US Announces End to Preferential Trade Status of Turkey and India

On March 4, the Trump Administration announced the termination of India and Turkey as recipients of the Generalized System of Preferences, on grounds that neither country adheres to the program’s statutory eligibility criteria. In 2017, GSP was claimed on approximately $5.7 billion of imports from India, and $1.7 billion on imports from Turkey, allowing for the duty-free entry of those goods into the United States. 

What is GSP?

The GSP program 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: e.g., the sum of the cost or value of 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 percent of the value of the good at entry.

In order for countries to be granted and to maintain eligibility, the recipient countries must adhere to a number of requirements including, among others, “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) had previously announced that GSP beneficiary countries would be subject to increased review to ensure that the objectives of the program were being met and that 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 a GSP beneficiary since 1975, is “graduating” from this program after recent findings showed increased Gross National Income per capita, declining poverty rates, and greater export diversification across the country. According to USTR, these measures of economic development indicate the country no longer requires preferential market access to United States markets afforded to it under the GSP.

In 2017, India was the largest beneficiary of this program. 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 last April found that many of India’s trade barriers have had an adverse effect on Unites States 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 nations, has resulted in India’s termination from the program.

Effect on Importers?

The Administration must wait 60 days after notifying India and Turkey of the decision before enacting these terminations by a presidential proclamation. In addition, this 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 expiration of that 60 day period. A more detailed notice is anticipated to be published soon.

If you would like more information on the recent GSP determination for India and Turkey, or any aspect of the GSP program, please contact Terry Polino, Dave Salkeld or any Arent Fox trade group member listed below.

Contacts

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