June, 2019

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GSP: The US Giveth and… Taketh Away

Mark K. Neville, Jr.

There is an all-but-overwhelming tidal wave of activity that threatens the orderly conduct of international trade. What doesn’t wreak havoc with the initial surge could still form a rip tide to sweep us away. To list but a few of the more prominent disruptions:
  • the negotiations with China on resolving the festering trade dispute on “Made in China 2025” and other measures,
  • the fallout from the Section 301 levy of additional tariffs of 25% and 10% on Chinese goods,1
  • the Section 232 National Security tariffs on steel and aluminum and retaliations by trading partners,
  • the revised NAFTA, given a new name, the US Mexico Canada Agreement (USMCA),
  • negotiations with the UK and with Japan for free trade agreements,
  • plans to revitalize and perhaps scrap the existing Harmonized Tariff System
All that and much, much more demand our closest attention.2 It is no longer a time or place for complacency or a business-as-usual mindset. It’s a time to play close attention, and perhaps to keep a good pair of swim fins close by.

But there is so much going on that it’s easy to overlook some of the developments and, no doubt, some of what’s been happening will have been overlooked.

For me, any closer look into what may have been lost in the shuffle of these challenges to the established order might start with the ongoing self-initiated reviews by the Trump Administration of the Generalized System of Preferences (GSP) program. More to the point, the Trump Administration is evaluating the status and continued eligibility of all the Beneficiary Developing Counties (BDCs) in GSP. That is a move that is sure to sow uncertainty and doubt, which are the twin nemeses of formulating sound business strategy here in the US and in the BDCs. We’ll get to the specific cases of Turkey and India later in this discussion. They both lost their GSP eligibility recently. We’ll see how and why.


Among the many planning opportunities that are available to importers the best are those that allow for duty-free entry into the United States. Free trade agreements (FTAs) confer that benefit on eligible merchandise. But so, too, does the Generalized System of Preferences (GSP), 19 USC §§ 2461-2467, 19 CFR §§ 10.171-178a.

The GSP is a unilateral tariff preference program for qualifying articles imported from eligible developing countries. First introduced in 1975, the GSP has been re-issued several times, with Congress allowing for retroactive effect to cover entries made while the program was in lapse. The US version of the GSP finds its counterpart in most other developed trading partners, such as the EU, Canada and Japan, although the criteria and other details vary greatly from one program to another.3


The GSP program does not extend duty-free access to the US on an across-the-board basis. Certain countries are ineligible by statute for BDC status. These include, inter alios,
  • developed countries named in the statute (e.g., Australia, Canada, members of the European Union),4
  • Communist countries,5
  • countries that nationalize or expropriate property owned by US citizens without prompt, adequate or effective compensation,6
  • countries that renege on arbitral awards granted to US citizens or entities with a 50% US ownership,7
  • countries that harbor international terrorists,8
  • countries that have not taken steps to meet international accepted worker rights,9and
  • countries that have not eliminated the worst forms of child labor.10
Apart from the first bar, that for developed countries, the other criteria reflect social norms set by the US in establishing the acceptability of the potential BDC.11

Loss of GSP

The title of this discussion is a clue to another important point, i.e., GSP, even if once granted, can be withdrawn.12 Perhaps the best, and ironically still fresh, example of a precipitate loss of BDC status was that of the “4 Asian Tigers”—Hong Kong, Korea, Taiwan and Singapore—in January, 1989.13

Loss of BDC status could follow if the BDC “backslides” or enters into a status that would have been disqualifying in the first instance. As an example, if the BDC expropriated property owned by US citizens without acceptable compensation, then its BDC status can be lost. For another example, a country that refuses to honor an arbitral award against it faces a potential loss of BDC status. That was the case with Argentina as it refused to enforce arbitral awards in matters brought by US bond holders. Argentina lost its BDC status in May 2012.14 Subsequently, Argentina sought to regain its BDC standing in October 2016 and that led to a USTR request for comments.15 In the event, with the change in the administration in Argentina it was restored to BDC status for most but not all products from January 1, 2018.16

As another example, USTR opened an investigation into Bolivia’s BDC status because of concerns about its worker rights and child labor protections.17

Apart from the eligibility criteria, the statute also sets forth another two-track path to loss of BDC status. The first is a mandatory loss of eligibility stemming from the BDC being too successful and achieving a higher economic standing. In other words, the BDC no longer needs the “leg up” offered by the GSP. The measure for this “mandatory graduation” is whether the country has become a “high income” country under the Gross National Income (GNI) per capita metrics set by the World Bank, formally the International Bank for Reconstruction and Development, IBRD.18 The current threshold is a GNI of $12,056.

Apart from this mandatory loss of GSP, the statute confers a great deal of discretion upon the president in his consideration whether to pull a country’s GSP designation. The criteria include such factors as
  • Level of economic development
  • Whether or not other major developed countries extend GSP to the country
  • Whether the country provides “equitable and reasonable” market access to US products
  • Whether the country affords adequate and effective Intellectual Property Rights (IPR)
  • Whether the country has taken steps to reduce trade-distorting investment practices or requirements (such as export performance requirements) and has reduced barriers to trade in services
  • Whether the country meets accepted worker rights standards.19

Investigations into GSP Participation

To be clear, the statute anticipates a regular review of GSP status and product-specific eligibility. The Trump Administration went a step further, however, as it announced in October, 2017 that it would conduct a sweeping review of GSP status for all participants.20 There was a clear statement of purpose in its press release:

Countries receiving U.S. trade benefits must meet the eligibility criteria established by Congress. …By creating a more proactive process to assess beneficiary countries’ eligibility, the United States can ensure that countries that are not playing by the rules do not receive U.S. trade preferences. This sets the correct balance for a system that helps incentivize economic reform in developing countries and achieve a level playing field for American businesses.

The thinking behind the “level playing field” criterion is surely, “Why should the US extend this valuable trade preference to a developing country if that country (i) impedes US market access or (ii) otherwise discriminates against US trade interests or (iii) fails to abide by appropriate social standards, such as worker rights and child labor?”

Not only is it a strain to argue against this general proposition, one could argue that such a move was long overdue. The US should have been actively pushing for this measure of reciprocity, another Trump metric, that is well-within the reach of the BDCs. The understanding would be that a BDC, by definition, may have limited resources, but at least it can deal fairly with the US with what resources it does have.

A listing of hearings scheduled in some of the then-pending investigations into the GSP status of developing counties was published in October, 2018.21 It speaks to the diverse statutory criteria driving the investigations: Worker Rights and Child Labor—Bolivia, Uzbekistan Worker rights—Georgia, Iraq Arbitral Award—Ecuador IPR—Indonesia, Uzbekistan Eligibility—Laos22 Quite apart from these investigations, two others are worthy of extended comment. These are the separate investigations into the BDC status of Turkey and India.


In August, 2018, the USTR announced the opening of an investigation on Turkey’s status under the GSP.23 The Federal Register notice set forth the statutory basis for the investigation and the Turkish action that prompted it:

The country practice review of Turkey will focus on whether Turkey is meeting the GSP eligibility criterion that requires a GSP beneficiary country to assure the United States that it will provide equitable and reasonable access to its market (19 U.S.C. 2462(c)(4)). Turkey recently has implemented a wide array of trade barriers that create serious negative effects on U.S. commerce, including imposing additional duties only on U.S. products, and in some instances, imposing additional duties that exceed the rates set out by Turkey in its World Trade Organization schedule of concessions.

While the stated justification was a concern over “market access” the reality is that the investigation was announced two days after Turkey announced its own retaliatory tariffs on US goods in response to the Section 232 tariffs on steel and aluminum.24

The results of the investigation were announced by the US Trade Representative in March, 2019: Turkey will lose its GSP eligibility.25 What’s the impact? Turkey stands to lose its BDC status which allowed almost $2 billion in its exports to be imported into the US on a duty-free basis in 2017.

The Trump Administration will base its action on its discretionary statutory authority26stating in its press release that an “increase in Gross National Income (GNI) per capita, declining poverty rates, and export diversification, by trading partner and by sector, are evidence of Turkey’s higher level of economic development.”27


The Trump Administration also engaged in “hard ball” negotiations with India and many will recall the President’s frequent complaints that the 50% tariffs levied on imports into India of Harley Davidson motorcycles were unfair.28

The investigation into India’s continued eligibility began in April, 2018 and it was focused on trade barrier issues and on differential duty rates.29 The Federal Register notice of the initiation of the investigation noted that there had been two petitions asserting that India is not meeting this criterion: One from the National Milk Producers Federation and the U.S. Dairy Export Council, and the other from the Advanced Medical Technology Association. In addition, through the new GSP Country Assessment process, the GSP Subcommittee identified potential concerns with India’s compliance with the GSP criterion that requires a GSP beneficiary country to assure the United States that it will provide equitable and reasonable access to its market (19 USC § 2462(c)(4)). As described in the India Chapter of the 2018 National Trade Estimate Report on Foreign Trade Barriers, India has implemented a wide array of trade barriers that create serious negative effects on U.S. commerce. USTR decided to combine the petitions and the self-initiated review.

The March, 2019 announcement as to loss of GSP benefits30 stated that, “India has implemented a wide array of trade barriers that create serious negative effects on United States commerce. Despite intensive engagement, India has failed to take the necessary steps to meet the GSP criterion.”31

And that leads us to the notion that countries’ violations of their international trading obligations can work a denial of market access that should be raised in bilateral discussions with BDCs.

Reference Pricing as Grist for the GSP Mill

We are informed that the trade barriers listed in the National Trade Estimate Report on Foreign Trade Barriers (National Trade Estimate) published annually by the USTR are the subject of ongoing bilateral and multilateral negotiations. Why not broaden the scope of those negotiations, so as to put trade barriers on the agenda when the developing country trade partners are seeking benefits from the US? In fact, I join some of my colleagues in arguing that the US should have been more assertive in the context of its aid programs, such as the Agency for International Development. In the same vein, it makes sense to engage with BDCs in the context of bilateral discussions on their continued status in the GSP program.

It appears that the issue of “reference pricing,” the reliance by some countries on external databases arranged in an HTS basis for customs valuation purposes that go beyond simple “risk assessment,” such as setting minimum pricing, is being called out as a problem outside the hallways of the World Trade Organization (WTO) or the World Customs Organization (WCO).32 This has been a long time in coming--the potential for mischief of this violation of the Customs Valuation Agreement,33 a throwback to the Brussels Definition of Value, actually, has been recognized by customs valuation subject matter experts. Despite years of earnest hand-wringing at the WTO and WCO no progress has been made in curbing this abuse. Indeed, this inaction has only emboldened many countries’ deployment of reference pricing schemes.

What is the current status of reference pricing under the Customs Valuation Agreement? A bit of background: the Customs Valuation Agreement, Annex III, par. 2, grants developing countries the opportunity to ask for a waiver, by the making of a reservation, to allow them to continue to use an officially published minimum pricing scheme “on a limited and transitional basis.” Since the Customs Valuation Agreement came into effect, some forty or so countries made minimum pricing reservations at one time or another but all have long since expired34 and there are no such reservations in effect at this time.35 Because access to the waiver is presumably limited to newly acceding countries no such reservations might be sought hereafter by existing Members. Moreover, there are no deferred application privileges conferred on developing countries by the Customs Valuation Agreement, Arts. 20.1 and 20.2, that are in effect. Any use of a minimum pricing scheme is, therefore, completely prohibited and the Customs Valuation Agreement is, and should be considered to be, in full force and effect in all Members on this key precept.

Thankfully, we are starting to see this threat to the international trade order discussed outside the WTO and the WCO. Perhaps it does make more sense after all to look to the bilateral discussions that the Trump Administration is so often touting.

For example, the 2018 National Trade Estimate published by the USTR notes that Argentina, Indonesia (for agricultural goods), India (“ordinary competitive price”), the Philippines, Russia (“benchmark pricing”) and Mexico all make use of various forms of reference pricing.36 Beyond those, a number of other countries also rely heavily on reference pricing (read: China, Armenia, Senegal, Kenya, Morocco and perhaps three dozen or so more), it would make a great deal of sense for reference pricing to be included in bilateral GSP discussions with the Philippines, Indonesia and Argentina as well as those unnamed other BDCs.37 After all, the US would be inviting the BDC to “do the right thing.” What objections could be raised to having the BDC commit to fully implement and abide by the Customs Valuation Agreement? The use of reference pricing raises market access issues, so it is entirely legitimate to address it in a GSP investigation.38 Perhaps the loss of GSP access to the US might be more of an incentive for the BDC to conform its customs valuation regime than a fear of the remote possibility that the US or other trading partner might initiate an action at the WTO Dispute Settlement Body (DSB). Of course, we have come to expect such a formal WTO adversary proceeding as a last-resort course of action, taken after all consultations have failed39


The Trump Administration has pursued a policy of disruption across many, if not most, policy fronts. Thus, it should not have been surprising that it would take a novel and aggressive approach to the review of trade preferences granted via the GSP regime. The threat of a withdrawal of those benefits as a means to achieve its policy goals is not so much the using of a stick but rather the taking away of a carrot. Not much all else has worked to this point. Certainly, there is ample evidence of the reference pricing and the other objectionable practices, making it easy to set up a comprehensive agenda for the discussions. If the approach works, i.e., if the BDC grants market access, ceases using reference pricing and otherwise meets the statutory criteria, then it will have been a win/win bilateral result. From a more global perspective it will invigorate the rule of law. The Trump Administration gets high marks and loud cheers for the effort.


1. The impact of the Section 301 tariffs cannot be conclusively evaluated as their reach remains unsettled. For example, at the time of this writing, the exclusions from List 1 have been announced by USTR in three separate publications, beginning in late December 2018. OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, Notice of Product Exclusions: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 83 Fed. Reg. 67463 (Dec. 28, 2018), 84 Fed. Reg. 11152 (Mar. 25, 2019) and 84 Fed. Reg. 16310 (Apr. 18, 2019).

2. For a brief survey of the 2018 trade war punches and counter-punches, see Factbox: Tariff wars - duties imposed by Trump and U.S. trading partners (11/30/18), available at https://www.reuters.com/article/us-usa-trade-tariffs-factbox/factbox-tariff-wars-duties-imposed-by-trump-and-u-s-trading-partners-idUSKCN1NZ2GB

3. For more on the GSP, see Neville, Generalized System of Preferences, 28 JOIT 23 (June 2017) and Neville (ed.), International Trade Laws of the United States: Statutes and Strategies, ¶ 7.08..

4. 19 USC 2462 §§ (b) (1) (A), (B), (C).

5. 19 USC 2462 § (b) (2) (A).

6. 19 USC 2462 § (b) (2) (D). Here, a contract repudiation can be seen as being tantamount to an expropriation.

7. 19 USC 2462 § (b) (2) (E).

8. 19 USC 2462 § (b) (2) (F).

9. See 19 CFR § 4.94.

10. See Horizon Lines, LLC v. United States, 626 F.3d 1354 (Fed. Cir. 2010, aff’g 659. F. Supp. 2d 1285 (CIT 2009), and cases cited therein.

11. It could be argued that the US should also include adherence to a wildlife or environmental conservation criterion as the price of admission to BDC status.

12. This loss of BDC status should not be confused with the fact that certain import-sensitive products are not eligible for GSP or that a loss of eligibility for specific products will follow on “competitive need” grounds when imports of the products from the BDC have achieved certain volumes. 19 USC §§ 2463 (b) and (c) (2).

13. For an insightful contemporary analysis of the Korea case, see Newman, KOREA AND THE GENERALIZED SYSTEM OF PREFERENCES: WAS GRADUATION A PROPER RESPONSE?, 11 U. Pa. J. Int’l Bus. L. (No. 3) 687 (1989).

14. Presidential Proclamation 8788 of March 26, 2012. For a discussion of Argentina’s suspension from GSP benefits, inter alia, see USTR Press Release, available at https://ustr.gov/about-us/policy-offices/press-office/press-releases/2012/march/us-trade-representative-ron-kirk-comments-presidenti

15. Generalized System of Preferences (GSP): Initiation of a Review of Argentina for Possible Designation as a Beneficiary Developing Country, 81 Fed. Reg. 83325 (Nov. 21, 2016).

16. Annex II, Pres. Proclamation 9693, published in 83 Fed. Reg.3551 (Jan. 25, 2018).

17. Office of the US Trade Representative, Results of the 2016/2017 Annual Generalized System of Preferences Review and Initiation of a Country Practice Review of Bolivia, 82 Fed. Reg. 31793 (July 7, 2017).

18. 19 USC § 2462 (e).

19. 19 USC § 2462 (c).

20. Press Release, USTR Announces New Enforcement Priorities for GSP (10/24/17).

21. OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, Generalized System of Preferences (GSP): Notice Regarding a Hearing for Ongoing Country Practice Reviews of Bolivia, Ecuador, Georgia, Indonesia, Iraq, Thailand, and Uzbekistan and for the Ongoing Country Designation Review of Laos, 83 Fed. Reg. 52048 (Oct. 16, 2018).

22. In addition, there were pending investigations into India (market access), Indonesia (market access, services and investment protections) and Kazakhstan (worker rights). See n. 27 below. There was also an investigation into Thailand (market access, especially for pork). OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, Generalized System of Preferences (GSP): Notice Regarding the 2018 GSP Annual Product Review and Initiation of Country Practice Review of Thailand, 83 Fed. Reg. 24838 (May 30, 2018).

23. Office of the United States Trade Representative, Generalized System of Preferences (GSP): Notice Regarding the Initiation of Country Practice Review of Turkey, 83 Fed. Reg. 40839 (Aug. 16, 2018).

24. The announcement was published in Turkey’s Official Gazette on August 14, 2018.

25. The USTR announcement [US Trade Representative, United States Will Terminate GSP Designation of India and Turkey, Mar. 4, 2019] is available online, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/march/united-states-will-terminate-gsp

26. Granted pursuant to 19 USC §2462 (c).

27. In fact, the reference to Turkey’s rise in GNI is entirely unfounded. The IBRD data show a different story—the GNI per capita for Turkey has fallen after a high of US$12,530 in 2013 in every succeeding year. https://data.worldbank.org/country/turkey?view=chart. The most recent data shows a GNI of $10,940--well below the threshold for graduation to “high income” status.

28. They had originally been set at 100% before India made a concession. 29, 1971), abstracted as Treasury Decision (T.D.) 71-83(38).

29. OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, Initiation of Country Practice Reviews of India, Indonesia, and Kazakhstan, 83 Fed. Reg. 18618 (Apr. 27, 2018).

30. See n. 25 above. See also Rappeport, Trump to Strip India of Special Tarif Status, Escalating Tensions, N.Y. Times, Mar. 6, 2019 at B6.

31.To be sure, this GSP matter is not the only area of tension between the two countries. The US initiated a dispute settlement process related to its complaints about India’s export promotion regime. That has been styled India—Export-Related Measures, WT/DS541/4. The Federal Register announcement of that initiation is found at OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, WTO Dispute Settlement Proceeding Regarding India—Export Related Measures, 83 Fed. Reg. 28306 (June 18, 2018).

32. For more on this threat, see, Neville, Reference Pricing: A Disturbing Trend in Customs Valuation, 25 JOIT 21 (Dec. 2014).


34. The last two reservations were for Brunei Darussalam (being in effect only in 2012) and Sri Lanka (reported as being in effect in period 2004-2011). Those countries were outliers, with no other country except Guatemala having a reservation for any year after 2005.

35. WTO, Council for Trade in Goods, UPDATING OF THE LISTING OF NOTIFICATION OBLIGATIONS AND THE COMPLIANCE THEREWITH AS SET OUT IN ANNEX III OF THE REPORT OF THE WORKING GROUP ON NOTIFICATION OBLIGATIONS AND PROCEDURES, REVISED, G/L/223/Rev. 26 (13/3/2019) available online at https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=252282,243326,241747,234665,228002,130973,125088,123915,123538,115543&CurrentCatalogueIdIndex=0&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=False&HasSpanishRecord=True.

36. It is not clear from the entry in the 2018 National Trade Estimate, but Ukraine may also be considered a reference pricing enthusiast. The 2018 National Trade Estimate is available at https://ustr.gov/sites/default/files/files/Press/Reports/2018%20National%20Trade%20Estimate%20Report.pdf

37. In any such effort we might see concerted activity from the USTR and the Department of Commerce’s Office of Trade Agreements Negotiations and Compliance (TANC), which is housed in Enforcement and Compliance within the International Trade Administration.

38. 19 USC § 2462 (c) (4).

39. In this connection there should be little doubt of the likelihood of success at the WTO as there have been three earlier cases at the DSB, two of which led to decisions against the respondent Member and the third which was settled favorably for the initiating Member. It is the lack of normative effect of these precedents which is especially galling and which betrays a critical weakness in the international trading system.

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