For the several years, U.S. Citizens have been highly critical of the dysfunction in the House and Senate, and the inability of Congress to pass legislation. When legislators return for the fall sessions in a few weeks, both Congressional Houses will focus on avoiding a government shutdown by working to raising the national debt ceiling. While they seemed poised to prevent this pitfall, Congressional Members appear to be stagnant with creating any new trade policies. Sadly, for American small-to-medium sized enterprises (SME), Congress remains quiet on trade-related issues, heavily relying on the current Administration for guidance on priorities.
This waiting game is only going to hurt the business community, especially with the administration’s emphasis on developing a balanced trade policy with China, as well as renegotiating NAFTA and our trade agreement with South Korea. For example, New England is just starting to feel the effects of not having a competing free trade agreement with Europe to counter the Comprehensive Economic Trade Agreement (CETA) between the EU and Canada. Although New England businesses have voiced their concerns about CETA, Congressional Leaders are yet to demonstrate any signs of urgency to help alleviate issues for American companies exporting to the EU. The renewal of the U.S. Generalized System of Preferences (GSP) is another trade concern which Congress has no sense of urgency to resolve, but if left unchecked will cause severe damage to many U.S. businesses.
The Generalized System of Preferences (GSP) grants duty-free treatment to goods of designated beneficiary countries. With the goal of promoting economic growth in the developing nations, the Trade Act of 1974 authorized the GSP Program. Officially implemented on January 1, 1976, the GSP is the oldest and largest U.S. trade preference program. The program eliminates duties on goods products imported from designated beneficiary countries and territories to promote their economic development. Participation in the GSP Program benefits U.S. jobs and helps American firms remain competitive, while also providing assistance to promote American values. Compared to May 2016, the GSP Program helped American companies save $72 million on roughly $1.8 billion with GSP-related imports rising by 14%.
Unfortunately, for the US business community, the GSP periodically expires and requires Congressional authorization for renewal. The GSP will expire on December 31, 2017, and currently this item does not seem to be on any upcoming legislative calendars. While these circumstances should seem shocking, it is not surprising because there is no set time frame for this to happen, but historically it is renewed. Thus, it could be months or years if members of Congress cannot agree, especially when one considers the recent history of Congressional behavior with the previous GSP renewals. The last time Congress approved to reauthorize the GSP was in 2015, nearly two years after the bill expired. During that period, SME’s saw increased tariffs taking away profits, which led to laying-off workers and the loss of customers. In contrast, after the reauthorization of the GSP, companies were able to expand their operations through having increased profits from paying lower tariffs.
While that delay occurred during the height Congressional inactivity and stalemate legislation, today’s circumstances are much different. This lack of Congressional action in the GSP renewal process gives the impression that big business receives more attention from the government and the concept of building our economy through the growth and development of SME is a broken one. If the program expires, there are several ramifications for importers. Until Congress reauthorizes the GSP, one of the most significant changes to the program will immediately require importers to pay the applicable duties on the imported products. As each day passes, importers are put in precarious positions because they have to make presumptions about important pricing issues, and they are uncertain if orders placed in November may encounter new additional taxes. So, ordering goods today for delivery in 2018 could face tariffs without the GSP, especially if Congress decides to act in December or later.
In addition to the pricing issue, another consequence stemming from the GSP authorization will put American companies at a competitive disadvantage against products made in abroad not because of the product quality, but due to the higher tariff rates. As a result, U.S. firms submitting proposals will proceed under the assumption the GSP is not going to be renewed when they bid on business in 2018, and the higher prices could cause a company to lose current business, or not get awarded new business. Hopefully, these examples illustrate why Congress must act now to renew GSP and give the business community the confidence to prepare for the upcoming year and beyond. Historically, every GSP renewal included a retroactive clause to allow a refund of duties paid during the expired period. But again, Congress must authorize this clause, therefore, it is not guaranteed.
With the deadline for next year’s orders quickly approaches, the August Congressional recess came at the worst time for U.S. businesses involved international trade because they will be at critical supply chain decision stages when Congress returns to session. Even though the House and the Senate may be on their summer breaks, it is important to note that any importer availing from the GSP Program should contact their Congressional representatives to stress the importance of this program to their company, as well as how this would impact their business and the associated jobs. Only Congress can eliminate this state of uncertainty by passing immediate legislation extending the GSP program beyond December 31, 2018. They just might need a reminder from you to make it happen.