GSP renewal gives with one hand, takes away with the other

The U.S. Senate's approval of legislation that would renew the Generalized System of Preferences (GSP) through July 31, 2013, held both good and bad news for U.S. importers.

On Sept. 22, the Senate passed H.R. 2832, which would retroactively reinstate the GSP back to Jan. 1, 2011. The program provides duty-free entry for products from 129 countries and territories that have been designated as developing economies. The program had expired on Dec. 31, 2010, and importers had been paying higher duties on some products in the interim.

The bill also includes a little-noticed provision that will increase the Merchandise Processing Fee (MPF) for formal entries from 0.21 percent to 0.3464 percent through Nov. 30, 2015. The fee is assessed on an ad valorem basis (based on the value of the goods). It does not apply on imports from countries that have a free trade agreement (FTA) with the United States. After November 2015, the fee returns to its original level of 0.21 percent.

"Most people don't know that this increase is in the bill," said Peter Friedmann, Washington counsel for the Coalition of New England Companies for Trade (CONECT), at the group's recent annual meeting. Even though the legislation will not be signed into law by President Obama until sometime in October at the earliest, the MPF increase will be retroactive to Oct. 1, Friedmann noted in a follow-up commentary.

The increase may not seem like much, but in fact, that fraction of a percent adds up quickly. For example, at 0.21 percent, a shipment with a merchandise value of $100,000 would be assessed $210. At 0.3464 percent, that same shipment would be assessed $346. For importers that bring in many thousands of containers annually, the higher rate could increase their costs by millions of dollars. However, because the MPF is capped at $485 per transaction, trade experts point out, importers that bring goods into free trade zones and file an aggregated monthly entry will see little or no impact.

The Senate also attached an amendment to the GSP renewal bill that would reauthorize the Trade Adjustment Assistance (TAA) program. That program provides unemployment benefits and retraining for people who have lost their jobs "due to trade." Attaching the TAA amendment, a key part of President Obama's job creation plan, was a trade-off for submitting free trade agreements with South Korea, Colombia, and Panama to Congress.

President Obama sent legislation to Congress on Oct. 3 that would implement the trade agreements. Observers expect the FTAs will be quickly passed and signed into law, but it will take at least another six months before they are implemented.

Business leaders favor the agreements because they will increase exports. The U.S. International Trade Commission has said that the South Korea agreement could increase U.S. exports by nearly $11 billion annually, and that the deal with fast-growing Colombia would boost exports by about $1 billion a year.

Organized labor opposes the FTAs, saying they will shift hundreds of thousands of manufacturing jobs overseas.