With GSP Expiration Imminent, Industry Worries Support for Program May Not Translate Into Renewal Legislation

“The vast majority believe and see the benefits of GSP,” said Chuck Dittrich, vice president -regional trade initiatives at the National Foreign Trade Council. “But it doesn’t necessarily rise to the level of noise necessary to get things done.” Renewing GSP was mentioned in President Obama’s 2013 trade agenda (here). There's no public text of a GSP bill in either the House or Senate. CBP recently posted a message saying it had “no information” on whether the program would be renewed (see 13050913).

“It doesn’t appear that there’s much movement,” said Cindy Squires, executive director of the International Wood Products Association. The industry association has been urging timely GSP renewal on the Hill as part of the Coalition for GSP. The advocacy group has existed since the early 1990s, and ramps up activity whenever GSP expiration is imminent (see the group’s website here). The Coalition has held dozens of meetings with individual members of Congress, and is lobbying for a straight extension of GSP for “as long as humanely possible based on budgetary constraints,” said Daniel Anthony, director-research and government relations at the Coalition.

GSP, which covers about 3,500 products from 127 developing countries, is definitely on Congress’s radar, Anthony said. The program historically captures bipartisan, and bicameral, support. “The challenge is typically finding legislative vehicles,” he said. When the program was last renewed in October 2011, it was combined with a Trade Adjustment Assistance bill. GSP is often rolled into larger trade legislation, Dittrich said. That can be both a blessing and a curse: “If there isn’t other stuff to tie it into, it’s a higher hurdle to act on its own. If there are other things to tie it into, it gets caught up in the politics of what those larger things are.”

“When you talk to the trade policy committees, when you talk to the administration, there is widespread recognition that this is an agreement that needs to get renewed,” said Steve Lamar, executive vice president of the American Apparel and Footwear Association. But such bipartisan agreement sits against the backdrop of a Congress that has “a problem of getting a lot of things done,” and a tendency to wait until the last minute, he said. “I think there’s acknowledgement that that’s been a problem and I think people are trying to work to minimize that occurrence.”

In previous renewals when the original deadline was missed, Congress passed the law retroactively, reimbursing businesses for the duties they paid during the gap between GSP and its renewal. In total, that will amount to about $2 million a day, Anthony said. This year’s GSP bill is set to expire July 31. Tariffs become effective Aug. 1, and on Aug. 2 Congress adjourns for its month-long August recess. If GSP isn’t renewed before the end of July, it “guarantees an expiration through at least mid-September,” Anthony said, and $75-$100 million in new import taxes businesses will have to pay.

This new burden is particularly heavy for small businesses; even if they know the program will eventually be renewed, “anytime you’re dealing with uncertainty it’s bad for business,” Squires said. Without GSP, companies may have to revise their contracts and their product sourcing; analyze how a rise in tariffs will trickle through all aspects of the supply chain.

“What it would do essentially is cause the cost of imports to increase, both intermediate products and finished products,” said Hans Taparia, president of Preferred Brands International. The company sells all-natural, ready-to-eat Asian and Indian foods under the brand name Tasty Bite. They have manufacturing facilities in India and the U.S., and import both ingredients unavailable here -- like turmeric and lentils -- and finished products. “Certainly without GSP the cost of those goods would go up quite tremendously,” he said.

Lots of GSP goods also serve as indeterminate products, which means its expiration will affect manufacturing jobs in America, Taparia said. And even a retroactive renewal can hurt. At Preferred Brands International, the lag in GSP between 2010 and 2011 was “concerning,” Taparia said. “We had all kinds of assurances that it would pass and it would be retroactive, so that kept us on course.” But there were still “significant cost implications” from the lapse, he said.

When business are worried about GSP expiring, “they stop using the program,” Anthony said. “They don’t have the certainty there, when you’re talking about building a new business line or working with a new supplier, that’s a month or year-long process. … You can’t make those types of decisions if [GSP] is going to expire in three months.” The Coalition for GSP is thus advocating for a long-term extension, not to fall back into the old pattern of renew, expire, renew, Anthony said. GSP was renewed on time in 2006, 2008 and 2009. But from the mid-90s till then -- as well as the last renewal in 2011 -- GSP always expired before it was renewed retroactively.

Taparia said he's confident GSP will be renewed again this year: the program has been a centerpiece of trade policy for decades, and has historical, bipartisan support. “We are confident that our legislators will act in good sense,” he said.

Squires said she hasn’t seen any strong opposition to the program; instead, a sense that it is helpful for both trade and foreign policy. “History has shown we’ve gone through a number of these renewal phases where everything comes down to the last minute,” she said. “Nothing like a deadline to focus the mind.” --Jessica Arriens