Trade as the next stage in the US 'reset' with Russia

In his visit to Moscow this week, Vice President Joseph Biden said that expanded trade and commerce is the “next frontier” in the Obama administration’s two-year-old attempt to reset relations with Russia. He’s pointing in the right direction, but don’t expect a smooth ride.

On the trade front, it is quite possible that Russia will make a giant leap this year. It may well be allowed to join the World Trade Organization (WTO), the global body that sets the rules for its 153-member countries. Russia is the last significant economy to remain outside the group.

Its entry could be blocked if even one member state objects. Only Georgia, which Russia temporarily invaded in 2008, might exercise its veto. It has before. Even so, both of these former Soviet states and territorial rivals are negotiating over a possible agreement to pave the way for Russia’s accession.

For its part, the Obama administration strongly backs Russia’s entry this year. The two countries are mostly done with the required bilateral agreement (so far, it totals at least 850 pages). But even if Russia crosses the WTO threshold, the United States may not be able to take advantage of a lowering of trade barriers with Russia.

That’s because of a 1974 law passed by Congress, known as the Jackson-Vanick amendment. The law denied the then-Soviet Union “most favored nation” trading status in order to push the Kremlin into allowing more Jewish immigration. The Obama administration is urging Congress to repeal the law and grant Russia normal trade ties.

The cold-war circumstances of Jackson-Vanick no longer exist, but some lawmakers – Democrats and Republicans – view the law as leverage to press for a variety of changes in Russia, be they in its relations with Georgia, on human rights, or on economic reforms. That became quite clear when US Trade Representative Ron Kirk testified before the Senate this week.

Senators from both parties questioned him on Russia’s readiness to abide by international trade rules. They pointed to China, which joined the WTO in 2001, as still a flagrant abuser of trade standards – a manipulator of its currency and a thief of foreign intellectual property. Why would Russia – unpredictable, far from democratic, and often unfriendly – act any differently?

True, Moscow has a long list of wrongs in foreign policy and governance, and in the way it manages its state-heavy economy. Mr. Biden didn’t shirk from publicly pointing them out in a speech at Moscow State University on Thursday. He repeated Russian President Dmitry Medvedev’s phrase of “a country of legal nihilism.”

But bringing Russia into the WTO and restoring normal trade relations with that country should not be viewed as rewarding bad behavior. Rather, it’s a way to support and encourage better behavior – more transparency and predictability. The WTO is a rules-based system that, while sometimes flouted and slow, provides a framework for trade and a process for redress.

Changes required by WTO membership would lead to greater business competition as more imports came into Russia. The World Bank estimates Russia could boost economic growth by 11 percent over the long term if it joined the WTO. That growth would help build up Russia’s middle class. Even leading political opposition figures in Russia support Moscow joining.

Membership also provides a means of recourse to trade wrongs. “We absolutely share many of your [anxieties] about Russia coming into the WTO,” Ambassador Kirk told senators this week. “But the reality is unless we get them into a rules-based environment, our ability to seek redress on many of these concerns are limited because they’re outside of the WTO.”

As for China’s mixed record, many economists believe that on balance, the world is better off with Beijing in the WTO. Membership has helped China’s economy grow. China is now the biggest export market for Japan, South Korea, and Taiwan; US exports to China have grown substantially. Consumers worldwide enjoy inexpensive, made-in-China products.

And, while China still abuses intellectual property rights, progress is slowly being made. In recent years, the US has pushed harder for copyright enforcement, taking cases to the WTO and winning several of them. The Chinese are “begrudgingly” beginning to understand that living by the rules will help them attract more of the innovative businesses they want, Kirk said.

The Russian economy is not nearly the size of China’s, nor is Russia a key export market for America (it ranks 37th). But in this time of stubborn unemployment, the US needs every market it can find. And a more vigorous market economy, one that is rules-based and transparent, might renew Russian democracy.

With Russia and trade, it’s helpful to take the long view: Better in than out of the WTO, and better that the US participates in Russian economic growth by restoring normal trade relations with that country.