Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, August 3, 1995 TAG: 9508030050
SECTION: BUSINESS PAGE: B8 EDITION: METRO
SOURCE: JOURNAL OF COMMERCE
DATELINE: WASHINGTON LENGTH: Medium
Instead of importing thousands of goods duty-free, U.S. firms will have to pay tariffs of up to 17.5 percent. Companies say this will shrink their profit margins, raise prices and perhaps lead them to alter their foreign purchases, to the detriment of struggling Third World countries.
Last year, U.S. firms imported $18 billion worth of goods under the Generalized System of Preferences, the just-expired program that provided duty-free access for goods from more than 140 countries and territories.
Because of congressional inaction, those duty exemptions ended Tuesday. The lapse will hit a wide range of U.S. companies, especially in electronics, wood-products, sporting-goods, toys and food processing. Small and medium-sized firms are expected to be hit hardest.
``My guess is that a lot of smaller companies will wake up to a nightmare when Customs starts demanding cash payments'' on goods that had been duty-free, said Robin Lanier, vice president of the International Mass Retail Association.
The lapse is the third in three years for the program, which was enacted 20 years ago to help developing economies while lowering U.S. production costs and consumer prices. It is putting the system's management under increasing criticism.
John Smith, president of Amsurco Inc., a small New Jersey maker of specialty inks and coatings, told the Senate Finance Committee on Tuesday that the lapse will force his firm to start paying duties of up to 14 percent on its imports, which translates into $40,000 to $60,000 a month in new expenses.
His firm, he said, doesn't have the cash flow or the credit lines to absorb such a ``sudden change.'' It will have to get a bank loan, for which he will have to post his house as collateral. While Congress debates the duty-free program, he said, ``I incur unnecessary interest costs, stretch out creditors while besmirching Amsurco's credit rating and fear for my house ...''
Major firms are hurt, too, said Ronald Parrish, a Tandy Corp. vice president. If the program is not renewed retroactively, Tandy will lose $4 million on its ``open orders and at least that much again on gross margin,'' he told the Senate panel.
If the program is ended, he added, ``our customers will see future price increases of 10 percent or more on a large selection of compact-disc players, calculators and loudspeakers, among other items.''
Meanwhile, Parrish said, ``every time (the program) expires we are faced with a host of questions and decisions that ... could prove to be very expensive.'' He criticized in particular the administration's handling of an expected announcement that Malaysia, the single biggest source of duty-free imports under the program, will be ``graduated'' from the GSP.
The business community should not have to ``rely on rumors and leaks'' on decisions of that importance, Parrish said.
Though Congress has moved relatively quickly to renew the duty-free program after past lapses, it may take longer to do so this year, if it does at all, some business executives anticipate. Renewal ``may come closer to Christmas than Columbus Day,'' said Thomas St. Maxens, president of St. Maxens & Co., an international trade consultancy.
Since last year, the Clinton administration has been seeking a multiyear extension of the program, and, although the system seems to draw fairly wide support in Congress, so far only the House Ways and Means trade subcommittee has acted on it.
A key question - how to offset the federal revenue forgone under the program, an estimated $2 billion or more over the next five years - remains unresolved.
by CNB