Jackson-Vanik Forever?

(This piece originally appeared on Russia Beyond the Headlines)

On Aug. 22, Russia will officially become the 156th member of the World Trade Organization, finally concluding its bumpy, 18-year-long journey to membership in the world’s largest trade body. By accepting the WTO rules, Russia will significantly reduce import tariffs – from the current level of 9.5 percent to 6.0 percent in 2015 – allowing other WTO members to expand their presence on the vast Russian domestic market. Unfortunately, there will be one country that is going to miss on this opportunity: the United States.

The reason why the U.S. won’t be able to benefit from Russia’s membership in the WTO is the notorious Jackson-Vanik amendment. Adopted by the U.S. Congress in 1974, the amendment deprived the Soviet Union, and later Russia, of permanent normal trade relations (PNTR) status as a punishment for restricting Jewish emigration. Since then, the amendment has completely outlived its purpose, but members of Congress have refused to lift the amendment, considering it as a means of putting political pressure on Moscow.

Facing Russia’s imminent accession to the WTO, American business groups – supported by the Obama administration – lobbied Congress to repeal Jackson-Vanik and grant Russia the PNTR status. Doing otherwise, they argued, will allow Russia to discriminate against American companies which, as a result, will lose positions in Russia to Europeans and Asian competitors.

Only a short while ago, it appeared that the passage of the PNTR bill was imminent: the bill was approved by two high-profile congressional committees – the Senate Finance Committee and the House Ways and Means Committee – paving the way for a final vote in both chambers. But then last week, things rapidly unraveled: the House leadership decided that there was not enough time to bring the bill to the floor, and the Senate made it clear that it wouldn’t vote for the bill until the House voted first. Given that there are only eight congressional workdays left before the November elections, and given that the lame duck Congress in November/December is unlikely to take up the PNTR bill at all, this delay essentially keeps the Jackson-Vanik amendment on the books until after new Congress convenes in 2013.

Congressional observers pointed out that crucial to the demise of the PNTR bill were attempts to link its passage to the simultaneous adoption of the so-called Magnitsky bill, a piece of legislation punishing Russian officials for alleged violations of human rights. Two different versions of the Magnitsky bill, S. 1039 and H.R. 4405, were considered by the Senate and the House, respectively, and there was not enough time – nor enough good will – to reconcile the differences between the two versions before the August recess. Yet, it is also obvious that many lawmakers, especially members of the Republican caucus, opposed repealing the Jackson-Vanik amendment on principle – regardless of the Magnitsky bill – arguing that the PNTR bill would be a gift to Russia, the gift that Moscow clearly doesn’t deserve given its “unaccommodating” position on Syria.

The Republican leadership in the House blamed President Obama for insufficient lobbying for the PNTR bill, and they might have a point. From the very beginning, the Obama administration has opposed the Magnitsky bill, arguing that its adoption will damage U.S.-Russia relations. When the White House realized that the passage of the “clean” PNTR bill was impossible, it reluctantly agreed on the addition of the Magnitsky bill language to the trade legislation. However, it would appear that the administration is pretty comfortable with the current stalemate: the adoption of the Magnitsky bill is indefinitely postponed, and the Democrats will make the failed PNTR bill an election issue by portraying the Republicans as hostile to the interests of U.S. businesses.

The inability of the U.S. Congress to pass the PNTR legislation creates a new political reality for Russia: by acquiring a legal right to punish American companies, Moscow gets the rare opportunity to have an upper hand in its stormy relationship with Washington. Hopefully, Russia will wisely protect the interests of its trusted and unfailingly supportive long-term corporate partners, including Boeing, Caterpillar and Microsoft. On the other hand, by refusing to reduce tariffs for American exporters, Russia may be able to drive out of business a couple of large U.S. food producers, a temptation it may not be able to resist.

In addition, the Kremlin should learn some lessons from the recent visit of a delegation of the Russian Federal Council in WashingtonWidely ridiculed in the U.S. media and berated by pundits, the visit may have been more successful than the supporters of the Magnitsky bill would be willing to admit. The speed with which the Magnitsky bill lost steam in Congress suggests that some lawmakers began questioning which American interests will be served by adopting a legislation bearing the name of a foreign national who may have committed serious crimes in a foreign country. The Kremlin should re-double its efforts to investigate financial activities of the major driving force behind the bill, Hermitage Capital CEO Bill Browder. The more information about Browder becomes available to the public, the less chance that U.S. Congress will ever come back to the Magnitsky bill.

About Eugene Ivanov

Eugene Ivanov is a PMI-certified Innovation Management Consultant who helps organizations increase the efficiency of their internal and external innovation programs.
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9 Responses to Jackson-Vanik Forever?

  1. Alexex says:

    Hi, Eugene
    I left you a (typo-ridden) comment on RBH site. In fact, I think this is one of your more serious reviews. I wonder if the Russians will be able to manage the things correctly & separate политику и блядство – in this case, Magnitsky list, Syria and real business (what I am saying is that all these are totally separate classes of relations and should not be accidentally mixed when “responding” – yes, as usual – “responding”. .The proper handling of the situation will become a test, in a sense, with the results that will be remembered )

  2. Eugene says:

    Hi Alex,

    Thanks for your RBTH comment, really appreciate that. I generally agree with you, but my major concern is that — at least as I see it — there is huge preoccupation with domestic issues on the part of Russian elites. I even smell some sense of a panic. This doesn’t bode well for conducting reasonable foreign policy. My suggestion would be to “appoint” someone with broad responsibilities, and with all my dislike for Lavrov, he appears to be the man for such a job. He’s skilled enough to tackle the Magnitsky/PNTR knot. Syria is of course a more complicated matter.


    • Alex says:

      Do you suggest to appoint Lavrov instead of Kolokoltsev 🙂 ? Actually, you are right – If the Russian internal affairs were handled with the same rationality and more or less cool head (well, most of the time 🙂 ) as its/her foreign affairs, it could be a totally different country & all the current political problems would be non-existent. Who is for MFA then? Ivanov again? Or, maybe, Surkov? 🙂 Nemtsov blames Surkov for the present police “crack-downs” etc, but I somehow do not believe this.

      Properly handled, this Magnitsky list story might eventually die out on its own – it probably, would depend on – as you suggested – Browder’s reputation and of course, on the ability of Russia not do something stupid as the promised “reaction” (now I think they should simply create a similar bill (include McCain in it – for his participation in the US aggression in Vietnam, and Madonna – for propaganda of homosexuality), leak it to the public and then keep it on the Putin’s table unsigned. .

      Handling US/Russia business relations is a different matter, though, There are (very broadly) two basic types of business/customer relation patterns – “straight” and “crooked”. Each tends to invoke the corresponding behavior in the opposite side. It is important to recognize when one is offered a “clean deal” and behave correspondingly. It does look like Russia was offered more or less straight deal with WTO and so it would be wise to respond in kind – this is how the reputations are built.

  3. Eugene says:

    My suggestion for a “symmetric” response to the Magnitsky list would be creating a similar list for all congressional sponsors of the bill. I know they don’t have money in Russia, but many travel there “on business.” Besides, for these guys with over-sized egos the very idea they are banned from entering a country would be a real insult.

    As for WTO, I’m sure that Russia will pretty much comply with all the rules. I’m somewhat surprised that it joined the WTO at all. But if the forces that favored WTO are strong enough to reach membership, they’re strong enough to ensure compliance.


    • Alex says:

      Agree. I too have doubts about the benefits of WTO, but,this membership is, apparently, something that “was suppose to happen” sooner or later

  4. Dear Eugene,

    Dare I speak the truth I think this is actually good news. I am sure that now that Russia is in WTO the Jackson Vanik will sooner or later have to go. The fact that the Magnitsky Bill is unlikely to be signed into law before the November elections opens a brief window. Whilst I am not cracking open any champagne bottles, with the elections out of the way there is just a chance that a new Congress and possibly a new President can be persuaded to look into the matter again.

    However I have to say that I don’t think Lavrov is the right man to do it. Whether you like Lavrov or not he comes across to me (as does Churkin by the way) as a classic Russian foreign affairs professional, totally at home in matters of grand policy but completely at sea in the grinding detailed business of corporate and political lobbying in which he is simply not interested and which he sees as somehow beneath him. I find it interesting that Alex sees rationality in Russia’s foreign policy. I don’t wholly disagree but I would say that the way Russian foreign policy is conducted at times seems to me to belong more to the world of Metternich, Talleyrand and Gorchakov than to the modern world.

    I would look outside the Foreign Ministry for someone to take on this job, perhaps a politician or possibly someone from the Russian business community. Gref (if he was prepared to put aside his work for Sberbank for a time) of possibly even Kudrin might be a possible choice.

    • Eugene says:

      Dear Alexander,

      I’m not fan of Lavrov, either, and have repeatedly called for his replacement in this space. However, my point was to have a “Central Command” position to coordinate the mix of foreign and domestic issues, like the JVA/Magnitsky bundle. The problem is that the MFA does its job, security services theirs, and the result is a PR disaster.

      I agree that Gref would be an ideal candidate for this job — and many others. But he’s too smart to take on them. It’s not for the love of government service that he asked for resignation 7 times (the 7th attempt was successful).


  5. Alex says:

    In the existing structure, your proposal means a new Presidential “General Political or Policy” Commission or Совет .(скажем “Координационный [ ..] По Обще-Политическим Вопросам Управления”) ?

    As for Lavrov – it is not the Minister who has the title, it is he who makes the decisions 🙂 And I don’t know if he really needs – or even wants – to be where he is – at the front, having to meet personally with various .. persons 🙂 I wonder if there are any women there suitable for the Russian MFA ?

    To briefly address Alexander’s comment – IMHO the Russia’s handling of its foreign affairs is certainly rational – the resulting actions appear to be not driven by emotional impulse (see below, though). Whether it the resulting policy is profitable in both political and economic terms is another question. It does not seem that they loose economically & politically, although maybe they don’t gain as much as they could either..On the other hand, this “policy” is almost purely defensive – this was discussed on this blog many times – and consists mostly of responding to various US jabs. Well, first, the pressure from the US , perhaps, is very hight, second – to do more they need resources and something real to show ..

    The latter brings us to the promised “below” – I watched A.Konuzin’s speech in Belgrad (Dec 2011) and was thinking that while I agreed with every word he said and totally understoond & shared his frustration and thought that he was 100% correct in his accusations, such straightforward – and excessively informative – and emotional delivery by an Ambassador usually would mean that he was giving his last speech in this capacity. (the only thing I did not approve was his absolutely shocking accent). So , “yes” (or “no”) – not everyhting in Lavrov’s department is perfect.

  6. Eugene says:

    As a professional project manager, I’d handle the JVA/MB business as a “project,” without creating a permanent Council. You know what always happens to “permanent structures” in Russia. Cars and “migalki” first, business never 🙂

    As for a woman heading the MFA, you know my three choices: Matvienko, Matvienko and Matvienko…

    Speaking briefly about Russia’s foreign policy objectives. At some point of his presidency, Medvedev defined foreign policy as something aimed at helping achieve goals of economic modernization. I loved it! Needless to say, whatever the current foreign policy objectives, if they formally exists, economic modernization — implying some cooperation with the West — is obviously not one of them.


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