Earlier today we received a call from a small chemical supplier with questions about potential GSP expiration. They were concerned that shipments (currently) scheduled to arrive at the end of July might be delayed a few days into early August – and therefore subject to tariffs if Congress doesn’t act before July 31.
While fretting over the potential tariffs, they gave some of the back-story: the company supplies various chemical intermediates to U.S. chemical manufacturers. This small business helps American manufacturers keep their raw material costs down by importing certainly specialty chemicals from India under GSP – typically saving tariffs of 6.5 percent.
The company spent three years trying to win a piece of new business with one of the largest U.S. chemical manufacturers. This involved extensive testing by chemists for both the U.S. supplier and its potential customer and multiple trips to India for further tests. After three years (!) the two sides reached a win-win agreement: the large U.S. manufacturer gained access to a key raw material at a good price and small U.S. specialty supplier had a new, big customer.
Yet small profit margins, high tariffs, a long-term contract, and potential GSP expiration threaten the deal. Only two shipments have arrived to date, but their profits didn’t even cover the costs associated with winning the business. Prices are already locked in for future shipments, so the specialty supplier will be forced to absorb the costs if GSP expires and the tariffs on Indian chemicals revert back to 6.5 percent.
So what’s the payoff for three years of hard work? GSP expiration may cause the small business that landed a major deal to lose money on each shipment.