President Obama on Thursday announced Bangladesh would lose some of its U.S. trade privileges due to risky conditions and labor violations in its garment industry.
The government said it would no longer allow duty-free imports of certain products made in Bangladesh under a program that helps encourage trade with developing countries by providing breaks on tariffs.
The trade decision comes as Bangladesh is facing mounting international pressure to improve working conditions after a series of fatal fires last year killed hundreds, and a building collapse in April killed over 1,100 workers. Almost all of the accidents have happened in its apparel industry. Bangladesh is the fourth largest exporter of clothes to the U.S., behind China, Vietnam and Indonesia.
However, the U.S. decision isn't expected to affect clothing imports, because apparel isn't covered under the duty-free program.
The program is part of a global effort overseen by the World Trade Organization and applies to imports from developing countries. Thursday's curbs is likely to affect imports of tobacco products, sports equipment, china and plastic products from Bangladesh, according to the country's embassy.
In 2011, the U.S. imported $26.3 million worth of goods that got duty free breaks under the program, according to trade records. That's less than 1% of the more than $4 billion of Bangladesh exports to United States.
"While (it) doesn't cover garments from Bangladesh, it's still important to U.S. companies purchasing goods from Bangladesh under the program, such as ceramics and dinnerware," said Daniel Anthony, research director at the Coalition for GSP, an advocacy group for the program funded by U.S. companies and associations.
The government of Bangladesh described the development as "unfortunate."
"While Bangladesh is absolutely respectful of a trading partner's choice of decisions, it expresses its deep concern that this harsh measure may bring in fresh obstacles in an otherwise flourishing bilateral trade," the Ministry of Foreign Affairs said in a statement.
The U.S. program granting duty free status to developing nations was already set to expire July 31.
The program can be extended only if Congress acts by the deadline, which doesn't look likely so far, according to congressional aides and lobbyists.
In 2011, Congress renewed the program retroactively. But the dire budget situation combined with forced spending cuts could reduce enthusiasm for a trade program that eats into U.S. revenue.
Labor unions have been pushing the Obama Administration to respond to labor and safety problems in Bangladesh.
"The AFL-CIO hopes that the suspension of benefits will be a catalyst to accelerate an effective process involving the government, employers and workers of Bangladesh to achieve these goals," President Richard Trumka said in a statement.
Bangladesh is among more than 120 countries that gets tariff breaks under the program, known as the U.S. Generalized System of Preferences.
"I have determined that it is appropriate to suspend Bangladesh's designation as a beneficiary developing country under the GSP program because it is not taking steps to afford internationally recognized worker rights to workers in the country," President Obama wrote in the proclamation.
Bangladesh's working conditions are also in the spotlight in Europe. The European Union is considering a move to revoke Bangladesh's duty free privileges also on clothing, which could really really hurt the country.
Apparel is Bangladesh's top business and makes up 80% of exports. The average worker in the garment industry in Bangladesh makes between 10 and 30 cents an hour, and many of the factories do not have windows, fire escapes or emergency exists, according to labor rights activists.
The Bangladeshi government has turned a blind eye to working conditions in an effort to entice retailers with low costs. International governments are now amping up the pressure hoping that Bangladesh will step up its vigilance over its country's factories.
-- CNNMoney's Emily Jane Fox contributed to this story.