The US is suspending a trade deal with Bolivia, Secretary of State Condoleezza Rice said.
She called it unfortunate but necessary because Bolivian President Evo Morales has failed to improve anti-drug efforts.
Dr Rice made the announcement just as Bolivian envoys arrived at the US Trade Representative’s office in Washington to lobby for continued participation in the Andean trade pact, which lowers US tariffs for Colombia, Ecuador, Peru and Bolivia in exchange for cooperation with the US war on drugs.
US President George Bush last week signed a six-month extension of the Andean Trade Promotion and Drug Eradication Act, and it wasn’t immediately clear when Bolivia would begin losing out. Dr Rice said the US Congress will decide.
The suspension will raise US tariffs on imports of Bolivian jewellery, textiles, wood and other products.
Bolivia estimates that 30,000 workers would lose their jobs and more than $300m (€235m) in exports would be priced out of the US market.
Mr Morales has said his people shouldn’t fear reduced trade with Bolivia’s third-largest trading partner after Brazil and Argentina, but he characterised it as a punitive sanction along the lines of the US embargo against Cuba.
“We don’t have to be afraid of an economic blockade by the United States against the Bolivian people,” Mr Morales said.
Diplomatic relations between the US and Bolivia have soured recently.
Mr Morales booted the US ambassador last month, accusing him of supporting his opponents, which the former ambassador denies. The US sent Bolivia’s top diplomat home in response.