In spite of the fact that the U.S. economy continues to suffer and Europe is imploding, the U.S. Congress has left Washington for its traditional five-week summer recess. Among the plethora of legislation that Congress failed to address prior to its departure were two bills concerning Russia — the establishment of permanent normal trade relations (PNTR) and the ‘Magnitsky Act.’ This failure means that the review of these bills will not take place until next month at the earliest — when Congress has only eight working days — or perhaps even during its ‘lame duck’ session following the November elections. Many business stakeholders and politicians from across the country have expressed concern that the failure to pass the Russia PNTR legislation would have grave consequences for U.S. manufacturers and further complicate strained Russia/U.S. relations.
The PNTR bill is being addressed at a crucial time, with Russia becoming a member of the WTO on Aug. 22. Many U.S. companies believe that with more than 140 million consumers and a rapidly growing middle class, Russia will provide an expanding marketplace for U.S. goods and services. According to the President’s Export Council, U.S. exports to Russia rose by 40 percent in 2011 to around $11 billion, and it is projected to double within five years. Following its accession to the WTO, Russia will have to comply with WTO rules on reducing tariffs, applying nondiscriminatory treatment to imports, eliminating export subsidies and adhering to intellectual property rights and digital trade laws — areas that previously concerned U.S. businesses. As a founding member of the WTO, the US will not be required to make any trade adjustments.
The PNTR bill will also address the concerns of some policymakers in Washington by including additional provisions regarding the promotion of the rule of law in Russia. Some provisions advocate the specific protection of American investors, particularly supporting the claims of some investors in the Yukos Oil Company — once Russia’s largest company — that was dismantled and sold by the first Putin administration. Others encourage anti-bribery measures by promoting the expansion of civil society organizations in monitoring and reporting suspected instances of corruption. While major political concerns seem to have been addressed in the bill, U.S. business representatives still fear that the bill will not be passed into law before the presidential elections, putting American companies at a disadvantage in the Russian market.
Legislators in Washington also cannot agree on the language of Sergei Magnitsky Rule of Law Accountability Act (the Magnitsky Act), introduced in conjunction with the PNTR bill. The Act is intended to replace the outdated Jackson-Vanik Amendment, first introduced in 1974, which barred trade with the Soviet Union for restricting Jewish emigration.
Since 1994 Jackson-Vanik has been waived annually in order to establish “normal” trade relations with Russia. When Russia joins the WTO, this practice will be in violation of Organization rules. By incorporating the Magnitsky Act, Congress hopes that PNTR with Russia can be established while the U.S. may at the same time promote the rule of law and punish those it perceives to be violating human rights. However, legislators cannot agree whether to proceed with the House version — which focuses only on Russia, or the Senate version — which is universal and applies to any individual from any country. The U.S. business community and the White House prefer the House version.
Politics is also delaying the bills, with Russia’s ongoing vetoes of UN resolutions against Syria feeding into the hands of American politicians inclined to see Russia in stark Cold War terms. They believe that by approving PNTR, the U.S. would be doing Russia a favor. U.S. businesses think otherwise. Some democrats blame Republicans for the legislative delay, believing stall tactics make the Obama administration look inept in the run up to the November election. Republicans, in contrast, fault the While House and President Obama for not doing enough to drum up the Democratic support required to pass the legislation, since the Republican minority cannot pass the bill on its own.
Regardless, no one can deny that the failure to pass the PNTR bill before Russia formally joins the WTO will only place U.S. manufacturers at a disadvantage. Major business organizations, including the US Chamber of Commerce and the National Association of Manufacturers, as well as several companies with global reach — such as Boeing, Ford, General Electric, International Paper, Microsoft and General Motors — have already voiced their deep dissatisfaction with Congress regarding the PNTR bill.
Regardless of who wins the race for the White House, the consequence of not passing the bill would be that US businesses could face higher tariffs for their Russia-destined exports, putting them at a distinct disadvantage vis-à-vis exporters from other countries. By the time the legislation is ultimately passed – as we believe will be the case — commercial opportunities in the new market-oriented Russia may already have been claimed by competitors from Asia and Europe. The failure of the Congress to act on these and a host of other bills in a timely fashion serves to emphasize just how irresponsible American politicians have become — and how broken the American political process is. Legislators seem to have forgotten why they were sent to Washington, and who they actually serve. With the American presidential race now requiring up to $1 billion per candidate to land in the White House, the political process really has become a function of who has the most money. America’s founding fathers must be spinning in their graves.