USTR Updates its GSP Guidebook for 2011

December 2, 2011 by Elizabeth Parker|Top News

In May 2011, the Office of the U.S. Trade Representative updated its guidebook on the U.S. Generalized System of Preferences to facilitate public understanding of the GSP program. Among other topics, the guidebook provides information on articles eligible for duty-free treatment, articles prohibited from receiving such treatment, Competitive Need Limitations, and reimbursement for tariffs after retroactive renewal of the program.

(The GSP program is designed to promote economic growth in the developing world. It provides preferential duty-free treatment for over 3,400 products from 129 beneficiary developing countries and territories (BDCs), including 42 least-developed beneficiary developing countries (LDBDCs). An additional 1,400 products are GSP-eligible only when imported from LDBDCs. On October 21, 2011, the President signed a bill into law that retroactively renewed and extended the GSP program from January 1, 2011 through July 13, 2013. See ITT’s Online Archives 11102103 and 11101815 for summaries.)

Articles Eligible for Duty-Free Treatment Under the GSP

To be eligible for duty-free treatment pursuant to GSP, an import must meet the following requirements:

It must be included on the list of GSP-eligible articles (see below);
It must be imported directly from a BDC;
The BDC must be eligible for GSP treatment for that article;
The article must be the growth, product, or manufacture of a BDC, and the sum of the cost or value of materials produced in the BDC plus the direct costs of processing must equal at least 35 percent of the appraised value of the article at the time of entry into the U.S.; and
The exporter/importer must request duty-free treatment under GSP by placing the appropriate GSP Special Program Indicator (SPI) before the HTS number that identified the imported article on the appropriate shipping documents (CBP Form 7501).

Eligible articles. Articles classified by U.S. Customs and Border Protection under approximately 3,400 eight-digit tariff rate lines are generally eligible for duty-free treatment from all GSP beneficiaries. In 1996, an additional 1,400 articles were made eligible for such treatment when imported from LDBDCs. The combined lists include most dutiable manufactured and semi-manufactured products, and also certain agricultural, fishery, and primary industrial products that are not otherwise duty-free.

Eligibility identified in HTS¹. Articles eligible for GSP treatment are identified in the current edition of the Harmonized Tariff Schedule. Under each entry for a GSP-eligible article in the HTS, the letter A, A+, A*, or D in the "Special" column identifies the article as GSP-eligible under certain conditions. The letter A designates articles that are GSP-eligible from any BDC. The letter A+ indicates articles that are GSP-eligible only from LDBDCs. The letter A* indicates that one or more specific BDCs, listed in General Note 4(d) to the HTS, have lost GSP eligibility for that article. The letter D indicates that the article is GSP eligible from an AGOA country.

Prohibited articles. Certain articles are prohibited by law (19 USC 2463) from receiving GSP treatment. These include most textiles and apparel articles, watches, footwear, handbags, luggage, flat goods, work gloves, and leather apparel. In addition, the GSP statute precludes eligibility for import-sensitive steel, glass, and electronic articles. A list of non-GSP-eligible products is available here.

In 2000, the President extended duty-free treatment under GSP to AGOA eligible countries for more than 1,800 tariff line items in addition to the standard GSP list of items available to non-AGOA GSP BDCs. The additional GSP line items include previously excluded items such as footwear, luggage, handbags, watches, and flatware. FAQs addressing AGOA and its GSP provisions are available here.

President can limit eligibility. Additionally, the President may limit products' GSP eligibility. The President may (1) remove products from GSP eligibility in response to petitions submitted by interested parties in an annual review; (2) preclude certain BDCs from GSP eligibility for certain newly designated products when those products are designated; and (3) limit the redesignation of GSP eligibility to certain BDCs when specific articles are redesignated as GSP-eligible.

List of Eligible Articles and Countries Can Be Modified

The GSP Subcommittee of the Trade Policy Staff Committee (which is chaired by USTR) conducts an annual review during which changes are considered to the lists of articles and countries eligible for duty-free treatment under GSP. Modifications are implemented by executive order or Presidential Proclamation and published in the Federal Register. Modifications typically take effect on July 1 of the calendar year after the next annual review is launched.

Any person may petition the GSP Subcommittee to request modifications to the list of countries eligible for GSP treatment. However, only an “interested party²” may petition for modifications to the list of articles eligible for GSP treatment. To be considered in an annual review, petitions must be submitted to the GSP Subcommittee by the deadline, which is typically announced in the Federal Register in July or August.

Products from Some BDCs May be Ineligible Due to Exceeding CNLs, Etc.

Some otherwise GSP-eligible products from particular BDCs may be ineligible because: (1) they exceed the competitive need limitations (see below); (2) the products’ GSP eligibility has been removed from one or more particular countries in response to petitions submitted as part of an annual review; (3) a particular BDC has been found to be sufficiently competitive with respect to that product or products ; (4) the imported articles fail to meet the statutory requirements of GSP; or (5) the imported articles fail to meet other CBP or other agency requirements.

Competitive Need Limits. Competitive Need Limitations (CNLs) are quantitative ceilings on GSP benefits for each product and BDC. There are two different measures for CNLs: when U.S. imports of a particular product from a BDC during any calendar year (1) account for 50 percent or more of the value of total U.S. imports of that product; or (2) exceed a certain dollar value ($150 million for 2011)³. Products from a specified beneficiary are considered “sufficiently competitive” when imports exceed one of these limits. By statute, GSP treatment for an article exceeding either CNL terminates on July 1 of the next calendar year.

Waivers. CNLs can be waived under four different circumstances (two of which are considered without the need to first file a petition). For the other two, petitions for CNL waivers may only be submitted before a product has exceeded the calendar-year CNL for a country.

Petitioned waivers. Interested parties may petition for a waiver during the annual review process. If the President grants a CNL waiver, both the percentage limit and the dollar limit are waived. A waiver remains in effect until the President determines that it is no longer warranted due to changed circumstances. The President must also revoke any waiver that has been in effect for at least five years, if a GSP-eligible product from a specific country has an annual trade level in the previous calendar year that exceeds 150% of the annual dollar-value limit or exceeds 75% of all U.S. imports.
504(d) waivers. The percentage limit is waived for certain GSP eligible articles which were not produced in the U.S. on January 1, 1995. Interested parties may petition for a waiver during the annual review process. For these products, a 504(d) waiver will automatically be granted when required each year.
De minimis waiver. A waiver may be provided when total U.S. imports from all countries of a product are "de minimis." The de minimis level in 2011 is $20.5 million and will be $21 million in 2012⁴. De minimis waivers are automatically considered each year for all products from BDCs that exceeded the percentage-based CNL. Such waivers cannot be requested by petition but public comments are accepted following publication of a Federal Register notice (usually in March). Granting such waivers is a discretionary decision of the President.
LDC waiver. All CNLs are automatically waived for GSP beneficiaries designated as LDBDCs. Sub-Saharan African GSP beneficiary countries are also exempted from CNLs.

Redesignation. An interested party can seek redesignation of a product exported by a particular BDC if U.S. imports of that article from that country fall below the CNL in a subsequent year. Redesignation determinations are at the discretion of the President and are made by taking into factors related to the subject country's competitiveness and its performance in meeting mandatory and discretionary country eligibility criteria.

(See ITT's Online Archives 11120124 for detailed summary of USTR's list of 24 country/tariff number pairs that may exceed the 2011 CNLs and could possibly lose their GSP eligibility on July 1, 2012.)

Reimbursement for Tariffs After Retroactive Renewal of Expired GSP Program

In the past, CBP has instructed importers who file their entries electronically to continue to use the appropriate SPI (e.g., “A”) as a prefix to the tariff numbers of articles that would qualify for GSP if GSP were in effect at the time of the entry. When GSP has been reauthorized retroactively, CBP has automatically processed refunds of duties deposited on these GSP-eligible entries without requiring further action by the importer. Use of the SPI during an expired period, in effect, constituted the importer’s request for a refund of duties. For entries made without using the SPI, refunds of duties deposited has to be requested in writing.

¹To determine the correct HTS classification of an article, a ruling may be requested by individuals, corporations, partnerships, associations, or other entities or groups who, as importer or exporter, or who otherwise have a direct and demonstrable interest in the question(s) presented in the ruling request. The rulings are provided without cost and provide certainty to make an informed business decision. Requirements for ruling requests are available here.

²For purposes of this provision, an interested party is any party who has significant economic interest in the subject matter of the request, or any other party representing a significant economic interest that would be materially affected by the action requested, such as a domestic producer of a like or directly competitive article, a commercial importer or retailer of an article which is eligible for GSP or for which GSP eligibility is requested, or a foreign government.

³In accordance with the GSP statute, the dollar-value limit is increased by $5 million annually; the limit was $145 million in 2010 and is $150 million in 2011.

⁴Like the dollar-value CNLs, the de minimis level is adjusted each year, in increments of $500,000.

CBP information for importers and exporters using the GSP program is available here.

USTR information on the GSP program is available here.