Tariffs Ppt

PROBLEM 6.5 TARIFF PREFERENCES FOR 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

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

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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.

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

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If so, how does it apply to Import World?

The Ultimate Problem The Ultimate Problem Can Import World import its leather goods into the United States duty free

Statutory Authorization 

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United Nations generated GATT allowed for GSPs in 1971 even though they went against the mostfavored-nation principle USA was one of last countries to sign on “Donor” country sponsorship

Two-Step Test to gain GSP status (1) Country must qualify

(2) Product(s) must qualify

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“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

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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

Substantial Transformation

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

Excluded Products 

Import Sensitive Products

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Agricultural Products

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Certain handknotted or handwoven carpets

Competitive Need Limitations 

Can’t export to the US over a certain dollar amount in a given year or you’re out

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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

Graduation 

Per Capita GNP over $8,500

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Presidential discretion for “sufficiently developed” countries  Economic

development  Competitive position of imports  Overall US economic interests

“Yeah, you graduated! Now stop taking our

Join the “special” club! 

Caribbean Basin Economic Recovery Act

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Andean Trade Preference Act

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Africa Growth and Opportunity Act of 2000

How do politics play into GSP? How do politics play into GSP?

…it’s all about the socks!

Duty Reduction for certain leather products…early 1990s 

(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-

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

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(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.

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(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

Leather! Leather! Leather!

Ultimately…

Ultimately… … y ofollowing u ’ l l p aythe a very p r i cfair e f and or n ot …by nongpolitical r e a s i nprocess g t h e of Po we r s Import That B e! the GSP, World should be importing leather goods into