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GSP RENEWAL – THE OBSCENITY OF FAILURE

When it’s deliver-or-die, supply chains become the lifeblood of a company. To that end, the fashion industry has embraced technology to navigate today’s hyper-complicated supply chain, with myriad solutions shaping the first, middle and last mile. Call it Sourcing 2.0.

By July 30, if Congress has failed to renew the GSP (Generalized System of Preferences trade legislation), they will have proven, once again, that they clearly do not understand how business needs to operate under the guidelines of this US Government umbrella.  Congress failed to renew GSP in 2009 and left USA importers dangling in the wind for 10 months with huge added costs, while forcing the American public to pay higher prices for pre-ordered product. This totally frustrating situation creates an atmosphere of enduring no-confidence in the GSP program, and also points to Congressional inability to understand the basic premise, that business needs continuity in these Government programs, or they will eventually dissolve from a lack of capital investment.

The US Government encourages business to involve in the GSP agenda. It’s good for the United States, and it’s fabulous for our global image and for our ability to help developing countries.  However, there is serious concern among Washington insiders that the 2013 Generalized System of Preference renewal will, in fact, not happen on schedule. The current GSP has been working for 2 years and 7 months and needs to continue.

To be fair, there are many in Congress that fully understand the merits of the GSP legislation, and are trying to making it right. However, many congressional leaders are absent from the fight. Perhaps, they just don’t understand the pain they inflict when they fail to deal effectively with serious business legislation, or perhaps they are they just totally dysfunctional and we are expecting more from them than they are capable of delivering.

Jay Billington Bulworth 1998 movie quote on Obscenity:

“We got a Congress that ain’t got a clue

We got factories closing down.

Where the hell did the good jobs go?”

What is GSP, what does it do, and why is it such an important USA trade issue?

GSP was passed in 1974 and enacted on Jan 1,1975 for a 10 year period and is renewable. It covers 130 countries (or territories) and eliminates USA import tariffs to encourage economic growth and help with job creation in developing countries. It provides the USA with a tool to engage the beneficiary countries in the areas of worker rights, child labor, and also helps open up these countries to our products and services. In one sense, it lowers some cost to the US consumer, but it clearly helps US manufacturers to be more competitive, as they can purchase raw materials for a reduced price. Some small batteries are a terrific example. They are listed as made in USA, but the raw material (manganese dioxide) is imported from South Africa (as duty free under GSP) thus making the USA manufactured product more market competitive.

According to the Coalition for GSP in a February 2013 Report, the total value of GSP Imports under this program in 2012 was $19.9 billion. The duty savings was $749 million and 82,000 US jobs were linked to GSP (not including the individual companies actually using the GSP benefit). In 2012: 39.7% of the GSP product was for industrial supplies, 17.6% was for consumer goods, 15.8% was capital goods, 13.6% automobile related, and 13.3% food related.

The top five countries that benefited from the GSP program are: India, Thailand, Brazil, Indonesia, and South Africa. The top 5 product areas under this program are: auto parts 13.4%, food products 10.4%, chemicals 9.6%, industrial machinery 7.3%, and electrical equipment 6.7%.

The GSP bill of 1974 is probably one of the best examples of a really well intended legislation that truly helps developing countries, and also significantly benefits the USA. It is a living document and needs to be updated and renewed in a timely manner.

Investor confidence is gained by continuity of the program, along with modifications for enhancement and eliminations for weak performance.

In 1998, Warren Beatty acting as Jay Billington Bulworth (a US Senator from California in the movie Bulworth), went off on a rant about the meaning of obscenity as it relates to Government.

While obscenity is not the real issue for GSP, the rap (15 years later) still makes sense, especially if you swap the word “obscenity” with “inconsistency” and especially if you are concerned as to how the world views the USA with regard to trade issues like GSP.

It’s difficult (if not impossible) to run an import business when leaders fail to lead, and Congress fails to act.

Will Congress renew the GSP Bill before the destined expiration in July?

Hard to say.

California Senator Bullworth’s movie rap:

“Obscenity?

The rich are getting richer and richer and richer while the middle class is getting more poor.

Obscenity?

I’m a Senator

I gotta raise $10,000 a day every day I’m in Washington

I ain’t getting it in South Central. I’m getting it in Beverly Hills. So I’m voting from them in the Senate the way they want me to. And-and-and I’m sending them my bills. But we got babies in South Central dying as young as they do in Peru. We got public schools that are nightmares

We got a Congress that ain’t got a clue

We got kids with submachine guns.

We got militias throwing bombs.

We got factories closing down.

Where the hell did the good jobs go?”

Was Bulworth wrong, or was he just calling it the way it is?  Reality is often painful.

We do hope Congress does the right thing with GSP…….will they?

_________________________________________________________________________________________

RickHelfenbeinRick Helfenbein is President of TellaS Ltd (Luen Thai USA) and Vice Chairman of the American Apparel and Footwear Association. He is a strong advocate of a robust USA Trade Agenda and often lectures on the subject of Supply Chain and International Trade at prestigious Universities around the country. He participates annually at the Consortium for Operational Excellence in retailing at Harvard and Wharton.

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