What is The Generalized System of Preferences (GSP)?

The Generalized System of Preferences (GSP) is a US trade system that aims to provide preferential duty-free import of about 4,800 products into the US. There are 131 designated beneficiary countries and territories in this trade preference program, including 44 least-developed beneficiary developing countries (LDBDCs). The GSP was instituted in the Trade Act of 1974 and implemented on January 1, 1976. It undergoes periodical renewals till date.

What is the Purpose of GSP?

The purpose of the GSP was to spur economic development in the poor/developing countries and diversify their economies through trade. The idea was the brainchild of the US and a few other developed member nations of the United Nations. The GSP typically serves the following purposes:-

  • Gives the developing nations a platform to promote their economic growth and development.
  • Helps spur job creation and allows decent competitiveness in American companies by reducing the cost of imported inputs used.
  • Supports progress of the beneficiary countries in aspects such as workers’ rights, intellectual property rights, and the rule of law, promoting American values.

Who are the GSP Countries?

There are 13 countries that grant GSP preferences. They are - Australia, Belarus, Canada, the European Union, Iceland, Japan, Kazakhstan, New Zealand, Norway, the Russian Federation, Switzerland, Turkey, and the USA.

How does an import qualify for Duty-Free Treatment under the GSP?

Some countries follow various guidelines and criteria for the different levels of preferential treatments they offer. However, in the US, this aspect is much simpler.

For an import to qualify for duty-free treatment under the GSP, it must meet the following three essential requirements:-

  • The import must be from a designated beneficiary country
  • It must be eligible for GSP treatment.
  • It must meet the rules of origin of GSP.

The rules of origin of GSP states that the article must be shipped directly from the beneficiary country to the US and must not pass through any other country. If at all, the shipment does cross a territory of another country, at least, the merchandise must not have entered into a transaction in that country enroute to the US. In all cases, the invoices must show the US as the final destination.

Which Articles are Eligible for Duty-Free Treatment under the GSP?

The articles eligible for duty-free treatment under the GSP are defined in the Harmonized Tariff Schedule of the United States (HTSUS). This list of products is reviewed and revised annually by the GSP subcommittee and includes the most dutiable manufactures and semi-manufactures. It also includes certain types of agricultural, fishery, and primary industrial products that are not otherwise duty-free. The preferential treatment excludes import-sensitive products such as textiles and apparel goods, watches, footwear and other accessories, electronics, steel, and glass.

How to Determine if a Particular Item is GSP Eligible?

As stated above, those products that are import-sensitive cannot come under the ambit of GSP. Before new products are added to the list, the opinions of the public are sought so they can express their reservations, after which hearings are held. Then, reports about the possible effects of the product’s GSP eligibility on the economy and US manufacturers are shared on the appropriate platforms.

The HTSUS, published by the US International Trade Commission (USITC) is the official resource for identifying the GSP eligible items. More information about the HTSUS can be downloaded from the USITC website. The USITC website has also listed a searchable version of the HTSUS. In addition, it also maintains the ‘Interactive Tariff and Trade DataWeb,’ a searchable database of import statistics and other information.

You can find details about the product’s eligibility information for GSP and other US preference programs from here.

How to Identify an Article as GSP Eligible in the HTSUS?

A Special Program Indicator (SPI) helps identify all the GSP eligible products in the HTSUS. All the eligible items are determined by the symbols “A”, “A*”, or “A+” in the HTSUS.

  • The SPI code “A” in the special sub-column next to the HTSUS subheading indicates that the particular product is GSP eligible for all the beneficiary developing countries (BDCs).
  • The SPI code “A+” suggests that the product is eligible only from the LDBDCs.
  • The SPI code “A*” means that the product is not eligible to be imported from one or more BDCs under the program.

How to Identify an Article as GSP Eligible in the HTSUS

The SPI code must be indicated on the appropriate US Customs and Border Protection (CBP) forms when the importers claim duty-free status.

How can an Importer Request GSP Treatment?

The responsibility of claiming the preference benefit lies with the importer. They must do so using the above-mentioned SPI codes, which should be written as a prefix before the HTSUS tariff line number when completing the shipment entry documentation. If the importer does not claim the GSP on the entry summary form, he/she can do so in many other ways. One option is to file a Post Entry Amendment with the customs authorities. This must be done at least 20 working days before the liquidation of the entry. Another option is to file a protest(19 USC 1514, 19 CFR 174) for importations made prior to GSP expiration.

Which Documents are Needed to Ensure GSP Duty-Free Treatment?

The documents to avail GSP duty-free treatment as requested by the CBP may vary with every case. Various factors such as the type of shipment, its origin and so on are taken into consideration while deciding the list of documents required to ensure GSP duty-free treatment. In general, the following documents are needed to ensure GSP duty-free treatment for your shipment:-

  • GSP declaration (see 19 CFR 10.173)
  • Bill of materials
  • Invoices
  • Purchase orders
  • Production records of business that are routinely maintained
  • Payroll information to document labor costs
  • Factory profile
  • Affidavit with supporting documentation

The required documentation to authenticate a GSP claim must be kept ready for inspection and presented when the CBP asks for it. The CBP may also request records from the importer of the products for which the GSP is being claimed, or the foreign exporter, or both. The substantiating documentation must be stored for five years.

What are Competitive Need Limitations (CNL)?

Competitive Need Limitations (CNL) are quantifiable ceilings on GSP benefits for each product and BDC. The GSP statute states that a BDC will lose its GSP eligibility for a particular product if the CNLs exceed and no waiver is granted.

There are two different measures for CNLs:-

When the US imports of a particular product from a BDC during any calendar year

  • Accounts for 50% or more of the value of total US imports of that product
  • Exceed a certain dollar value

The dollar-value limit is increased in accordance with the GSP statute by US$ 5 Mn annually. Products from a specified beneficiary are considered sufficiently competitive when imports’ value exceeds one of these limits.

What is the Competitive Need Limitations Waiver Request?

The CNL waiver request is a request to waive off the limitations imposed by the GSP on a product for specific reasons. At present, CNLs can be waived off under the following circumstances:-

  • Petitioned waivers:

The President may grant a CNL waiver for a product imported from a BDC. Interested parties can petition for a waiver during the annual review process. The President is required to consider the following while making the decision:-

  • The extent to which the country is providing fair and reasonable access to its market and basic commodity resources.
  • The extent to which the country is providing reasonable and effective protection to US intellectual property rights.

The percentage limit and the dollar-value limit may either then be waived off or can remain in force until the President determines it is no longer needed because of changed circumstances.

  • 504(d) /19 USC 2463 (c) (2) (E) waivers:

The percentage provision is waived for certain GSP eligible articles which were not produced in the US on January 1, 1995, as provided for in what used to be section 504(d) of the GSP statute, which is now 19 USC 2463(c)(2)(E). Interested parties may petition for a waiver during the annual review process. The products which are already on this list will automatically get a waiver every year.

  • De Minimis waiver:

A waiver is granted when the total US imports from all countries of a product are “de minimis.” The de minimis level is adjusted every year in increments of US$ 500,000. Each year, the GSP subcommittee automatically considers de minimis waivers for all products from the BDCs that exceeded the percentage-based CNL. Such waivers are made by considering the public comments after the publication of a Federal Register notice that is usually in March.

Generalized System of Preferences FAQ's

Is the list containing eligible goods and countries ever modified?

Yes. The list is modified after an annual review by the GSP subcommittee of the Trade Policy Staff Committee and chaired by the USTR. Modifications take effect on July 1 every year.

Do all the BDCs receive duty-free treatment on the entire list of articles?

No. Some otherwise GSP eligible products from particular BDCs may be ineligible because they either exceed the CNLs or their GSP eligibility of the products has been removed from one or more particular countries as part of the annual product review process.

How can someone modify the list of articles or countries?

Any person may petition the GSP subcommittee to request modifications to the list of countries eligible for the GSP treatment. However, only an interested party may petition for modifications to the list of articles eligible for the GSP treatment. For doing so, they must submit petitions to the GSP subcommittee by the given deadline.

What happens if the imports reach or exceed the CNLs during the year?

The GSP eligibility for articles from such countries terminates on July 1 of the next calendar year unless those products and beneficiaries are granted a CNL waiver before that date.

Once a product is removed from GSP eligibility because it exceeded the CNL, can that product from the country ever return to the GSP eligibility list?

Yes, it is possible. During the annual GSP product review, interested parties are allowed to comment on the possible re-designation of a product exported by a particular BDC if the US imports of that article from that country fall below the CNLs in the subsequent year.

What is the current status of the Generalized System of Preferences (GSP) program?

Legal authorization for duty-free treatment under the GSP program expired on January 1, 2021. As a outcome of it - U.S. imports entering the United States that were previously eligible for dutyfree treatment under GSP up to December 31, 2020 are now subject to regular, Normal Trade Relations (MFN) rates of duty.

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