In recent Brexit discussions, we've heard a great deal about Generalized System of Preference, or GSP. But what is it exactly and what does it mean for your business?
The GSP is a preferential tariff system which provides for a formal system of exemption from the more general rules of the World Trade Organization (WTO). Simplified, this means that WTO member countries must treat the imports of all other WTO member countries as equally as they would treat the imports of their "best" trading partners.
More than 25 other nations maintain their own GSP programs. The beneficiaries, products, and types of preferences granted vary for each program country.
In the US GSP was initiated in 1976 and presently has approx 44 countries identified as GSP beneficiary country or territory with over 5000 tariff item eligible. This link will provide you a guidebook published by USTR.
Being able to take advantage of the duty-free savings for your imports can return significant opportunities to your business, starting with your procurement team through to the import department.
However, what comes with the duty-free savings are important internal controls and documents needed to support each and every claim under GSP. Documents from your supplier that support the origin and value of the material will be required, such as a bill of materials, purchase orders, production records, payroll documents to support labor costs, an affidavit to support documentation and finally the GSP declaration are all held in the recordkeeping requirements of 5 years. Having a knowledgeable staff that understands GSP is one of the most important actions that a company needs to have in place to ensure that the goods qualify.
From time to time countries are graduated from GSP; recently the US administration announced that India and Turkey will be removed from the US GSP program in 2019. In the US the president has the authority to make the decision needed to keep the program active and current with products and countries.
GSP is an important program that should be reviewed if your business is not currently taking part, or reviewed and audited to make sure that all documents and controls are in place if you already participate.