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U.S., EU Continue Economic Actions in Response to Crimea Crisis

Tuesday, April 15, 2014
Sandler, Travis & Rosenberg Trade Report

The United States and the European Union are continuing to take and consider new economic and trade measures in response to Russia’s annexation of the Ukrainian region of Crimea.

On April 12, U.S. and Ukrainian officials met to discuss ways of moving their joint economic agenda forward, “focusing on U.S. assistance efforts, increasing bilateral trade and investment flows, combating corruption, and carrying out economic reforms,” according to a State Department press release. The two sides also reviewed ways the Ukrainian government could improve the country’s business environment to attract greater U.S. and global investment, noting a business summit being organized by the Department of Commerce as well as tools and mechanisms available from the Overseas Private Investment Corporation, the U.S. Trade and Development Agency and the Export-Import Bank.

The press release states that the U.S. also proposed “various ways in which Ukraine and the United States might cooperate more closely on trade,” but no further details were given. One idea that has gained some traction in Washington is renewal of the Generalized System of Preferences, which provides duty-free treatment to thousands of imported goods from Ukraine, Russia and dozens of other countries. GSP expired last summer and efforts to persuade Congress to reinstate it have made little progress since then, but some supporters are hoping that the desire to aid Ukraine economically could provide a push in the right direction. There have also been calls for any GSP renewal to drop Russia and possibly others from the list of beneficiaries.

In the meantime, the EU has approved a plan to unilaterally drop its tariffs on most goods imported from Ukraine. EU Trade Commissioner Karel De Gucht said April 14 that once a new regulation approved by the European Parliament and the EU’s Foreign Affairs Council is signed into law in the coming days, the EU will move to lift 94.7% of current EU tariffs on industrial goods from Ukraine and all tariffs on Ukraine’s exports of agricultural produce (though some will be subject to tariff-rate quotas). De Gucht said the new trade preferences will apply from the end of April and will last until Nov. 1 at the latest. The EU hopes that by that time a free trade agreement between the two sides “will be signed and in force.”

Finally, the U.S. is continuing to take steps to impose economic penalties against Russian interests, most recently an April 11 announcement by the Bureau of Industry and Security that an oil and gas company in Crimea has been added to the Entity List. This company is a subsidiary of a Ukrainian firm but its assets are now being overseen by Russian government interests following their seizure by the Crimean parliament.

Certain exports, reexports and transfers (in-country) of items subject to the Export Administration Regulations to entities identified on the Entity List require licenses from BIS but are usually subject to a policy of denial because BIS considers such entities to present significant risks of diversion to weapons of mass destruction programs, terrorism or other activities that are contrary to U.S. national security or foreign policy interests. This license requirement applies to any transaction in which items are to be exported, reexported or transferred (in country) to such persons or in which such persons act as purchaser, intermediate consignee, ultimate consignee or end-user. In addition, no license exceptions are available for such transactions.

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