According to the Office of the U.S. Trade Representative, the total value of eligible imports under the Generalized System of Practices (GSP) program was $18.7 billion in 2016. The GSP program grants duty-free entry of products into the U.S. from nearly 100 developing nations and territories. Usually, companies making GSP claims have to confront the daunting challenges of ensuring these claims are made with reasonable care to avoid duties and penalties relating to invalid claims.
Unfortunately, for these importers, new challenges loom in 2018 stemming from the potential expiration of the GSP program on December 31, 2017. Hopefully, Congress reauthorizes the GSP sooner than it did the last time, but firms importing under the GSP program should plan accordingly. Whenever the GSP lapses, importers must pay for import taxes usually alleviated by the forty-year-old trade program. Without a renewed GSP, added duty expenses in the first quarter of 2018 could lead to significant financial challenges later in the year, forcing some companies to scramble for resources to cover costs.
The previous GSP delayed renewal lasted for almost two years and brought several adverse effects to GSP importers. During that time, GSP related businesses stopped hiring new employees and did not expand employee benefits programs. They also reduced the investments for new projects as well as long-range R&D. These organizations scaled down operations and experienced cash flow problems. In some instances, they were undercut by Chinese manufacturers due to higher costs.
A renewed GSP program could also include new legislation to permit duty-free entry in the U.S. of specific footwear from authorized developing nations. Since the inception of the GSP program, shoes have not been eligible for GSP claims. But with the passage of the bill, footwear not produced domestically would be eligible for GSP.
These footwear products amount to over 40 million pairs of shoes and have a customs value of $450 million. The U.S. imports 98 percent of the shoes sold within the country, so eligible U.S. footwear companies would benefit from reduced costs to reinvest in employees, programs, innovations, and more competitive product pricing. Overall, this legislation would provide U.S. companies an estimated $57 million in savings from the elimination of import duties.