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U.S. Suspends Bangladesh from GSP as Ecuador Renounces ATPA

Friday, June 28, 2013
Sandler, Travis & Rosenberg Trade Report

The Obama administration announced June 27 that it is suspending the eligibility of Bangladesh for duty-free treatment under the Generalized System of Preferences due to concerns about worker rights and worker safety. Also on June 27, Ecuador took what appears to be the unprecedented step of renouncing its trade benefits under the Andean Trade Preferences Act to avoid what officials called “blackmail” from the U.S. in a diplomatic dispute.

Bangladesh. The federal government had been reviewing an AFL-CIO petition requesting that Bangladesh be suspended from GSP since 2007, but pressure to act intensified in recent months in the wake of at least two fires and a building collapse.

As a result of the decision to suspend Bangladesh from the program, imports of otherwise GSP-eligible goods from Bangladesh will be subject to most-favored-nation duty rates, effective 60 days after a related presidential proclamation is published in the Federal Register. However, U.S. Trade Representative Michael Froman said the U.S. is “initiating new discussions with the government of Bangladesh regarding steps to improve the worker rights environment in Bangladesh so that GSP benefits can be restored.”

The suspension will likely have little practical effect on Bangladesh’s exports to the U.S., 96% of which are apparel goods statutorily excluded from GSP treatment. Goods that Bangladesh does ship to the U.S. duty-free under GSP include tobacco products, sports equipment, china kitchenware and plastic articles. A Reuters article states that in 2012 Bangladesh shipped $35 million worth of these products to the U.S. under GSP, saving $2 million in import duties. On the other hand, press reports speculate that the U.S. decision could influence the European Union to follow suit, which would have a much more significant impact since the EU’s program does cover apparel.

Ecuador. Ecuador is the last remaining beneficiary under the ATPA, which is scheduled to expire July 31 unless reauthorized by Congress. That prospect has appeared questionable in recent months due to a number of factors, including a series of actions taken by Ecuador that critics say have been antagonistic to the U.S. These include the termination of a long-standing agreement allowing U.S. military aircraft to use a base in Ecuador for counterdrug operations, efforts to collect billions of dollars from Chevron after it was deemed liable for a predecessor’s environmental missteps, and a stated intent to withdraw from a bilateral investment treaty with the U.S. Other factors weighting against continuation of the ATPA include the small and indirect effect it has had on drug crop eradication in the Andean region, which has been one of the primary objectives of the program, and the declining value of ATPA benefits in relation to other U.S. preference programs and free trade agreements.

The latest threat to Ecuador’s continued eligibility under the ATPA is its reported consideration of a request for asylum by a former National Security Agency contractor whom the U.S. government wants on charges of leaking sensitive information. During the past week several U.S. lawmakers have vowed to reject an extension of ATPA if Ecuador approves that request, but on June 27 the administration of president Rafael Correa took the preemptive step of “unilaterally and irrevocably” renouncing the trade benefits afforded to Ecuador under that program.

This declaration could strengthen the resolve of those looking to suspend or revoke Ecuador’s ATPA benefits, and Senate Finance Committee Ranking Member Orrin Hatch, R-Utah, urged the White House to “act swiftly and accept” Ecuador’s renouncement. However, it was not immediately clear what practical effect this development may have; e.g., whether the U.S. will continue to honor import filings claiming duty-free treatment under ATPA for goods imported from Ecuador. Sources have previously noted that the elimination of program benefits for Ecuador could have a significant impact on petroleum, cut flowers, fruits and vegetables, and other products that have made liberal use of them.

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