It’s generally accepted that the U.S. Generalized System of Preferences is a good thing — good for developing countries’ exports and good for U.S. importers that can acquire GSP goods duty-free.
Yet it died on the vine when the 111th Congress failed to renew it before adjourning in December. And, although there’s sentiment for quick renewal in the new Congress, there’s also concern that Senate politics will stall the bill, just as it did last year.
On Jan. 1, importers began paying duties on GSP goods that were duty-free a day earlier. Even if Congress allows shippers to get retroactive refunds on the duties they paid, industry leaders say the costs will be a heavy burden, especially for small importers.
“In the past, we saw small importers take out loans, mortgage their houses in order to pay the duty bills. In this environment, where it’s even more difficult to get a business loan, that could pose a real problem,” said Eric Autor, vice president and international trade counsel for the National Retail Federation. “We’ve seen this put companies out of business.”
Autor said the NRF is working to get Congress to renew the program “as quickly as possible, but we have this huge obstacle named Sen. Sessions.”
From the import community’s point of view, it’s easy to spot the villains, and they start with Sen. Jeff Sessions, R-Ala., whose faceoff with Senate Majority Leader Mitch McConnell over constituent interests stalled progress on GSP renewal.
Exxel Outdoors, which manufactures sleeping bags in Haleyville, Ala., claimed CellCorp Global of Bowling Green, Ky., had an unfair advantage because it was importing sleeping bags duty free from Bangladesh under GSP.
Sessions put a hold on the GSP bill to get language added that removed sleeping bags from Bangladesh from the GSP list. Exxel filed a complaint with the U.S. International Trade Commission, but it was dismissed.
“Sessions was sticking up for his constituent. McConnell was sticking up for the importer,” said Laura Baughman, director of the Coalition for GSP, a Washington, D.C.-based group of trade interests supporting the program. “It was a staring match, and nobody blinked.”
While the impasse lasted in the Senate, the two companies were told to work out a compromise. They didn’t.
“Over this stupid little issue, Sen. Sessions has jeopardized a program that’s going to cost American companies millions and millions as a result,” Autor said. “He doesn’t seem to care about the collateral damage he’s causing.”
The dispute brought the GSP to a stop for the first time in a decade, Autor and Baughman noted. According to the coalition, the program has been renewed nine times since 1992. The longer the period Congress extends the GSP, the greater the volume of imported goods.
Under the program, imports by value nearly doubled in the five-year GSP period starting in 2001, according to coalition data. Imports dipped after a short renewal in 2006, then plunged during the 2008-09 recession.
“We’re back in the situation we were in the 1990s, where the program would continually lapse and Congress would have to do retroactive renewals,” Autor said. “Companies couldn’t plan their sourcing activities around a program that they didn’t know if or when it would be renewed, even if they could get retroactive duty refunds. If companies can’t rely on it, they’re not going to use it.”
The Generalized System of Preferences started in the late 1980s as a way of giving developing economies a boost by making it easier for countries to export to the U.S., or other countries with similar preference programs. Between 2000 and 2009, some $235.7 billion worth of goods were imported into the U.S., according to the International Trade Commission data. Some 3,400 products are eligible for import under GSP, according to the Coalition for GSP.
Not all countries are eligible to export any GSP item, nor do all countries remain in the program. The U.S. Trade Representative can reward a nation that acts favorably to U.S. policy. Some countries’ economies have improved enough that they “graduate” from GSP.
Countries also can be hit by loss of GSP privilege. Thailand, for example, had a thriving export business for plastic bags. The duty preference for plastic bags ended in 2007, and Thailand was unable to sell its products at a competitive price. Exports dropped to near zero almost overnight, according to the coalition.
“The $64,000 question is, how quickly can Congress renew this program?” Autor said. “I would not be surprised if it takes several months, if not close to a year. I don’t know where we go from here. If we don’t solve the Sessions problem, it’s going to be difficult to get something through.”
The other question is whether Congress does a retroactive renewal, Autor said, noting Congress renewed the miscellaneous tariff bill without a retroactive provision. “That raises the question in my mind: If Congress is looking at austerity measures, is it going to be willing to do a renewal retroactively?”
Contact R.G. Edmonson at email@example.com.