U.S. Firms Will not Benefit from Russia's WTO Accession Unless Congress Acts
Sources at the Office of the U.S. Trade Representative confirm that unless the Jackson-Vanik amendment1 is revoked for Russia and the U.S. extends permanent normal trading relations (PNTR) to the country, U.S. companies will not benefit from Russia’s World Trade Organization commitments when Russia becomes an official WTO member.
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(On December 16, 2011, WTO members extended a formal invitation for Russia to join the WTO. Russia will have to ratify the deal within the next 220 days and would become a full-fledged WTO member 30 days after it notifies the ratification to the WTO. (See ITT’s Online Archives 11121625 and 11121654 for summaries.)
Russia Has Complied with Jackson Vanik and U.S. Granted NTR Since 1992
The Jackson-Vanik amendment, which has been used to pressure Russia on human rights issues, limits trade with non-market economies that restrict emigration by denying them automatic and permanent normal trade relations. Instead, countries subject to the amendment must be reviewed and granted normal trade relations (NTR) on a yearly basis based on a positive review. Russia has met the freedom of emigration criteria under Jackson-Vanik, and the U.S. has granted Russia NTR every year since 1992. According to Assistant Secretary of State Gordon who testified on the need to grant Russia PNTR during a recent Senate hearing2, this demonstrates that the amendment long ago achieved its historic emigration purpose.
U.S. and Russia Have Already Invoked “Non Application” of WTO Agreement
However, the Jackson-Vanik amendment is inconsistent with the WTO requirement to apply most-favored nation status unconditionally and nondiscriminately to all WTO members (with certain exceptions such as for free trade agreements).
USTR sources confirm that because this amendment is still in place, the U.S. has had to invoke “nonapplication” of the WTO agreements with regard to Russia, and Russia has done likewise in response. (See ITT’s Online Archives 11121654 for summary of the U.S.’ and Russian December 16, 2011 WTO notifications on this issue.)
None of Russia’s WTO Commitments Will Apply to U.S. Unless PNTR Extended
USTR sources add that if the U.S. does not terminate Jackson-Vanik and extend PNTR to Russia, none of Russia’s WTO commitments will apply to U.S. trade with Russia.
U.S.-Russia Trade Would Be Governed by Current Bilateral Agreement
Instead, U.S.-Russia trade would continue to be governed by the U.S.-Russia Bilateral Commercial Agreement (BCA). Under the BCA, Russia and the U.S. will continue to apply most-favored-nation (MFN) tariffs to each others’ imports, as well as customs rules and formalities, taxes and internal charges applied to imports or exports, rules concerning the sales, purchase, transport, distribution, storage and use of products in the Russian market.
U.S. Business Launching Lobbying Effort
This means that U.S. companies will be bound by a limited bilateral agreement and face barriers that their global competitors will not if PNTR is not extended by the time Russia becomes a WTO member. According to State Department sources, this has motivated U.S. business groups such as the U.S.-Russia Business Council to launch a major lobbying effort to explain to members of Congress the benefits to U.S. business of Russia’s WTO accession.
Need to Act Soon as Russian Ratification Expected in Spring 2012
President Obama, U.S. Trade Representative Kirk, and Assistant Secretary of State Gordon have all expressed a commitment to consulting and working with Congress to terminate the application of the Jackson-Vanik Amendment and extend PNTR to Russia. However, the timeline is short, as Assistant Secretary of State Gordon expects the Russian Parliament to act on WTO ratification in the spring of 2012.
1Title IV of the Trade Act of 1974 includes the so-called Jackson-Vanik amendment. Some trade sources have suggested that Congress may have resisted addressing this issue in the past because all of Title IV may have to be revised.
2Assistant Secretary of State Gordon made his remarks in testimony during a December 14, 2011 hearing of the Senate Foreign Relations Committee’s Subcommittee on European Affairs. Hearing info available here.
(See ITT’s Online Archives 11122019 for summary of a Presidential memo on Russian state-owned enterprises and Russia’s WTO bid.
See ITT’s Online Archives 11111532 and 11121625 for summaries President and USTR Kirk discussing working with Congress to repeal the Jackson-Vanik amendment for Russia.
See ITT’s Online Archives 11122001 for summary of the International Trade Administration issuing a sector opportunity report on tariff benefits once Russia joins the WTO.)