Russian PNTR is Good for America

The Congress is scheduled to go into a recess on Aug. 3, but before it does it has one important piece of unfinished business to address – approval of the permanent normal trade relationship (PNTR) with Russia and repealing Jackson-Vanik Amendment. H.R. 6156, the “Russia and Moldova Jackson-Vanik Repeal Act of 2012.”

The good news for American businesses is that Russia has been approved to join the World Trade Organization (WTO) on Dec. 16, 2011 and will become a member on Aug. 22, 2012. Businesses from more than 150 countries will become Russia’s partners and will be able to fully utilize the benefits of Russia’s membership. However, the bad news is that if the pending legislation is not passed by the end of this Congress, Russia will be able to deny U.S. businesses non-discriminatory treatment afforded to other WTO members.

As part of its commitment to join the WTO, Russia agreed to provide market opening opportunities to foreign business in a broad range of sectors. For example, in the service industry, foreign companies can have wholly owned subsidiaries to distribute audio-visual services. Wholly owned subsidiaries are also permitted in the wholesale, retail and franchise sectors, in consulting in the fields of energy services, environmental, express delivery, and banking services. In telecommunications, Russia undertook obligations to sign on to the WTO’s Basic Telecommunications Reference Paper providing for transparency obligations. Its WTO commitments also provide for comprehensive sectoral coverage with 100 percent foreign-ownership and for open services on both a facilities and non-facilities basis. Russia is also required to meet WTO commitments in transport, storage, and freight forwarding areas. U.S. express delivery service providers will be able to ensure that they receive the same treatment as domestic firms and will have full market access for express delivery of documents, packages and other items.

Russia’s PNTR provides broad opportunities to the U.S. companies in the healthcare sector. Russia’s spending on medical devices grew 16 percent in 2011 to more than $6 billion. Nearly two-thirds of Russia’s medical equipment is obsolete, creating high demand for new medical devices. Russia imports 60 percent of its medical devices. Current Russian tariffs on imported medical equipment are as high as 15 percent, but WTO requires these tariffs at 7 percent or less. As part of its WTO accession commitment, Russia adopted legislation providing competitive advantage to the pharmaceutical companies by providing six years of confidentiality to data provided to the government for product registration purposes (The Law on Circulation of Medicines). Moreover, American companies in the healthcare sector will be able to utilize binding WTO settlement procedures to protect their intellectual property rights.

In addition to granting PNTR, the pending legislation will also permit Russia’s graduation from the Jackson-Vanik Amendment, which was signed into law by President Gerald Ford to force the Communist government of the Soviet Union to permit emigration of Soviet Jews. The Soviet Union is not on the map anymore and Russia has a 20-year-long proven record of free emigration but Jackson-Vanik is still on the books.

The legislation to provide PNTR to Russia and graduate Russia from Jackson-Vanik has been passed by a 24-0 vote in the Senate Finance Committee and enjoyed strong bipartisan support in the House Ways & Means Committee. U.S. Trade Representative Ron Kirk expressed the Obama Administration’s commitment to having PNTR in place as soon as possible. He confirmed that pending legislation provides adequate tools allowing the U.S. to enforce its rights under the WTO vis-à-vis Russia and that it does not prevent any interested persons from requesting initiation of a Section 301 investigation of practices adversely affecting U.S. commerce. The repeal of Jackson-Vanik is also supported by the human rights leaders in Russia including such well-known figures as the head of the Moscow Helsinki Group and the laureate of the Sakharov Freedom of Thought Prize, Lyudmila Alekseeva and anti-Putin leader Aleksey Navalny. In fact, in Mr. Navalny’s view, Jackson-Vanik is a very useful tool for Putin’s anti-American propaganda machine because it helps him to depict the United States as hostile to Russia, using outdated Cold War tools. Jackson-Vanik is counterproductive for promotion of human rights and democracy in Russia, Mr. Navalny says.

Congress is considering addressing human rights and foreign policy issues by linking PNTR and repeal of Jackson-Vanik with S. 1039 and H.R. 4405—the Sergei Magnitsky Rule of Law Accountability Act of 2012. The Act would require the State Department to publically identify individuals responsible for the detention and death of Sergei Magnitsky, a Russian lawyer who died in detention after raising issues of corruption of Russian prosecutors and tax authorities. The State Department is also required to deny these individuals visas for entry to the United States and the Treasury Department is required to freeze their assets and preclude financial transactions with the United States.

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