Reuters
reported over the weekend that several US auto parts manufacturers will travel to Russia with the US Department of Commerce to seek new customers in Russia, which was
approved to join the World Trade Organization in December 2011. The trip itself is pretty unremarkable - Russia has a big, untapped auto parts market, and DOC organizes these kinds of trade promotion trips all the time. One passage, however, warrants further discussion (emphasis mine):
With Russia on the verge of joining the World Trade Organization in July, the White House is also trying to persuade a skeptical Congress to repeal a Cold War-era trade measure known as the Jackson-Vanik amendment in order to establish "permanent normal trade relations" (PNTR).
The vote is important because unless Congress takes that step Moscow could deny U.S. exporters the market opening-benefits of Russia's accession to the WTO, while granting them to U.S. competitors around the world.
Russia's fast-growing auto market is certainly "a great example of why we need to go ahead with terminating Jackson-Vanik and granting PNTR," [Commerce Deputy Under Secretary Michelle] O'Neill said.
That's expected to be difficult because of concerns in Congress about Moscow's record on human rights and its foreign policy, which is often at odds with the United States.
In addition, some lawmakers are unhappy with the automotive terms of Russia's entry into the WTO, even though Detroit's Big Three automakers have endorsed the pact.
Reuters certainly isn't wrong to note recent congressional grumbling about the impending vote on Russia trade relations. At a key Senate hearing last month, the GOP's number 2 Senator, John Kyl,
joined several of his Republican colleagues in expressing concerns about Russia's human rights record and support for Syria. And, some protectionist lawmakers will certainly oppose PNTR, regardless of what Russia does on human rights.
Nevertheless, I'm willing to go out on a limb and say that the current conventional wisdom that the Russia PNTR vote will be a difficult one is mostly exaggerated for several reasons.
First, as this recent
Cato Institute briefing paper makes clear, granting Russia PNTR is an economic no-brainer because it will provide immense new market access opportunities for US companies:
To enjoy the enhanced access to Russia's market, the U.S. government will need to grant permanent normal trade relations (PNTR) to the Russian Federation. Under the 1974 Jackson-Vanik Amendment, Congress is required annually to pass a special exemption for Russia extending it conditional access to the U.S. market. The law was originally intended to withhold normal-trade-relations status from communist countries that did not allow Jewish citizens to freely emigrate. Even after the fall the Berlin Wall in 1989 and the dissolution of the Soviet Union in 1991, the law continued to apply to most former communist countries because of their continued status as "nonmarket economies."
As a condition of membership in the WTO, all members are expected to grant unconditional most-favored nation (MFN) status to all other members. This means each WTO member must offer the same level of market access to other members without attaching special conditions to that access. Continued application of Jackson-Vanik to Russia would be a violation of unconditional MFN status, since it depends on Congress granting renewal each year.
If Congress does not grant PNTR to Russia by repealing Jackson-Vanik, then the enhanced market-access commitments Russia has made in its accession protocol would not apply to exports from the United States. Producers in the other 150-plus members would enjoy those benefits but not producers in the United States.
The Cato paper goes on to note that certain US exporters, most notably in agriculture, civilian aircraft and financial services, stand to benefit greatly from Russia's WTO accession. For these reasons, and a few others, the U.S. business community overwhelmingly supports PNTR; for example, in March a coalition of 173 US companies and business groups sent a
letter to Congress urging lawmakers to support the measure. Thus, congressional opposition to PNTR will face intense scrutiny from the US business community (not to mention free trade advocacy groups who will undoubtedly be scoring the vote).
Second, the Cato paper also makes clear that denying PNTR won't prevent Russia from joining the WTO, and thus that US exporters and consumers, not their Russian counterparts (or the Russian government), would feel the vast majority of the pain from rejecting PNTR:
Under WTO rules, MFN must be applied "unconditionally." However, WTO Article XIII permits the nonapplication of multilateral trade agreements (e.g., MFN) among particular members under predetermined conditions. Specifically, Article XIII states that nonapplication "may be invoked between original Members of the WTO which were contracting parties to GATT 1947 only where Article XXXV of that agreement had been invoked earlier and was effective as between those contracting parties at the time of entry into force for them of this Agreement." In addition, Article XIII states that WTO agreements "shall not apply as between any Member and any other Member if neither of the Members, at the time either becomes a Member, does not consent to such application." Application of Article XIII essentially amounts to an official and legal declaration that any and all WTO privileges, obligations, and mechanisms are nonexistent and inapplicable between the newly acceding WTO member and the member invoking Article XIII. The United States remains the only country to have evoked Article XIII.
When a WTO member thus "determines that it cannot, for political or other reasons, accede to this or any other GATT/WTO principle toward a newly acceding member, it can 'opt-out' of its obligations toward that member by invoking the non-application provision." In this way, a current WTO member such as the United States can legally refrain from granting unconditional MFN to a newly acceding member such as Russia. The catch is that the member opting out of such an obligation is not entitled to benefit from the increased trade liberalization that the new member has agreed to in its accession protocol. So if Congress refuses to pass PNTR, Russia will become a member of the WTO regardless, but U.S. producers will be denied the same full access to the Russian market that will be available to other WTO members.
The US Congress certainly knows these facts, so it seems quite unlikely that most members would vote to deny PNTR on the (clearly incorrect) grounds that doing so will somehow thwart Russia's accession or teach the Russian government a "big lesson."
Third, and on a related note, it's important to understand that the WTO accession process provides ample opportunities for any WTO Member to gain concessions - trade-related or otherwise - from an acceding nation. Members can join the acceding nation's "working party" and make bilateral (government-to-government) or multilateral (as part of the whole working party) requests to that nation. If the acceding nation refuses to comply with those requests, then the requesting WTO Member can block the accession. Thus, if the United States had
really serious concerns about automobiles market access (or anything else) prior to Russia's accession, then it shouldn't have signed off on the final deal until the Russian government addressed those concerns. But now that the United States has approved Russia's WTO accession, it can't use PNTR as some sort of threat to address them now because, as noted above, the primary victim would be the United States, not Russia. (That type of negotiating move may have worked in
Blazing Saddles, but it's probably not gonna work here.)
So, in short: we had our "big chance" to address any and all issues with Russia, and now we'll have to wait to use WTO dispute settlement or other negotiations to address lingering concerns. And, again, Congress certainly knows this.
Finally, there's an important procedural - and likely political - element at play here. Procedurally, Russia's not yet a full WTO Member and probably won't be until mid-summer (at the earliest). By the terms of Russia's accession, the Russian Duma has until July 23, 2012 to ratify the country's accession agreement. Russia will then become a full WTO member 30 days after its government formally notifies the WTO that it has ratified the deal. In order to avoid losing out on all that sweet, sweet new access to the Russian market, Congress only needs to pass, and the President only needs to sign, PNTR legislation right before Russia is a full WTO Member (
i.e., when those 30 days are up). Most insiders agree that Russia will wait until the very last minute to ratify its accession agreement. Thus, Congress will probably have until mid-August 2012 to grant Russia PNTR before the US business community goes nuclear (and the United States' global trade reputation sinks even further into the anti-trade abyss).
So - and this is just a guess here - if you're a Republican politician looking to score some easy political points by tying President Obama to the, ahem,
troublesome Russian government, what better way than to express a little "skepticism" about PNTR and force the Obama administration to publicly support the deal? Then, in a few months (when it really matters to the US business community), you can put together some simple (non-binding) human rights legislation and set up a monitoring program or two and, all of a sudden, change your tune on PNTR. But in the intervening months, you can sit back and enjoy reading numerous press reports about your ethical (and patriotic!) skepticism and the Obama administration's strong support for Russia.
Cynical? Sure. Smart politics? Probably. Harmful in the long-term? Unlikely.
But that doesn't mean that we all have to play along.
