President Obama said Wednesday that he intends to withdraw Russia’s preferential trade treatment with the US under the Generalized System of Preferences (GSP) program. Exports from countries that are part of GSP receive preferential treatment when entering the US.
Although Obama did not mention a direct link between his decision and the political unrest in Ukraine, the move comes amid rising tensions between Russia and the US over Russia’s incursion into Crimea after annexing the territory in March. The US has since imposed sanctions on Russia, and on Monday expanded its sanctions to target members of President Putin’s “inner circle” in an effort to encourage Russia to quell the chaos.
“I have determined that it is appropriate to withdraw Russia’s designation as a beneficiary developing country under the GSP program because Russia is sufficiently advanced in economic development and improved in trade competitiveness that continued preferential treatment under the GSP is not warranted,” Obama said.
In an official statement from the Office of the U.S. Trade Representative, Ambassador Froman said, “The purpose of the Generalized System of Preferences is to assist developing countries to use trade to boost their economic development.” He added, “Russia has advanced beyond the level of economic development and competitiveness for GSP eligibility. As such, Russia should no longer qualify to receive GSP benefits. The President’s decision is consistent with the World Bank’s designation of Russia as a ‘high income country’ as well as actions by the European Union and Canada to remove Russia from similar programs.”
Russia’s total trade with the US under GSP in 2013 was $465.3 million, according to data from the United States Fashion Industry Association (USFIA). And while textile and apparel products aren’t eligible for GSP, revoking Russia’s privileges under the program could mean bigger things for trade with the country.
USFIA president Julia Hughes said, “The announcement is more of a bigger policy issue than having an impact on sourcing since there is so little in Russia that claims GSP, but the bigger issue is our overall trading relationship with Russia and graduation from GSP may hurt that relationship.”
Hughes added that the change in Russia’s GSP status could be a benefit. “Many members in Congress were holding up GSP renewal because Russia was one of the beneficiaries, so this eliminates that problem.”
Ambassador Froman had said that GSP renewal “would benefit Ukraine immediately,” when referring to actions the US could take to support the country in light of the issue over Crimea. According to Lexology, Froman’s remarks generated renewed congressional interest in extending the program. Some members suggested in public comments that benefits should not be extended to Russia.
The US GSP program, which promotes economic growth in developing countries by providing duty-free entry for up to 5,000 products from 123 countries, expired on July 31, 2013. There has been an ongoing effort to get it renewed this year, and removing Russia could make it politically easier to go forward, Hughes said.