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Reassessing the Jackson-Vanik Amendment

Author: Julie Ginsberg
July 2, 2009

Introduction

The Jackson-Vanik Amendment, an addition to the U.S. Trade Act of 1974, was crafted to put pressure on the Soviet Union for human rights abuses but has become a symbol of lingering tensions in the U.S.-Russia relationship. In order to receive the benefits of normal trade relations with the United States, nonmarket economies, which originally meant Communist economies, must comply with free emigration policies. Though the United States denies normal trade relations treatment only to Cuba and North Korea, U.S. trade relations with eight former Soviet states still fall under the jurisdiction of Jackson-Vanik. These countries--Azerbaijan, Belarus, Kazakhstan, Moldova, Russia, Tajikistan, Turkmenistan, and Uzbekistan--are deemed either compliant with the emigration requirement or provisionally exempt. Yet many experts assert that the amendment is an irritant in U.S. relations with these countries, particularly Russia, and has outgrown its relevance.

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Signs of the Obama administration's interest in warming relations with the Kremlin (WashPost), as well as negotiations over Russia's World Trade Organization (WTO) accession, have prompted a fresh round of discussion among experts about graduating Russia from the amendment to make it permanently exempt. Whether President Barack Obama can do so and how quickly, experts say, will depend on his ability to overcome long-standing congressional reluctance to make what is perceived as an undeserved concession to Russia.

Cold War Origins

Legislation that would become the Jackson-Vanik Amendment was proposed in October 1972 to prevent the Soviet Union from charging exorbitant fees to Jews trying to emigrate. Though cosponsors Sen. Henry M. Jackson (D-WA) and Rep. Charles A. Vanik (D-OH) cast the legislation as a means to put pressure on Communist countries for human rights violations, the amendment references only emigration, clearly targeting the former Soviet Union. The Soviet bloc stopped charging "education reimbursement fees" in late 1972, but the Jackson-Vanik Amendment was still included as a provision of Title IV of the Trade Act of 1974.

The legislation conditions nonmarket economies' eligibility for receiving "most favored nation" status (now known as "normal trade relations") and accessing particular U.S. financial facilities on compliance with a set of free-emigration requirements. To comply with the amendment, the applicable countries may not deny their citizens the right to emigrate, impose a significant tax on emigration or related documents, or otherwise monetarily punish any citizen for seeking to emigrate.

Jackson-Vanik in Practice

A country that has conditional normal trade relations with the United States under the amendment enjoys the same financial and trade advantages as a country with permanent normal trade relations and is highly unlikely to lose those benefits (PDF), according to a 2005 Congressional Research Service report. The president has certified to Congress that most of the countries under the amendment are in permanent compliance and therefore eligible for preferential tariff rates and other financial benefits, a determination that Congress can disapprove of with a joint resolution. Each year, the president renews this certification and recommends extensions of the Jackson-Vanik waiver for Belarus and Turkmenistan, leaving only Cuba and North Korea without normal trade relations due to noncompliance with the amendment.

The list of countries to which Jackson-Vanik applies has narrowed as these countries join the WTO, which requires all member states to establish permanent normal trade relations with one other. Congress and the president have addressed the amendment's incompatibility with this requirement by voting to graduate Albania, Armenia, Bulgaria, China, Czechoslovakia, Estonia, Georgia, Hungary, Kyrgyzstan, Latvia, Lithuania, Mongolia, Romania, Ukraine, and Vietnam in correspondence with each country's WTO accession, withholding permanent normal trade relations status only from Moldova.

Jackson-Vanik's application has diminished and changed drastically as its list of eligible countries shrinks. Blake Marshall, the former executive vice president of the U.S.-Russia Business Council, says refusing to abolish the amendment or graduate Russia has become a way for Congress to express disapproval with Russian trade, foreign policy, and human rights offenses. Russia has been officially in full cooperation with the amendment's original intent since 1994, Marshall says, but "we have moved the goalpost." In 2003, Sen. Charles Grassley (R-IA), then chairman of the Senate Finance Committee, which has jurisdiction over the Jackson-Vanik Amendment, told the Washington Times he would back Russia's graduation "under the right circumstances," but Russia's lack of support for U.S. operations in Iraq and trade barriers on U.S. pork, beef, and poultry hurt congressional support at the time. "It seems every time we take one step forward in Congress, Russia takes two steps back," he said.

What's at Stake

As WTO accession negotiations progress for Russia, the largest economy still outside the organization, the question of what to do about Jackson-Vanik becomes pressing. CFR Senior Fellow Stephen Sestanovich says that keeping Russia under Jackson-Vanik after the country accedes would be "the worst outcome for American businesses," which would then not benefit from Russia's market access commitments and could not utilize WTO dispute resolution mechanisms.

While experts agree that a U.S. decision not to graduate Russia from Jackson-Vanik would be a setback for the countries' economic and political ties, the potential U.S. gains from graduation are subject to debate. Anders Aslund, a senior fellow at the Peterson Institute for International Economics and an adjunct professor at Georgetown University, asserts that Jackson-Vanik has contributed to making the United States a "least favored trading partner" of Russia, pointing out that only 4 percent of Russia's trade is with the United States. Other experts, like Sestanovich, say that ill will inspired by Jackson-Vanik has had minimal impact on trade and therefore the potential U.S. gains from graduating Russia from the amendment are small. Terminating Russia from Jackson-Vanik would be "symbolic of the ability of leaders on both sides to get rid of accumulated, irrelevant issues of friction in the relationship," Sestanovich says, "but it's symbolic friction. It doesn't actually have any real consequences, and the result is you can't actually expect any real payoff."

Jackson-Vanik's Staying Power

Despite the potential gains, whether symbolic or quantifiable, of graduating Russia from Jackson-Vanik or eliminating it altogether, Congress has resisted both options because of several factors unrelated to the amendment's original intent. Jackson-Vanik is part of a wider set of provisions established by Title IV of the Trade Act of 1974, which means that eliminating the amendment altogether would be considerably more complicated than terminating the amendment's application to individual countries, according to the 2005 Congressional Research Service report. Repealing Jackson-Vanik likely would require repealing Title IV entirely, a more drastic measure than necessary to achieve the goal of restoring permanent normal trade relations with the affected countries, the report states. As a result, the option of repealing the amendment has not been given serious congressional consideration.

Congress has discussed the possibility of graduating Russia from Jackson-Vanik several times in the past decade, but each effort to do so has been foiled by trade and foreign policy considerations. Mark B. Levin, the executive director of NCSJ, an advocacy organization for Jews of the former Soviet Union, says Congress has been reluctant to establish permanent normal trade relations with Russia without seeing evidence of progress on certain human rights and foreign policy complaints. Special interest groups' concerns over Russia's compliance with trade regulations have not helped the case for graduation, he says. When Levin and Harold Luks, the chairman of NCSJ, testified at a subcommittee hearing of the House Committee on Ways and Means in 2002, they voiced their organization's support for establishing permanent normal trade relations with Russia and found this stance to be in opposition to those of the business and agricultural communities. Speaking on behalf of the American Farm Bureau Federation, Wayne Wood, the president of the Michigan Farm Bureau, asserted that "the overall U.S.-Russian trade relationship strongly favors Russia with its exports to our markets reaching $6.5 billion, compared to $2.5 billion in U.S. exports" and that the federation could not endorse establishing permanent normal trade relations until Russia's ban of U.S. poultry exports was resolved. The ban elicited a similar response from senators like Joe Biden [the current U.S. vice president] of Delaware, a major poultry-producing state, halting momentum to graduate Russia from Jackson-Vanik.

Some experts, like CFR Adjunct Fellow Jeffrey Mankoff, say trade, human rights, and security concerns are excuses for congressional inaction to graduate Russia from Jackson-Vanik. Mankoff says Congress has kept Russia under the amendment to assert a role in foreign policy and calls outcry over trade concerns "political theater rather than actual substance." Peterson's Aslund agrees that Jackson-Vanik has far more to do with political tug-of-war between Congress and the president than with trade and attributes the amendment's continued existence to being "one of the laws with which Congress can irritate the administration."

Policy Recommendation

Experts recommend that President Obama promptly makes good on the promises of his predecessors George W. Bush and Bill Clinton to graduate Russia from Jackson-Vanik. In testimony before the Senate Foreign Relations Committee in March 2009, Sestanovich advised Congress to contribute to the administration's efforts to "press the reset button" by graduating former Soviet countries from Jackson-Vanik "as soon as possible and without further conditions."

Now that Jackson-Vanik graduation has become tied to WTO accession, it would be difficult to assuage congressional concerns and establish permanent normal trade relations with Russia before it joins, says Marshall, the senior vice president and managing director of the PBN Company, an international strategic communications consultancy. But Marshall believes the political effort of doing so would be worth the move's symbolic weight in demonstrating U.S. interest in improving ties with Russia.

Stephen Biegun, the vice president of international governmental affairs for Ford Motor Company, agrees that Congress should put Russia's graduation from Jackson-Vanik on the table before the country accedes to the World Trade Organization. If the working party report designating the terms of Russia's WTO accession were signed tomorrow, Biegun says, Russia would officially become a member on January 1, 2010, leaving a "narrow window to choreograph" Russia's graduation given "the complexity of the process and the number of issues on the congressional agenda." Biegun, who was national security adviser to former Senate Majority Leader Bill Frist after serving as executive secretary of the National Security Council, asserts that graduating Russia from Jackson-Vanik would "provide a catalyst" for Russia's integration into the global economic community. "People in the United States who want to keep Russia out of the WTO may be well-intentioned with regard to their unhappiness with Russia's political or human rights concerns, but I would argue with them that integrating Russia into the WTO and setting up a superstructure of rules and procedures that are transparent will be a step in the right direction," he says. Instead of trying to use outdated legislation to promote neighborly behavior and protect human rights, Sestanovich writes in an op-ed in the New York Times, the U.S. government should develop new mechanisms for demonstrating these priorities.

Marshall believes this administration--led by a popular president with majorities in both houses--could be the one to finally take that step, as long as Moscow indicates its own willingness to cooperate on issues like agricultural imports and protection of intellectual property rights.

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