PROBLEM 6.5TARIFF PREFERENCES FOR DEVELOPING NATIONS

Import World and Leather Goods

The Setting

Import World, Inc. is an Illinois Corporation specializing in the import of different consumer goods, most notably leather goods

For most goods, Import World pays most favored nation (MFN) tariffs under US law

But, some goods – including the leather – come from developing countries

The Problem

Import World wants to know how the United States Generalized Systems of Tariff Preferences (GSP) works.

Specifically, does the GSP apply to the imports of leather goods?

If so, how does it apply to Import World?

Can Import World import its leather goods into the United States duty free under the GSP as applied by the United States?

The Ultimate Problem

Statutory Authorization

United Nations generated

GATT allowed for GSPs in 1971 even though they went against the most-favored-nation principle

USA was one of last countries to sign on

“Donor” country sponsorship

Two-Step Test to gain GSP status

“Beneficiary Developing Country”

Not communist Not in league with

other anti-US countries (politically or economically)

Proper human and child labor rights

Will extradite US fugitives

Meet country qualification

Executive Order after ITC advice

Meet Rule of Origin Direct import from

BDC + 35%+ of value

Substantial Transformation

Not be an exclusion

(1) Country must qualify(2) Product(s) must qualify

Substantial Transformation

Where in the process did the importing developing country start working?

Excluded Products

Import Sensitive Products

Agricultural Products

Certain hand-knotted or hand-woven carpets

Competitive Need Limitations Can’t export to

the US over a certain dollar amount in a given year or you’re out

Can’t export to US more than 50% of the total US imports of that product

Waivers to the Limitations

No like or directly competitive article produced in US

De minimus amount

Least developed country

Preferential trade relationship

No adverse effect on US industry and in economic interest

Graduation

Per Capita GNP over $8,500

Presidential discretion for “sufficiently developed” countries Economic development Competitive position of imports Overall US economic interests

“Yeah, you graduated! Now stop taking our money!”

Join the “special” club!

Caribbean Basin Economic Recovery Act

Andean Trade Preference Act

Africa Growth and Opportunity Act of 2000

…it’s all about the socks!

How do politics play into GSP?

Duty Reduction for certain leather products…early 1990s reform

(1) Subject to paragraph (2), the President shall proclaim reductions in the rates of duty on handbags, luggage, flat goods, work gloves, and leather wearing apparel that-

(A) are the product of any beneficiary country; and

(B) were not designated on August 5, 1983, as eligible articles for purposes of the generalized system of preferences under title V of the Trade Act of 1974.

(2) The reduction required under paragraph (1) in the rate of duty on any article shall—

(A) result in a rate that is equal to 80 percent of the rate of duty that applies to the article on December 31, 1991, except that, subject to the limitations in paragraph (3), the reduction may not exceed 2.5 percent ad valorem; and

(B) be implemented in 5 equal annual stages with the first one-fifth of the aggregate reduction in the rate of duty being applied to entries, or withdrawals from warehouse for consumption, of the article on or after January 1, 1992.

Leather! Leather! Leather!

…you’ll pay a price for not greasing the Powers That Be!

Ultimately……by following the very fair and non-political process of the GSP, Import World should be importing leather goods into the US in no time!!!