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Russia Bulletin, Issue 5

Long Live the Cold War! Jackson-Vanik Update

March 29, 2012

USTR Ron Kirk congratulates Russia's Trade
Minister Elvira Nabiullina on Russia's WTO
accession in Geneva in 2011.
CREDIT: US Mission Geneva

We keep writing about this because, like an unwelcome guest, it is reluctant to leave. First, a brief summary of the relevant history.

Jackson-Vanik, or, to be technical, Section 401, Title IV of the Trade Act of 1974, P.L. 93-618 (JV) dates back to a tit-for-tat exchange between the United States and the Soviet Union during the Cold War. In August, 1972, the Soviets began to levy exorbitant "education reimbursement fees" on its citizens who wished to emigrate. While seen as applying broadly to all religious minorities and "refuseniks," the measure's primary target was Soviet Jews seeking to leave for Israel and the West, and the ostensible purpose was to address or partially alleviate the resultant "brain drain" by billing would-be émigrés for their Soviet Union-provided education.

JV, an amendment to the 1974 Trade Act, named after its principal cosponsors, Senator Henry "Scoop" Jackson (D-WA) and Rep. Charles Vanik (D-OH), denied "most favored nation" status to, and placed trade restrictions on, certain countries that restricted emigration. It was signed into law by President Gerald R. Ford in January 1975, following a unanimous vote in Congress. While not restricted to the Soviet Union, this was clearly the primary focus of and motivation behind the legislation.

JV authorizes the president of the United States to waive the restrictions for countries that meet "minimal emigration standards." This process is termed "graduating" a country from Jackson-Vanik, thus granting Permanent Normal Trade Relations (PNTR) by act of Congress. While graduation is in principle—and in keeping with the original intent of JV—based on a country's emigration performance, Congress may apply additional, human rights-related criteria, in considering whether a country merits permanent graduation. In this regard, it should be noted that China was granted waivers starting in the late 1970s and then removed from JV coverage in the late 1990s after its entry into the World Trade Organization [WTO].Congress has also permanently lifted the application of JV from a number of former Soviet and other former communist states, including Ukraine, Georgia, and Vietnam.

For Russia, however, JV remains in force. Why? Why indeed? The absurdity of its endurance is obvious, for several reasons. First, the target was the Soviet Union, not Russia, which has "inherited" this particular scarlet letter. Second, the principal factor in its levy has gone; since Jackson-Vanik came into force, 1.5 million Soviet/Russian Jews have emigrated to Israel and the United States. Third, it is a lose-lose situation, an obstacle to U.S.-Russia trade all the more unwelcome given Russia's accession in the summer of this year to the World Trade Organization. Indeed, the United States may very well be in violation of WTO member rules should JV persist. The implications of this are more fraught than the current relatively meager bilateral trade figures would suggest. Writing in The Globalist in February 2012, Jim O'Neill, the Goldman Sachs executive credited with creating the acronym BRICs (Brazil, Russia, India, China) noted that

"Based only on our conservative consensus demographic assumptions, Russia's GDP could grow to $7 trillion by 2050, around four times where it is today. . . . [To achieve this] Russia does not need dramatic growth rates. It just needs to avoid crises. If it were to achieve this, its GDP could overtake that of Italy as soon as 2017, and in the decade 2020 to 2030 steadily sweep past France, the UK and ultimately Germany. It is quite something to imagine that within 25 years from 2011, Russia could have an economy larger than Germany's."

In the relatively short term, Senate Finance Committee Chairman Max Baucus (D-MT) is on record as forecasting that JV repeal could double exports to Russia. This is significant, given the estimate offered by Edward Verona, president of the U.S.-Russia Business Council, of 50,000 American jobs that depend on trade with Russia. Indeed, he added that JV repeal could potentially double that number.

Given all this, it makes eminent sense that every U.S. president since George H.W. Bush has pledged to move to repeal JV. In 2009, President Obama listed this as one of his administration's "top foreign policy priorities." So what are the obstacles? In a word—Congress. On March 15, the Senate Finance Committee opened hearings that would take up repeal of JV and accord Permanent Normal Trade Relations to Russia. A coalition of 173 U.S. companies and business groups released a letter urging legislators to support these measures, stressing that "Without PTNR, U.S. companies and their employees will be left behind our competitors in this growing and profitable market."

The problem, most likely, is not whether or not JV will be repealed, but under what conditions. There is a bipartisan group in the Senate seemingly dedicated to the proposition that JV deserves a successor piece of punitive legislation against Russia.

Under a bill championed by Senator Ben Cardin (D-MD) the United States would target Moscow officials suspected of being involved in some way in the death of Sergei Magnitsky, an anti-corruption crusader who died in police custody in 2008. The Magnitsky bill would freeze any U.S. assets of such officials and would ban them from entering the United States. Begging the questions of how culpability is to be proved, and whether indeed there was criminality involved in the death of Mr. Magnitsky, this piece of Congressional showboating is clearly intended to perpetuate the human rights origins of JV.

In that regard, it is interesting to note the views of Michael McFaul, the newly appointed ambassador to Moscow—and, as professor of political science at Stanford University and the Peter and Helen Bing Senior Fellow at the Hoover Institution, one of our most prominent advocates of inserting human rights issues into the political dialogue. In a speech to the Peterson Institute in Washington on March 12, McFaul said:

"We [the administration] don't believe that holding on to Jackson Vanik in any way, shape or form advances the cause of democracy and human rights in Russia. . . . What's the causal relationship? There's no causal relationship."

Now, in the same presentation, McFaul spoke of working with Congress to establish a $50 million "civil society fund for Russia." This, coupled with his opening the doors of the embassy to the election protesters in Moscow just after his arrival, is clearly in line with his career of relentless Western-style democracy promotion. But what is significant is his decoupling of the democracy/human rights engine from the JV disposition.

The administration's full-court press notwithstanding, the odds would seem to favor the end of JV and the adoption of Magnitsky. This will slake the thirst for Russia-bashing of those in the Congress who seem unable to move from a Soviet-era worldview (more than one member has been heard to apply the term "Soviet" in discussing "Russia"). From the Russian standpoint, this should be seen as a gratuitous irritation, but one that, one hopes, will not result in a baby-with-bathwater injury to the relationship. For the relationship is much too important to be derailed by JV residue, any more than by open-mike comments from one president to another (Mr. Obama to Mr. Medvedev on missile defense)—episodes destined to be mere historical footnotes.