Published
July 14, 2023
Over two years have passed since the lapse of the important trade program known as the Generalized System of Preferences (GSP). While it’s been around for nearly 50 years — and Congress has renewed it repeatedly, with overwhelming bipartisan majorities in support — this lapse is inflicting mounting costs on American small businesses.
GSP provides duty-free access to the U.S. market for nearly 3,500 products from about 120 developing countries. This helps spur economic growth and job creation in the developing world.
But American businesses also rely on GSP. Those doing so tend to be small but dynamic, according to the Coalition for GSP. The typical beneficiary company employs about 20 people, and GSP saves them between $100,000 and $200,000 in duties — big money for many small businesses.
For a real-world perspective on the painful impact of GSP’s long lapse, we spoke with Jayme Smaldone, CEO of Alfay Designs, a Brooklyn-based company that designs and distributes housewares.
Question: What’s the impact of GSP’s expiration?
Answer: The consequences cannot be overstated. More than 100 countries have lost tariff-free access to the U.S. market for thousands of goods: housewares, travel bags, jewelry, car parts, lamps … you name it, they’re all affected.
Q: What kind of money are we talking about?
A: We’re not talking chump change here; we’re talking about a whopping $50 billion worth of imports that used to enter the country duty-free. But now, these goods are slapped with duty rates, some as high as 25%.
Q: And for your company?
A: Our own company, like many others, has seen the duty rate for our goods jump from 0% to 2.7%. You might be thinking, “Well, what’s the big deal?” The truth is, every percentage point matters when you’re in a competitive industry. Cash flow is already a constant concern, and now we’re forced to pay duties upon the goods’ arrival in the U.S.
Q: And who pays this tariff — you, your customers?
A: Well, we don’t immediately ship these goods; we have to stockpile them for retailers like Walmart, Amazon, and Target. Depending on sales, goods that arrive today may not hit the shelves for another 90 days. And when they finally do, we wait another 30 to 60 days to get paid by our customers. It’s a precarious balancing act, and the additional financial strain imposed by customs duties only tightens the noose around our necks.
In order to keep afloat, we have had to raise costs to retailers, which in turn raises retail prices to consumers, which in turn reduces the volume, which in return reduces the profits we and our retailers keep. Lower profits lead to cutbacks, less growth, less risk taking, less development, and less innovation.
Q: How does the absence of a timeline for GSP renewal affect you?
A: I am regularly offered assurances that GSP will be reinstated soon. But let me tell you, “soon” is a vague and unsettling timeline, especially when coming from the government.
Q: This sounds like a huge financial strain.
A: Yes, we’ve been promised that all the duties collected during the lapse will be reimbursed — over $300,000 for our firm alone. Just imagine the staggering sum that is owed to businesses across the country!
At a time when inflation is running rampant, and interest rates have risen, this is akin to asking for an interest-free loan from struggling U.S. enterprises that are already fighting tooth and nail to survive.
Going forward
The solution is clear: Congress must act swiftly to reinstate GSP and reimburse duties paid. Sticking America’s small businesses with this bill has gone on for far too long.
About the authors
John G. Murphy
John Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy and regularly represents the Chamber before Congress, the administration, foreign governments, and the World Trade Organization.
