To support Black Sea allies, Congress cannot let critical trade program expire

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The pandemic and the war in Ukraine have brought into sharp focus problems associated with global trade.

As Congress debates additional coronavirus relief measures and tries to avert a government shutdown, a trade program critical for America’s Black Sea allies is at risk of falling by the wayside.

The Generalized System of Preferences (GSP) is a preferential trade program for developing countries that provides duty free access to the U.S. market in exchange for commitments to the rule of law, improving workers’ rights, and protecting intellectual property. According to the U.S. International Trade Commission, in 2019 GSP supported imports of $21 billion in goods from nearly 100 nations and acted as a critical tool for projecting American economic values abroad and supporting U.S. allies through economic growth.

The program, which expires on Dec. 31, is especially critical for U.S. allies in the Black Sea region. Georgia, Moldova, Armenia, Ukraine, Azerbaijan, and Turkey all participated in the program in 2019, accounting for nearly $1 billion in imports. While Turkey, which has historically been the program’s largest regional participant, had its eligibility terminated in May 2019 due to its level of economic development, Black Sea countries still sent nearly $200 million in goods to U.S. businesses and consumers last year. And, despite the ongoing coronavirus pandemic, which has depressed overall global trade, Black Sea countries have exported $110 million in goods to the U.S. through the third quarter of 2020.

For many, GSP has successfully provided an important economic lifeline during the region’s post-communist transition. Romania and Bulgaria, for example, were consistent users of the program throughout the 1990s and 2000s as both transitioned to market-based economies. Imports to the U.S. under GSP in both countries rose consistently over this time, cumulatively reaching over $300 million in 2006. The next year both countries lost their eligibility upon entry into the European Union. Bulgaria and Romania are two of the program’s clear success stories. Bilateral trade and economic ties contributed to economic development and Euro-Atlantic integration.

Today, the program is particularly important for Ukraine and Georgia — arguably America’s closest allies in the region. In both countries, Russian occupation is a political and economic reality, undermining growth and economic potential. However, the GSP program has been critical to helping Ukraine and Georgia access the U.S. market and participate in global supply chains, a process that has helped diversify exports and reduce Russian dependence. Since Russia’s annexation of Crimea and invasion of Donbass in 2014, Ukraine has exported over $280 million to the U.S. duty free, helping it access U.S. demand to help offset the loss of 7 percent of its territory.

Georgia is currently the region’s largest beneficiary under the GSP, accounting for 60 percent of regional exports to the U.S. alone. Overall, Georgia is the third largest per-capita beneficiary of U.S. market access under the program in the world. In 2019, GSP exports to the U.S. put an additional $30 in Georgian’s pockets, second only to Cambodia and Thailand globally.

This market access has not only helped support economic growth in Georgia, but it has also encouraged a domestic market reform agenda as the country seeks further European integration. GSP access requires that countries comply with 15 eligibility requirements, including “taking steps to afford workers…internationally-recognized worker rights.” Following a 2012 complaint by the AFL-CIO into Georgia’s worker protections, USTR conducted an over eight year eligibility review into Georgia’s labor practices. However, once Georgian lawmakers passed labor reforms that brought domestic legislation in line with international standards, USTR closed its review in September, noting that these reforms and “other significant legal protections for workers enacted during the course of the review had satisfied U.S. government concerns about worker rights.” Reviews of this kind, at the heart of the program’s conditionality-based market access, are critical to the success of GSP and in supporting allies to reform and build bi-lateral economic ties.

More broadly, a loss of GSP benefits for the region would also allow China to expand its growing economic presence. China already has a free trade agreement with Georgia, meaning that a loss of benefits would likely divert some of Georgia’s exports to the Chinese market, growing bilateral ties. Furthermore, Chinese total trade with GSP eligible countries in the region as a whole has been growing over the last decade, rising by over 70 percent between 2010 and 2019. A lapse in GSP benefits could force Black Sea businesses to look elsewhere for export markets, further entrenching China’s growing economic ties to the detriment of both U.S. business and U.S. economic values.

As the 116th Congress closes out its second session, it must support U.S. allies in the Black Sea and beyond with an extension of the GSP program. GSP has been by most measures a success since its authorization in 1974, and in the Black Sea it remains a critical tool for promoting U.S. interests and supporting economic development. Like Romania, Bulgaria, and Turkey before it, critical U.S. allies Georgia and Ukraine continue to rely on the program to diversify away from Russian and Chinese markets, support domestic reforms, and build bilateral trade ties with U.S. businesses. The Black Sea is of growing importance to U.S. strategic interests, and Congress should recognize this new reality by supporting trade ties through programs like the Generalized System of Preferences.

Ryan Olson is a senior fellow at the Middle East Institute’s Frontier Europe Initiative.

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