Sandler Trade LLC was featured in the March 10 edition of Go Associados’s [1] weekly Executive Report. For several months, the rumors in the Brazilian and Brazilian-American business community was that Brazil would graduate from the U.S. Generalized System of Preferences (GSP) in the near future. This pessimism led many Brazilian firms to question GSP as a viable source of cost savings in the short term. While the concerns are valid, we disagree, and when Go Associados approached Sandler Trade LLC about weighing on these concerns, we were glad to contribute our analysis.
Brazil graduated from the European GSP in 2014, and the lapse in GSP on July 31, 2013 provided few assurances that the U.S. GSP would be a reliable source for future cost savings. This pessimistic view, however, is not in sync with the statutory guidelines of the U.S. GSP. With Sandler Trade LLC’s years of experience with GSP, our firm decided to provide concrete evidence for Brazilian exporters to consider GSP an important source for cost savings in the near future.
By statute, the President should remove countries that have a gross national income (GNI) per capita that exceeds the World Bank’s high-income[2] threshold.[3] Sandler Trade LLC analyzed Brazil’s GNI per capita to predict when Brazilian exporters and their U.S. customers should consider Brazilian GSP graduation a series possibility. Our firm found that the Brazilian exporters and their U.S. customers have over a decade before the income threshold is exceeded, even assuming rapid Brazilian economic growth.[4] In addition to a quantitative analysis, Sandler Trade LLC provided readers an overview of the political difficulties of changing the standards for GSP graduation, an especially pressing concern during the program’s lapse.
GSP eligibility remains an important question for emerging economies that are approaching the high-income threshold. These countries still rely on duty-free treatment to maintain competitiveness vis-à-vis low-cost producers and countries with bilateral free-trade agreements with the United States. If you have any questions about GSP country graduation, the latest lapse in GSP, or strategies for U.S. importers during a lapse in GSP, please contact us.
[2] The World Bank’s GNI per capita high-income threshold was $12,615 for 2012. The threshold increases every year by 3%.
[3] To learn more about the differences between GNI per capita calculation methodologies, visit the World Bank website at http://data.worldbank.org/indicator/NY.GNP.PCAP.CD/countries
[4] Sandler Trade LLC assumed sustained economic growth for over a decade. This is an assumption that could very likely not be true, considering the unpredictability of the world economy. We chose this assumption in order to highlight how, even in the best-case scenario for the Brazilian economy, Brazil still has many years before graduation from the U.S. GSP.