GENERALIZED SYSTEM OF PREFERENCES
What is the Generalized System of Preferences (GSP)?
The GSP is a U.S. trade preference program that provides for duty-free entry of more than 5,000 products from nearly 150 countries and territories. GSP was authorized under Title V of the Trade Act of 1974 for a 10-year period initially and extended several times since then. That authorization most recently expired on September 30, 2001. The Trade Act of 2002, which was enacted on August 6, 2002, restores GSP benefits retroactive to September 30, 2001, and extends GSP benefits through the end of 2006. At present, GSP product and country coverage remains as it was on September 30, 2001.
Who receives GSP benefits?
Countries and territories designated as GSP Beneficiary Countries are listed in the USTR GSP Guidebook (PDF-210KB) as well as in general note 4(b) and 4(b)(i) of the Harmonized Tariff Schedule of the United States (HTSUS). A smaller subset of these countries is designated as Least Developed Beneficiary Developing Countries (LDBDC). That list is also available on the USTR GSP Guidebook website. Designated LDBDCs are countries with an estimated income below $786 per capita in 1996. LDBDCs receive GSP benefits on a larger number of products (see below).
What is the rate of duty on GSP-eligible products?
All imports of GSP-eligible products from a GSP-beneficiary country enter the United States duty-free.
What products are eligible for GSP duty-free entry?
There are two categories of products eligible for duty free entry. The first category contains approximately 3,600 products that are duty-free for all GSP beneficiaries. The second category contains approximately 1,700 additional products that are duty-free only for countries designated as LDBDCs.
Products in either category are identified in (HTSUS) Harmonized Tariff Schedule of the United States Annotated as well as in the GSP Guidebook (PDF-210KB)
How do I read the Harmonized System of Tariffs (HTSUS)?
The HTSUS is based on an 8-digit system for classification of products. Under this system, the first two digits represent the general category of an item; and the remaining six digits denote sub-categories to greater degrees of specificity. For example, the initial two digits 08 denote the category of "edible fruits and nuts." Product number 0802.50.20 refers to pistachios in the shell and 0802.50.40 refers to shelled pistachios. The HTSUS lists the normal trade relations (NTR) (formerly MFN) tariff rate in column 1 (in the "General', subcolumn). Special duty-free treatment (such as for GSP) is identified in the HTSUS column 1's "Special" subcolumn and the tariff rate for non-NTR countries is listed in column 2 . In the "Special" subcolumn of column 1, the product's eligibility for GSP is denoted by an "All" (duty-free for all GSP beneficiaries), or an "A+" (duty-free for LDBDCs). (Note: The letter "A*" (asterisk)" in the Special Tariff Rate column indicates products that are GSP-eligible except for imports from one or more GSP-beneficiary countries, that have lost eligibility for that product. See below for more on the process of removing eligibility for a product from a specific country. The list of products and countries ineligible for specific products is available in the USTR Guidebook as well as in general note 4(d) of the HTSUS.)
How does an importer request GSP treatment?
The importer should note the Special Program Indicator ("A" for GSP) before the HTSUS product classification on the shipment entry documentation to indicate the product is eligible for duty-free entry under GSP. The U.S. Customs Service is responsible for classifying products under the HTSUS and any questions regarding the appropriate classification of a product should be directed to the office of Regulations and Rulings of the U.S. Customs and Border Protection Service.
What happens if GSP authorization expires?
If GSP authorization expires (as it did most recently in September 2001), importers must make deposits at the NTR (formerly MFN) rate. If the GSP program is renewed retroactively (as it is in the Trade Act of 2002), the U.S. Customs Service is authorized to refund the deposited duties. Products imported using electronic customs filing and indicating GSP eligibility on the shipment entry documentation by use of Special Program Indicator "All" will be automatically refunded by the U.S. Customs Service. Requests for refunds of duties paid on products which were not imported using electronic customs filing or which used the electronic system but were not identified as GSP-eligible by the Special Program Indicator "All" must be made in writing to the U.S. Customs Service within 180 days from the date of reauthorization (August 6, 2002).
How do products/countries get added or removed?
The interagency GSP Subcommittee conducts annual reviews to consider adding or removing products and countries from the program. Subcommittee recommendations are reviewed by the USTR, who forwards his advice to the President for decision. Annual Reviews generally take approximately 10-11 months and include a public comment period, public hearings, and an International Trade Commission (ITC) study. Information on how to request a Product or Country Review is contained in the GSP Guidebook (PDF-210KB)and in the Federal Register notices notifying of annual GSP reviews.
Can a country lose eligibility for GSP benefits for a specific product?
Yes, there are two ways a beneficiary country can lose GSP benefits for a specific product. First, if the imports of a product from a beneficiary country exceed Competitive Need Limitations (CNLs), the product will be considered ineligible for GSP benefits when imported from that specific country (See below).
The second is through a decision made by the President based on a recommendation of the USTR in response to a petition to remove eligibility for that country's imports of the product (See below). There are currently approximately 1,000 products for which one or more countries are not eligible for GSP benefits due to exceeding CNLs or to a decision to remove eligibility.
What are Competitive Need Limitations (CNLs)?
Competitive Need Limitations (CNLs) are ceilings on GSP benefits for each product and country. (Note: For purposes of CNLs, a product is defined as imports of products within an 8-digit tariff line of the HTSUS.) A country will automatically lose its GSP eligibility for a product if the CNLs are exceeded during the previous calendar year. There are two CNL ceilings: first, if imports from a single country account for more than 50% of total U.S. imports for that product, and second, if the imports from a single country exceed a set dollar limit ($100 million for 2001 and $105 million for 2002).
Are CNLs ever waived?
Yes, the President may waive CNLs in the absence of domestic U.S. production of a like or directly competitive product or if the overall imports of a product qualify as "de minimis," or may waive CNLs in response to a petition if the President determines that it is in the national economic interest of the United States. For 2001, total world imports of less than $15.5 million qualified for de minimis, for 2002 the total imports must be less than $16 million to qualify. More information on CNLs and CNL waivers is contained in the GSP Guidebook (PDF-210KB)
How do countries graduate from GSP?
Country graduation is required when the President determines that a beneficiary country has become a "high-income country" (with per capita income above US$9,361 in 1998) as defined by the IBRD or World Bank. GSP benefits will be terminated on January 1 of the second year following this determination.
What is the Rule of Origin for GSP?
A rule of origin assists in determining from which country a product originates in order to determine tariff rates. For GSP purposes, the Rule of Origin is that the sum of the cost or value of materials produced in the beneficiary country plus the direct processing costs must equal at least 35% of the appraised value at the time of entry to the U.S. U.S. Customs generally appraises the product at the transaction value, that is, the price paid for the merchandise when sold for export to the U.S.
Are regional associations ever given special treatment?
Yes, some regional associations that contribute to comprehensive regional economic integration are granted "cumulation" benefits. "Cumulation" allows U.S. imports from association members that are produced in one or more countries in the association to be counted as if they were imported from one country for purposes of the Rule of Origin.
This benefit allows the importer to receive GSP duty-free treatment for a product if 35% of the value of the product originates in the association, rather than within a specific country. A list of regional associations that receive cumulation benefits is contained in the GSP Guidebook (PDF-210KB). At present, Mercosur countries are not eligible for this benefit.
Look up tariff rates and GSP eligibility for products at: USITC Interactive Tariff Database
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