The True Cost of Jackson-Vanik
Americans will pay a steep price if Washington fails to repeal the Cold War-era Russian-trade amendment.
According to data from the 2010 U.S. census, almost half of Americans alive today were born after 1975, the year that the Jackson-Vanik amendment to the 1974 Trade Act was enacted. It’s a safe bet that even most of us who are old enough to remember the days of platform shoes and bell-bottom trousers would have no more than a vague recollection of that legislation, or even the circumstances that gave rise to it. In a way, that is both a testament to Jackson-Vanik’s success and a reason to rescind it—at least with respect to Russia.
Named for its two principal authors, Senator Henry “Scoop” Jackson (D-Washington) and Congressman Charles Vanik (D-Ohio), Jackson-Vanik applied intense pressure on the Soviet Union to remove restrictions on emigration, in particular of its Jewish population by denying most-favored-nation (MFN) trade status. At the time, Soviet Jews who applied for exit visas were required to pay prohibitive indemnities for the cost of their education, or denied permission to leave on the grounds that they had knowledge of state secrets. Indisputably, the combination of trade leverage and moral suasion embodied in Jackson-Vanik was a decisive factor in the eventual emigration of millions of Soviet Jews, one million of whom resettled in Israel.
Thirty-eight years later, the Soviet Union no longer exists, there is visa-free travel between Russia and Israel, and daily flights connect Moscow and Tel Aviv. Many formerly Soviet Jewish émigrés have returned to Russia to work, albeit in most cases without Russian citizenship. While Jackson-Vanik remains on the books, Russia has been certified as being in compliance with that law by successive U.S. administrations every year since 1994. Thus, for almost two decades Jackson-Vanik has persisted as a relic of the Cold War era, surviving statutorily mostly due to inertia. Aside from occasional remonstrations from Moscow—which still bridles at the perceived stigmatization—Jackson-Vanik has had little material impact on the course of post–Cold War U.S.-Russia relations and, therefore, there has been no compelling reason to remove Russia from the scope of that law.
Free-Trade Watershed Diverted?
Russia’s imminent accession to the World Trade Organization (WTO) changes all that. Jackson-Vanik became materially relevant once again when Russia was invited to join the WTO last December; this time not because of any restrictions on emigration but because of its inadmissibility under WTO rules. The WTO requires members to extend one another unconditional free trade. Any member country unable to do so must publicly notify the others. In turn, the incoming member is under no obligation to extend MFN to that country. This is the case with the United States and Russia, and it will be so for as long as Jackson-Vanik stays on the books.
If that obtains after Russia becomes a full-fledged WTO member, U.S. business is likely to lose out in what has been until now a very lucrative market. U.S. exports to Russia have grown at an average annual rate of 15 percent in the past decade, reaching $8.3 billion in 2011. According to a recent Peterson Institute study, U.S. exports to Russia could double over the next five years as a result of that country acceding to the WTO. Approximately fifty thousand American jobs are directly or indirectly attributable to exports to Russia, with a likely doubling of that number if the United States has unimpeded access to the Russian market after it joins the WTO.
U.S. exports to Russia cover a broad range of goods. American consumer products, many of which enjoy virtually iconic status, are in heavy demand from the prosperous and rapidly growing Russian middle class. U.S. automobile brands are popular, and for several years running the best-selling model of foreign car has been the Ford Focus. Boeing commercial aircraft have been extremely successful in Russia and are poised to take a significant portion of the market as Russian airlines phase out their remaining Soviet-era aircraft. Infrastructure spending is expected to result in major orders for railroad locomotives, highly efficient power-generation technology and smart-grid equipment, to name just a few sectors. These are all areas where American companies are especially competitive and have worked diligently to develop market share and strong reputations.
But American competitiveness in Russia is now in jeopardy. Russia invoked reciprocity in response to the United States notifying the WTO that Washington could not extend unconditional MFN status. In case the point was lost, Foreign Minister Lavrov explicitly stated that his government will not extend to those WTO members who have not granted Russia MFN status (i.e. the United States) any of the benefits of Russia’s commitments under its accession agreement. Ironically, this means that companies from the other 152 WTO member countries (not counting the United States and Russia) will be able to take advantage of the concessions that the United States achieved during the protracted negotiation process. These concessions cover intellectual-property rights, agricultural-products standards, financial services and other regulatory and legal commitments that are crucial to American business. Moreover, the United States would not be able to hold Russia accountable for failure to adhere to its trade obligations under WTO dispute-resolution procedures.
In January, the Obama administration publicly stated that lifting Jackson-Vanik and extending Permanent Normal Trade Relations (PNTR) to Russia is now its top trade priority. Secretary of State Hillary Clinton, U.S. Trade Representative Ron Kirk and other officials have testified on Capitol Hill in support of such action. Business has intensified its congressional-lobbying efforts over the past three months, briefing members and staff on the urgency of action to prevent damage to U.S. commercial interests and the loss of American jobs. The National Council on Soviet Jewry (NCSJ), a leading proponent of Jackson-Vanik during the debate over its adoption, has joined the Coalition for U.S.-Russia Trade in calling for the amendment to be lifted. Hearings have been held in the Senate Foreign Relations, Senate Finance and House Foreign Affairs Committees focusing on Russia, including Jackson-Vanik. Senators and Representatives with whom I have spoken overwhelmingly accept the economic and commercial rationale for lifting Jackson-Vanik and extending PNTR.
At the same time, most of those Senators and Representatives express strong reservations about many aspects of Russia’s foreign and domestic policies. In addition, they largely hold the view that lifting Jackson-Vanik without replacing it with more relevant legislation in the area of human rights would amount to acquiescence in the face of human-rights violations and the weak rule of law in Russia. Discussion on Capitol Hill revolves around the Sergey Magnitsky Rule of Law Accountability Act (S.1039), a bill sponsored by Senator Benjamin Cardin (D-Maryland) which as of this writing now has thirty-one cosponsors. Essentially, that bill would deny visas and impose financial sanctions on Russian officials allegedly responsible for the wrongful incarceration and death of a Russian lawyer working for an American law firm, apparently in reprisal for his denunciation of official corruption.
It is up to Congress and the administration to determine the merits of the Magnitsky bill or other measures that may be introduced in conjunction with the lifting of Jackson-Vanik. An association such as the U.S.-Russia Business Council is reluctant to take a stand on an issue beyond our commercial and economic remit. But we are confident that failure to take action on Jackson-Vanik would place U.S. businesses and workers at a serious disadvantage once Russia becomes a member of the WTO, certain to occur no later than the end of August. It is abundantly clear that Jackson-Vanik provides no leverage on the Russian government now that the country is joining the WTO. On the contrary, Jackson-Vanik may even serve as a convenient anti-American foil for hard-liners within the Russian political establishment, as was asserted in recent open letters by leading members of Russia’s political opposition.
The U.S. economy cannot afford to lose export markets and the jobs they create for American workers. This is why it is imperative that Congress act to lift Jackson-Vanik and extend PNTR to Russia—not for Russia, but for America.
Ed Verona is president & CEO of the U.S.-Russia Business Council.
Image: United States Mission Geneva