http://www.businessweek.com/articles/2012-07-12/why-u-dot-s-dot-russia-trade-is-stuck-in-the-cold-war

Trade

Why U.S.-Russia Trade Is Stuck in the Cold War


Sergei Magnitsky

Photograph by Hermitage Capital Management/AFP

Sergei Magnitsky

Russia will join the World Trade Organization next month, a deal 18 years in the making. That’s good news for U.S. businesses. They’ll get guaranteed tariff reductions. Russia will also have to honor international agreements dealing with intellectual property, and if there are disputes, the U.S. can call on the WTO to arbitrate. There’s only one thing in the way: Congress.

The WTO requires its members to grant each other so-called permanent normal trade relations. But the U.S. is forbidden to do so with Russia under the 1974 Jackson-Vanik amendment, passed to restrict trade with the Soviet Union as punishment for its persecution of Jews who wanted to emigrate. Now lawmakers worried about looking soft on the old Cold War foe—in the middle of campaign season—are stalling on repealing the amendment.

They “just don’t get the sense of the breadth of the market opportunities,” says Randi Levinas, executive director of the Coalition for U.S.-Russia Trade, a Washington lobbying group led by 22 U.S. companies including PepsiCo (PEP), General Electric (GE), Caterpillar (CAT), Boeing (BA), and Procter & Gamble (PG). “They think of it as a communist country.”

The U.S. already trades with Russia, the world’s ninth-largest economy, under an exception to Jackson-Vanik granted annually by every president since 1992. Right now the flow of merchandise is tiny: In 2011 the U.S. shipped Russia $8.3 billion worth of goods—just 0.6 percent of all exports, according to the Department of Commerce.

The Obama administration, which wants to double U.S. exports by the end of 2014, has been lobbying Congress to repeal Jackson-Vanik, as have business groups. Christopher Wenk, an international trade lobbyist with the U.S. Chamber of Commerce, says his and other groups have pressed their case in more than 250 meetings with lawmakers and aides this year.

Senate Democrats want to link a repeal bill with a House-sponsored measure that calls for the U.S. to publish a list of people associated with human-rights violations in Russia, deny them visas, and freeze any financial assets in the U.S. It’s named for Sergei Magnitsky, a lawyer for London-based Hermitage Capital who exposed government corruption in Russia and died in a Moscow prison in 2009, allegedly after guards beat him.

Republicans are struggling to speak with one voice on the country that Mitt Romney has called the U.S.’s “No. 1 geopolitical foe.” In the Senate, Republicans John McCain of Arizona and Roger Wicker of Mississippi are siding with the Democrats, vowing to withhold support for permanent trade ties if the Magnitsky bill doesn’t pass. House Republicans including Ways and Means Committee Chairman Dave Camp say they prefer the Obama administration’s argument that the Jackson-Vanik repeal should be passed with no strings attached—yet no lawmaker has introduced such legislation in the House. Instead, more than 70 Republican freshmen, led by Missouri Representative Billy Long, are passing it back to President Obama, lobbying him to press harder for a bill without the human-rights provision. “I can’t sell the Democrats,” says Long. “The president can.”

With lawmakers leaving Washington in August for a five-week recess, the Jackson-Vanik repeal needs to be one of Congress’s “top priorities,” Wenk says, or U.S. companies could miss out on deals with Russia. Says Wenk: “You’re going to start seeing us cranking up the dial.”

The bottom line: In 2011 just 0.6 percent of U.S. exports went to Russia. If Congress repeals Soviet-era trade restrictions, the flow of goods will spike.

Wingfield is a reporter for Bloomberg News in Washington.

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