Obama Aims to Remove Russia from GSP, Cites Economic Growth
President Barack Obama intends to remove Russia as a Generalized System of Preferences (GSP) beneficiary because the country can no longer be considered a developing economy, according to a letter submitted to Congress on May 7. The GSP program expired on July 31, 2013, and lawmakers continue to struggle to find a method of advancing the legislation (see 14032429). Obama did not mention the removal as a punitive measure.
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Obama will soon issue a presidential proclamation that will end GSP trade preferences for imports from Russia, according to the White House statement. “The President notified Congress today that he intends to withdraw Russia’s eligibility for trade benefits under the Generalized System of Preferences (GSP) program because Russia is sufficiently advanced economically that it no longer warrants preferential treatment reserved for less advanced developing countries, consistent with the requirements of the GSP program,” said the statement. Russia will then be removed from the program effective 60 days following the presidential proclamation.
The GSP program is designed to assist developing nations in furthering economic development, and Russia has surpassed that eligibility threshold, said U.S. Trade Representative Michael Froman in a statement. “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," said Froman (here). "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.”
The Obama administration has applied a series of sanctions against Russian individuals and companies over recent weeks in response to Russian support for separatist violence in Ukraine (see 14050530). The administration has repeatedly cited the deteriorating Russian economy and the financial hit it has taken since the implementation of the first set of sanctions. But the Russian economy has indisputably met the GSP graduation requirements that draw economic data from the World Bank, said an industry executive. “The economic strengthening is laid out in statute and Russia has surpassed that level,” said the executive. “Regardless of anything that happened in Ukraine, I expect Russia would have been removed. It’s a pretty cut and dry requirement. Had GSP been renewed last year, Russian may have been removed then.”
The more than nine months of GSP expiration have allowed the program to be “subject to the whims of the debate as the debate changes,” the executive said. Russia's GSP beneficiary status has recently prompted some resistance to renewal of GSP.
Senate Finance Committee Chairman Ron Wyden, D-Ore., pledged to continue to chart a path forward on GSP renewal. “I look forward to extending this important program as quickly as possible, so that it may continue creating new opportunities for U.S. companies to build economic ties with developing countries and drive economic growth,” said Wyden in a statement (here) that followed the White House announcement. GSP renewal legislation still faces some funding challenges (see 13073016), but lawmakers continue to search for a vehicle that could shoulder GSP as an amendment (see 14032429).
The program allows duty-free import of up to 5,000 products imported from one of the 123 designated beneficiary countries and territories. “For small and medium businesses that are trying to source products from overseas, this is a critical program,” said Richard Sawaya, director of USA*Engage at the National Foreign Trade Council, in an interview. “The uncertainty surrounding renewal is just a killer from a business point of view. I see the Russia issue as a side issue. If it happens to fuel energy for renewal on Capitol Hill that would certainly be a good thing.”
Despite the current contentious relationship between the U.S. and Russia, a number of industry officials said the decision to remove Russia from GSP is largely exclusive of politics. “I would think it’s disconnected. It seems to tie a bit to political events going on, and it may be a little jab at Russia,” said Cato trade analyst Simon Lester in an interview. “There will be no concrete effect at the moment because GSP isn’t currently law. Renewal of the program may make a jab at Russia more concrete, but my instinct is that this won’t push GSP renewal through.” -- Brian Dabbs