Cold War Provision Threatens U.S. Exports as Russia Enters WTO

Posted by Caroline Brown on Thu, Sep, 20 2012 @ 6:17 AM

Russia’s admittance into the World Trade Organization (WTO) last month signifies a significant opportunity for U.S. exporters, but only if Congress passes permanent normal trade relations (PNTR). Establishing PNTR would be one of the most significant steps in US-Russian commercial relations since the Cold War. However, failure to normalize trade relations would allow Russia the right to deny the U.S. the full benefits of its trade reforms, causing a serious disadvantage for U.S. exporters.

Russia joining the WTO represents a huge opportunity because of its rapidly expanding $400 billion import market. The country is eager to enable even more imports to correct its massive current account surplus of more than $100 billion. Furthermore, the Russian market is very attractive because it is highly educated with a larger middle class population than other emerging markets, and has vast infrastructure and industrial needs.

While U.S. exporters stand to gain a great deal, they are currently at risk unless Congress passes a legislation recognizing Russia as a fellow member of the WTO. This risk stems from a 1974 provision called the Jackson-Vanik amendment, which has placed trade barriers on Russia since the Cold War. This amendment does not comply with WTO rules requiring members to provide each other normal trade relations and therefore allows the Russian government to deny lowering tariffs or removing non-tariff barriers on imports from the U.S.

If not lifted by Congress, the Jackson-Vanik amendment will allow European and Asian companies a huge head start in Russia. U.S. companies could potentially miss out on doubling exports to Russia from $11 billion in 2011 to $22 billion in 2017. Exporters hope Congress will approve PNTR this month, but worry that the legislation may be delayed until after the November elections.

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Topics: GTM Best Practices, Global Trade Management

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