July 20, 2022 | Anahi Czeszewski Product Development Manager
We understand one provision included in both the Senate’s U.S. Innovation and Competition Act and the House’s America COMPETES Act is the renewal of the previously expired Generalized System of Preferences. But what does this program entail, and how can you identify if your company may benefit from this program if a renewal does come to fruition? Let’s take a closer look to learn more.
The Generalized System of Preferences (GSP) is a trade program, which provides nonreciprocal, duty free treatment on certain imports into the United States from eligible developing countries. The aim of this program is to boost economic development in lesser developed countries through trade promotion.
The GSP program emerged when the United States and other developed country members of the United Nations evaluated mechanisms to support developing countries—to help these countries diversify their economies and grow through trade. There is not one unified GSP program, but rather, each developed country developed its own program based on the agreed upon principles. This program went into force on January 2, 1975.
In addition to the United States, countries who have implemented GSP programs with similar objectives include Australia, Canada, the European Union (EU), Iceland, Japan, New Zealand, Norway, Russia, South Korea, Switzerland, and Turkey.
The President selects Beneficiary Developing Countries (BDCs) based on mandatory eligibility criteria. Criteria which must be met includes, but is not limited to:
Additionally, there is other discretionary criteria the President may consider, including:
At any time, the President can terminate, suspend, or limit GSP status. This is based on the eligibility criteria outlined in the program. Prior to a presidential action to change any GSP status, Congress must be notified 60 days prior to this action.
Furthermore, BDCs become mandatorily “graduated” from the GSP program if the President determines a country to be a “high-income country,” defined by World Bank statistics. BDCs can also be graduated from the program based on the level of economic development, such as income per capita and living standards of inhabitants.
Recently, several countries had its GSP benefits removed, as outlined below:
General Note 4 of the Harmonized Tariff Schedule of the United States (HTSUS) outlines the list of countries, territories, and associations of countries eligible for GSP treatment. Furthermore, it is emphasized when a GSP-eligible article is imported into the customs territory of the United States, it must be shipped directly from such country—transshipment is not allowed.
Products considered “import sensitive” are prohibited from GSP treatment. Such products include, but are not limited to, textile and apparel goods, watches, some electronics, steel, and glass products. The President can also be authorized by Congress to designate new articles as eligible for GSP treatment. To date, more than 3,500 imported products are covered under the GSP program.
In the HTSUS, GSP-eligible products are identified by a Special Program Indicator (SPI) under the Special Rates of Duty tariff column. (See example below.) The SPI codes are as follows:
Source: HTSUS 2022
GSP benefits do not apply to any products subject to trade remedies or quotas under Section 232—additional tariffs on certain aluminum and steel articles. In addition, developing countries are largely exempt from tariff-rate quotas (TRQs) imposed under Section 201—additional tariffs on washing machine and parts, and on solar panels and modules—as long as imports from an individual country do not exceed 3% by value, or if total imports of products from all developing countries do not exceed 9%. Of course, Section 301 additional tariffs have no bearing on GSP eligibility, as these tariffs apply to Chinese origin goods.
The GSP program expired December 31, 2020. Since then, bills have been introduced to renew the program. The Senate’s U.S. Innovation and Competition Act (USICA) and the House’s America COMPETES Act both contain provisions surrounding the renewal of the GSP program.
The USICA would renew GSP until January 1, 2027, while the America COMPETES Act would renew the program until January 1, 2024. Both legislations would retroactively reinstate GSP to December 21, 2020. A conference committee is currently underway in hopes of reconciling both bills into one final bill that would make it to the President’s desk.
C.H. Robinson continues to closely monitor all the latest developments. Subscribe to our Client Advisories and Trade and Tariff Insights to be notified when changes take place. Connect with one of our trade policy experts to learn more.
Our information is compiled from a number of sources that to the best of our knowledge are accurate and correct. It is always the intent of our company to present accurate information. C.H. Robinson accepts no liability or responsibility for the information published herein.