Free Trade Tuesday - GSP

Welcome to Free Trade Tuesday! This week we are discussing one of the oldest free trade agreements, the Generalized System of Preferences (GSP).

Implemented in 1976, GSP is a program that offers special duty-free benefits on designated products from over 100 less developed countries. Initially, GSP was created to offer trade incentives to developing economies by allowing them to compete in the U.S. market with other, more highly developed economies. GSP helps these less developed economies establish key industrial areas by allowing the importation of certain products into the U.S. without payment of duty. This program is subject to annual renewal. In addition, products and countries can be removed from eligibility during these annual reviews. For example, goods from Taiwan, Hong Kong, Republic of Korea and Singapore were removed from eligibility in 1989.

A list of the eligible countries is found in GN 4(a) of the HTSUS. If a tariff number is eligible for GSP, the symbol "A" appears in the "Special" sub-column. The symbol “A+” denotes a Least–Developed Beneficiary Developing Country”, which means that payment of the merchandise processing fee is not due. Even if the country is eligible for GSP, some designated products from a specific country may not be eligible. These products are indicated by an asterisk (*) beside the letter. When you see the code "A*", check the list of exceptions found in GN 4(d) to see which country is ineligible for the tariff number in question.

In order to qualify for special treatment under GSP, the merchandise must be imported directly from the GSP country and be wholly the growth, product or manufacture of the GSP country. Imported directly means that the goods were shipped from the beneficiary country to the U.S. without passing through the territory of any other country. However, goods may transit through another country without losing eligibility so long as nothing is done to the merchandise other than loading and unloading and the goods do not enter the commerce of the other country.

The sum of the cost of the material produced in the beneficiary country plus direct costs of the processing operations performed in the country must not be less than 35% of the appraised value of the imported article in order to qualify for GSP benefits.

When making the 35% calculation, some items that may be included in the direct costs of processing are:
· Costs that can be attributed to the manufacturing process, growth or assembly of the merchandise;
· The actual labor costs;
· Costs of job training;
· Costs of dies, molds, tooling;
· Costs of machinery and depreciation; and
· Research and development costs.

When making the 35% calculation, some indirect costs that must be excluded are:
· Profit;
· General business expenses;
· Administrative salaries;
· Advertising; and Insurance.

If the article is not wholly from GSP country, it may still be eligible if the article is substantially transformed into a different article of commerce.

"Substantial transformation" means that, because of manufacturing, a new and different article emerges, having a distinctive name, character or use, which is different from that originally possessed by the article. The concept of substantial transformation will appear again in most other basic Special Duty Programs.

Example:
Wood, from trees grown in Italy, is shipped by vessel to Egypt where the wood is cut, painted and made into a table. The wood from Italy has been substantially transformed into a table that is a new and different article, thus meeting the definition of substantial transformation.

GSP - Key Facts
Expiration: 12/31/2010
HTS General Note: GN 4
Imported Directly: Yes
SPI: A
De Minimis: No
Origin Criteria: 35%, Substantial Transformation
MPF: Only Least Developed Beneficiary Countries Exempt
Countries: Multiple - Subject to Change. See GN 4a for more information.
Regulations: 19 CFR 10.171 – 10.178

Join us again next Tuesday when we discuss the Caribbean Basin Economic Recovery Act.