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The U.S. Chamber’s PNTR Primer

Why Approving Permanent Normal Trade Relations with Russia Is in the U.S. National Interest

Approval of Permanent Normal Trade Relations (PNTR) with Russia is the U.S. Chamber’s top trade priority before the Congress this year. The Chamber is working as part of the Coalition for U.S.-Russia Trade to reach this objective.

On December 16, 2011, trade ministers at the 8th Ministerial Conference of the World Trade Organization (WTO) celebrated the conclusion of 18 years of negotiations for Russia to accede to the WTO and invited Russia to become the organization’s 154th member. In those negotiations, which took place under both Republican and Democratic administrations, Russia committed to enact a host of reforms, and Moscow is expected to complete this work and formally join the WTO in July 2012.

That Russia will join the WTO is no longer in doubt. In fact, at this juncture, the United States can neither help nor hinder Russia in doing so. However, Congress must act to ensure that the United States benefits from the reforms Russia is undertaking as it joins the WTO. Specifically, Congress must pass a short and simple bill that grants Russia PNTR status and repeals the Jackson-Vanik amendment with respect to Russia. Failure to do so will put U.S. workers, farmers, and businesses at a unique disadvantage in the growing Russian marketplace and drive new sales, exports, and job-creation opportunities to our European and Asian competitors.

How will U.S. companies benefit from Russia PNTR?

The far-reaching multilateral trade agreement governing Russia’s accession will require Moscow to implement a host of economic reforms that will further open the Russian market to U.S. goods and services, ensure greater respect for the rule of law, better protect intellectual property, and safeguard foreign investors—if Congress approves PNTR with Russia. For an overview of the commitments made by Russia as a condition of its accession to the WTO, see the to-do list.

What is Permanent Normal Trade Relations?

One little understood aspect of this process is that Congress does not vote on Russia’s accession to the WTO and has no authority to block it. Russia’s accession to the WTO this year is assured. Rather, Congress must approve PNTR and graduate Russia from the annual Jackson-Vanik certification process if American companies, workers, and farmers are to benefit from Russia’s new openness as it joins the WTO.

Under WTO rules, every WTO member must grant all other members unconditional Permanent Normal Trade Relations (also known as Most-Favored Nation status). This WTO rule mandates that any advantage granted to one WTO member by another member must be accorded unconditionally to all other members. The United States will be in clear violation of this rule if Congress fails to graduate Russia from Jackson-Vanik. Russia would thus be fully within its rights to withhold the benefits of its accession-related reforms from U.S. companies.

What is Jackson-Vanik?

The Jackson-Vanik amendment to the Trade Act of 1974 was devised to press the Soviet Union to allow the emigration of Soviet Jews, prisoners of conscience, and victims of religious persecution. With respect to Russia, Jackson-Vanik has fully accomplished its objective. With the collapse of the Soviet Union two decades ago, Russia established freedom of emigration for all citizens. Since 1992, U.S. presidents of both parties have issued annual certifications of Russia’s full compliance with the Jackson-Vanik amendment.

Because no other WTO member has a law similar to Jackson-Vanik, all of Russia’s trading partners except the United States will immediately benefit when Russia joins the WTO in July. If Jackson-Vanik remains applicable to Russia, the United States will be in violation of WTO rules. Failure to approve PNTR and repeal Jackson-Vanik with respect to Russia would allow Moscow to discriminate against U.S. companies and the workers they employ and deny them the full benefits of Russia’s market-opening reforms. Meanwhile, European and Asian companies will be able to build on their already significant head start in tapping the growing Russian market.

How important is the Russian market to U.S. companies?

With the world’s 11th largest economy and more than 140 million consumers, Russia is the last major economy to join the WTO. The President’s Export Council estimates that U.S. exports of goods and services to Russia—which, according to estimates, topped $10 billion in 2011—could double or triple once Russia joins the WTO. Many U.S. companies are already active in Russia. To illustrate, the American Chamber of Commerce in Russia (AmCham Russia) has more than 700 member companies. For many of these companies, Russia has proven to be a lucrative market for high-quality goods and services.

Business opportunities in Russia are significant and are expected to grow substantially after Russia finalizes its accession to the WTO. For instance, the total cost of needed infrastructure spending over the next five years is conservatively estimated at $500 billion, according to AmCham Russia. Private sector participation in this building boom could offer very significant opportunities for U.S. companies.

How will WTO accession benefit ordinary Russians?

The World Bank forecasts that WTO accession could increase Russian GDP by 3.3% in the medium term and by 11% over a longer period as greater openness and competition in the marketplace compel Russian enterprises to become more efficient. Russia’s economy has been dominated by natural resource extraction and state-owned and state-influenced enterprises; joining the global rules-based trading system will foster diversification and openness and directly benefit consumers. “Competitive pressures on local producers will encourage them to become more efficient and innovative,” writes Art Franczek, president of the Moscow-based American Institute of Business and Economics and co-chair of the AmCham Russia Customs and Transportation Committee.

According to WTO Director-General Pascal Lamy, “The accession of Russia to the WTO is a win-win deal. It will cement the integration of the Russian Federation into the global economy. It will bring greater certainty and stability to business operators and trading partners. It is a contribution to the rule of trade law. It strengthens and opens new trade opportunities.”

What will WTO accession mean for economic reform and the rule of law?

Indeed, Russia’s accession to the WTO is expected to strengthen the hand of reformers and provide tools to enhance the rule of law. In a sign that the reform process continues, the Russian Duma in January 2012 ratified the OECD Anti-Bribery Convention. To come into compliance with the convention, Russian authorities had to make amendments to the country’s criminal and administrative code to bring it into line with international anti-corruption standards.

The road ahead for Russia’s reform agenda is a long one, but joining the WTO represents a major step forward. According to David Tarr and Natalya Volchkova of Moscow’s New Economic School, “It is difficult to argue that Russia would have made reforms as widespread and as deep as it has without the external pressure of WTO accession. Reforms are accomplished in the context of WTO accession that would not normally be achieved so quickly.”

What if Russia fails to meet its commitments?

With Russia joining the WTO, other countries will for the first time be able to use the WTO dispute settlement process to hold the Russian authorities accountable if they fail to fulfill their commitments as a new member of the organization. The WTO dispute settlement process affords graduated responses to the arbitrary imposition of trade barriers, including the possibility of WTO-sanctioned retaliation. At present, no such recourse exists, and U.S. authorities have few options to respond to Moscow’s arbitrary trade actions. The United States, however, cannot avail itself of WTO dispute settlement unless it grants Russia PNTR.

Do Democrats and Republicans differ over Russia joining the WTO?

Russia’s accession to the WTO has been a bipartisan American foreign policy goal for many years—spanning Democratic and Republican administrations. In 1993, Russia applied to join the General Agreement on Tariffs and Trade (GATT), the precursor to the WTO. After years of talks, the Bush administration took a big step forward in 2006 when it signed a bilateral agreement with Russia to address particular trade concerns. (Any WTO member can insist that an acceding nation negotiate such an agreement as a condition for accession.) The Obama administration concluded the multilateral negotiations for Russia’s accession in December 2011 and won praise from the U.S. business and agriculture communities for doing so on a commercially strong basis.

Will Russia join the Information Technology Agreement?

While concern arose in late 2011 that Russia would not join the Information Technology Agreement (ITA) upon accession to the WTO, the issue was addressed satisfactorily. The ITA provides for duty-free treatment for 95% of world trade in IT products, and joining the ITA has been a condition for every WTO accession in recent years (for example, those of China, Vietnam, and Saudi Arabia). U.S. negotiators were able to address these concerns, and Russia’s accession package includes an enforceable commitment to accede to the ITA when Russia joins the WTO. Leading technology associations, such as the Information Technology Industry Council and TechNet, strongly support PNTR with Russia.

Conclusion

The long-standing bipartisan foreign policy goal of bringing Russia into the global rules-based trading system is finally within reach. The only question now is whether U.S. companies, workers, farmers, and ranchers will be able to secure the benefits of Russia’s accession to the WTO. The answer rests with Congress, which must approve PNTR and graduate Russia from the Jackson-Vanik certification process.

For More Information

Trade Supports Jobs   www.tradesupportsjobs.com
Offers information on exports to Russia by state and congressional district

Coalition for U.S.-Russia Trade  www.usrussiatrade.org

Download 'Faces of Trade Small Business Success Stories - Exporting to Russia'

What Does PNTR Mean for the United States and Russia?

For the United States, all the benefits
For Russia, all the concessions

Which To-Do List Would You Rather Have?

United States of America
TO DO:
Russian Federation
TO DO:
  • Approve legislation providing PNTR and graduating Russia from the Jackson-Vanik certification process.
  • Cut tariffs on manufactured products from 10% to 7%, with steeper cuts on priority goods:
    • Eliminate duties on IT products.
    • Cut duties on wide body aircraft from as high as 20% to 7.5%.
    • Slash average tariff on chemicals to 5.3% from as high as 20%.
    • Cut tariffs on combine harvesters from 15% to 5%.
  • Reduce duties on farm products to 10.8% from 13%, with notable gains for key products:
    • Expand market access for beef, poultry, and other products at reduced tariffs.
    • Require use of international standards and enforceable disciplines against trade restrictions that are not science based.
    • Cap farm subsidies at $9 billion in 2012 and cut them in half by 2018.
  • Open services markets to U.S. firms:
    • Allow 100% U.S. ownership of companies in banking, securities, nonlife insurance, telecommunications, audiovisual, wholesale, distribution, retail, and franchises.
  • Meet intellectual property commitments of the WTO TRIPS Agreement:
    • Enhance enforcement on the Internet and new copyright and patent protections.
  • Cut the maximum customs clearance fee by two-thirds.
  • Allow trade disputes to be taken to the WTO dispute settlement system.