Article by: Rick Walker, Vice President – TradeInsights, LCB,CCS

It’s hard to believe, but in a little over two months it will be three years since the expiration of the Generalized System of Preferences (GSP). That’s right, it expired on December 31, 2020. While the GSP program has been around for nearly 50 years and has expired and been reinstated repeatedly over the years by Congress with bipartisan majorities, here we sit almost three years later with no reinstatement. To remind everyone, GSP provides duty-free access to the U.S. market for nearly 3,500 products from about 120 developing countries. The idea behind the program is to create economic growth and job creation in the developing world. But according to the U.S. Chamber of Commerce, American businesses also rely on GSP. Those doing so tend to be small but dynamic, according to the Coalition for GSP. The typical beneficiary company employs about 20 people, and GSP saves them between $100,000 and $200,000 in duties — big money for many small businesses.

The solution is simple (well, kind of). Congress must act for the program to be reauthorized but has failed to do so amid disagreements on whether and how much to reform GSP. As stated above, while the program generally enjoys bipartisan support, some have pushed for changes such as revising eligibility requirements to reflect human rights, environmental, or other considerations; adding or removing beneficiary countries; and altering the list of covered products.

Earlier this summer, Congressman Jake Auchicloss (D-MA) issued a press release with the headline “Auchincloss Leads Letter To Renew GSP Trade Program To “Facilitate Supply Chain Shifts Out Of China.” The headline was followed by the following statements:

Led by Representatives Jake Auchincloss (D-MA) and Neal Dunn (R-FL), both members of the House Select Committee of the CCP, the letter’s large and diverse group of signers demonstrates strong support for a renewed (and improved) GSP program across the political spectrum. Letter signers include:

• 34 Republicans and 32 Democrats from 30 different states
• Nearly all members of the Select Committee on the CCP, including Chairman Mike Gallagher (R-WI) and Ranking Member Raja Krishnamoorthi (D-IL)
• The chair and/or ranking member from numerous other House committees

The letter highlights the critical role GSP can play in helping U.S. companies diversify supply chains by providing “tariff advantages as high as 45 percent for key products compared to China.” It also notes that “China is benefiting significantly from GSP expiration, which has led to over $2.5 billion in extra tariffs on $45 billion in imports from China’s developing country competitors.”

“Legislation to renew GSP, including smart changes to make GSP countries more viable alternatives to China, would enjoy broad, bipartisan support,” according to the signers. For example, more than 50 House Members signed a bipartisan letter supporting updates to GSP’s “competitive need limit” (CNL) rules in the last Congress. CNLs can terminate duty free treatment for a specific product if imports from a GSP country increase too much, which in turn can disincentivize shifting too much trade outside of China.

At least one major labor union is calling on lawmakers to reform the Generalized System of Preferences as part of any renewal of the currently lapsed program. GSP supporters are trying to generate momentum in Congress to reinstate GSP, but it’s been almost three years and there doesn’t appear to be much at the moment.

It is important to note that import cargo that would have been subject to GSP benefits prior to its expiration are currently being “flagged” as GSP eligible so that when the program is renewed (retroactively, we hope as in the past) Customs will have the data in place to issue retroactive refunds to the importers.

We will continue to monitor the reinstatement of GSP and will provide updates as needed. Please contact your V. Alexander account team, or you may also contact our Trade Compliance team at tradeinsights@valexander.com with any questions.