The Trump administration has taken a more active approach to enforcement of the Generalized System of Preferences, which provides duty-free treatment for imports of thousands of products. This shift presents both challenges and opportunities for companies utilizing this program.
(Click here to register for ST&R’s upcoming webinar on GSP enforcement and recent developments.)
Since 1974 GSP has eliminated tariffs on about 3,500 products when imported from any of 120 beneficiary developing countries and territories. GSP also provides benefits for about 1,500 additional products from least-developed countries. The program has most recently been authorized through Dec. 31, 2020.
To benefit from GSP a product must be either wholly obtained or sufficiently manufactured in a BDC. Sufficiently manufactured means that all third-country materials have undergone a substantial transformation and at least 35 percent of the good’s value has been added in the BDC. The product must also be imported directly from the BDC.
In addition, BDCs must meet statutorily-established eligibility criteria, including respecting arbitral awards in favor of U.S. citizens or corporations, combating child labor, respecting internationally recognized worker rights, providing adequate and effective intellectual property rights protection, and providing the U.S. with equitable and reasonable market access.
Substantiating eligibility for GSP treatment upon importation is an important consideration. Documents that U.S. Customs and Border Protection may require to establish and document a GSP claim include GSP declarations, bills of materials, invoices, purchase orders, production records kept in the ordinary course of business, payroll information to document labor costs, factory profiles, and affidavits with supporting documentation. Records may be requested from the importer, exporter, or both and must be kept for five years.
Enforcement of these requirements has increased as the Trump administration has raised tariffs on hundreds of billions of dollars’ worth of imports from around the world. Taking advantage of GSP and other duty-saving mechanisms is one way traders are acting to mitigate their liability for these tariffs. CBP is thus giving more careful scrutiny to GSP claims to make sure they are legitimate.
In addition, in October 2017 the Office of the U.S. Trade Representative announced that it would review each BDC’s compliance with the 15 GSP eligibility criteria every three years under a more proactive process that aims to help ensure that noncompliant countries do not continue to receive GSP preferences. These reviews complement the existing process for country and product reviews, which will remain unchanged (click here for information on the 2019 annual review).
Under this initiative the White House recently announced plans to terminate GSP eligibility for India, due to concerns about lack of market access, and Turkey, which has achieved a sufficient level of economic development (click here for more information). These removals are expected to take effect in early May. Country reviews are also ongoing for Bolivia, Ecuador, Georgia, Indonesia, Iraq, Thailand, and Uzbekistan, while the potential designation of Laos as a BDC is under consideration as well.
The administration is clearly focusing more on GSP, not only from an eligibility standpoint but also with respect to compliance with the rules. Importers using GSP should undertake a review to determine if their products are fully GSP eligible and if they have a sufficient compliance program in place to substantiate duty-free claims.
For more information on GSP, or assistance determining how to better increase your utilization of and compliance with this duty-saving program, please contact Nicole Bivens Collinson at (202) 730-4956.