What is Generalized System of Preferences (GSP), Its Purpose, and More

The Generalized System of Preferences, commonly known as GSP, is a significant trade program that benefits developing countries. It was created to boost economic growth in less developed countries by allowing them to export certain products to developed countries with reduced or no tariffs. The GSP is an important tool for promoting international trade and improving the economic conditions of developing nations.

In this blog, we will explore what GSP is, its purpose, the countries involved, and much more, all in a simple and easy-to-understand manner.

What is the Generalized System of Preferences (GSP)?

The Generalized System of Preferences (GSP) is a trade program initiated by the United States to provide duty-free access to products imported from developing countries. Through GSP, the U.S. offers preferential treatment on about 4,800 different products from over 130 countries and territories. This means that these products can be imported into the U.S. without paying customs duties, making it cheaper for U.S. businesses to buy goods from developing nations.

The GSP program was first established as part of the U.S. Trade Act of 1974 and officially started on January 1, 1976. Since then, the program has undergone several renewals, with the most recent authorization expiring on January 1, 2021. Although GSP is currently not active, it remains a crucial part of global trade policy, and its renewal is a topic of ongoing discussion.

Purpose of GSP

The primary purpose of the Generalized System of Preferences is to promote economic development in poor and developing countries by expanding their trade opportunities. By allowing duty-free imports into the U.S., GSP helps these countries grow their economies, create jobs, and diversify their industries.

Some of the key purposes of the GSP program include:

1. Promoting Economic Growth: GSP helps developing countries expand their economies by giving them access to the U.S. market. This allows them to sell more goods and earn more revenue, which can be used to improve their infrastructure and social services.
2. Creating Jobs: When developing countries export more goods to the U.S., it creates jobs in their local industries. This leads to better income for workers and helps reduce poverty in these countries.
3. Boosting Competitiveness: GSP not only benefits developing countries but also helps U.S. businesses by providing them with cheaper imports. This reduces the cost of production for American companies and makes them more competitive in the global market.
4. Encouraging Social Progress: The GSP program also encourages countries to improve workers’ rights, protect intellectual property, and enforce the rule of law. These conditions help foster social progress and align with American values.

GSP Countries

There are currently 13 countries and regions that grant GSP preferences. These include:

• Australia
• Belarus
• Canada
• The European Union
• Iceland
• Japan
• Kazakhstan
• New Zealand
• Norway
• Russia
• Switzerland
• Turkey
• The United States

Within the U.S. GSP program, there are 131 designated beneficiary developing countries (BDCs) and territories, including 44 least-developed beneficiary developing countries (LDBDCs). These countries benefit from the duty-free access provided under the GSP system.

How Does an Import Qualify for Duty-Free Treatment Under GSP?

To qualify for duty-free treatment under the GSP, certain criteria must be met:

1. The product must come from a designated beneficiary country: Only products imported from a GSP-eligible country are considered for duty-free treatment.
2. The product must be GSP-eligible: Not all products qualify for GSP benefits. The U.S. maintains a list of eligible products, which is updated annually.
3. The product must meet the GSP rules of origin: This means that the goods must be shipped directly from the beneficiary country to the U.S. without passing through another country. If they do pass through another country, they should not be involved in any transactions there.

Articles Eligible for Duty-Free Treatment Under GSP

Products that qualify for duty-free treatment under GSP are listed in the Harmonized Tariff Schedule of the United States (HTSUS). This list includes many manufactured and semi-manufactured goods, as well as some agricultural and fishery products. However, certain “import-sensitive” products, such as textiles, watches, footwear, electronics, steel, and glass, are excluded from GSP benefits because they could harm U.S. industries if imported duty-free.

How to Identify GSP Eligible Products?

The HTSUS is the official guide for identifying which products are GSP-eligible. In the HTSUS, GSP-eligible items are marked with special symbols called Special Program Indicators (SPI):

• “A”: Indicates that the product is eligible for duty-free treatment for all beneficiary countries.
• “A+”: Indicates that the product is only eligible for the least-developed countries.
• *“A“**: Indicates that the product is GSP-eligible, but not for all countries.

Importers must claim GSP benefits by using these SPI codes on the appropriate U.S. Customs and Border Protection (CBP) forms when submitting entry documentation.

How Can Importers Request GSP Treatment?

The importer of the product is responsible for requesting duty-free treatment under the GSP program. To do this, they must list the SPI code corresponding to the product’s GSP status on the shipment documentation. If the importer forgets to claim GSP status when the product first arrives, they can still file a Post Entry Amendment with U.S. Customs or protest for GSP treatment before the shipment is fully processed.

Documents Required for GSP Duty-Free Treatment

To qualify for GSP benefits, certain documents must be submitted to U.S. Customs. These documents vary depending on the nature of the shipment and its origin, but generally include:

• GSP declaration
• Bill of materials
• Invoices
• Purchase orders
• Production records
• Payroll information to document labor costs
• Factory profile
• Affidavit with supporting documentation

These records must be kept for five years and should be made available for inspection by U.S. Customs if needed.

Competitive Need Limitations (CNL)

While GSP offers significant trade benefits, there are limitations. Competitive Need Limitations (CNL) place caps on how much of a particular product from a beneficiary country can be imported duty-free each year. There are two main CNL thresholds:

1. If the U.S. imports more than 50% of a product from one beneficiary country, that country loses GSP benefits for that product.
2. If the value of imports for a specific product from a beneficiary country exceeds a certain dollar amount, that country loses GSP eligibility for that product.

These limits help prevent developing countries from becoming too reliant on GSP benefits and ensure that the program continues to serve its original purpose.

CNL Waivers

In some cases, countries can request a CNL waiver, which allows them to continue receiving GSP benefits even if they exceed the CNL thresholds. Waivers are granted in three main situations:

1. Petitioned waivers: Interested parties can request a waiver during the annual review process.
2. 504(d) waivers: Waivers are granted automatically for products that were not produced in the U.S. as of January 1, 1995.
3. De Minimis waivers: A waiver is granted if the total U.S. imports of a product are very small (de minimis), even if the percentage threshold is exceeded.

Conclusion

The Generalized System of Preferences (GSP) is a vital program that promotes economic growth and development in poor and developing countries. By allowing duty-free imports into the U.S., GSP helps these nations expand their industries, create jobs, and improve living standards. At the same time, GSP benefits U.S. businesses by lowering the cost of imported goods, making them more competitive in the global market.

Although GSP has faced challenges and is currently awaiting renewal, its importance cannot be overstated. It has been a key part of global trade for over 45 years, helping both developing nations and U.S. businesses thrive. As discussions about GSP renewal continue, it remains a crucial tool for promoting economic development and fair trade around the world.

Frequently Asked Questions (FAQs) About GSP

Is the list of GSP-eligible countries and products ever modified?
Yes, the list of GSP-eligible countries and products is reviewed and updated annually. Changes take effect on July 1 each year.

Can all GSP countries export all GSP-eligible products?
No, not all GSP-eligible countries can export all products. Some products may be excluded for specific countries if they exceed the CNL or fail to meet other requirements.

What happens if imports exceed the CNL during the year?
If imports from a beneficiary country exceed the CNL threshold, the country’s eligibility for that product is terminated on July 1 of the following year, unless a CNL waiver is granted.

Can a product be re-designated for GSP eligibility?
Yes, if imports of a product from a beneficiary country fall below the CNL in the following year, interested parties can petition for the product to be re-designated for GSP benefits.Also Read: A Complete List of Custom Duty in India