made during that gap period, i.e., between December 31, 2017 and the date of the reauthorization. Currently, Customs is allowing importers to flag entries as "GSP eligible" in anticipation of future reauthorization, even though importers are paying MFN rates until GSP is reauthorized.
Although the bill is widely expected to pass a House vote this week, it is unclear how long it will take for the Senate to vote on the bill. The Senate will not likely vote on the bill by itself, instead voting on the bill as part of larger legislation. The omnibus spending bill is one such upcoming significant piece of legislation, which is expected to be voted on toward the end of March. For its part, the Administration has not expressed outright opposition to GSP, but has announced efforts to more strictly enforce the eligibility requirements for GSP beneficiary countries.
The collective cost to businesses and industries taking advantage of GSP is significant when the program expires. In a letter urging Congress to renew GSP, the National Customs Brokers and Forwarders Association of American asserted that companies would incur costs of $75 million in duties each month for imports from current GSP beneficiary countries. Meanwhile, a letter from numerous members of Congress to Chairman Kevin Brady of the House Committee on Ways and Means estimated that GSP eliminated approximately $730 million in tariffs for the year of 2016.
Therefore, if you are an importer with an interest in GSP renewal, you should engage Congress, particularly the Senate, and the Administration to voice your concerns and urge swift renewal of GSP. Importers should also flag or continue flagging entries that would qualify for GSP, in anticipation of a future renewal of the program. Perhaps most importantly, with enforcement of the program expected to increase, you should ensure that you have in hand necessary and satisfactory supporting source data to substantiate the beneficial claims made. As other importers have previously seen, this can mean having more than simply a certificate of origin for the imported goods. For assistance in getting your voice heard or guidance on ensuring that your declared imports will meet the GSP requirements if subject to an audit, feel free to reach out to Venable's International Trade Group.