On 4 March 2019 the Trump administration announced the termination of India and Turkey as recipients of the Generalised System of Preferences (GSP) on the grounds that neither country has been adhering to the programme's statutory eligibility criteria. In 2017 GSP was claimed on approximately $5.7 billion of Indian imports and on $1.7 billion of Turkish imports, allowing for the duty-free entry of those goods into the United States.

What is GSP?

The GSP programme provides preferential trade status to developing countries by allowing certain products from such countries to enter into the United States duty free. Specifically, eligible articles that are grown, produced or manufactured in a designated beneficiary developing country and that are imported directly into the United States from the beneficiary country may receive duty-free treatment under certain conditions (eg, the sum of the cost or value of the materials produced in the country plus the direct costs of the processing operations performed in the beneficiary country must be equivalent to at least 35% of the value of the good at entry).

In order for countries to be granted and maintain eligibility, the recipient countries must adhere to a number of requirements, including:

respecting arbitral awards in favor of United States citizens or corporations, combating child labor, respecting internationally recognized worker rights, providing adequate and effective intellectual property protection, and providing the United States with equitable and reasonable market access.

Why are these countries losing eligibility?

The US Trade Representative (USTR) previously announced that GSP beneficiary countries would be subject to increased review to ensure that the programme's objectives were being met and that the countries were adhering to certain requirements, such as providing market access to US origin goods. According to the press release, Turkey – which has been designated as a GSP beneficiary since 1975 – is 'graduating' from this programme after recent findings showed:

  • increased gross national income per capita;
  • declining poverty rates; and
  • greater export diversification across the country.

According to the USTR, these measures of economic development indicate that the country no longer requires preferential market access to US markets afforded to it under the GSP.

In 2017 India was the largest beneficiary of this programme. However, according to the press release, India has failed to assure the United States that it will provide "equitable and reasonable access to its markets in numerous sectors". It was further indicated that the eligibility review launched in April 2018 found that many of India's trade barriers have had an adverse effect on US commerce. These findings, along with a continued reluctance to change barriers to access for US goods to the Indian market despite multiple high-level talks between the two nations, has resulted in India being removed from the programme.

Effect on importers

The Trump administration must wait 60 days after notifying India and Turkey of the decision before enacting these terminations by a presidential proclamation. In addition, the decision can be reversed at any time should either country begin to comply with the eligibility requirements. However, for now, importers should anticipate that GSP benefits will be terminated at the end of that 60-day period. A more detailed notice will likely be published soon.

For further information on this topic please contact Teresa Polino or David Salkeld at Arent Fox LLP by telephone (+1 202 857 6000) or email (teresa.polino@arentfox.com or david.salkeld@arentfox.com). The Arent Fox LLP website can be accessed at www.arentfox.com.

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