12 November 2012

Will Congress Help U.S. Exports to Russia by Lifting “Jackson-Vanik” at Long Last?

Washington DC — Russia joined the World Trade Organization (WTO) in August 2012 after 17 years of negotiations. Unfortunately, U.S. companies are missing out on Russia’s trade liberalization and concessions because Congress has not granted Russia Permanent Normal Trade Relations (PNTR).
U.S. business and agricultural firms are ceding vital market share in the world’s 9th largest economy to European and Asian competitors.  For the past 80 days, 154 other WTO members have reaped benefits from Russia’s lower tariffs, improved market access, adherence to international norms and standards, and better IP protection.

Right after the U.S. November 6th election, 500 businesses and industry groups signed letters urging Congress and President Obama to restore American competitiveness by quickly extending PNTR to Russia.

To do so, Congress must first “graduate” Russia from Jackson-Vanik, an outdated amendment to the Trade Act of 1974 that denied Most Favored Nation (MFN) status, now known as PNTR, to non-market economies that restricted freedom of emigration.  Jackson-Vanik was primarily targeted at the Soviet Union, which restricted the movement of its religious minorities, particularly Jews.  For each of the past 20 years, however, Russia has been found in compliance and received Normal Trade Relations (without “Permanent”) status.

According to WTO rules, every member country must grant every other member country unconditional MFN status, which is now known as PNTR.  Since the U.S. is in violation of this fundamental WTO rule, Russia is not required to abide by its WTO commitments when it comes to trade and investment activity with American firms.

Russian imports totaled $400 billion in 2011 and are growing rapidly.  U.S. exports to Russia are expected to at least double and possibly triple once PNTR is granted.  Sectors expected to benefit most include aerospace, agriculture, agricultural equipment, chemicals, high technology, manufacturing and services.

Small and medium-sized enterprises (SMEs) will particularly benefit from PNTR.  About 83% of the 5,000 U.S. companies currently exporting to Russia are SMEs, and they account for half of all U.S. exports to Russia, according to the National Association of Manufacturers.

The Senate version of the Russia PNTR bill currently pending is S. 3406, unanimously approved by the Senate Finance Committee in July.  The pending House bill is H.R. 6156, which passed a voice vote in the Ways and Means Committee also in July.  The primary issue of contention and delay is the inclusion of companion human rights legislation, known as the Sergei Magnitsky Rule of Law Accountability Act. The House and Senate support different versions of the “Magnitsky Law.”

Encouragingly, the House has scheduled a floor vote on Russia PNTR for the end of this week.  The Senate is expected to then take up the bill later in November.  It is essential that Congress grant PNTR to Russia before the end of the year to avoid starting the process all over with a new Congress in 2013.

There is a limited window for Congress to act before negotiations to avert the “Fiscal Cliff” crowd out all other issues.  In the first days after the elections, the signals coming from Capitol Hill suggest that Jackson-Vanik’s anachronistic application to Russia could finally be lifted.  If it is, both countries can start to realize the benefits of an expanding economic relationship.

Blake Marshall, Senior Vice President and Managing Director, and Amanda Lahan, Senior Account Manager, are based in PBN H+K’s Washington office.  Contact them at blake.marshall@hkstrategies.com and amanda.lahan@hkstrategies.com.

Related contacts :

Blake Marshall
Senior Vice President, Government Relations and Managing Director, Washington, D.C.

phone: +1 202 354 8267 / +1 202 354 8295
email: blake.marshall@hkstrategies.com