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$2.5 Billion in Tariffs: What Lapse in Trade Programs Could Cost US Firms

By Sourcing Journal

This article was published in Sourcing Journal January 4, 2021. We are sharing because it explains why importers may be subjected to higher tariff rates, and the role Congress plays in supply chain stability.

The Generalized System of Preferences (GSP) and the Miscellaneous Trade Bill (MTB)–each offering duty-free or reduced tariff treatment for a range of imported goods–expired Dec. 31 after Congress failed to reauthorize these critical trade bills.

As a result, importers must now pay tariffs on covered goods entering the country. GSP, most recently reauthorized on April 22, 2018, lowers duties on more than 5,000 goods imported from any of 119 beneficiary countries, a report from Sandler, Travis & Rosenberg (ST&R) noted.

GSP has expired several times in the past and only to be renewed retroactively, meaning importers have been able to seek refunds of duties paid during the lapses in authorization, ST&R noted. As a result, U.S. Customs and Border Protection (CBP) is encouraging importers to continue to flag GSP-eligible imports with a special program indicator.

CBP adds that it will continue to allow post-importation GSP claims made via post-summary correction and protest subsequent to the expiration of GSP but only for importations made while GSP was still in effect.

David Olave, an associate and trade policy advisor for ST&R, wrote in a report that the fate of GSP is unknown. Olave said that “some new and conflicting proposals seeking to renew or reform the program have been offered by members of Congress, but there is no agreement on a way forward at this time.”

The current MTB suspended or reduced import duties on 1,660 products, primarily intermediate goods or materials. Under a law enacted in 2016 that reformed the MTB process, importers, manufacturers and others may petition the International Trade Commission (ITC) for duty breaks on specific products. The ITC then conducts a review of each petition and submits its recommendations in a report to Congress.

During the current MTB cycle, the ITC’s report reviewed 3,442 petitions and indicated that 2,695 of them meet or could meet with minor modifications the requirements for approval, according to ST&R. However, Congress never took up actual legislation that would have provided new duty breaks on a number of goods and extended others that were already in place.

“Lawmakers may consider an MTB in 2021, but it is unclear when such action may be taken and whether the bill would be retroactive if approved,” Olave wrote.

The American Apparel & Footwear Association (AAFA) expressed disappointment and regret at inaction by Congress, leading to a lapse in two critical trade preference programs, which it said imposed “a tax increase on American workers, American consumers and American businesses at a time when they can least afford it.”

AAFA president and CEO Steve Lamar said Congress allowed the GSP and MTB programs, “initiatives that have been supported for decades by overwhelming bipartisan majorities,” to lapse and that the “cessation of these programs benefits no one but hurts many, at a time when they can least afford it.”

A coalition of industry groups, including AAFA, wrote to Congress last month urging renewal of both programs. An analysis by the National Association of Manufacturers showed the MTB would eliminate import tariffs of more than $1.5 billion over the next three years, bolstering manufacturers and other businesses in the United States, especially small and medium-sized manufacturers. If the MTB is not passed this year, manufacturers and other businesses will pay more than $1.3 million per day starting in January “in out-of-date, distortive and anti-competitive import tariffs on products not made in the United States or not available in domestic markets,” the coalition wrote.

The GSP program saved American companies $1 billion in import duties in 2019, the groups said, “yet temporary lapses in the past have forced companies to lay off workers, freeze new hires, cut wages and benefits, and delay capital investments while awaiting congressional reauthorization. We cannot afford for that to happen again.”

Lamar said AAFA urges the 117th Congress, sworn in on Sunday, “to swiftly reauthorize and retroactively renew both programs to minimize the damage as much as possible.”

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