Reassessing The Jackson-Vanik Amendment

Julie Ginsberg

Council on Foreign Relations
July 2, 2009

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.

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.

>From CFR Experts: "In the years since George W. Bush’s efforts to deal
with the [Jackson-Vanik] amendment, American confidence that Russia is
moving in a democratic direction has dropped sharply. Our confidence
that we have any leverage over the process, or that we know how to
use it, has also declined. Leaving this symbol of long-gone issues
on the books keeps us from thinking clearly about today’s concerns."

Stephen Sestanovich, NYT Op-Ed

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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