The Costs of Not Granting Russia PNTR
by Anders Aslund, Peterson Institute for International Economics
Op-ed in the Hill
August 31, 2012
© The Hill
On August 22, Russia became the 156th member of the World Trade Organization (WTO), which covers 98 percent of global trade. The United States has spent 19 years negotiating favorable conditions for its trade in goods and services with Russia. In a Peterson Institute study, Gary Hufbauer and I have estimated that the volume of US exports of merchandise and services to Russia would double from $11 billion in 2011 to $22 billion over about five years, if WTO rules apply to US trade with Russia.
But absurdly the United States might not benefit from all the concessions it has extracted from Russia because it has not granted Russia permanent normal trade relations (PNTR), also known as most favored nation, which the WTO requires. Therefore the United States has been compelled to declare that it does not apply WTO conditions to its trade with Russia, which would cost the United States billions of dollars and thousands of jobs.
In many cases, the Russian government can choose whether to discriminate against the United States or not. So far, it has been uncharacteristically quiet and not made any public statement of significance on how it will treat the United States. It intentionally delayed its ratification of the WTO agreement as long as permitted to allow the US Congress as much time as possible. This silence may continue for some time, and it seems as if the Kremlin hopes that the US Congress will award Russia PNTR in the near future.
The reason for this conundrum is that the US Congress has not terminated the application of the Jackson-Vanik amendment of the Trade Act of 1974 to Russia. The Jackson-Vanik amendment requires annual reviews of Russia. It was designed to facilitate the emigration of Jews from the Soviet Union, and it did so successfully in the 1970s. Today, however, this legislation is altogether obsolete and only arouses ridicule among Russians.
The current Russian government raises many concerns in Washington, regarding its violations of human rights and its policy on Syria, but free emigration is no longer a problem in Russia. Tellingly, Russian democratic opposition leaders, such as Boris Nemtsov, Mikhail Kasyanov, and Garry Kasparov, have publicly advocated the termination of the Jackson-Vanik amendment, arguing that it only promotes primitive anti-Americanism in Russia. Instead, they have suggested that the Congress adopts the Sergei Magnitsky Rule of Law Accountability Act, which would target visas and financial assets of named violators of human rights.
The Russian government has consistently stated that it is not going to lobby for the termination of the Jackson-Vanik amendment which it sees as a pure US concern. Kremlin hardliners would be only too happy if the United States looked bad in Russia.
Fortunately, both the Senate Finance Committee and the House Ways and Means Committee have marked up legislation on PNTR for Russia. The question today is whether the Congress will award PNTR for Russia sufficiently high priority so that it can reconcile the Senate and House legislation and take it to floor votes in both chambers. The Congress should make this a priority for September.
While the Kremlin is keeping quiet for the time being, eventually it has many options to harm US interests. An immediate effect of Russia's WTO accession is the reduction of many import tariffs. For example, the import tariff for light commercial vehicles, a major US export good, will drop instantly from 25 percent to 15 percent. If the US Congress does not grant PNTR quickly, other exporters may gain ground at the expense of US producers.
In other cases, the Russian authorities have a lot of leeway. Russia is the most important market for US poultry exporters and it is significant also for pork producers. These exports are dependent on the Russian implementation of sanitary and phytosanitary standards. For years, these issues have aroused conflicts between the United States and Russia. Russia's WTO accession was supposed to settle them, but so far that is not true for the United States.
A large share of Russia's imports is purchased by the Russian state or state-owned companies. The Russian government can do pretty much what it desires with such state procurement as long as WTO rules do not apply to trade with the United States.
In short, the Congress should do its utmost to grant Russian PNTR in September. The maintenance of the Jackson-Vanik amendment for Russia does not help human rights. It only hurts US exports.
Anders Åslund is coauthor of The United States Should Establish Permanent Normal Trade Relations with Russia (2012).