The Canadian government launched consultations in December 2012 as part of a comprehensive review of the General Preferential Tariff, which provides preferential duty treatment to a range of imports from developing countries, including mainland China and Hong Kong. This program is similar in its objective to the U.S. Generalized System of Preferences (GSP). Interested parties may submit input on the proposed reforms to the Department of Finance’s International Trade Policy Division no later than Feb. 15. Any changes stemming from this review will be publicly announced in advance of the proposed implementation date of July 1, 2014.
Canada’s GPT was originally established in 1974 and was last reviewed almost 20 years ago. Canadian authorities observe that the global economy has undergone considerable changes since then and a number of developing countries have greatly increased their competitiveness and even joined the ranks of the developed world. Accordingly, Canadian authorities have initiated a review of the GPT program “to better reflect the current global economy and to ensure that the GPT aligns with Canada’s international development objectives.”
As part of this reform effort the Canadian government is proposing to remove from GPT eligibility countries that (i) are classified for two consecutive years as high income or upper-middle income economies according to the latest World Bank income classifications or (ii) have a share of world exports that is equal to or greater than one percent for two consecutive years according to the latest WTO trade statistics. Based on these criteria, the Canadian government intends to withdraw GPT eligibility from 72 countries or territories effective July 1, 2014. Major suppliers that stand to lose their preferential access to the Canadian market include China, Argentina, Brazil, India, Indonesia, Malaysia, Russia, Thailand and Turkey. In addition, while the Canadian government indicated that it does not contemplate any changes to its least-developed country tariff, which provides duty-free treatment to imports from LDCs, market access for these countries may be substantially hampered by the GPT reform. Limiting the number of GPT eligible countries will diminish the number of countries from which LDCs may source and still have their products qualify under the GPT rules of origin.
These changes to Canada’s GPT would be substantial and may have a spillover effect in spurring reform in the U.S. Would there be pressure in the U.S. to limit GSP access to a fewer number of countries based on the changes in Canada? As we commented in a previous post, new House Ways and Means Trade Subcommittee Chair Devin Nunes, R-Calif., introduced a bill last year to add new requirements to GSP. With the program expiring July 31, Nunes and other members of Congress may be eyeing reforms too. The most recent changes to GSP took place in 2006, when Congress added more stringent graduation requirements for countries and products that were deemed to be highly competitive. However, some in Congress think that the 2006 changes did not go deep enough because GSP continues to allow imports from more advanced developing countries (such as Brazil and India) to receive benefits.
The upcoming July 31 GSP expiration may very well become a force action deadline for GSP reform in the U.S. Even if reform is not achieved by then, would GSP become a hostage of negotiations and be allowed to expire has happened in years prior? Well, GSP! (Gut Says Probably)
For questions or comments about this post, contact David Olave at dolave@strtrade.com.
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