Jackson-Vanik: Time for Reconsideration?

September 13, 2011

This event is in cooperation with EastWest Institute.

The U.S. Global Engagement program gratefully acknowledges the support for its work from the following: Alfred and Jane Ross Foundation, Rockefeller Brothers Fund, Donald M. Kendall, Rockefeller Family & Associates, and Booz & Company.

Introduction

DAVID SPEEDIE: I want to open this talk by offering a special welcome to our friends from the EastWest Institute. This is very much a joint venture between our two organizations, the Carnegie Council and the EastWest Institute, especially Jackie Miller and her colleagues. Jackie was involved at all stages of the planning and execution of this event.

Obviously, both the Council and the EastWest Institute have an ongoing and enduring commitment to an interest in Russia, in U.S.-Russia relations, and in issues such as this on the docket today that impact those relations.

What this event will cover this afternoon is a discussion of Section 401, Article 4 of the Trade Act of 1974, aka the Jackson-Vanik amendment, and specifically its impact on Russia. For those who are not familiar intimately with Jackson-Vanik, rest assured that you are not alone. This arcane topic is not immediately familiar to many, including, in my own experience in the past, members of Congress, who sooner rather than later will be asked to vote on the future disposition of the Jackson-Vanik legislation.

In fact, Jackson-Vanik, in preparing for this, reminded me of a famous quote by the British foreign secretary, Lord Palmerston, about 1850. Palmerston was speaking on a similarly vexing, complex, and long-running matter of the 19th century, the Schleswig-Holstein question. Lord Palmerston said, and I quote, "Only three people have ever really understood the Schleswig-Holstein business—the prince consort, who is dead, a German professor, who has gone mad, and I, who have forgotten all about it."

Luckily, today we're in a slightly better position, because we have three distinguished panelists who clearly fit none of these three categories, I'm glad to say. Let me introduce them very briefly. With panelists of this stature, we could take up the entire session introducing them, and you have their bios in front of you.

Randi Lavinas is the executive vice president for the U.S.-Russia Business Council, and previously was a legislative and international trade policy analyst with law firms. It's Randi's first time at the Council. Welcome, Randi.

To my immediate left is Ambassador Jack Matlock. Jack is, of course, a retired diplomat of some 35 years' standing, including his most important stint, obviously, as our last ambassador to the Soviet Union. Since retiring in 1991, he has held a variety of important academic posts.

To my far left is Steve Sestanovich—also, I think, Ambassador Sestanovich's first time at the Council, at least in my time here.

STEPHEN SESTANOVICH: I can't believe it.

DAVID SPEEDIE: You're hooked. Early and often we'll have you back.

Steve is the Kathryn and Shelby Cullom Davis Professor of International Diplomacy at the School of International and Public Affairs at Columbia University. He previously served in a number of high-ranking public service capacities, most recently, from 1997 to 2001, as ambassador-at-large, and special adviser to the secretary of state on the New Independent States.

Clearly we have a felicitous mix here of business, policy, diplomacy, and scholarly expertise to come at this question.

Let's begin, if I may, with you, Steve. Very simply, what is Jackson-Vanik? What's the history of this thorny issue?

Remarks

STEPHEN SESTANOVICH: I'll try not to drive anyone insane, like Lord Palmerston's German ambassador, by describing the history of this. I'll try to do it really briefly.

Jackson-Vanik was the outgrowth of a disagreement between the Congress and the Nixon Administration about détente. The Nixon Administration wanted to use trade and most-favored-nation status for the Soviet Union as a pillar of détente. The Congress, already back in 1972, right after the first Moscow summit, raised a concern about this and made an effort to use trade as a lever related to human rights.

What followed was a two-year tug-of-war between the administration and the Congress in which a variety of senators, led by Senator "Scoop" Jackson, but including Senator Ribicoff, Senator Javits—that group of senators tried to get an agreement about a level of emigration that would be acceptable for the grant of most-favored-nation status.

At first, the Nixon Administration said, "No, no, no, you can't do this. It isn't going to work."

But the Soviet representatives said they would agree to a level pretty much at the level of emigration, which had gone up in the previous four years, the level of 1973, which was about 35,000 people.

Members of Congress said, "No. We want 45,000."

The Nixon people said, "No, no, no, that will never work," and the Soviets said, "Yes, okay."

Kissinger actually thought he got an agreement—and I'm not sure that he did—to 60,000 people. Kissinger, I think it's fair to say, was a little vexed by the Soviet flexibility on this. He didn't like the way in which they kept agreeing to higher numbers.

This all came apart in the fall of 1974. The administration and Congress agreed on an exchange of letters in which the administration would say, "We're expecting emigration procedures to be implemented in a fair way," and the Congress would say, "Well, we expect that to mean 60,000." They said that publicly.

Then, privately, in meetings that he held in Moscow very shortly after that, the Soviet leaders repudiated that with Kissinger and said, "We will not accept this." And he didn't tell anybody about it. He gambled that somehow somebody would blink, that the Congress would be prepared to go along even if the level of emigration was not as high. He said this in a memo to Ford. He said, "I think the Soviets will do something. They probably will try to humor Jackson." But he then testified in Congress, thinking that maybe if the emigration was down, they would swallow it.

Nobody knows exactly how he thought this gamble was going to play out.  But it blew up, because after the law was passed, the Soviets released all the documentation.  And they said, "We're not even going to apply for most-favored-nation status. To hell with you."

That's pretty much where it stood for decades. Since then it has been tied to WTO [World Trade Organization] accession, and to other issues, even though all administrations since then have said the original terms of the act do not apply, no problem with free emigration, and so forth.

Maybe with that little historical introduction, I'll stop.

DAVID SPEEDIE: Before we move on, on the other side of the question, Steve, am I also right in thinking that after Jackson-Vanik, the Soviets actually responded to this external pressure by reducing the number?

STEPHEN SESTANOVICH: Oh, it went way down, yes. It had gone up from a few hundred in 1969 to 35,000, without any real discussion of trade benefits as part of it.

DAVID SPEEDIE: Jack, the obvious follow-up question, it seems to me, is, why now Jackson-Vanik, 37 years on? Why is it still on the books? Is there a rationale of any flavor that you can discern?

JACK MATLOCK: I think you have to look at American politics to see why it's still on the books. My own view is that it does not apply to Russia today, and has never applied to the Russian Federation. Steve has given us a lot of historical context. One could go on, actually, for several hours on many of the ins and outs of the negotiations at the time.

But the fact is that the law was written primarily to give the Soviet Union incentive to allow freer emigration of its Jewish citizens. Clearly no one wanted to make the law applicable to a given country by name nor single out one group. So it was worded very generally that any country, any non-market-economy country—they didn't want to say Communist—any non-market-economy country which restricts the right of its citizens to emigrate, is not eligible for most-favored-nation treatment, tariff treatment.

They also did not want to include Poland or Romania. They grandfathered in those Communist countries—for quite different reasons, the two of them—so that the countries which did not already enjoy most-favored-nation treatment were included. But the two that had gotten MFN [most-favored-nation status], Poland and Romania, were excluded from the law.

So the law named no country.

We used it to press very hard, not only for Jewish emigration, but for the right to emigrate. This applied to many. Actually, in general, it was easier in the Soviet Union to get a person whose passport said they were Jewish or Armenian or anything but Russian—particularly Jewish or Armenian —he or she was more apt to get permission to emigrate than others, because there was a history of, I might say, either coreligionists, or people in the same group outside.

And in the case of the Jewish citizens, if they wanted to claim Israel as their real homeland, this somehow fit the Soviet psychology.

But we pressed very hard for freedom of movement in general, whether for emigration or not. By the spring of 1991, a law came up before the Supreme Soviet which would have given Soviet citizens the right to free emigration. By that time, they had already allowed people to leave if they wanted to. I went as ambassador in 1987.

In those years, we were issuing maybe 2,000 non-immigrant visas a year, and fewer than 1,000, or maybe 1,500, either immigrant visas or refugee visas. In 1989 and 1990, we suddenly filled the full quota of over 70,000 refugee visas, and we had a waiting list of half a million. People were being allowed to leave if they wanted to.

Then the restrictions were that we didn't have enough quotas to give people. So having fought all this time for freedom to emigrate, then suddenly they get the freedom to emigrate, in practice.

But nobody lifted Jackson-Vanik, because, number one, it was a non-market-economy country. And though people were leaving if they wanted to—and virtually all of our so-called "refusenik" cases had been solved—nevertheless, they didn't have a legal right.

In the spring of 1991, when the law was before the Supreme Soviet, Fyodor Burlatsky, who was one of the deputies, came to me and said, "You know, this is running into a lot of trouble. People are worried about a brain drain, and it's going to be hard to get it through. It's not that we want to restrict emigration, but Gorbachev is going to have to give it a push. Would you see if he will give it a push in the Supreme Soviet?"

I checked with the State Department and I said, "Can I tell Gorbachev that if this law is passed, Jackson-Vanik will no longer apply?"

The word came back, "Well, of course." And it passed.

For the life of me, I don't know why the first Bush Administration didn't sometime in 1991 declare that Jackson-Vanik no longer applied to the Soviet Union. Even though it was still a non-market-economy country, it no longer restricted the right to emigrate.

But they had a lot of things on their minds. We had the Gulf War going on. Before that, we had the reunification of Germany. We must have had negotiations on somewhere between 80 and 90 different issues, everything from maritime boundary negotiations to intellectual property rights—you name it, those negotiations were out there. And no statement was made.

However, then the Soviet Union broke up. Russia has never restricted emigration, and within a few years, Russia had a market economy.

So my own position is that there's no way that I can see that logically this law applies to the Russian Federation. I don't think it ever has. You asked why some people think it does. Congress began in the 1990s, and also during the second Bush Administration, to use it on other trade issues. I think our current vice president was one of the leaders in this. If they, on any grounds, restricted the import of chicken legs, which are a very important export from Delaware, you're not going to get Jackson-Vanik taken off if you don't settle these trade issues.

These were never a part of the law. I cannot imagine any court in the world that would look at that law and say that that makes any sense.

If Congress wants to put restrictions on most-favored-nation treatment because of trade issues, they should pass a law and get the president to sign it, and not try to use one that really doesn't apply—and I don't think could be applied if it were placed before any judiciary.

But the fact is that there is the feeling in Washington—and maybe others better understand—that somehow Congress has to remove the law before Russia can get most-favored-nation treatment.

If so, it's a political issue, with logic that I do not understand. But the fact is, if it is a barrier to improvement of relations, or Russian WTO membership, then, certainly, it should be removed.

I think if Congress wants to move goalposts, it undermines our diplomacy. The attempts to use it on trade issues in the 1990s was a flagrant case of moving goalposts. How are you going to effectively affect other countries' domestic behavior if you promise something and then say, "Oh, well, that's not enough. You have to do something else."

I really think applying it now undermines our ability in general, as well as being quite illogical.

DAVID SPEEDIE: I should have mentioned that we'll have a 20- or 25-minute discussion on the panel and then open it up to the floor, so please have provocative, probing questions ready.

Randi, moving on from chicken legs, clearly the trade issue and the business aspect of this trade and commerce is front and center for Russia—the question of WTO accession, most favored nation, and so on.

I think when Secretary of State Hillary Clinton went to Moscow in early 2010, as I recall, Prime Minister Putin raised the issue directly, citing Jackson-Vanik and Moscow's stalled WTO accession, and asking the United States to, quote, "lower the hurdles to trade."

He also made some pointed comment, I think, that the reset-button commitment to improving Russian relations had "already improved the atmosphere, but not yet the substance." Whether he was referring directly to Jackson-Vanik, no one knows.

But speak to the business side of this.

RANDI LEVINAS: Sure. I think that in terms of Russia's WTO accession and the matter of Jackson-Vanik, it has been tied up for many years in the U.S. Congress.

Any time we have a country that is acceding to the WTO, we look at the terms of that agreement, and we grant permanent normal trade relations—which is part of our trade law—to countries that have a commercially meaningful agreement on WTO accession.

Where this has gotten tied up is that we have Jackson-Vanik, we have permanent normal trade relations, and—if you look over the past number of years for countries that have acceded to WTO—it's when they accede to the WTO, and we have a strong agreement in place, that we lift Jackson-Vanik.
It's a two-step deal. We lift Jackson-Vanik, and we grant permanent normal trade relations.

Obviously, in joining the WTO, it's a high bar for any country to reach. There are commitments that countries need to make to reform their economies. That process, quite frankly, has not moved along until the past—it has been moved in fits and starts. In 2006, we had our bilateral agreement with Russia.

Last year we really saw the engine moving towards Russia, making the commitments it needed to make to become a WTO member. With that, we are actually looking towards the endgame this year, when Russia could be finalizing its WTO accession.

With that, we can now say, from a business community perspective, once the final hurdles are met—whether it's sanitary issues for chicken legs, broader agricultural goods, intellectual property issues, or issues related to investment measures—these are all issues that are of prime importance to the U.S. business community, because Russia is an exciting market for the U.S. business community. It's the 11th-largest economy in the world. It has been growing since the downturn at 4 percent per year.

We have opportunities in every single sector, from automotive to pharmaceuticals, to energy, to high-tech. It's a really remarkable market. Unlike the other BRIC [Brazil, Russia, India, China] countries that are so appealing still to U.S. companies, you have a strong middle class in Russia that wants Western-quality, high-quality goods.

So for us, it's a very attractive market, and we want to be able to take advantage of those opportunities.

The key about WTO accession is that Russia joins the WTO, and when it joins, if we still keep Jackson-Vanik on the books, none of the commitments that Russia makes as a WTO member apply to the U.S. companies. That's the crux of the problem for the U.S. industry. We see so many opportunities in this market. Yes, it's a challenging market. It's a difficult place to do business. But the opportunities there are significant, and we don't want to lose those opportunities.

DAVID SPEEDIE:
Say another word about the specifics of the missed opportunities that will happen.

RANDI LEVINAS: When Russia becomes a WTO member, there are a number of areas that are not covered by our bilateral MFN agreement that we have. For example, U.S. companies would not have national treatment in the Russian market. The chicken legs that have been such a part of this discussion for so many years wouldn't have access to the science-based rules that we are really working hard to negotiate with Russia. Actually, this week in Geneva those discussions continue on sanitary and phytosanitary issues.

Intellectual property—the 1992 agreement looks at intellectual property from a 1992 perspective. My daughter was born in 1992. She's in college, and when I think back to 1992 and what I was doing on the computer, what you were doing on the computer—how that world has changed and what that means for intellectual property in these years.

Services are another part in the WTO accession. It's very important to our U.S. economy.

Finally, the crux: stability and predictability with Russia. How are you going to get them to—if there's a problem, what do you do? We don't have dispute resolution in our 1992 agreement. Yet we do have it in the WTO. So it's about bringing predictability and stability to our trading relationship, when all other countries that are members of the WTO are going to have access to Russia's market in a very different way than we will, if we leave PNTR and Jackson-Vanik on the books.

STEPHEN SESTANOVICH: Can I add one thing here, David, so that we clarify it for people who are not completely conversant with all these legal and legislative niceties?

Right now the fact that Russia is covered by Jackson-Vanik does not restrict anything. Every administration since the Clinton Administration has said Russia is in full compliance, it has free emigration, and so there are no restrictions that apply. Some people think that there has to be a waiver. Not true. All that happens is that the president reports every year, saying Russia allows free emigration, and so there are no restrictions that apply.

But the mere fact that the president reports that every year means that it will not be a full U.S.-Russia WTO relationship—not for any other restriction, merely that fact.

RANDI LEVINAS: And the reason that is, is because the basic tenet of the WTO is unconditional free trade. The fact that we have Jackson-Vanik on our books, and no other country does, means that we are conditioning our trade with Russia. We will be in violation of WTO rules—

STEPHEN SESTANOVICH: Even though we actually impose no restrictions.

RANDI LEVINAS:
We impose no restrictions, exactly. But the fact that this law exists and we are conditioning our trade—it's not unconditional—that's the reason why we run into a problem if it's not lifted when Russia becomes a WTO member.

DAVID SPEEDIE:
Before we go to our guests, are we all agreed that it's basically a political issue, then, at this point, that, as Jack said, it's domestic politics?

RANDI LEVINAS:
It's a technical, commercial issue, and a political issue.

STEPHEN SESTANOVICH:
It's a little complicated. I don't mean to keep the audience from asking their questions.

There are all of the commercial questions, that every company that's involved in trade with Russia wants to make sure that the best possible deal is secured by the administration in the terms of Russia's accession.

But there is also another thing, which is that the lifting of Jackson-Vanik, given its history, involves a kind of referendum on Russia. Members of Congress will feel that they are not just helping poultry exporters. They are casting a vote on whether Russia has become a good place. A lot of them don't want to do that. That's the other thing. That's the other element of it. It's both trade, and a referendum on how Russia has turned out in 20 years.

Questions and Answers

DAVID SPEEDIE:

Let's go to the floor. I would like to call on Jackie Miller first, our partner in this.

QUESTION:
Jackie Miller, EWI [EastWest Institute]. Thank you for being here today.

I want to bring it back to the politics. I know there's a lot still to say about the business and commercial interests. But I want to bring it back to the politics and one of the rationales for getting Jackson-Vanik on the books in the first place, and that's human rights.

Do you foresee a scenario in which this Congress, or the next Congress, would lift Jackson-Vanik without some sort of quid pro quo on human rights? I see it as their being loath to give up Jackson-Vanik without something else in place. Are the Magnitsky bills making their way through Congress? Are those the kind of quid pro quo that they are looking for? Is there any scenario where human rights isn't front and center again on this?

DAVID SPEEDIE: Jackie, for those who may not know Magnitsky, just very briefly explain the Magnitsky situation.

QUESTIONER: Sergei Magnitsky was a Russian lawyer working for a Western investment firm who was imprisoned and died in pretrial detention, under circumstances that the Kremlin Human Rights Council has now equated with torture. The investigation committee, through the Interior Ministry, has declined to prosecute any members of the ministry, the police, or law enforcement officials for their actions, and just recently indicted two doctors for Magnitsky's death.

The House and Senate have somewhat competing versions of a Magnitsky bill, which ties freedom of entry to the United States to the Magnitsky bill. Basically, there's a list of about 60 Russian officials who are on what's called the Cardin list, after Ben Cardin, who are thought to have some involvement in that case. Both bills would ban them, and the Senate would also ban their families from traveling to the United States, and there would also be seizure of U.S.-held assets. Those are both working their way through the House and Senate right now.

DAVID SPEEDIE: Thanks, Jackie.

RANDI LEVINAS:
In terms of this being a discussion that's broader than just the business/commercial aspects, as much as we would like it to be a discussion about that—the Jewish emigration issue has been settled. Russia is in full compliance with Jackson-Vanik, and has been since 1994. But in terms of the discussion, I think you have a lot of pent-up interests, and perhaps angst and eagerness, to discuss Russia and the Russia relationship on the Hill.

Last year you had the new START Treaty [Strategic Arms Reduction Treaty], and that bubbled up with lots of different areas of discussion. I think that as we look at this debate on Jackson-Vanik, there's no question in our minds that we're going to be having a broader discussion on the U.S.-Russia relationships and human rights, the path of civil society in Russia, democracy. These are all issues that we expect to fully come into play.

JACK MATLOCK:
I would like to address the question in general of using this sort of pressure in human-rights cases. As flagrant as the case that you mentioned was, I think we have to be very careful in how we get involved. What would be the reaction of our administration and our Congress if Russia said, "Okay, we're not going to buy any more aircraft from Boeing, until you do something to prosecute the people who were involved in activities such as waterboarding during the Bush Administration. Why aren't you pursuing those cases? This is a human-rights case."

I don't think that would be very helpful to us. The reason, I think, is pretty obvious. People react negatively. I happened to be in Moscow when there was the brouhaha over the congressional effort to deny visas to officials who might have been involved.

People who were very sympathetic to us on the issue said, "This is the wrong way to go about it. We have already started an investigation. If you start bringing particularly legal pressures on us, that's going to freeze the issue. It becomes an issue of nationalism—we can't let the Americans tell us what to do. And it is actually going to interfere with the investigation. Much better to let the investigation go its course."

This was the reaction of people who, as I said, were very sympathetic to doing something about this. But I think Americans sometimes forget that we are very resistant to foreign governments and foreign officials getting involved in what we consider our internal matters. No matter how right we might be, it seems to me that going about it this way is the wrong way. My feeling is, it does more harm than good.

STEPHEN SESTANOVICH: Let me add one thing here. I think Jackie raises an interesting point in asking whether lifting Jackson-Vanik has to involve some kind of quid pro quo. I think the view of many people in the Congress—although this issue has not really crystallized and there aren't clear lines of opinion on this—I think there is a lot of discussion of the quid pro quo. But it's not really between the United States and Russia; it's between the Congress and the administration.

The question that members of Congress are putting to the administration is not, "How are you going to force the Russians to do X or Y?" It's broader than that. It's, what is a modern, up-to-date policy on human rights and democratization in Russia?

I think the administration is engaged in that dialogue, in some ways, to try to make credible the idea that it has such a strategy and that that strategy is a worthy successor to Jackson-Vanik. Jackson-Vanik was the old policy, which is out of date in so many ways.

But members of Congress generally believe that there needs to be some policy on human rights and promotion of democracy in Russia. That doesn't have to involve a lot of bargaining with the Russian Federation. It does have to involve some bargaining with the administration. If you can get a consensus on that, I don't think you actually need a quid pro quo from the Russians. You don't need changed performance. But you do need to have a new consensus in Washington about what that policy ought to be.

DAVID SPEEDIE: Good point.

QUESTION: Deana Arsenian, Carnegie Corporation.

Steve, you concluded your remarks with an interesting point. I didn't quite understand it, so I wonder if you could explain. When a number of members of Congress say that Jackson-Vanik does not matter, because Congress grants a waiver to Jackson-Vanik annually—which is what I and probably David have heard over the years—are they misinformed? That's exactly how they present it to us.

STEPHEN SESTANOVICH: They're misinformed. I'll tell you why they have this idea. It's because the president does send a report to Congress saying that there is no problem with free emigration, that the terms of the amendment are met. Some people understand this to be equivalent to a waiver.

A waiver in the old law—and I'm sorry to get down into the weeds here, but there are still some cases where this applies—the old law provided for a waiver for countries that restricted emigration. There were countries where the United States waived the application of Jackson-Vanik. That's not what we do now. We don't waive the application of it. The president says, "There's no problem. The Russians are in full compliance."

QUESTION: I'm Padma Desai. I'm the Harriman Professor at Columbia University. I have learned a lot already.

I have three questions, very brief ones.

From the point of view of the American business community, do you think that the requirements of the business community for Russia's accession to WTO are more stringent with regard to, say, bound tariffs, with regard to intellectual property rights—are these requirements more stringent than what prevailed during China's accession in 2000? China, I would think, got away lightly on the issues of bound tariffs, intellectual property rights, and so on.

That's my first question.

The second one: How keen has former President Vladimir Putin and Prime Minister Vladimir Putin been to have Russia admitted to WTO? For example, when he suggested that Russia, Belarus, and Kazakhstan be admitted as a group to WTO, that was totally nonsensical. I don't know if he was aware of it.

According to WTO accession procedures, a group cannot be admitted to WTO unless every single member country is first a member of WTO. I don't know if he was aware of that. Or was that just a ploy to delay Russia's admission to WTO?

Then came the financial crisis, which began in 2007's end. Of course, Prime Minister Putin, from 2008, wanted the freedom to raise tariffs, to protect Russian industries. WTO accession therefore was not a burning issue for him.

Finally, if Russia becomes a member of WTO—let us say that hurdle is crossed—then I would think that the United States, as a member of WTO, would be in violation of WTO practices and procedures, if Congress does not remove Jackson-Vanik. It has to remove Jackson-Vanik if Russia becomes a member of WTO.  Because as one member country to another member country, you have to automatically allow MFN agreement, and not go through this annual song-and-dance number of allowing it every year.

RANDI LEVINAS: First of all, in terms of the bound tariffs, Russia's tariffs overall for goods, just across the board, are not as high—there are certain peaks in the schedule, but in terms of bound tariffs, I don't remember exactly offhand, but I think somewhere between 8 and 13 percent or something is Russia's average tariff. So it's not that they are so high. The issue is the binding. That's the important part. It can't arbitrarily raise them and hurt our exports.

But when you look at all the different areas that make up Russia's WTO accession—we're in 2011. When we did our bilateral negotiation with China, we are talking about back in 2000. The world has moved on. The world has changed.

Any negotiations that we're doing at this point reflect the realities of today's world. So it's going to be a state-of-the-art agreement. It's going to be different than China's agreement, for sure. It will be different from Ukraine's agreement and Vietnam's agreement, their coming in, in 2006-2007.

So I think when you look at this, certainly the agreement looks different, because the world has changed and the rules have changed. What you are coming into is an agreement that this is where the rules are today. Are you going to be a member of that group and commit to these rules?

So that's on that point.

In terms of the customs union, I will say that we lost a good amount of time when the announcement of the customs union came forward that Russia would be joining the WTO as part of a customs union.

Certainly, as you state correctly, there are no rules for customs unions to join if the members individually are not members of the WTO, and Belarus and Kazakhstan—their negotiations were at varying levels, but much further behind where Russia was at that point when that announcement came. So it did delay considerably the negotiations, because it was very unclear what Russia was planning on doing.

Now that Russia has decided and it has become clear that, yes, they are pursuing it as Russia, the customs union is a reality. So that delayed the negotiations further, because we had to rewrite the working party report to reflect all of the new agreements and relationships that are a part of this customs union. So that was clearly a delay.

To the last point you had, that, if Russia becomes a WTO member, we would have to automatically lift—there is a procedure, if you do not have an unconditional free trade relationship, when the country that is applying to become a member becomes a member of the WTO. It's called non-application.

It's Article 13 of the WTO. In that what we do is issue a notice to the WTO, letting them know that we are not in compliance with our WTO obligations. It's called non-application. When the United States would resolve that issue. and we would lift Jackson-Vanik and PNTR [permanent normal trade relations], then we would tell the WTO. But Russia is in no obligation to extend all the commitments it has made during that time.

The critical issue for us is—and it's a competitiveness issue—are we going to let the Europeans and the Asians move in and make all these agreements and contracts, and take advantage of all the concessions that Russia is making to become a WTO member, and sit by the sidelines because we don't have PNTR? That's the problem for the business community. It's not just a matter of a little bit of time lost, but the relationships and the agreements that are cemented in while we don't have PNTR.

JACK MATLOCK: May I just add one thing to this? I understand that they have proposed—maybe they have already done it—dropping import duties on foreign aircraft, now that they are getting so many crashes. Do you think under present circumstances that Boeing is going to be able to compete with the European producers, if we don't change some of our rules? And these are biggies.

RANDI LEVINAS: That's huge. The tariff decreases on aircraft are huge. In the MFN agreements, the tariff agreements are there. The question is, will Russia abide by that? They are not under any obligation to extend to us. We have the bilateral agreement, but it's not a guarantee. That's the problem. And, yes, Airbus can go right in and take advantage of those.

STEPHEN SESTANOVICH: I think the assumption of American businesses is that when Russian accession takes place, the commercial incentives for the United States to lift Jackson-Vanik will be so great that it will happen almost as a matter of course.

So they are not really waging a particularly active campaign in the Congress to get it lifted because they are waiting to see when accession takes place.

I don't mean to slight the lobbying efforts of the U.S.-Russia Business Council, which are admirable and effective. But I think in terms of a really full-court press by individual corporations with an interest here, that is largely something that they consider can wait until the moment is at hand when they can say to their members of Congress, "Look at what is going to happen to us if we don't lift Jackson-Vanik."

RANDI LEVINAS: I think we have to understand something in terms of what the state of play is, and where we are in terms of the negotiations. The negotiations have not moved far enough where we can say we have an agreement. The Congress has not been ready to look at this issue, because they have a trade agenda that is completely blocked up with the free trade agreements. So the issue hasn't really been ripe for a full-blown campaign or attention on this.

QUESTION: James Starkman.

Just to clarify, how relevant, if at all, is Jackson-Vanik to our present trade relations with China? That's number one.

Number two, in a hypothetical situation, where there was a genocidal situation with a trading partner, would Jackson-Vanik or other methodologies really come into play?

STEPHEN SESTANOVICH: When the Congress voted PNTR, as it likes to describe this relationship now—permanent normal trading relations, instead of MFN—for China, it graduated China from the coverage of Jackson-Vanik. The term "graduation" means you are removed explicitly from the coverage of the amendment. China is removed from that. A handful of post-Soviet countries are removed from it. All the East European countries are removed from it.

You're asking a question, though, about future human-rights abuses in Russia which might make members of Congress want to do something—

QUESTIONER: Or elsewhere.

STEPHEN SESTANOVICH:
Or elsewhere. And that's one of the things that people talk about when they say, "Well, if we're going to lift Jackson-Vanik, what are we going to have instead?"

When I said earlier that there needs to be a modern human-rights policy, that could be one element of it. But it can't be something that is inconsistent with WTO obligations, because then you lose all those benefits that Randi describes.

QUESTION:
Harry Langer.

I'm a little confused on the WTO requirements. Why aren't they standardized? And if they are standardized, why can't we deal with Russia? We have a recession. We need business. We need jobs. It seems absolute insanity what's going on in Congress.

The other thing is, we want détente. How can we have détente when we're preventing Russia from going to the WTO? And how do we go about preventing? Who are we to prevent Russia or any other country from going to the WTO?

Can you just explain these things?

RANDI LEVINAS:
When a country wants to accede to the World Trade Organization, there is a review that is done of its trade regime. And then all the countries that are interested in having significant trade with that country get together, and they review all of the commitments that that country will make to become a WTO member. It has to be in accordance with WTO rules.

But each country is a very separate case. They are not standardized commitments. It's country-specific. That's why it got very complicated when Russia had its customs union, because its trade regime changed in many significant ways.

QUESTIONER:
Can this country stop Russia from doing trade with other countries or only with our own?

RANDI LEVINAS: No. Russia will become a WTO member when it meets the commitments of being a WTO member. That looks like it's going to occur this year. All the countries that are negotiating with Russia have to approve that negotiation—

QUESTIONER: Unanimously?

RANDI LEVINAS:
Yes. It's by consensus. This is an outstanding issue.

STEPHEN SESTANOVICH:
Can I say one thing here, David, that I think is very important to understand about this process? The United States has not in any way blocked Russia's accession to the WTO.

The United States has been the most active proponent of Russian accession to the WTO, and has provided political assistance within the WTO to overcome many of the hurdles. It has provided technical assistance in order to bring the Russians closer to the stage where their case can be presented to the WTO council for accession.

So it is a complete misrepresentation to think that the United States is standing in the way. To the contrary, the United States has done more than anyone else to try to advance it.

QUESTION: Jerry Goodman, founding executive director of the National Conference on Soviet Jewry.

The Jewish community in 1972 was at the forefront of passing Jackson-Vanik. It was Scoop Jackson who came to the board of governors of that organization to propose the legislation. There was not free emigration. It was only based on reunification of families, which is quite different.

I would say, though, that today, even though Jackson-Vanik has been hijacked on a whole bunch of other issues, the Jewish community would support the graduation of Jackson-Vanik, if the president and Congress were to move.

What has happened, I think, is that Congress has decided there are other issues, and this is not a major item for them. What I know is that the White House would certainly endorse it. Once the Soviet Union began to allow open emigration—not yet free, but open emigration—in 1991, it was clear that Jackson-Vanik would be lifted at some point.

Just as an aside, someone mentioned the Chinese. On that point I think I have the correct information. The Chinese, perhaps with some humor, said, "Look, if emigration is an issue, we can send you 10,000 people tomorrow, or one million people tomorrow. That's not an issue for us."

Maybe Jack would know that better. I think that was maybe a bit of humor that was introduced in the debate at that time. I'm not sure it was actually accurate.

But Jackson-Vanik is an anachronism today. It was effective, I believe, in the 1970s. It has lost its impact.

But the fact that it is linked to human rights and other extraneous issues— not issues that are not critical, but issues that were irrelevant to Jackson-Vanik—we have to decide whether we are obeying the law. Jackson-Vanik is very narrowly constructed. If we are not going to obey the laws that we pass, then no other country would believe that our agreements have merit. As I said earlier, I think Jackson-Vanik's time has long since been overdue.

JACK MATLOCK: The story I heard was that Zhou Enlai said at one point, "Would 40 million do, or do you want more?"

QUESTION: Edward Kline of the Sakharov Foundation.

My understanding is that some people believe that the president could unilaterally, instead of annually—saying that it does not apply to Russia—could say that they are a market economy, as Professor Matlock said—that they allow unlimited emigration, and therefore Jackson-Vanik no longer applies to them. Instead of giving an annual one, if he said that this was a permanent one, this would remove this block to WTO, and remove the necessity to provide an annual statement.

JACK MATLOCK: I'm sorry, I didn't hear.

QUESTIONER: The president could just state that there's no necessity anymore to grant an annual agreement, if he said that they are a market economy, and they allow free emigration, that the law simply no longer applies to them. And until they change their attitudes, it will never apply to them.

JACK MATLOCK:
It just seems to me in reading it that it simply doesn't apply. It seems to me, at one point the president would be perfectly justified in simply certifying that the law doesn't apply, rather than having to report every year.

Now, this is a totally separate issue from negotiating the trade issues. Obviously, you get the best deal you can, to protect your interests for WTO entry. I'm just saying that I can't understand why Jackson-Vanik qua Jackson-Vanik is a factor in this. I think tying it to other human-rights issues is moving goalposts, and actually undermines the effectiveness of our diplomacy overall, rather than being likely to be effective.

But I think Steve is absolutely right. There is a political problem. People in Congress want to know what the administration's policy is. Some of these may be unrealistic expectations. My own observation has been that most of these efforts by the United States to bring pressure on others on issues that we consider important, but they consider internal tend to do more harm than good. But, of course, our Congress is famous for trying to do that in a number of countries.

RANDI LEVINAS: Congress already has determined that Russia is a market economy. So that's not on as part of the point of the discussion. But I think it's important to note that Jackson-Vanik is a part of the Trade Act of 1974. The committees of jurisdiction are the Ways and Means Committee and the Senate Finance Committee. Those are the committees that deal with international trade. I don't think you're going to find them an easy pushover to say that this is not their purview in terms of lifting Jackson-Vanik.

QUESTION: Jeff Laurenti at the Century Foundation.

I wonder if I could ask you to look beyond Jackson-Vanik right now, to the larger economic issues for Russia in accession of WTO.

What are the areas in which the Russian economy would expect to benefit? What is its relative skill or competitiveness in manufacturing or in services? Where are the areas that the Americans and, separately, the West Europeans, think they are able to get more foot in the door? What, in short, is the future of the Russian economy as an integrated part of the world economy?

RANDI LEVINAS:
I think if you listen to some senior Russian officials talk about what their economy needs to go through to become more competitive, they understand that WTO accession is a very integral part of this, because it will open their economy to competition. That's a hard thing. It requires short-term pain.

But in terms of where Russian industry is today, when you look at all of the outdated equipment and machinery—one of the top exports we have to Russia is machinery. I was looking today at the trade statistics of the top ten states that export to Russia. Number one again and again is machinery, machinery, machinery. Yes, there is aviation. Yes, there is transportation. There are autos. There are some agricultural goods in there. There are chemicals. But if you look at really the base of Russia's economy, it's outdated, and it's not diversified.

So when they talk about creating this modernization and the innovation economy, they really need the competition, the know-how, and the technology to get that done. They need the R&D.

That's why I think you are seeing a lot of interest in terms of partnerships with foreign companies. The Exxon-Rosneft deal is an example. You have the examples of Boeing working collaboratively with its design engineers in Russia and design engineers in the United States, but companies working together in partnership, because Russia needs to have this expertise to move along. They have some great applied science, but beyond that, in the technology and the commercialization of technology, is where it falls down. That's where our companies see so many opportunities.

STEPHEN SESTANOVICH:
I think it's fair to say that the Russians see a lot of WTO advantages of the kind that Randi mentioned, although the ones who might bear the specific pain you are talking about may think, "Gee, we're not so sure about that." Slowly, those objections have been worn down, in part by the terms of the accession agreement, which allow for a lot of lead time in adoption of these standards.

But as important as WTO is, there's a much bigger debate going on in Russia about how to modernize the economy, how to draw investment from abroad. The measures there are not as simple as acceding to the WTO. There are things like making the rule of law credible.

There's a broader sense in which Russia understands that it has to adopt international standards and that those standards go beyond just adhering to trade agreements. They have to do with modernizing the way business operates, modernizing the way government regulates business, dealing with issues like corruption. Those are, for many Russians, seen as much bigger obstacles than getting into the WTO. The WTO they can get into this year. Corruption, maybe next year.

RANDI LEVINAS: I think, too, though, that it's really a first step. This is about transparency. It's about predictability. It's about adhering to global rules. But it's not the panacea or the answer. It's a first step in terms of getting Russia on the right path economically. It's going to be painful in many ways, but it also really means that they are going to be more competitive in the long run. I think those who are forward-looking don't see any other way.

DAVID SPEEDIE: Last question from Deana Arsenian.

DEANA ARSENIAN: Can you just comment on Georgia in the context of WTO? Is that going to be an obstacle?

STEPHEN SESTANOVICH: It is an obstacle right now—arguably one of the most serious obstacles because of what we were saying earlier about the need for consensus. The path forward is not one that's well understood by any of the parties. The United States has said, "This is not an issue for us. This has to be settled between Russia and Georgia."

The Georgians have said, "We need to have an ability to monitor trade that comes into our country, and what Russia has done in Abkhazia and South Ossetia obstructs that. So we need to have monitors on the border who can see what's happening."

There has been a lot of discussion about how that information might be received by means other than stationing human monitors of whatever origin, whatever organizational affiliation.

The Russians have tended to assume, I think, that at the end of the day the Americans will solve this problem by leaning on the Georgians.  And they have assumed that other countries will, too, that the Georgians will not able to stand up to the whole world. It's not crazy to think this, because there are plenty of countries that have probably conveyed already to the Russians, "Don't worry. We'll bring the Georgians around."

But this is far from being resolved. The Georgians also have the thought that perhaps there can be side payments, inducements. If they are going to have to give up here, maybe they can get something out of it that relates not, for example, to their trade regime, but to their security.

So there is a whole subtext of issues that are unrelated to trade that may emerge when this finally becomes an urgent matter.

DAVID SPEEDIE: For our final five minutes, I would like to invite last thoughts from the panel. In doing so, I would like to go back to Deana's original question about congressional awareness. I referred to it briefly in my introduction.

She is referring to times in the past when we would hear members say, "Oh, Jackson-Vanik, is that still around?" This goes back to the 1990s. And, of course, it is still around. Clearly a vote is going to come, sooner rather than later, on this. What are the prospects for a more informed Congress—I still have faith. Really, what are the prospects for this coming more on the radar screen of people who are going to make this important decision?

STEPHEN SESTANOVICH: Randi is in touch with these people—it's the cross she bears in a regular way—and can comment as well.

My own addition to this would be to say that the Congress has held a lot of hearings over the last several years, in which this issue has been the explicit topic—in the House Foreign Affairs Committee, for example—or a topic that comes up in the course of discussing broader questions of Russian-American relations.

There is an awareness that this is the next big issue of Russian-American relations, and if it isn't addressed successfully, what will we be able to say is the state of the reset, for example?

Whether that will mean, given all the other things that the Congress has to do, that they are going to be able to act at the stroke of 12:00 when Russia is admitted into the WTO—we learned that all kinds of organizations have slow calendars, and the WTO is one of them.

The Congress is going to deal with this when it's going to deal with it and not a moment before. Randi knows better and will have the more informed view.

RANDI LEVINAS: This is a very difficult issue. Really, what we are trying to do is make people understand what Russia is today, what the opportunities are, and how it really is an economically promising market. It's a place where we are doing business, where we are doing business well, and we can do it even better. Yes, it's a place with lots of problems.

Jackson-Vanik—we go into congressional offices and a lot of people don't know what Jackson-Vanik is. Again, we're dealing with a lot of staffers on a day-to-day basis. The things they know front and center are the free trade agreements—"Oh, wait, now we've got to learn something else. So this is the World Trade Organization, okay. Do we change our laws? What happens here?"

No, nothing. There is no change to U.S. law with this, other than lifting Jackson-Vanik. We don't change one single tariff line. This is a tax cut, a market-opening measure for U.S. business, and opportunity for U.S. business. That's what they don't see, because they are not familiar with it.

So it's a huge educational process. That's what we are dealing with. The members are just focused on what is before them, the issue of the day. We don't have an agreement to talk about, because the agreement isn't finalized. So it hasn't gelled.

As we go up there, we are really trying to let them know what the business reality is with Russia. It's not the Soviet Union, and members and staff do call it the Soviet Union on occasion. It's a huge education process to bring people along, and to help them understand that the top-selling foreign car in Russia is the Ford Focus, that Procter & Gamble has a more profitable business in Russia than it does in China. There are so many different parts of this that they don't get and they need to know. So that's a huge education effort that we're up against.

Then you have the question of the congressional calendar and how this fits in, the pressing issue of how we engage this debate, and the administration coming in, because it will be a broader Russia discussion.

DAVID SPEEDIE: I'm glad I asked the question.

Jack, any final thoughts?

JACK MATLOCK: Yes. I think this is just one example, a very important one, of something that many Americans really haven't yet grasped. How many people realize that our Congress requires the State Department to report on every country's human-rights performances, particularly those who signed the Helsinki Act, except that of the United States? They have not delegated even an independent American authority, much less a foreign authority, to pass judgment on our human-rights performances.

I think particularly after some of the questionable things that happened in the previous administration, much of the world really looks at Congress' pressure on human rights not only as interference in internal affairs, but as very flagrant efforts to push a national interest—in effect, an imperialistic policy—under cover of that. That is very damaging.

When you look at areas where our policy is not equal—and you certainly can see that in the Middle East and elsewhere—people can get very cynical. I think most Americans are not aware of that.

The demand in Congress, which is very real, that the administration have a human-rights policy toward Russia, is one which I think is basically misplaced. Particularly when Congress gets into putting it in laws and putting in restrictions, you develop "antibodies" abroad as to what you're trying to do. I think that our diplomacy, when we were not formally saying we were trying to impose democracy, had much greater success in spreading democracy in the world than it has had over the last decade.

If you look at what happened in Latin America and other countries, if you look at what happened in the late 1980s and up to 1991 in the Soviet Union itself, where we were using all of what one called the instruments of soft power, for the most part without compulsion—Jackson-Vanik was an exception to most of the things we were doing.

So I think we need some basic understanding, particularly those of us who are genuinely interested in human rights, in recognizing that with other countries, if we do it the wrong way, we harm it. Putting things in legislation, going public about their faults and not being willing to discuss our own does not help us one bit.

DAVID SPEEDIE:
Good final thought.

Let me finish with, obviously, my current interest, Lord Palmerston, a quote that you may well be familiar with: "Nations have no permanent friends or adversaries. They only have permanent interests."

I think one thing we have learned tonight is that we probably have interests here—that Russia has interests, we have interests—in addressing this topic soberly, seriously, and fairly expeditiously.

I want to thank EastWest Institute again, Jackie and colleagues, for all that went into this event. And I want to thank our panel, because—back to Lord Palmerston one last time—now there are many more than three people who know something about this topic.

blog comments powered by Disqus

Read MoreRead Less