Tufted Rugs To Be Impacted By GSP Expiration

The following alert and analysis was prepared by Brenda Jacobs of Sidley Austin LLP for the ORIA.

The Generalized System of Preferences program (GSP), which provides duty-free treatment to selected products of designated beneficiary developing countries, is set to expire in less than six weeks.  The current legislative authorization for the program expires on July 31, 2013.  To date, the U.S. Congress has taken no steps toward reauthorizing the program, largely because there is a strong interest in first making substantive changes to the program.  In particular, Members of Congress want to address the criteria used to determine which countries should be designated as beneficiary developing countries (BDC).  More specifically, Members question whether countries like India should continue to be considered a BDC.   Because the Congress does not appear to be interested in simply rolling over the current program before considering reforms, it is almost certainly guaranteed that GSP benefits will lapse, perhaps until sometime next year.

This will be at least the ninth time Congress has allowed GSP to lapse in the last 20 years.  Most recently, there was a lapse that lasted almost one year, in 2011, with the program ultimately retroactively re-authorized and extended  for only another 18 months, through July 31, 2013.

There is a lobbying campaign by U.S. companies that rely upon GSP to obtain duty-free inputs for their manufacturing operations, as well by wholesale and retail businesses that rely upon the program lower the cost of consumer goods.  A number of beneficiary countries also have written to Congressional leaders urging action.  However, specifically with respect to India, indications are that unless India comes forward with some significant changes in its trade policy, such as eliminating or reducing “localization” requirements that impair the ability of U.S. companies to get a foothold in the India market, and/or showing more flexibility in a number of international negotiations currently on going (in the World Trade Organization), where India is viewed as delaying the process, the Congress will focus on rewriting the rules for GSP before renewing the program.

Notably, another impediment to prompt action on GSP renewal may be that the Congress does not see renewal as particularly pressing.  That is because with each prior lapse Congress has reinstated the program retroactively, thereby effectively making impacted U.S. companies “whole.”  Thus, because importers have been able to obtain refunds of the duties they were required to pay to U.S. Customs and Border Protection (CBP) at the time of entry, Congress presumes that harm to U.S. importers is limited.

It is also worth noting that Congress typically has packaged several trade measures into a single legislative vehicle, rather than attempt to move multiple trade measures separately.  The trade bills with which Congress would like to package GSP include legislation to grant the Administration “negotiating authority.”  Such legislation provides direction to Administration negotiators in international trade negotiations and ensures that once an agreement is negotiated with trading partners consistent with those directions, Congress will vote to approve or disapprove the agreement without trying to amend any terms to which the Administration agreed.  (The Administration is currently negotiating the Trans-Pacific Partnership Agreement (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) as well as an international services agreement, an international technology agreement and a trade facilitation agreement.)  That trade negotiating authority bill is currently being drafted but ultimately is expected to be the subject of a protracted debate in the Senate and the House which could last well into next year.  Another bill Congress would like to package with GSP reform is reform and extension of the African Growth and Opportunity Act, another preference program scheduled to expire in 2015.

Companies impacted by the likely expiration of GSP should not hesitate to contact their representatives in the U.S. Senate and the House of Representatives to urge them to act now to prevent expiration.  An explanation of the economic and business consequences of having to pay the duties (which, for carpets. generally range from 2.7 percent to 6.8 percent) should be highlighted, such as an inability to pass the costs on to customers, the small margin on such merchandise, and the interest costs related to the money tied up in duty payments, etc.  Members of Congress should be advised that the possibility of a refund many months after entry does not compensate for the current harm.  The website http://renewgsptoday.com/ has links that enable companies to readily identify their representatives and senators; the website also includes articles on the issue that may provide further ideas on points to include in correspondence with Congress.

Carpets from India, Pakistan, Nepal and Afghanistan are among the products that will be impacted by the expiration.  The following carpet tariff classifications currently benefit from GSP, assuming that the carpets are produced (substantially transformed) in beneficiary countries, with greater than 35 percent value added in those countries:

5702.50.20*, 5702.91.30*, 5702.92.10, 5702.99.05*, 5702.99.20*, 5703.10.20*, 5703.20.10, 5703.30.20, 5703.90.00* (* = other than India)

Note that even if GSP expires, companies importing products under GSP should continue to include the GSP indicator on their customs entries.  That will make it easier for CBP to recognize that the entry is entitled to a duty refund once the program is reinstated – and limit the additional work the importer must do to ensure as prompt a refund as possible.

Given the trade policy concerns with India, companies importing carpets from India in classifications that are eligible for GSP benefits should be prepared for the possibility that any extension of the program (including retroactive benefits) may not include those products – unless India successfully engages in its own campaign to maintain its status as a BDC.

Author: editor

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