Turkish Law Blog

United States to Terminate GSP Designation for Turkey: A Key Development to Affect Turkish Exports to United States

Gizem Halis Kasap Gizem Halis Kasap/ Wake Forest University
24 April, 2019
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On March 4, 2019, the Office of the United States Trade Representative (“USTR”) announced that it would remove Turkey from the Generalized System of Preferences (“GSP”), which allows duty-free access to the U.S. market, reasoning that Turkey no longer qualify for preferential treatment because of its higher level of economic development.

Turkey’s Growing Trade Spat with Trump Administration

August 2018 saw that President Trump doubled the tariff on steel imported from Turkey from 25 percent to 50 percent and on aluminum from 10 percent to 20 percent. In retaliation, Turkey added tariffs on imports of certain U.S. products as announced in the Presidential Proclamation no.21.[1] In response, in August 2018, USTR launched an investigation into the eligibility of Turkey to participate in the GSP program due to concerns related to Turkey’s compliance with the GSP market access criterion. Surprisingly, this development went unnoticed despite Turkey being designated as a GSP beneficiary developing country since 1975, over forty years.

Generalized System of Preferences (GSP) and Turkey

The United States has long been an advocate of free trade and a front-runner in the worldwide trend to cut tariffs, quotas and other barriers to trade between countries. As such, GSP has been a longstanding U.S. trade preference program that provides for the duty-free importation of selected items when imported from designated beneficiary developing countries, including Turkey. GSP requires that beneficiary developing countries must meet certain eligibility criteria for products made in the country to be imported into the U.S. duty-free. If periodical country reviews reveal that the beneficiary country increased its economic development to such a degree to be graduated from the program, then the country becomes sufficiently developed economically to no longer require preferential treatment under the GSP program. This was the case for Turkey. Turkey was designated as a beneficiary country in 1975. Upon its August 2018 investigation, USTR discovered that Turkey has increased its Gross National Income (GNI) per capita; Turkish poverty rates have declined, and Turkish exports have diversified.

The coalition of Companies Asks White House to Delay Plans for Removing Turkey From GSP

A coalition of companies which include retail giants such as Home Depot Inc. and Target Corp., together with other major companies like Adidas AG, Gap Inc., and Yamaha Corp. has published a written statement, urging U.S. legislator to ask the White House to postpone the plans for revoking Turkey’s access to the GSP program. The businesses asserted that the move would hurt American businesses and workers. Further, they remonstrated USTR stating that according to the World Bank, Turkey’s GNI per capita declined each year from 2014 to 2017 and that further declines are expected as Turkey's economy slides into recession. “This action is diametrically opposed to GSP’s original intent. Preference programs were created to promote development by giving countries a hand up, not imposing new barriers when they are down,” the statement pointed out.

Turkey's GSP Eligibility Set to Expire on May 3, 2019

Trump Administration notified Congress and the Turkish government on March 4, 2019 – in the very same day when USTR announced that the United States intends to terminate Turkey’s designation as a beneficiary GSP. Under U.S. law, the changes to the GSP program may not take effect for at least 60 days after notification to Congress and the Turkish government. The changes will also need to be enacted by a Presidential proclamation. That is to say, changes will not take effect until at least May 3, 2019. Once that proclamation takes effect, thousands of products imported from Turkey will no longer be eligible for duty-free treatment under GSP.

Conclusion

In 2017, the Trump administration declared that it would be on the lookout for certain developing countries to make sure they meet the requirements to receive benefits under the GSP program. Turkey’s GNI per capita has been below the mandatory graduation threshold in recent years, albeit barely. Revocation of Turkey’s access to the program reveals that USTR more strictly enforced the GSP’s “graduation” criteria.  The United States and Turkey recently agreed to raise their trade volume to $75 billion, and the decision to remove Turkey from GSP surely contradicts this trade target. This move, however, is not a coincidence, as the United States has sought to dissuade Turkey from its scheduled purchase of the Russian S-400 air defense system. Even worse, President Trump decided not to reissue the sanctions waivers that allow Turkey to buy Iranian oil without facing sanctions. Considering these tenacious issues, Turkey and the United States are at a crossroads, and we will see whether Turkish-American bilateral relations can be on the mend soon.


[1] Published in the Official Gazette of the Republic of Turkey dated August 15, 2018, numbered 30510.

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