Exporters of certain Russian goods may be losing their duty free access to the US market under its Generalized System of Preferences (GSP) scheme as early as January 1, 2015. The potential for such a situation arose on July 1 when the World Bank revised its classification of countries according to estimates of gross national income (GNI) per capita for the previous year. With a GNI of US$12,700 per capita, Russia has exceeded the US$12,616 threshold set as of July 1, 2013, and is therefore now categorised as a high income country. Changes in classification bring practical implications for Russian users of the US GSP system as the World Bank classification is used as a benchmark in deciding a country’s eligibility for GSP in US. The US Trade Act of 1974 provides that the President shall remove ‘high income’ countries as classified by the World Bank from the list of countries benefiting from the US GSP (see 19 U.S.C. § 2462(e)). The change becomes effective from January 1 of the second year following the year in which the determination is made. Should such a determination be made by the President by the end of this year, Russia would lose its status as a GSP beneficiary from January 1, 2015.
The same applies to Uruguay which also became a ‘’high income country’’, while Venezuela fell just below the threshold. Notably, at its current rate, Brazil, the third largest beneficiary from the US GSP scheme, should reach the threshold in a year or two as well.
Russia, the 9th largest beneficiary of US GSP with almost US$544 million goods exported under the scheme in 2012, would feel the effect of its removal in various sectors, but most notable would be the effects on producers of ferrosilicon, ferrochromium, articles of chromium, various articles of aluminum (alloy, wire, bars and rods, tubes and pipes), refined lead, pneumatic radial tires of rubber, polytetrafluoroethylene (PTFE) and wheat gluten, which are the goods occupying the top spots by value in the list of Russian goods exported under the US GSP scheme in 2012 and 2013. The GSP allows the said exporters to avoid generally applicable duties in the range of 1.5 - 5.8%, while Russian exporters of certain lesser exported goods currently may even enjoy tariff reductions of up to 17.9% due to the GSP.
These developments come following the EU’s GSP reform at the end of last year which eliminates Russia, along with a number of other high and upper middle income countries, from the list of EU GSP beneficiaries as of January 1, 2014; and amidst the expiration of the US GSP scheme on July 31, 2013, which would force all beneficiaries of the GSP to pay full duty rates until the US Congress passes a bill retroactively prolonging the validity of the GSP scheme (as it has done in the past on multiple occasions). In 2011 it took Congress 10 months to extend the operation of the GSP program. It is worth noting that if Congress does not extend the operation of the GSP scheme by the end of the year, the President would be unable to adopt a proclamation excluding Russia and Uruguay from the list of beneficiary countries before the end of the year, thus enabling them to also benefit from the GSP scheme in 2015.
Aside from the GSP (and similar schemes) or preferential trade agreements, market access at a reduced duty rate is possible if a good is granted a tariff reduction or suspension via a Miscellaneous Tariff Bill. Miscellaneous Tariff Bills have been regularly passed by Congress and consist of hundreds of tariff reductions or suspensions each sponsored by a member of Congress. The reductions or suspensions are granted for a two or three year period only to ‘’non-controversial products’’, i.e., a product must benefit downstream producers and ultimately consumers, the estimated loss of tariff revenue from the suspension cannot be more than US$500,000 per year, and no domestic producer is producing such article. A bill (Temporary Duty Suspension Process Act) seeking to remove the cumbersome need for a tariff reduction/suspension to be sponsored by a member of Congress was re-introduced in the US legislative process in April 2013. The proposed bill would put the United States Trade Commission in charge of determining the contents of the draft bill, yet the bill maintains the current stringent requirements for duty suspension and reduction (less than US$500,000 in tariff losses, no domestic producers) that limits the possibility of receiving such tariff suspension or reduction.
In the context of Russian-US trade relations it is also worth mentioning that the United States Trade Representative (USTR) has requested comments (duel September 12, 2013) and announced a public hearing (September 27, 2013) for purposes of preparing its annual report to Congress on the extent to which Russia is implementing the WTO Agreement. To the extent that the USTR finds that Russia is not fully implementing the WTO Agreement or is not making adequate progress in acceding to the ITA or the GPA, it must describe in the report the actions it plans to take to encourage Russia to improve its implementation and/or increase its accession efforts.