Russia joins the WTO: Now what for U.S.-Russia trade relations?

  • BY: DINA GUSOVSKY, Examiner.com,  September 3rd, 2012
Russia-U.S. trade relations in jeopardy?
Russia-U.S. trade relations in jeopardy?

For months now, American businesses have been warned that if the U.S. does not grant Russia permanent normal trade relations status as Russia officially becomes a member of the World Trade Organization, U.S. companies could lose hundreds of millions of dollars.

Now that Russia has joined the WTO, it is important to consider what effect, if any, the status quo could have on the American economy.

On the Russian side, any economic changes will be gradual.

Russia has not rushed to lower trade tariffs, instead choosing to take a slower course so that its own companies can deal with the changes in due time.

On the American side, Congress has yet to act leaving companies like Deere, General Electric, and Caterpillar, among others, to wonder if their bottom line will suffer as a result of losing out on the Russian market.

Many lawmakers believe that granting Russia permanent normal trade relations would ignore Russia’s human rights violations and support for anti-American governments like that of Syria and Iran.

The recent sentence of the Russian punk band Pussy Riot, which caused an international outcry, did not help matters much either.

To grant Russia that status, Congress must first repeal the antiquated Jackson-Vanik Amendment. Several lawmakers want to replace Jackson-Vanik with the Magnitsky Bill which would only make matters worse in terms of relations between the two nations.

Russia strongly opposes such a bill and has even vowed retaliation.

According to Alexander Gordin, Managing Director of Broad Street Capital Group, who advises businesses on trade with Russia and other former Soviet nations:

…If the Jackson Vanik amendment remains in place, the Russian government would be fully within its rights to discriminate against American suppliers of goods and service, thus putting US companies at a serious disadvantage against their Asian and European competitors who are not faced with such restrictions. Not only will US businesses have difficulty expanding their sales into the Russian markets, but the existing $10 billion US export trade with Russia will also be jeopardized.

And that disadvantage is also likely to translate into the loss of American jobs.

Gordin further points out that:

The consumer market, with 140 million residents, is one of the largest in the world, and the country’s infrastructure needs are projected to top $500 billion in the next five years. An immediate effect will be an estimated tripling of existing exports by US companies into Russia and the ability for many new entrants to begin supplying their goods and services into the Russian market. New exports directly translate into new jobs in the US.

Though the Obama administration has pushed for the repeal of Jackson-Vanik, both Republican and Democratic lawmakers remain divided on whether or not that is a viable option in the context of US-Russia relations as they are today.

Some, however, view an even bigger problem when it comes to fair trade between the two nations.

According to International business and legal consultant, Edward Mermelstein,

While Jackson Vanik will continue to hinder investment between the US and Russia, the bigger obstacle continues to be the mindset of the Russian companies. As long as returns in Russia outpace any similar investments in the US, the incentive to put money in America is lacking. This will slowly change as reduction of risk in Russia follows the adherence to western standards related to legal and accounting practices.

The fact that Russia will now have to adhere to standards set forth by the WTO is inevitable.

But whether or not American businesses will be able to profit from that adherence remains unclear.

http://www.examiner.com/article/russia-joins-the-wto-now-what-for-u-s-russia-trade-relations

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