GSP removed from India

The What: March 4th 2019 the Trump administration gave notice that India and Turkey will be removed from GSP

Way back in 1976 under President Ford, The Generalized System of Preferences (GSP) a U.S. trade program designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories was born. GSP was instituted on January 1, 1976, by the Trade Act of 1974. Essentially almost all handmade products from almost all underdeveloped countries became duty free or were assessed a lower duty rate, with the goal of nurturing those economies. 

Over the last 40 years India has become one of the key sources for handmade products for US Fair Trade importers. While I do not have data to support the claim, I would estimate at least 50% of all Fair Trade handicraft imports into the US are from India. 

In reality this means that the cost of goods for a US-based importer will go up, how much depends on the Harmonized Tariff Code. For example Jewelry (7117.19.9000 imitation jewelry) is 11% duty outside of GSP and free within GSP.  If we take a hypothetical importer who is probably already facing pricing pressure, this could easily add 10 to 15% to the overall cost of goods. In many cases this will be more than the companies net profit.

Cost of goods is a key metric for an importer to achieve profitability and thus it is likely that the increase will have to be passed on to customers. Since Cost of Goods percentage is a key metric and that sales will likely fall with a price increase it is reasonable to assume that most import / wholesalers will pass on the increase of at least 10% as a percentage increase to the wholesale price, rather than passing on the exact dollar amount, thus maintaining the Gross Profit margin. It is also likely that retailers will continue to mark product up a by at least Keystone (double wholesale). Thus a $1 increase in tariff translates to about $4 - $5 at the register. 

In the past when GSP has lapsed, importers have been confident that it would be retroactively renewed and as such they have absorbed the cost while awaiting a refund. This time is different; for one, well, it's Trump, love him or hate him he is the self declared "tariff man" and even the Indian government seems resigned. In a BBC interview India's Commerce Secretary Anup Wadhawan said the withdrawal from the GSP would have "minimal economic impact of $190m (£144m) on India". 

So hold on tight and lookout for price increases. When they come know that it's not the wholesalers' fault and everyone else who imports from India is in the same boat. 


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