The WTO and the Reset

Commentary | April 08, 2011

It took Barack Obama several months and some tough lobbying to finally win congressional approval for the New START treaty last December, which was seen as the key to the administration’s reset with Russia. Another fight could already be brewing over Obama’s support for Russia’s World Trade Organization (WTO) membership, which is the next big goal of the administration’s Russia policy. Citing Russian human rights abuses and lack of democratic development, congressional critics want to keep Russia subject to the Jackson-Vanik amendment—a Cold War relic that, if left in place, would effectively nullify both Russian and U.S. gains from Russian WTO membership. But, somewhat surprisingly, the administration could develop a win-win outcome by taking a page from its dealings with China, another country whose human rights practices stir congressional unease.

The Jackson-Vanik amendment to the 1974 Trade Act denies permanent normal trade relations (PNTR) to non-market economies that restrict emigration. The amendment was passed unanimously by both houses of Congress to pressure the Soviet Union to allow Soviet Jews to emigrate. In 1994, the Clinton administration found Russia to be in full compliance with the amendment’s freedom-of-emigration requirements. And in 2002, the United States officially began describing Russia as a market economy. Presidents Clinton, Bush, and now Obama all declared their intention to work with Congress to repeal the legislation as it applies to Russia, but no action has been taken. The reason: Congress still sees Jackson-Vanik as a lever to punish Russia for its human rights record even when the executive branch is prioritizing the security aspects of the bilateral relationship.

Jackson-Vanik’s ongoing application has been a major symbolic irritant in the relationship, even though the United States has granted Russia a waiver every year since 1992. But once Russia joins the WTO, which could happen next year, Jackson-Vanik will go from being a symbol of mistrust to inflicting actual harm both to Russia and the U.S.-Russia relationship.

Jackson-Vanik is inconsistent with WTO requirements on unconditional application of most-favored nation status. If Russia enters the WTO and is still subject to Jackson-Vanik, the United States will have to invoke the non-application principle, by which a member can opt out of its obligations to a newly acceded member. The United States has invoked non-application before—and is the only WTO member to have done so. Non-application, however, is reciprocal. U.S. businesses would face market barriers in Russia that other companies would not be subject to. Congressional refusal to pass legislation to permanently graduate Russia from Jackson-Vanik would then hurt the U.S. economy.

With U.S. support and some of the hardest negotiations behind it, Russia is, according to some observers, 95 percent of the way to WTO membership, after first applying nearly 18 years ago. By comparison, China’s accession process took 15 years; the average is five to seven years. And although there are still economic and political barriers to Russian accession—Georgia has a significant role as a possible spoiler of Russian WTO ambitions—the United States is actively working to support Russia’s bid.  As Vice President Joe Biden puts it, membership would produce “stronger ties of trade and commerce that match the security cooperation we have achieved.”

There are clear benefits that would accrue to Russia from joining the WTO—including an expected 3 percent increase in GDP. There are also significant benefits that would accrue to U.S. companies that do business or want to do business in Russia, including greater predictability, transparency, and access to mechanisms for dispute resolution.  All of which would translate into greater access to the world’s tenth largest economy—and the largest economy currently outside of the WTO. The President’s Export Council estimates that U.S. exports to Russia, totaling nearly $6 billion in 2010, could double or triple once Russia joins the WTO. But if the United States has to invoke the non-application principle, this could make U.S. products more expensive and U.S. companies less competitive in the Russian market. This is not the first time that Congress has grappled with how to support WTO membership for a country that many members feel does not respect human rights and the rule of law. China was graduated from Jackson-Vanik shortly after it joined the WTO in December 2001, despite such concerns. But the legislation granting China PNTR also created the Congressional Executive Commission on China, which is tasked with monitoring human rights and the rule of law. This provides a workable model for how to decouple the economic and political issues, without downplaying the legitimate political considerations stressed by members of Congress from both parties. There is still a forum for addressing those highly sensitive issues, but the economic relationship isn’t held hostage to them.

Even if the administration decides to propose this kind of solution for Russia, however, it may not be willing to push hard for it.  While it claims it is prioritizing the economic aspect of the reset, the administration has relegated Russia to at least fourth place in its queue of priorities. It is currently pursuing congressional approval of free trade agreements with South Korea, Colombia, and Panama, and the Republican leadership in the House has indicated it will not consider Russia’s Jackson-Vanik status before these FTAs are considered. While these three countries are larger trading partners for the U.S. than Russia, there is also a compelling strategic interest in promoting the U.S.-Russia relationship that goes beyond pure economics.

The administration should start laying the groundwork now for the repeal of Jackson-Vanik rather than waiting for Congress to consider the FTAs for South Korea, Colombia, and Panama. And the administration should offer a way forward for Jackson-Vanik graduation for Russia that separates the economic issues at hand from long-standing congressional concerns about Russia’s dubious record on human rights and the rule of law. The legislation approving China’s PNTR status provides a ready example of how to move forward. WTO accession would be good for Russia, it would be good for the United States, and it would be especially good for American business.

Miller is a senior associate at the EastWest Institute.