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Trade puts U.S.-Russian relations at turning point

Is Russia a friend, foe or frenemy? That question hangs over Congress as lawmakers ponder whether to grant a former adversary normalized trade relations.

Since the end of the Soviet Union in 1991, the U.S.-Russia relationship has seen ups and downs, lately more of the latter. Russia has stymied U.S. efforts to thwart Iran’s nuclear ambitions and hascomplicated efforts to isolate Syria.

In the coming weeks, Congress will be presented with a tough choice: Should it stand up against human rights abuses in Russia or should it support greater access for U.S. companies to Russia’s more than 142 million consumers?

It’s a choice lawmakers must make because Russia is readying to join the World Trade Organization, the Geneva-based body that sets rules for and polices international trade. Russia’s legislative body, the Duma, will take up the ratification of its WTO accession on July 4. The date appears to be Russia’s way of sending an Independence Day message to its former adversary.

Since the 1970s and the Cold War, Russia has had limited access to the world’s largest economy. Russia is largely a commodity exporter, a global seller of crude oil, natural gas and minerals such as uranium. Those products are not sensitive to protectionism and other unfair trade practices. However, Russia offers exporters across the globe a big market for finished goods and services, and if it joins the WTO it will be subject to the same rules as the other 155 members.

“We have a very complicated relationship with Russia, there’s no question about that,” said Christopher Wenk, senior director for international policy at the U.S. Chamber of Commerce, which is lobbying for what’s known as permanent normal trade relations with Russia, or PNTR.

“It’s tough in terms of the foreign policy piece of our relationship … but the point we’re making is that PNTR is not about Russia, it is about the United States. This is really an issue about giving U.S. companies a level playing field in that market.”

The problem for some U.S. lawmakers is that granting Russia normalized trade relations rewards its authoritarian leader, Vladimir Putin. The Obama administration has tried to reset relations with Russia, but Putin’s return to power, anti-American rhetoric and treatment of dissidents has upset human rights advocates.

“Putin clearly has complicated things, and … human rights are not fully respected. That is quite evident, and of course Russia is not a democracy. It’s a relatively mild authoritarian state,” said Anders Aslund, a senior researcher and Russia expert at the Peterson Institute for International Economics in Washington.

Russia is one of the four pillars in what economists call the BRIC nations – large developing economies that increasingly account for a greater share of the global economy. The other BRIC nations are Brazil, India and China.

While two-way trade with China and Brazil continues to grow, U.S. trade with Russia – which ranks between 10th and 12th globally in economic size – is surprisingly minuscule. Russia is not in the top 30 markets for U.S. exports, and last year it was the United States’ 14th biggest source of imports, behind India and ahead of Brazil.

This suggests there’s more at stake for U.S. businesses in the fight.

“Our assessment is U.S. exports to Russia could double within five years of WTO accession,” said Aslund. “It is ridiculously small now.”

U.S. exports of goods and services to Russia was about $11 billion in 2011, he said, but could double to $22 billion by 2017 if Russia joins the WTO and the United States normalizes trade relations.

Failure to grant normalized relations would allow Russia to restrict U.S. exports. Here, Russia is still subject to U.S. trade restrictions dating back to 1974, the Jackson-Vanick Amendment. Although it’s waived annually in order to allow two-way trade, it remains on the books and a big irritant.

It would disappear if Congress passed legislation granting Russia normalized trade status. However, in a sign that Congress may not be ready to decouple trade and human rights, the House Foreign Relations Committee on Thursday unanimously passed a bill to punish human rights abusers in Russia.

The measure was named after Sergei Magnitsky, a Russian lawyer for Hermitage Capital Management who died in a Russian jail in 2009, imprisoned after exposing alleged fraud by government officials.

The Magnitsky bill prohibits those involved in his death from getting visas to the United States, something the Obama administration says it’s already done. The bill also allows the State Department wide latitude to deny Russians accused of abuses access to the United States and its financial system.

Similar measures are in place for leaders of pariah states such as Iran and Myanmar. Some argue that it’s too blunt an instrument for Russia.

“The problem is Russia is simply not in the same basket” as those states, said Cory Welt, a professor and Russia expert at George Washington University’s Elliot School of International Affairs.

“It will make our ongoing dialogue with Russia more difficult and set us up for additional confrontations in the future,” said Bill Reinsch, president of the National Foreign Trade Council, a trade group for large U.S. multinational corporations.

“As usual with unilateral sanctions, it will be the business community that loses.”

Magnitsky bill proponents hope to attach it as an amendment to legislation that would normalize trade relations with Russia, something sure to anger Moscow. Preventing that is now the top international priority for the Chamber, which argues that U.S. jobs are at stake.

“It is absolutely a jobs issue,” said Wenk, senior director for international policy at the Chamber. “Russia needs a lot of stuff in terms of infrastructure, construction equipment. We sell a lot of stuff that they need. As far as we’re concerned, the question is whether it will be U.S. companies that are supplying those needs or European and Asian companies.”

U.S. poultry producers, most in southern states, have a lot at stake in the debate. During the late 1990s they enjoyed strong sales to Russia, hitting a high-water mark of more than 1 million metric tons in 2001. That fell to 215,000 metric tons last year, said the group, which backs normalized trade relations.

“It’s still an important market for us and will be for years to come,” said Toby Moore, vice president of the U.S. Poultry & Egg Export Council in Stone Mountain, Ga. “The difficulties with Russia have been legion … but there is still demand in Russia for commodity-grade, low-cost protein. And based on our intelligence, there will be for some years to come.”

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