Monday, January 22, 2007

Welcome to the EU, Sorry About GSP

Bulgaria and Romania are now members of the European Union. Being part of the EU means these countries are no longer eligible for benefits under the Generalized System of Preferences. Here is the Federal Register notice to prove it. If you have been importing from Bulgarian or Romanian suppliers and claiming GSP, make sure that your broker knows to stop. More important, make sure you have recalculated your total landed cost. It may be that the loss of GSP makes new supplier relations advantageous.

The more important thing to keep in mind is that Customs and Border Protection seems to have made GSP a compliance focus. Customs seems to believe that importers are not always entirely scrupulous about confirming the supplier's assertion that the goods qualify for GSP. Keep in mind, that means 35% of the value added qualifies as originating in the beneficiary developing country and that the merchandise is shipped directly from the BDC.

Exactly what an importer needs to do to exercise reasonable care with respect to making a GSP claim is somewhat unclear. It is, however, clear that simple reliance on the assurance of the supplier is not enough. The importer needs to work closely with the supplier to gather documents supporting the claim. This could be as simple as a spreadsheet showing the cost of originating and non-originating materials plus labor to arrive at a calculation of the BDC value added. Of course, the supplier will need to retain backup documentation to support the summary calculation.

It is not uncommon for suppliers--who are quick to assure customers that the goods qualify for GSP--to balk at providing any cost of production information to the customer. Fair enough. There are a few options. First, the importer who has satisfactory general information, only needs the details in the event of an inquiry from Customs. So, they might be able to agree by contract that the supplier will make that data available to Customs upon request. Another option is to make it available to a trusted third party such as the broker or a lawyer, who can work with Customs to confirm the claim.

If you rely on GSP for significant duty savings, it makes sense to review with your suppliers the information available to support the claims. The reason for that is simply that it is more likely than not that Customs will eventually come calling for your backup. You may as well be ready.

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