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Russia's Place in Washington's Trade Agenda

Date: Thu, 24 Mar 2011
From: Ed Verona <verona@usrbc.org>
Subject: USRBC President's Message: Russia's Place in Washington's Trade Agenda
U.S.-Russia Business Council

USRBC President's Message:
Russia's Place in Washington's Trade Agenda

What do Colombia, Panama, Korea and Russia have in common? For starters, all four countries have Pacific Ocean coastlines. More importantly for us, all four are fast growing markets for American goods and services and are also the subjects of pending trade-related legislation likely to come before the U.S. Congress this year. The United States concluded negotiations for free trade agreements (FTAs) with Colombia, Panama and Korea in, respectively, 2006, 2007 and 2010. (Korea's was originally inked in 2007, but was modified by mutual agreement after President Obama's visit to Seoul in December.) Congress is now awaiting the Administration's submission of implementing legislation for the three FTAs, which will have to be approved by both the House and the Senate in order for the agreements to enter into force.

In the case of Russia, three successive U.S. administrations - including the current one - have gone on record as supporting the permanent lifting of the Jackson-Vanik Amendment as it pertains to Russia. This provision in U.S. trade law, which was enacted in 1974, prevents the U.S. from extending permanent normal trade relations (PNTR) to any non-market economy which restricts emigration. At the time of enactment Jews were prevented from leaving the Soviet Union unless they paid large indemnities for the cost of their education. Thankfully, that situation no longer obtains. The Soviet Union is history, and Russia - far from restricting Jewish emigration - has a visa-free travel regime with Israel.

Acknowledging this reality, the U.S. has granted Russia annual waivers from Jackson-Vanik since 1994. Notwithstanding the irritation that this ritual causes, it could continue indefinitely with little material impact on bilateral trade and investment for as long as Russia remained outside the World Trade Organization. However, when a new member that is subject to the Jackson-Vanik Amendment joins the WTO, the United States must either extend permanent normal trade relations or issue formal notification of its intent not to do so. Since Jackson-Vanik is incompatible with PNTR, the U.S. would be forced to issue such notification if the amendment were to remain in effect once a final agreement on Russia's membership is achieved, and we expect negotiations in Geneva to reach that point in the coming months.

This is where U.S. exporters stand to lose. All other WTO members have unconditional free trade with Russia, and those countries would immediately benefit from the lowering of Russian tariffs and other market liberalizing measures Russia adopts as part of its accession. Ironically, these liberalizing measures were secured in many cases as a result of tough negotiations led by American trade diplomats.

Our competitors would be quick to exploit that window of opportunity and, as a result, American companies could lose significant opportunities and competitive advantage. Our European and Asian competitors will move quickly to sign contracts with Russian buyers, possibly shutting out U.S. manufacturers and farmers for a good time to come.

While a bill lifting Jackson-Vanik has not yet been formally introduced in Congress, the Obama Administration has publicly called for Congressional action to that effect. This was the message Vice President Biden delivered to the Russian government earlier this month when he visited Moscow (where the USRBC was honored to host him at a CEO Roundtable). Moreover, Biden unequivocally stated U.S. support for Russia's WTO accession once the few remaining issues are resolved, and declared that he would lead the administration's efforts in Congress to lift Jackson-Vanik.

That brings us back to Colombia, Panama and Korea. In our frequent visits to staffers and members on Capitol Hill over the past three months we have often been reminded that the pending FTAs are the top three trade priorities of the new House leadership, as well as of many other free trade advocates in both parties. According to those in the know, Jackson-Vanik and PNTR for Russia will not be considered until after the pending FTAs are approved. Nobody we have talked with on the Hill is willing to predict when that might happen, so while negotiations on Russia's WTO accession proceed apace we'll just have to hope that Jackson-Vanik is lifted before a final agreement is reached.

This is to say nothing about the fact that when a vote on Jackson-Vanik is eventually held it will be seen by many in Congress not as a trade vote, but as a referendum on Russia itself. More's the pity. The facts pertinent to Jackson-Vanik clearly indicate that the law has served its purpose so admirably that it is no longer relevant to Russia. The logic of future legislation aimed at effecting policy change in other countries is seriously undermined when the fulfillment of the stipulated conditions is not duly acknowledged. The U.S. and the West in general have legitimate issues to raise with Russia, but these should be addressed directly, not by keeping a law on the books that is hopelessly out of date and that hampers U.S. business opportunities in that growing market.

With warm regards,
Edward S. Verona
President and CEO
The U.S.-Russia Business Council

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