In the evening of February 13, the U.S. House voted 400-2 to pass H.R. 4979, bipartisan legislation providing a three-year retroactive renewal of the Generalized System of Preferences program. GSP is a longstanding U.S. trade preference program that delivers tariff relief and cost savings to American businesses, workers, and consumers across the country. The issue now is expected to be addressed in the U.S. Senate in March.
“GSP expiration has already cost American companies approximately $100 million, a figure that grows by several million dollars every day,” Dan Anthony, executive director of the Coalition for GSP, said in statement. “A three-year extension will provide American businesses with the certainty needed to continue growing and investing in their workers and communities.”
On January 4, 2018 nearly 400 U.S. companies and associations (including the California Chamber of Commerce) sent a letter to House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, House Minority Leader Nancy Pelosi, and Senate Minority Leader Chuck Schumer urging swift, retroactive renewal of the GSP program. GSP had expired on December 31, 2017 and companies must now pay $2-3 million per day in extra taxes while awaiting a potential congressional reauthorization. The last time GSP expired, Congress did not renew it for nearly 2 years and companies paid about $1.3 billion in tariffs.
Despite broad, bipartisan support in both the House and Senate, GSP renewal did not get a vote in 2017. In January, 2018 a White House official reported the Trump Administration supports a three-year GSP extension and would like to see Congress act “this year” (2018).
GSP is an important tool for boosting economic growth and job creation. Many U.S. companies source raw materials and other inputs from GSP countries, and the duty-free treatment of these imports reduces the production costs of these U.S. manufacturers, making them more competitive. According to analysis by the Coalition for GSP, approximately 82,000 jobs are either directly or indirectly associated with the importation and use of GSP-eligible imports.
The Generalized System of Preferences provides special tariff preferences for imports from the less developed countries into the advanced industrialized countries. The idea of such preferences was first formally proposed at the 1964 United Nations Conference on Trade and Development (UNCTAD I). This conference focused on the theme that trade, as opposed to aid, was the most effective vehicle for promoting Third World economic development.
In 1968, some headway was made at UNCTAD II, when the United States and other advanced industrialized countries supported a resolution to establish a mutually acceptable system of preferences.
A barrier to such a system was the most favored nation clause of the General Agreement on Tariffs and Trade (GATT), which provides that trade be conducted on the basis of non-discrimination. To permit them to grant preferences to less developed countries, the industrialized countries requested and received a 10-year waiver from the requirement on June 1971.
The implementation of 14 Generalized Systems of Preferences (GSPs) followed: The European Community (July 1, 1971), Japan (August 1971), Norway (October 1971), Denmark, Finland, Ireland, New Zealand, Sweden, the United Kingdom (January 1972), Canada (July 1974), and the United States (January 1976). The 10-year waiver was later extended by the GATT and adopted by the WTO, with the result that the industrialized countries can extend their GSP programs indefinitely.
The U.S. GSP is authorized by Title V of the Trade Act of 1974 and instituted on January 1, 1976. Under the program, the President designates countries and products eligible for duty-free treatment. Products determined to be import-sensitive are statutorily exempt.
GSP was most recently reauthorized on June 29, 2015 (effective July 29, 2015) for a period of two and a half years. According to the Coalition for GSP, the renewal alone led to about $1.3 billion in refunds.
The California Chamber of Commerce, recognizing that the Generalized System of Preferences has stimulated two-way trade with the United States and has contributed to the long-term economic development of some developing countries, supports annual extensions of the Generalized System of Preferences.
In keeping with long-standing policy, the CalChamber enthusiastically supports free trade worldwide, expansion of international trade and investment, fair and equitable market access for California products abroad and elimination of disincentives that impede the international competitiveness of California business. New multilateral, sectoral and regional trade agreements ensure that the United States may continue to gain access to world markets, resulting in an improved economy and additional employment of Americans.
Staff Contact: Susanne T. Stirling