Ultimately, companies have two choices: trust Congress to renew GSP in 2017 or raise prices to reflect potential tariff increases. Both options carry risks, as shown by early responses to a new survey launched last week.

Companies that maintain current pricing could find themselves with lower or even negative margins if Congress fails to renew GSP by December 31. For example, a representative from Oxan Inc. reported that margins are already under pressure due to soft retail spending and any additional margin erosion will be difficult to handle. Without the ability to raise prices, “financing an extra duty in an increasing interest rate environment will test our profitability and viability as a company.” GSP expiration may be 7 months away, but Oxan must place orders by June 15 – just 2 weeks away! – for delivery in 2017.

Companies that “play it safe” by pricing in tariffs risk reduced competitiveness now even if Congress renews GSP by the deadline. A representative from Kervan USA summarized the impact of the uncertainty:

We are trying to reflect the duties into prices, but this is leading to a decrease in sales. So the growth of our company will be affected and we will not be able to hire more people. We were planning to hire at least 3 new employees.

In short, steps taken now to minimize risks of another GSP expiration are preventing new American jobs.

Fortunately, most companies have some time to make these decisions: about half of the respondents to date indicated a 3-4 month delay between ordering and delivery. So those companies can hold off until late summer or early fall before they start placing orders that could be hit with extra tariffs. But every day the uncertainty impacts more American companies and workers.

Congress should pass GSP renewal legislation immediately so companies can stop worrying about renewal and instead focus on growing their business and creating American jobs.

(Haven’t answered the survey yet? Please take 1 minute to do so here!)

As detailed in the 2014 GSP expiration impact survey report (right, featuring Candace and Danny on the cover), GSP expiration in 2013 forced Sophia Foods to lay off two employees (out of 7) and implement a hiring freeze. The company also put plans to purchase a warehouse and expand its space on hold until it was sure about the future of the business, which was so closely tied to GSP renewal.

So where do things stand now for Sophia Foods? Fortunately, it received refunds for tariffs paid during the expiration quickly (within 1-3 months). According to Candace:

Since GSP renewal, we refilled the two spots that were eliminated during expiration and added another position, and we are now able to offer more paid time off to our loyal, hardworking team. We have doubled our leased space, and are now confidently and actively searching for a warehouse of our own to purchase.

Thanks to the stability ensured by GSP renewal, our sales have increased, and we have very recently landed two major accounts which we hope will expand our business exponentially into the future.

So things are definitely looking up! But continued growth depends upon Congress renewing GSP before it is set to expire again at the end of next year. After all, Sophia Foods had to lay off two workers when GSP expired in 2011, then spent the next two years rebuilding the business before history repeated itself.

For small businesses, the uncertainly associated with GSP renewal/expiration can create paralysis. As Candace noted in this latest survey:

Stability is the key here. The living in limbo was the worst part of the GSP non-renewal period. We couldn’t move forward, but hesitated to move backward too much without knowing what might happen. It felt like a huge part of our cash flow was being held hostage, and making sound business decisions became increasingly impossible as time wore on.

This is a message that must be delivered to Members of Congress over and over and over again, right up until it renews GSP beyond December 31, 2017. But the Coalition can only provide them if importers share them with us first, as Candace has done here and you can do by answering the survey too.

Sophia Foods provided the above information in response to our GSP renewal impacts survey. If you have not done so already, please take a minute to answer these questions today. As always, all data will be kept confidential and no company-specific answers will be attributed unless permission is explicitly granted. You can find another company response here and some preliminary survey response data here and here.

The Sophia Foods timeline from an August 2014 post

In May 2011, Sophia Foods first contacted the Coalition for GSP to say that it had reached out to its representatives about the impacts GSP expiration was having on the business.

By June 2011, Sophia Foods had been forced to lay off 2 workers to stay afloat in light of plummeting profits associated with its GSP imports.

In October 2011, Congress passed legislation renewing GSP through July 31, 2013.

In July 2013, Sophia Foods contacted the New York Senators’ offices multiple times urging GSP renewal. It warned of the possible impacts of GSP expiration by citing its experience from 2011. It emphasized that recovering after 2011 was difficult and asked not to be put through the stress and uncertainty again.

By early September 2013, Sophia Foods had paid $3,700 in import taxes and expected another $7,000 before the end of the month because of GSP expiration. Candace wrote: “It’s hard to compete when you don’t know the actual final cost of the goods. We’re essentially playing ‘chicken’ either with our competitors or our year end profit – destabilizing situation for the whole market! We’ve suffered enough! Cut us a break already!“

By early March 2014, Sophia Foods had laid off an employee. In response to a survey, Candace wrote: “We laid off one driver due to slowing sales directly related to the raising of prices on product brought at the higher rate. To compound the problem, we’re now sitting on slower moving inventory which is strangling our cash flow.“

In July 2014, Sophia Foods joined in our Tariff Tuesdays campaign (owners Danny and Candace are the people in the cover photo) and repeatedly told staff for their congressional representatives about the impacts of GSP expiration on their business and the importance of renewing it.

By August 2014, Sophia Foods had laid off another employee and delayed a major investment, as noted above. History had officially repeated itself, as the company had to lay off two employees because of GSP expiration in the span of just three years.

Today, we want to highlight the responses to another question that had not been asked in the past, namely whether or not the products receiving duty-free benefits under GSP were later exported from the United States. Once again, the findings might surprise readers: more than half of respondents said their GSP imports are incorporated into U.S. exports.

While past reports have focused on the positive domestic impacts of GSP on American businesses and workers, this is a very important finding from a trade policy perspective. In short, renewing GSP makes U.S. exports more competitive.

Among the respondents naming specific countries, the top destinations include Canada, Mexico, Japan, and the United Kingdom. Among those naming regions, the top destinations include Europe (or EU) and Central and South America.

The preliminary results are useful, but more responses are necessary to make compelling arguments about GSP promoting U.S. exports. If you haven’t answered already, please take a moment to answer the survey here.

To start building the case now for GSP extension beyond 2017, we must show the positive impacts of GSP renewal and the tariff refunds. Some companies (The Cannon Group, Kona Bicycles, Primetac, Thompson Traders) have provided stories already, but we need more. To that end, we have launched the new survey below.

Like previous surveys, all data will be kept confidential and no company-specific answers will be attributed unless you explicitly grant permission. If you have any questions, please contact Dan Anthony at the Coalition for GSP here.

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