From January-September 2021, American companies paid at least $763 million in extra taxes as a result of GSP expiration. Imports into 38 states (plus Puerto Rico) paid at least $1 million in tariffs due to GSP expiration. The map below shows estimated tariffs paid for products claiming GSP by state.

It is critical that Congress renew GSP – with refunds for tariffs paid – as soon as possible. We strongly encourage GSP importers hurt by expiration to answer our new survey here. As always, no company-specific details will be published without permission.

Some basic facts

• GSP covers a very small share of beneficiary countries exports. GSP covered just 11% of U.S. goods imports from GSP countries in 2020. Factoring in services exports to the United States and exports to other countries, and GSP covers only about 1% of total exports from GSP countries in any given year.
  
• Even compared to other U.S. preferences, GSP benefits are very limited. A common refrain is “updating” GSP criteria to match programs like AGOA. But AGOA covers an extra 1,400 products eligible only for least-developed countries (LDCs) in GSP, plus apparel and footwear and agricultural products wholly excluded from GSP, and has no import caps (e.g., GSP’s “competitive need limitations”, or CNLs). The result: excluding Section 232 tariffs, average tariffs on imports from GSP countries were more than 20x higher than tariffs on AGOA countries in 2020.

It is one thing to say “GSP should be more like AGOA,” but it’s something very different to say “GSP should adopt AGOA criteria – and then some – but not receive any of the AGOA benefits.” Because the lack of benefits has severely limited GSP’s effectiveness as a “stick” on multiple occasions in recent years.

Real-world example #1

Bangladesh is the textbook example of how GSP coverage limitations eliminate any leverage that U.S. policymakers may wish to exert through GSP reviews. Bangladesh lost GSP in 2013 for failure to address freedom of association violations and ongoing safety issues in the garment sector. Yet impacts were more symbolic than economic. Despite being an LDC, GSP covered just 0.7% of U.S. imports from Bangladesh in 2012. Put differently, GSP termination was wholly irrelevant to 99.3% of Bangladeshi exports to the United States, including for the sectors (e.g., apparel) of greatest concern.

The prospect of restored GSP for improved labor conditions remains economically irrelevant today. Excluding face masks, not a single one of Bangladesh’s top 100 exports to the United States in 2020 would benefit from restored GSP benefits.

Real-world examples #2-4

Perceived lack of impact is not limited to Bangladesh, but don’t take our word for it: nearly all press reports within GSP countries cite the lack of product coverage and/or import caps such as CNLs as reasons why. Here are some examples:

• An October 2019 Bangkok Post article cited a Thai government report showing expected exports would drop by about $30 million, or 0.01% of exports to the world, due to suspending GSP for 1/3 of covered products from Thailand. A private analyst said GSP suspensions would not impact publicly listed companies “because major Thai agro-industrial food and seafood conglomerates, such as Thai Union Group Plc (TU) and Charoen Pokphand Foods Plc (CPF), do not receive any GSP privileges for exporting shrimps, tuna and animal feed.” Seafood and agricultural industries were the major areas of concern, so like in Bangladesh the impacts of expiration don’t fall on the sectors where the United States is most keen to see change.
• A June 2019 article in the India’s The Diplomat noted that excluding apparel and footwear “has often limited the expansion and diversification of exports from developing countries,” while CNLs “created a lot of uncertainty and confusion related to the re-designation of the GSP status of a particular product after the export volumes have gone below the threshold.” Also in June 2019, CRISIL (a subsidiary of S&P Global) wrote that GSP suspension “will have limited impact on India’s overall export trade” and noted “pharmaceuticals and textiles & apparel would be relatively unscathed.”
• A March 2019 article in Turkey’s Daily Sabah stated “Another important point is that the Turkish textile and apparel sector will not be exposed to any additional tax increases since it is not already covered by the GSP system, just like the processed agricultural products sector.“

Two recommendations to make countries care more about keeping GSP benefits

Update “competitive need limitation” rules, particularly related to product restoration, to bring more products non-sensitive back under the program. CNL rules have eliminated as much as 1/3 of GSP benefits over the past 25 years due to ever-smaller threshold increases and the practice of not restoring GSP benefits even when products fall below the thresholds in future years. Over 90% of excluded products would not be at risk of losing GSP today because imports since GSP loss. As discussed in more detail here, some simple CNL changes that could have a big impact include:

• Reset the benchmarks to match original growth rates;
• Make reinstated GSP for products below CNLs the norm;
• Make reinstated GSP for products above CNLs an option, and
• base CNL calculations only on products claiming GSP.

An underappreciated point: if moving from “bad” actors that lose GSP based on new criteria to “good” GSP actors causes imports from good actors to exceed CNLs, the current rules incentivize companies to continue sourcing from bad actors. Effective leverage requires viable sourcing alternatives, but CNL rules limit those options.

Create a process for identifying/adding non-sensitive apparel and footwear products to GSP. In 2020, the United States imported $15 billion in apparel and footwear from GSP countries that were subject to duties and ineligible for GSP. Excluding oil, that was more than 2x as much as imports subject to duties/ineligible for GSP of all other products combined – and would be much higher if counting imports from countries like Bangladesh and India that may really strive for GSP restored with potential benefits for apparel and footwear. Apparel and footwear are politically sensitive – for producers in FTA partners, other preference program beneficiaries, and the United States – but finding a subset of products to add to GSP should not be impossible.

A two-part check could eliminate concerns of current FTA/preference country and U.S. producers alike:

• Check #1 (for foreign producers): limit new GSP apparel/footwear petition to products where less than 10% of imports claimed any sort of duty-free treatment;
• Check #2 (for domestic producers): create an MTB-like process to further limit benefits to products without sufficient domestic production.

Those criteria could protect sensitive supply chains/domestic production while (likely) opening up billions of dollars in apparel/footwear trade to GSP benefits. They also could encourage new sourcing of products currently not made in the US/FTA/preference countries from GSP countries instead of non-beneficiaries like China. All while increasing GSP countries’ incentives to comply with new and existing GSP eligibility criteria significantly.

Read more on how Congress should:

• make countries care more about keeping GSP benefits (this post)
• help countries make progress on the new criteria
• prevent abuse/misapplication of the new criteria
• minimize collateral damage when actions are necessary

Tai: I hear you. But I think that is the way the global economy needs to evolve. We need to build in incentives. And when we talk about incentives, we’re talking about carrots and sticks. So in some ways, what we need to do is figure out how we need to re-devise those carrots, maybe the shape of the carrots, when they’re applied. We need to look at the sticks in terms of how to enforce. We also want to be taking a look at rules that were devised when our world, frankly, looked and operated differently, and maybe think about where those rules need to be tightened or loosened.

Though the question was not about GSP, it is hard to think of a policy for which the answer is more timely:

• Congress created the GSP program to promote development nearly 50 years ago, in a very different world, and many of its key features have not changed in decades (if ever)
• GSP expired on December 31, and Congress is considering possible changes to the program as part of any renewal legislation
• New eligibility criteria (i.e., “sticks”) that countries must meet to retain GSP have been proposed, but there have been limited discussions on how to “re-devise those carrots, maybe the shape of the carrots” to incentivize compliance with new obligations

So what are the old rules and possible new or re-devised carrots in the GSP context? We examine several decades-old rules that reduce GSP’s effectiveness as a development and policy tool, and suggest a few minor changes that could have a large, positive impact on GSP in the 2020s and beyond.

The elephant in the room: apparel and footwear

Sadly, Members of Congress believe expanding GSP product coverage to include apparel and footwear, which have been statutorily excluded since its creation, is too controversial. But facts are facts and here they are: in 2020, the United States imported $14.8 billion in apparel and footwear from GSP countries that were subject to duties and ineligible for GSP. Excluding oil, that was more than twice as much as the $7 billion in imports subject to duties/ineligible for GSP of all other products combined. Amazingly that understates the impact, as apparel and footwear accounted for $2.4 billion of the $2.8 billion (85%) in tariffs faced for products wholly excluded from the GSP eligibility list.

While the exclusion perhaps made sense in the beginning, we’ve heard domestic production accounted for about half of U.S. apparel and footwear sales in 1974, today over 98% of U.S. clothes and shoes are imported. Given they were excluded from the start, GSP of course had nothing to do with the shift, but program coverage is still hamstrung by “rules that were devised when our world, frankly, looked and operated differently.”

The not-quite-elephant in the room: competitive need limitations (or CNLs)

Most people that follow GSP know of CNLs, but few now that CNLs eliminated as much as 1/3 of all potential GSP benefits in 2020! Here are the numbers: in 2020, imports claiming GSP totaled about $16 billion. By comparison, the value of imports on the nominal GSP list but excluded for an individual country was $8 billion. (This figure does not include imports of products removed as part of a country practice review, since they are covered by separate rules.)

How did we get here? Again, it starts with “rules that were devised when our world, frankly, looked and operated differently.” CNL rules have existed from the beginning, but the last major update was in 1996, at which time:

• China wasn’t in the WTO yet and imports from China were 55% lower than imports from Japan
• Malaysia was the top GSP import source
• 13 current U.S. FTA partners were part of the GSP program
• 13 current EU members were part of the GSP
• 21 of the top 32 import sources under GSP are no longer beneficiaries

In short, the GSP program, U.S. trade policy, and global trade patterns were all very different.

How rule designs themselves were problematic: for calendar year 1996, CNLs were set at $75 million or 50% of U.S. imports from the world. The GSP statute set the de minimis level – under which the President may disregard the 50% threshold – at $13 million in imports from the world (not the GSP country). The regular CNL increases by $5 million annually and the de minimis increases by $500,000 annually.

And there’s the catch: by setting a value change instead of a rate, the real annual increase has fallen significantly over time. For example, the CNL change from $75 million in 1996 to $80 million in 1997 was a 6.7% increase, but 25 years later the increase from $195 million in 2020 to $200 million in 2021 is just a 2.6% increase. The value of CNL increases diminishes with each passing year that Congress does not update the 1996 rules.

There also were two premises that turned out to be false: 1) that once products reached CNL levels they could sustain trade without GSP benefits; and 2) if trade did shift, it would go to lesser developed GSP countries and lead therefore promote further growth in GSP countries. Empirical research in 2011 by Dr. Shushanik Hakobyan (then at the University of Virginia, now at the International Monetary Fund) found that the opposite was true:

• “By the third year of exclusion, imports from affected countries decrease by more than 70 percent relative to the pre-exclusion average…These findings imply that CNLs may not be targeting the “super competitive” exporters, rather these country-product pairs may need the preferential treatment to access the US market.”
• “By the third year of exclusion, the share of other GSP eligible countries increases by 8 percentage points, whereas that of non-GSP countries expands by 22 percentage points…CNLs seem to provide a competitive edge to non-GSP countries in capturing the US market.”

We’re unaware of any more recent academic research on CNL impacts, but the fact that approximately 95% of products excluded in the past were below the CNL (or de minimis) thresholds in 2020 strongly suggests that post-GSP loss import declines continue – and exports rarely recover.

Congress’ self-correction mechanism also has failed: the GSP statute explicitly allows products that fall below CNL thresholds after losing GSP to be reinstated. The statute does not even appear to require a formal review! Yet in practice, it almost never happens, even when stakeholders attempt to navigate the GSP Annual Review process.

Case in point: wind turbine parts from Brazil

This seems like a good example, since the preceding question to Ambassador Tai’s response asked how to align trade and environmental policy “in a global trade environment where all the incentives are cheaper, faster and not necessarily environmentally friendly.” The wind turbine parts lost GSP on July 1, 2006 based on 2005 imports of $143 million (CNL threshold: $120 million). Imports from Brazil continued to grow in 2006 and 2007, then collapsed just as Dr. Hakobyan’s research showed was the norm:

• From 2007 to 2008, U.S. imports from Brazil fell from $305 million to $65 million (-79%) and the share of U.S. imports from Brazil fell to 4.8%
• From 2008 to 2009, U.S. imports from Brazil fell from $64 million to $27 million (-58% more) and the share of U.S. imports from Brazil fell to 2.8%
• In 2008, China became the top supplier, nearly tripling its import value (from $80 million to $230 million) and more than doubling its import share (from 8% to 17%) since the last full year of GSP benefits for Brazil in 2005
• China remained the #1 supplier for wind turbine parts every year except one between 2008 and 2019, accounting for 35% of U.S. imports in 2017 before Section 301 tariffs were imposed it 2018

Shouldn’t someone have petitioned for restored GSP based on the clear statutory authority to restore GSP for products that fall below the CNL threshold? GE Energy did. Twice. As part of both the 2009 and 2010 GSP Annual Reviews.

Shouldn’t they have noted the import collapse and how non-GSP countries were benefiting? Of course, and they did in their 2009 petition: “In 2008, Brazil’s exports of HTS 8503.00.95 declined by 78.7% by value while at the same time, the developed nations of China, Japan, the United Kingdom and France increased exports by 49%, 24%, 25% and 37% respectively, by value.” And again in their 2010 petition: “Of the eight other countries supplying more product to the U.S. market none are BDC’s.“

Shouldn’t they have argued that restored GSP would promote President Obama’s goal to increase U.S. wind energy production? Yup, and the did that too!

But both petitions were denied. And no one has petitioned since despite the fact the GSP imports from Brazil have never gotten close to CNL thresholds in subsequent years. Fool me once and what not. On several levels, GE Energy is far from alone:

• It appears that fewer than 10 product redesignations were granted between 2007 and 2020, of which 4 were never formally requested (e.g., 3 products for Ukraine were restored after Russia invaded Crimea)
• Stakeholders petitioned to restore GSP for 22 products as part of the 2020 GSP Annual Review, and USTR denied all of them without review (i.e., requests were denied on the front end as opposed to on the merits following hearings, testimony, etc.)
• We know multiple companies in multiple sectors importing from multiple countries that filed multiple petitions, all rejected, and eventually just gave up.

In summary, 25-year old rules based on flawed premises and longstanding norms not to use the authority granted by statute now eliminate 1/3 of GSP benefits annually.

GSP priorities for the 2020s and beyond

It seems clear that anyone creating the GSP program from scratch in 2021 would design a very different program than the one that exists today, which represents a mix of primarily 1970s and 1990s trade priorities. GSP has eligibility criteria that prohibit countries “dominated or controlled by international communism” or that participate in cartels blocking exports to the United States (e.g., OPEC), but no criteria related the environment.

The key question: beyond “development” in a broad sense, what goals do U.S. policymakers hope to achieve through the GSP program today? Three broad themes that were/are priorities for Congress and both the Trump and Biden administrations:

1. Using the eligibility criteria as leverage in negotiations with GSP countries (though priority areas differ depending on the policymaker)
2. Encouraging U.S. companies to source less from China
3. Providing tariff relief and promoting job growth for constituents and other U.S. companies

Ignoring that elephant (wearing imported clothes and shoes), the current GSP rules regarding CNLs and norms regarding redesignation undermine all of these priorities.

As it relates to leverage in bilateral talks, it doesn’t matter if the goal is better market access or improved labor laws or stricter enforcement of environmental treaties – each and every stakeholder in beneficiary countries that cares about retaining GSP benefits strengthens the the United States’ negotiating hand. By eliminating GSP for both a large share of stakeholders, and in many case the biggest and most successful stakeholders in a country, CNLs weaken the United States’ hand in bilateral negotiations significantly. That makes it considerably less likely that GSP countries will undertake major reforms to maintain GSP, no matter how much policymakers think they should.

As it relates to encouraging U.S. companies to source less from China, the CNLs affect appears self-evident: companies will not shift sourcing from China to GSP countries if rising imports trigger CNLs and lead to higher tariffs. This is not a new argument against CNLs, only the most timely. Back in the mid-2000s, a joint submission from Carnegie Endowment for International Peace, German Marshall Fund, Oxfam America, and the Women’s Edge Coalition recommended eliminating CNLs that create “a glass ceiling.” From a purely development perspective, they argued CNLs have the unintended effect of chilling investment because “Investors appear reluctant to invest in certain sectors in marginal countries because they believe that as soon as their investment succeeds, they will no longer receive the preference.” That China is the country that companies are moving from – as opposed to flocking to – makes the argument no less relevant than when raised 15 years ago.

As it relates to tariff relief for constituents, the affect once again are clear: U.S. companies paid as much as $340 million in tariffs in 2020 for individually excluded products. Cumulatively over the years, it is billions of dollars in tariffs paid – after the sharp declines in imports that typically accompany GSP loss – and generally for products that do not even meet the current statutory definition of “competitive.”

Taking it back to the beginning, it’s hard to see how any of these outcomes – fewer incentives to meet eligibility criteria, extra incentives to go to/stay in China, or higher U.S. tariffs/lower U.S. imports – help workers in developing countries or further GSP’s original development goal.

Re-devising those carrots (or at least the shape of the carrots)

Development NGOs argued for eliminating CNLs altogether, and it would be the cleanest mechanism to eliminate issues that have arisen over the years due to them. But a few minor changes could make a big difference.

Reset the benchmarks: if the regular CNL threshold grew at the same annual rate as it in the beginning, the limit would have been a little more than $350 million in 2020. Maintaining the original CNL-to-de minimis ratio would put that in the $50-$60 million range. Those seems like good ballpark figures, then CNLs should be set to increase by a growth rate as opposed to set value Congress doesn’t have to worry about diminished benefits again. Increasing that threshold also provides a lot more room to run for companies and sectors seeking alternatives to China.

Make reinstated GSP for products below CNLs the norm: what does keeping non-competitive products out of GSP forever achieve? It hurts development, hurts the U.S. companies that import the product, and reduces the Administration’s leverage in bilateral negotiations. Importantly, CNLs do not protect domestic producers. Any U.S. company or industry that feels it is being harmed can request GSP removal of a given product regardless of import levels. Simply changing the GSP statute to say the President “should” restore GSP, instead of “may,” would provide clear congressional intent while retaining Administrations’ discretion in potentially sensitive reviews.

Make reinstated GSP for products above CNLs an option: the current statute prohibits reinstated GSP if imports from a country exceeded the CNLs in the prior year. There is an exemption to the 50% rule for products not made in the United States, but no possible exemption to the value threshold even for products that aren’t made domestically. Changing the GSP statute to say the President “may” restore GSP would give the Administration new tools to promote development and increase negotiating leverage for truly non-sensitive but high value products. If past history is any indication, statutory authority saying products “may” be redesignated is likely to be used sparingly.

Base CNL calculations only on products claiming GSP: products have lost GSP even though the value of imports claiming GSP was well below CNL thresholds. This generally happens when imports that can’t meet the rule of origin increase, but the result is punishing companies with significant local content (as intended) while having no impact on the companies only doing final assembly (that rules of origin are meant to discourage). It may be more likely to happen if companies shift production from China but need imported parts for several years as operations get up and running. The GSP statute’s “super-CNL” bases its calculations on GSP-claiming imports, and Congress could adopt that language for all CNLs.

Such changes are far from radical. All sticks and no carrots, as Congress appears to discussing, likely will continue to whittle away at the benefits provided by GSP product by product, country by country. But there’s a better way and a few small tweaks would greatly improve GSP’s effectiveness as a development tool, a leverage point, and an alternative to China in the years and decades to come.

However, GSP expired on January 1 and companies must now pay over $2.5 million per day in extra taxes. GSP expiration is causing immediate harm to American companies and workers. For example, a small business in New York recently reported:

Because GSP expired, we will have to let 3 employees go that were previously going to be brought from temporary to permanent with benefits. Two good paying electronics technician jobs we planned to add are now on hold as well. We are a smaller company and can’t afford $163,000 in expenses and still be able to expand. Prices will likely have to increase with risk of losing further business in a very tight market, with major competition from China.

Another company with about 200 employees across six states is paying over $80,000 per month in new tariffs, a figure that will rise to $130,000+ per month in March. It reported:

We can’t reduce orders until we design and create new products to replace the items we currently buy. We will have to pay the duties in the interim and have raised prices only where the market allows. Therefore, we will sustain a low margin and cut costs including pay to employees.

It is critical that Congress renew GSP – with refunds for tariffs paid – as soon as possible. To help the Coalition for GSP educate policymakers on who is hurt by expiration (and how), companies are strongly encouraged to:

• join the Coalition for GSP
• add their name to the free GSP supporter list
• answer our very short survey on GSP expiration impacts to date

While California is far-and-away the #1 state for GSP savings, Texas edges it out for most tariffs paid this year due to country suspensions – companies in each state have paid up to $18.6 million in extra taxes. Companies in New Jersey are not far behind, having paid up to $18.2 million in extra taxes due to country suspensions.

The costs are driven by different Trump administration actions. Texas is the top state in tariffs paid due to India’s suspension, New Jersey has paid the most due to Turkey’s suspension, and California has paid the most due to Thailand’s partial suspension. The table at the very bottom shows tariffs paid, by country suspension and total, for all states.

Including the tariffs paid due to suspensions, both in 2019 and 2020, drastically changes the state savings trends. Instead of the sea of dark red states with declines of over 20% shown yesterday (and below, right), only a 5 states are likely to have seen such declines without country suspensions. Similarly, there would be savings growth for states in every region of the country instead of limited to the Mountain West.

Swings states, including big states not traditionally in play in Presidential or Senate elections, account for some of the biggest dollar swings. Without country suspensions:

• Texas companies’ savings would’ve increased up to $2.4 million instead of declining by $12.7 million, a $15+ million swing
• Georgia companies’ savings would’ve increased up to $3.1 million instead of declining by $5.8 million, nearly a $9 million swing

In more traditional swings states, maintaining full GSP eligibility for all countries would have mitigated declines likely associated with the Covid-19 pandemic. For example:

• Florida companies’ savings would’ve declined by $4.3 million instead of $12.6 million, an $8+ million swing
• Pennsylvania companies’ savings would’ve declined by $350,000 instead of $8.2 million, nearly an $8 million swing
• Michigan companies’ savings would’ve declined by $3.2 million instead of $8.2 million, an $5+ million swing

Swings were even bigger on a percentage basis in states where GSP savings are traditionally lower:

• Instead of declining by 47%, New Mexico companies’ savings would’ve increased by up to 161%, a 200+ percentage point swing
• Instead of declining by 60%, Minnesota companies’ savings would’ve increased by up to 17%, nearly an 80 percentage point swing

These are real costs to real American companies and workers – many in places that will be hotly contested in the 2020 elections – on top of the challenges related to the Covid-19 pandemic and economic fallout. In addition to congressional reauthorization of GSP, administration decisions to restore lost GSP eligibility would provide significant benefits to struggling American companies.

American businesses: “By lowering tariffs for American companies that import under GSP, it supports jobs and investments in the United States.”

(WASHINGTON) – Over 430 American businesses and associations from across the country that currently use the Generalized Systems of Preferences (GSP) program to help sustain and grow their businesses today wrote to Congressional leaders asking their help in delaying a recent decision to terminate the program for India and Turkey. In their letter, the American businesses pointed out that just last year, Congress voted nearly unanimously to renew the GSP program for all eligible countries and that their help is needed in ensuring that the recent termination decisions reflect Congressional intent in overwhelmingly agreeing to continue the program.

“As representatives of American companies that would pay higher tariffs as a result of these decisions – and similar ones that could come in the future – we urge you to request a delay beyond May. This would provide Congress time to work with the Administration and ensure the decisions match both the letter and the spirit of the GSP law.” the letter states. By lowering tariffs for American companies that import under GSP, it supports jobs and investments in the United States, particularly at U.S. small businesses. Congress showed the strong bipartisan support for GSP when it reauthorized the program for three years in 2018.”

The GSP programs was established in 1974 to both promote economic development and provide duty-free imports to help American small businesses compete. As the U.S Trade Representative’s office website states, GSP: “Supports tens of thousands of jobs in the United States.  GSP also boosts American competitiveness by reducing costs of imported inputs used by U.S. companies to manufacture goods in the United States.  GSP is especially important to U.S. small businesses, many of which rely on the programs’ duty savings to stay competitive.” India and Turkey currently provide roughly a third of total GSP imports.

The businesses that sent the letter to Congress represent the profile of the average American business that benefits from the program which tend to have 20 or fewer employees and depend greatly on duty-free imports to support those employees and their overall business. The Coalition for GSP, a group of American companies, small businesses and trade associations organized to educate policy makers and others about the important benefits to American companies, workers, and consumers of the Generalized System of Preferences (GSP) program helped organize today’s letter.

The full text of the letter:

Dear Chairmen Grassley and Neal and Ranking Members Wyden and Brady:

We are writing to express our grave concerns with the Administration’s recent announcement of intent to terminate Generalized System of Preferences (GSP) program for India and Turkey. The decisions could take effect as soon as May 4, 2019. As representatives of American companies that would pay higher tariffs as a result of these decisions – and similar ones that could come in the future – we urge you to request a delay beyond May. This would provide Congress time to work with the Administration and ensure the decisions match both the letter and the spirit of the GSP law.

GSP is a 45-year old program created to promote economic development. By lowering tariffs for American companies that import under GSP, it also supports jobs and investments in the United States. Congress showed strong bipartisan support for GSP when it reauthorized the program for three years in 2018. The House of Representatives voted 400-2 in favor of GSP renewal legislation, which was then enacted into law as part of the Consolidated Appropriations Act, 2018. Congress has not just reauthorized the program in recent years but expanded it significantly in 2015 by removing the statutory prohibition on eligibility for travel goods.

Multi-year reauthorizations and expansions have had a positive impact on American companies and workers, which saved a record $1.03 billion in eliminated tariffs in 2018. Yet the Administration’s use of country practice reviews threatens to undermine Congress’ intent in reauthorizing GSP and the benefits to program users like us. About one-third of GSP savings for American importers result from the inclusion of India and Turkey in the program. Another third result from eligibility for other countries under review, such as Indonesia and Thailand.

The India decision was based on failure to resolve market access issues. The GSP statute does not require a perfect trading relationship, just assurances of reasonable and equitable treatment. There are reports that India offered significant proposals that would improve US market access for a range of products and industries. By terminating GSP, the Administration has chosen higher barriers for US imports and exports instead of more-open markets for two-way trade. This does not match the intent of the GSP program or its eligibility criteria.

The Turkey decision was based on sufficient economic development, including “rising Gross National Income (GNI) per capita.” Yet the facts do not support this decision. While Turkey has made significant strides to diversify its exports and reduce levels of poverty, according to the World Bank, Turkey’s GNI per capita declined each year from 2014 to 2017. Further declines are expected as Turkey entered recession in 2018 for the first time since the global financial crisis. This action is diametrically opposed to GSP’s original intent. Preference programs were created to promote development by giving countries a hand up, not imposing new barriers when they are down.

The decisions even are worrying to GSP program users that do not import from India or Turkey. Eight other countries are subject to pending country practice reviews, and those decisions could be announced at any time. USTR also will announce soon whether any new country practice reviews will be self-initiated for GSP beneficiaries in Europe and the Western Hemisphere soon. If the Administration chooses to terminate GSP benefits despite efforts from beneficiary countries to address U.S. concerns, and can graduate countries based on positive economic development when data suggest otherwise, what countries’ benefits are not at risk?

It is not an exaggeration to suggest that when GSP comes up for reauthorization in next year, it could be a shell of the program that so many Members of Congress supported just a year ago. The India and Turkey announcements raise serious questions about whether the Administration is enforcing congressional intent, or misusing its discretion to eliminate tariff benefits that Congress has expressly granted.

We urge you to ensure that GSP decisions follow both the letter and the spirit of the law. Jobs at our companies depend on it.

Sincerely,

VIEW ALL 438 LETTER SIGNERS HERE

Even before upward revisions, U.S. companies’ tax benefits from GSP showed massive increases from past years: American companies saved nearly $20 million per month more in 2017 because of GSP compared to just two years earlier.

Through the first half of 2018, GSP savings are up an additional 18 percent and on track to crack $1 billion for the year. While Congress renewed GSP through 2020 to give companies the certainty necessary to encourage such growth, the Trump administration has launched a number of country “eligibility reviews” that could raise taxes for American companies that depend on GSP – by a lot.

There are GSP reviews underway for India, Indonesia, Kazakhstan, Thailand, and Turkey. American companies saved $544 million last year due to GSP for those countries. Collectively, they accounted for 61 percent of GSP savings on imports from all countries.

Given the risk of lost GSP, we strongly encourage companies importing from those countries to sign up for our GSP supporter list and take our review impacts survey, which are both free.

In terms of specific revisions based on the new data, New Jersey saw the biggest jump in savings by value, followed by Florida, California, Georgia, and New York.

Montana saw the biggest jump in GSP savings by percent, followed by Utah, Maine, Florida, and Nevada.

For supplier countries, the largest revision in US savings came on imports from the Philippines, followed by Indonesia, India, Thailand, and Brazil.

Last week, the House overwhelming approved GSP renewal legislation (HR 4979) but a vote of 400-2. The statements in support of GSP renewal were as strong as the final vote. Several Members highlighted how GSP savings can help companies lower costs, hire workers, and invest in their businesses and employees:

Ways and Means Chairman Kevin Brady (R-TX): “In Texas alone, our local job creators saved more than $76 million. Of course, this is money that our businesses can instead use to hire more workers, expand, and innovate. But think about what it means for families.”

Rep. Ralph Norman (R-SC), who helped spearhead last October’s House letter urging GSP renewal: “In 2017, producers in my state saved $17 million on GSP imports through reduced tariffs. There savings translate directly to how much companies can reinvest in their businesses and their employees.”

Rep. Jackie Walorski (R-IN): “GSP helps American manufacturers both big and small cut input costs, which in turn lowers prices for consumers. Companies saved $865 million in import duties in 2017 alone.”

Other went further and highlighted specific companies that would benefit from GSP renewal, including GSP supporter list companies TRInternational and Kona Bicycle in Washington, Primetac in New Jersey, and TopFlite Mfg. in Florida.

Ways and Means Trade Subcommittee Chairman Dave Reichert (R-WA): “In my home state of Washington, GSP saved companies about $11 million in import duties in 2017 — up 30 percent from 2016. 

As just one example, TRInternational, a small but quickly growing veteran-owned chemical distributor in Seattle, relies on GSP to obtain certain chemical raw materials at globally competitive prices.  Our last renewal of GSP in 2015 allowed TRI to hire more employees and increase its capital expenditures.  Many of TRI’s customers are U.S. manufacturers, and TRI’s use of GSP to obtain raw materials at lower prices also makes these manufacturers more competitive. 

For TRI, and for other Washington companies like Kona Bicycle that use the GSP program, their employees, and American consumers, GSP provides significant benefits.”

Ways and Means Trade Subcommittee Ranking Member Bill Pascrell (D-NJ): “Since the expiration of the program, small and medium-sized enterprises have borne the burden of higher costs of products imported under the GSP program.

Consider Primetac, located in Little Ferry, New Jersey, a family-owned business from my district that uses GSP-eligible goods to support their industrial packaging business. When GSP last expired, Primetac was forced to raise prices to compensate for new import taxes. This was no small increase, as the company estimates it paid about $1.5 million in new tariffs during the program’s lapse.

This legislation would provide benefits retroactively to GSP-eligible imports, so that small and medium-sized American companies like Primetac can take full advantage of the benefits of GSP and boost their business’s productivity. It is critical that we act quickly to renew this already expired program to support these firms and their employees.”

Rep. Carlos Curbelo (R-FL): “In 2017, U.S. importers enjoyed nearly $865 million in savings on import duties under the GSP program. During the same year, my home state of Florida had $1.2 billion of imports covered by the program and a total of $59 million in savings on import duties—Mr. Speaker, that’s about a 40 percent increase in savings from 2016.

I want to share the story of Mr. Bruce Price, a small business owner in my district who would benefit from renewing the GSP program. He recently told my office that he expects savings in the range of $25,000 to $45,000 per year if the program is renewed. For Mr. Bruce, that amount of savings goes a long way and makes a major difference in his business decision to hire more workers or hold off.

I commend the work that the Ways and Means Trade Subcommittee has done to reinforce our commitment to free and fair trade partnerships around the world. I urge my colleagues to vote in favor of H.R. 4979 to help Mr. Bruce and other small business owners hire more workers.”

Clearly, Members of Congress want to know about the companies impacted by GSP and its expiration. As the GSP Coalition continues to advocate for swift, retroactive GSP renewal, we strongly encourage companies to sign up for our free GSP supporter list and answer our expiration impacts survey.

Based in Plano, Texas, Custom Direct is a US supplier of luggage, bags and cases with 10 employees. The company works with manufacturers in Cambodia that generally qualify for duty-free treatment under GSP. The company hasn’t paid any extra import tariffs due to GSP expiration, but the costs are quite real. According to Custom Direct’s CEO [emphasis added]:

We lost our largest project of the year, the opportunity to supply 2.5 million eyeglass cases to a major US customer as part of a Q-1 project. We were the successful bidder and awaiting the purchase order when we became aware that Congress had failed to renew GSP.  

The duty on cases would have added 17.6% to our cost of goods which we could not simply “hope” to recoup some day if GSP were to be re-instated. We had no choice but to withdraw and the business went to a supplier in China instead. We are still in the running for Q-3, but without GSP allowing us to partner with a Cambodian manufacturer, the project will go to China again.

The loss of business made us delay plans to hire 6 people in Texas and adjust revenue forecasts downward. Our US warehouse subcontractor also delayed plans to hire additional American workers to handle marking and labeling, packing, and distribution of the eyeglass cases. We are a small business and the loss of such a large client is perilous to our bottom line.

Custom Direct is a textbook example of why even retroactive renewals that refund tariffs paid can’t “make companies whole.” There are no tariff refunds for sales that were never made – something we highlighted on Tuesday as well. The longer Congress allows GSP to remain expired, the greater the risk of major losses for companies like Custom Direct that must compete against suppliers in countries like China that are not impacted by GSP expiration.

Is GSP expiration similarly impacting your company? If so, let us know how by completing this form. As always, no company-specific information will be published without explicit permission.

• Employ anywhere from 1 to 30,000 US employees. Small businesses dominate, with about 2/3 of companies reporting 12 or fewer workers.
• Saved anywhere from $5,000 to $3 million because of GSP in 2017, and bigger company ≠ bigger savings. The top “saver” was an SME; while 3 of the top 6  were among those with 12 or fewer workers.
• Are headquartered in 17 states and 39 different congressional districts. New supporters come from Massachusetts and Florida and Southern California and Washington State – and everywhere in between.

Here are some of the companies that granted permission to share the details of their GSP use:

• Lawrence & Co. in New Bedford, Massachusetts has 3 employees. GSP saved it $6,000 in 2017 on imports of mica products and leather goods from India.
• RV Industries in Buford, Georgia has 30 employees and saved $200,000 in 2017 on imports of coconut products from Thailand and the Philippines. RV Industries also exports to both Canada and Mexico.
• Miami Chemical in Miami, Florida is among the small business with big GSP savings. GSP saved the 12-person company about $1 million on imports of chemicals from India, Thailand, and Turkey.
• Pioneer Square Brands‘ 110 employees makes it among the larger new supporter list companies. The Seattle, Washington-based company saved $250,000 on imports of educational accessories from Cambodia.
• Colorado Angler Supply in Aurora, Colorado has 6 employees and saved $5,000 in 2017 on imports of fishing tools and accessories from India. It also exports to Canada and South America.

It’s not just new companies: the International Bottled Water Association and the Society of American Florists both joined the supporter list this month as well.

In short, GSP supporters are as diverse as the products they import. It might be hard to find something that ties these 7 organizations together beyond their support for GSP renewal, which may help explain bipartisan support in Congress too.

But it’s hard to pass any legislation these days, so we’re always looking for new examples of how GSP benefits companies and workers throughout the United States. If your organization benefits from GSP and is not yet on the free supporter list, please take a moment to add it here. We also have an open-ended survey where companies can share specific impacts of GSP expiration here.