The U.S. Economic Benefits of Russian WTO Membership

Russia’s membership in the World Trade Organization (WTO) will likely become official in late spring or early summer. By that point, the United States must grant permanent normal trade relations (PNTR) status to Russia, otherwise Moscow will be permitted under WTO rules to discriminate against U.S. businesses and exports. Currently U.S.-Russia trade occurs under the same low tariffs and high import quotas as commerce with most other countries – in effect, “normal trade relations” – but the Jackson-Vanik amendment to the Trade Act of 1974 prevents this status from becoming permanent.

The White House has certified Russia’s compliance with Jackson-Vanik since 1994, and now Congress must graduate Russia from its provisions if the United States is to take advantage of key economic opportunities, as detailed in BPC’s recently released paper. First, American exports to Russia could double in five years –to $20 billion – which could spur job creation and growth at home. Bilateral trade flows are fairly low given the size of the two economies, though the United States runs a large trade deficit with Russia. This stems largely from the fact Moscow has more discriminatory trade measures than any other G20 member, while U.S. import tariffs on Russia’s main exports (energy and metals) are very low. Russia’s WTO accession commitments require it to reduce these barriers, which would then expand its market for a wide range of U.S. goods and services. Russians’ demand for U.S. agricultural products, consumer goods and manufactures is continually very robust, while the government and major Russian companies need U.S. financial and human capital in a variety of high-technology sectors to modernize and sustain GDP growth.

Second, WTO institutions and commercial laws limit arbitrary trade practices and provide a framework for adjudicating disputes. This could build U.S. investor confidence by making Russia’s business climate more hospitable and predictable, which is crucial for companies operating and investing in a country with transparency and rule of law concerns. Finally, Russia’s relatively high income levels and uncompetitive manufacturing minimizes the potential for cheap Russian imports competing on the U.S. market, or for U.S. jobs to be outsourced to Russia. Simply put, Russia exports natural resources and imports its value-added goods. In fact, U.S. companies operating in Russia often get parts and finished products from the United States, even with current high tariffs. This should all be seen in stark contrast to the effects WTO accession by a major manufacturing exporter like China have had on the U.S. economy.

Russia’s WTO membership thus offers significant economic prospects for the United States, with the potential downsides being political. Valid concerns over Russia’s record on human rights and rule of law must also be part of the U.S. agenda, and therefore graduation from Jackson-Vanik should be a part of a comprehensive policy framework – developed by the Executive and Legislative Branches, as well as other concerned parties – for building a constructive bilateral relationship with Russia.