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Fowling Up Russia's WTO Accession

Author: Bruce Stokes
May 11, 2002
National Journal

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Robert Liuzzi, president of CF Industries, a major producer of nitrogen and phosphate fertilizer, has a problem, one he shares with poultry producers and several other politically well-connected Americanindustries. But unlike many people with a problem, Liuzzi has someleverage to get what he wants.

His problem is Russia. And Liuzzi's leverage is twofold: Moscow's fervent desire to join the World Trade Organization; and the Bush administration' sequally strong hopes of rewarding Russian President Vladimir Putin for hissupport of the U.S. war in Afghanistan. The White House's reward, which Bush would like to deliver in his upcoming summit with Putin, is granting Russia permanent normal trade relations, a prerequisite for Washington to sign off on Russian membership in the WTO.

But the legislative calendar, the political influence of the fertilizer and poultry industries, and congressional Democrats' desire to retain some leverage of their own over the Russian WTO accession are likely to thwart President Bush's desire to deliver normal trade relations when he meets with Putin in late May. Nevertheless, the administration will persist. And the issue of Russian readiness to abide by international trade rules, and the question of appropriate congressional input in judging that readiness will persist as well.

After a strong rebound from its 1998 economic crisis, the Russian economy is slowing. To boost exports-and, even more important, to introduce greater competition into its domestic economy and thus increase productivity-Russia needs to open its own markets and attract greater foreign investment.

To that end, the Russian Duma has already passed about 300 of the estimated 340 legal changes needed to qualify Russia for WTO membership. And Putin, who currently commands a strong Duma majority, hopes tocomplete the WTO accession negotiations before the Duma elections late next year.

To support Putin, the Bush administration and most of the U.S. business community are pushing Congress to eliminate the Jackson-Vanik amendment to the 1974 Trade Act, a provision that forces an annual review of Russia' strade benefits to ensure that Moscow permits Jews to emigrate. Jewish groups acknowledge that there is no trouble emigrating from Russia these days. But to some in Congress and to some U.S. businesses, more is at stake than emigration.

Russia is the world's largest exporter of nitrogen fertilizer. U.S. producers gripe that their Russian competitors pay only one-sixth the world price for natural gas (the principal ingredient in nitrogen-based fertilizers). This unfair price discrepancy reflects the Russian government's continued dominance of the Russian natural gas market, they say. Before Moscow is accorded normal trade relations or WTO membership,the U.S. industry wants its Russian competitors to pay market prices for their raw materials.

American farmers have a different problem. The Russian market accounts for nearly two-fifths of total U.S. poultry exports and about a quarter of overall U.S.-Russian trade. But Moscow recently banned importation of U.S. chickens for a time, alleging that the meat was contaminated with salmonella and other pathogens. Americans contended that the action had more to do with Moscow's pique over U.S. steel tariffs than with scientific evidence of unhealthy fowl. Burned by past Chinese, European, Japanese, and Korean use of sanitary standards to block other U.S. agricultural exports, poultry producers are determined not to let Russiado the same.

Congress, meanwhile, has a procedural concern about Russia joining the WTO. "In recent years," said Rep. Sander M. Levin, D-Mich., "Congress has generally not granted [permanent normal trade relations] until a country has completed its accession to the WTO, or at least completed its WTO accession negotiations with the United States. The reason is obvious. The ultimate vote on [granting normal trade relations] gives Congress an important lever to ensure that [the terms of accession] reflect congressional priorities."

If the administration wants to reward Putin with normal trade benefits, Sen. Max Baucus, D-Mont., has suggested a second, separate up-or-down congressional vote on Russia's WTO accession agreement, after the granting of normal trade relations. Administration officials and business lobbyists object, arguing that it would impose a burden on Russia not faced by any other WTO applicant.

The concerns of fertilizer and poultry producers may sound like just more special-interest whining. But such practical problems are perfect examples of why it is so important to get Russia, or any country, to play by the rules before it is accorded the benefits of WTO membership. Years ago, for geopolitical reasons, Japan was allowed to join the WTO's predecessor before Tokyo eliminated its protectionist industrial policies. Japan took advantage of that leniency, and the world has been paying the price ever since.

Congress is right to demand a final review of Russia's WTO accession accord, either as part of granting Moscow normal trade relations or in a separate vote. This safeguard does not mean that Russia might become the next Japan. But letting Moscow off the hook would demonstrably hurt some U.S. industries. More important, it would send all the wrong signals to Beijing, a recent WTO entrant, suggesting that China need not live up to WTO standards either. And that would be a problem, indeed.

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