United States: Congress Revives The Generalized System Of Preferences And Makes Benefits Retroactive To August 1, 2013 But Requires Affirmative Applications For Refund By U.S. Importers

Amid the often rancorous debate on the Trans Pacific Partnership and the Trade Promotion Authority enabling legislation, both the House and the Senate last week found a common ground in addressing legislation related to the international movement of goods and passed the Trade Preferences Extension Act of 2015 (The Act), reviving the Generalized System of Preferences (GSP) that had expired July 31, 2013. Importantly, The Act did not simply revive the program; it made its benefits retroactive to the date on which the program lapsed. As a result, a large segment of the importing public will be entitled to Customs duty refunds for merchandise imported from the GSP countries since August 1, 2013. However, the legislation is clear that the refunds are not automatic. Importers will have to follow a refund application process outlined in the statute, and they must do so by a specified date.

Background

Congress first enacted the Generalized System of Preferences in the Trade Act of 1974, which authorized the grant of duty-free treatment to specified goods from designated lesser- developed countries, called "Beneficiary Developing Countries" (BDCs). There are currently 106 countries so designated. Under the terms of the legislation, eligible articles from BDCs may be entered duty-free, provided that 35 percent of the value of the article originates from one of the BDCs. Since its inception, GSP legislation has always had a designated sunset component, and the issue of lapse has been continuingly problematic. In the early years, when the program lapsed but revival of the legislation was virtually certain, Customs allowed the importers to claim the benefits under the program and continue to enter the goods duty-free. As the periods between the lapse of the legislation and the Congressional renewal became more lengthy, Customs required the importers to deposit duties but took no formal action on the entries and then simply "liquidated" the entries (i.e., made a formal determination of duties due) duty-free, and refunded the deposited duties with interest when the renewal legislation was passed. But this time the July 31, 2013 sunset date came amidst an environment of intense Congressional gridlock, and virtually everyone in the trade community knew that serious problems related to renewal were on the horizon.

As if the Congressional discord were not enough, current law requires that Customs must make a formal determination on duties due within one year from the date of entry, absent statutorily identified exceptions. Predictably, in April 2014, as the one-year anniversary of the lapse in the statute approached, Customs issued instructions to liquidate any entries made after August 1, 2013, without a grant of GSP treatment and to deny any protests asserting a right to GSP treatment. All existing legal remedies vanished. As a result, the international trade community waited with a growing concern as to whether GSP would ever be revived; whether its benefits would be prospective only; or whether Congress would somehow address the entries liquidated by the passage of the one-year period and about which Customs clearly stated it would not cure administratively, as it had in the past.

Virtually all of these questions have been answered with the passage of the Trade Preferences Extension Act of 2015. As of the date of this writing, both Houses of the Congress have passed the bill, but the president has not signed the legislation. The White House has said, however, that it strongly supports the bill, so no veto is likely.

What does the legislation provide?

  1. It revives the GSP program and sets a new sunset date of December 31, 2017- a disappointingly short life in light of prior sunset problems.
  2. It sets the new start date for the right to enter duty-free under GSP to a date that is "30 days from the date of enactment" of the legislation. Since the president has not yet signed the measure, we do not have a fixed date of enactment, but it will likely be within the next 15 days, so a right to make duty-free entry under GSP is probably no more than 45 days away.
  3. An entry made after August 1, 2013, and without regard to GSP benefits will be liquidated or reliquidated duty free, ONLY if a request for such treatment is filed with Customs within 180 days from the date of enactment of the statute. We will update this report as soon as the date of enactment becomes known.
  4. It requires Customs to refund duties overpaid within ninety (90) days from the date of the reliquidation (i.e., the Customs action on the request for refund), not from the date of the importer's request for the refund. We should expect tens of thousands of such claims, so the earlier the information is presented to Customs, the better.
  5. No interest will be paid on the duties refunded.
  6. The only information that must accompany the request is such information as is necessary to "locate the entry" or to "reconstruct the entry" if Customs cannot locate it.
  7. It addresses how Customs will manage the "competitive need limitations" provisions of the statute, which is the program that allows the president to remove from the duty-free list those goods that are imported in such volumes as to be market disruptive. Ordinarily, the president must decide which goods will be removed from the list by July 1 of each year. For 2015, the deadline has been pushed back to October 1.

Most of the questions related to the GSP program are now answered. Because the president is committed to signing the legislation, we believe that the program will continue; we know that its benefits are retroactive; but we also know refunds are not automatic, and that importers must affirmatively act to protect their interests, and that the period for filing such refund requests is very brief. We will continue to update our clients as some of these important dates become formalized.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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