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Jackson-Vanik Amendment: No Business Sense, No Reason, but Still in Effect and Hurts

Russian business has been trying to invest in the U.S. Severstal has been a trailblazer investing billions into the ailing U.S. steel industry. Russians have long been worried about discriminatory provisions in American law, specifically the Jackson-Vanik amendment. Washington insists that if Russia joins the WTO, that amendment will automatically cease to apply. Russia’s accession to the WTO would lead to a more active American presence on the Russian market as well, and U.S. business leaders have a genuine interest in lobbying for that process.

According to the 1974 Trade Act of the United States, the Jackson-Vanik amendment, named for its major co-sponsors, Sen. Henry “Scoop” Jackson (D-WA) and Rep. Charles Vanik (D-OH), denied most favored nation to certain countries with non-market economies that restricted emigration rights. Permanent normal trade relations would be extended to a country subject to the law only if the President determined that it complies with the freedom of emigration requirements of the amendment. However, the President had the authority to grant a yearly waiver to the provisions of Jackson-Vanik, and these waivers were granted to the People’s Republic of China starting in the late 1970s and later to Vietnam.

President Gerald Ford signed the amendment into law on January 3, 1975, after both houses of the United States Congress unanimously voted for its adoption.

Background
In 1972 as the Cold War and the ongoing Arab-Israeli conflict were intensifying, the Soviet regime of Leonid Brezhnev imposed the so-called “diploma tax” on would-be emigrants who received a higher education in the USSR. While the professed justification for this tax was to repay state expenses for public education, this measure was designed to combat the brain drain caused by the growing emigration of Soviet Jews and other members of the intelligentsia to the West. In some cases, the fee was as high as 20 times the emigrant’s annual salary.

This development caused international protests. Twenty-one United States Nobel Laureates issued a public statement condemning it as a “massive violation of human rights.” The Kremlin soon revoked the tax but imposed additional limitations, effectively choking off emigration, even for family reunification. A case could languish for years in the OVIR department of the MVD. An often-cited but rarely explained official ground for the refusal to issue an emigration visa were “national security reasons.”

Effects
At first the Jackson-Vanik amendment did little to help Soviet Jewry. The number of exit visas declined after the passing of the amendment, as the USSR felt the external pressure was harming its credibility. However, in the late-1980s Mikhail Gorbachev agreed to comply with the protocols of the Organization for Security and Cooperation in Europe.

Since 1975 more than 500,000 refugees, many of whom were Jews, evangelical Christians, and Catholics from the former Soviet Union, have been resettled in the United States. An estimated one million Soviet Jews have immigrated to Israel in that time.

Jackson-Vanik also led to great changes within the Soviet Union. Other ethnic groups subsequently demanded the right to emigrate, and the ruling Communist Party had to face the fact that there was widespread dissatisfaction with its governance.

Former Soviet dissident Natan Sharansky wrote in his 2004 book The Case for Democracy:

“…Kissinger saw Jackson’s amendment as an attempt to undermine plans to smoothly carve up the geopolitical pie between the superpowers. It was. Jackson believed that the Soviets had to be confronted, not appeased. Andrei Sakharov was another vociferous opponent of détente. He thought it swept the Soviet’s human rights record under the rug in the name of improved superpower relations…. One message he would consistently convey to these foreigners (the press) was that human rights must never be considered a humanitarian issue alone. For him, it was also a matter of international security. As he succinctly put it: “A country that does not respect the rights of its own people will not respect the rights of its neighbors.”

Jackson-Vanik is still in force and applies to Russia, among other countries. Critics of the amendment argue that with the end of the Cold War, Jackson-Vanik is a now merely counterproductive trade discrimination, but some still see it as instrumental in helping democracy take hold in Eastern Europe.

On December 6, 2005 the Anti-Defamation League (ADL) urged the United States House of Representatives to delay approval of Ukraine’s graduation from the amendment. ADL National Director Abraham Foxman wrote: “We expect more from democratic states than we do from totalitarian ones. This year alone has seen a steep increase in acts of violence and vandalism against Jews across Ukraine. There have been attempts to ban everything from Jewish organizations to Jewish holy texts. ”

The very reason for the Jackson-Vanik amendment no longer exists. Neither does the country, which it was originally targeted at.  Russian businesses are annoyed by numerous failed attempts to abolish the ludicrous law, which prevents competitive import of Russian merchandise into the U.S. The standing Russian joke on the subject is “American laws are written by feathers but can’t be carved out with ax or money”.


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A Thaw in Relations with Russia?

VOA report - Download (MP3) U.S.-Russian Business podcast

VOA report - Listen (MP3) U.S.-Russian Business podcast

US Vice President Joe Biden gave a hint to the Obama administration’s attitude toward relations with Russia at the International Conference on Security Policy in Munich, Germany on 07 Feb 2009.

Throughout eight years of the Bush administration relations between the United States and Russia have been steadily deteriorating, and occasional flare ups have caused a lot of friction, misunderstanding and frustration. In Munich VP Biden signaled a willingness to end the downward spiral. “It’s time to press the reset button,” he said. “And to revisit the many areas where we can and should be working together with Russia.”

Marshall Goldman from Harvard University, says Mr. Biden’s speech set a new tone for relations between Washington and Moscow.

“When you say ‘reset’ that means you clear the computer and that opens up all kinds of new opportunities and you’re not going to be held back by past commitments which have been controversial,” he said. “This provides an opportunity that maybe only a new administration could do because they don’t have to be held down by complications that arose under the past government.”

Russia is clearly against the Bush administration’s plan to put a missiles in Eastern Europe. Joe Biden: ”We will continue to develop missile defenses to counter a growing Iranian capability, provided the technology is proven and is cost effective, and we will do so in consultation with our NATO allies and with Russia.” Robert Legvold from Columbia University says it’s a departure from the Bush administration’s view to go ahead with the defense shield whether it’s feasible or not. “The basic position is we’re not going forward with this unless it’s technologically feasible and unless it’s something that we can get agreement with at least the allies,” he said. “And in doing so, we also want to consult the Russians… and  achieve an outcome that is acceptable to Russia and one that Russia buys into.”

Senior Russian officials, including Deputy Prime Minister Sergei Ivanov, reacted positively to the vice president’s speech. But in an interview with the Russia Today television program, Ivanov was more cautious.

“From my previous experience - I’m 56 already - I saw a lot of thaws,” he said. “I saw a lot of good intentions which ended nowhere. I hope this time it won’t be the case.”

Business executives are watching this development with hope. Most agree that now is the time to start rebuilding U.S.-Russian political and business relations on the positive tone set out by U.S. VP Joe Biden.


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U.S.-Russia Policy Recommendations to the Obama Administration

The U.S.-Russia Business Council has just submitted its recommendations to the Obama Administration regarding U.S. policy toward Russia. In an effort to create a more productive and lasting partnership between the two countries, the USRBC’s recommendations focus on the development of the commercial relationship as a foundation for moving forward on the geopolitical agenda.

Many experts agree that closer business and finance relations are key to resetting the downward trend initiated by the Bush administration and creating a more productive bilateral relationship.

The Council’s recommendations include the following:

  • The establishment of a bilateral commission to facilitate regular exchanges on commercial issues. Such an interagency commission, led at the highest levels of the U.S. and Russian governments, should have a strong private sector component.
  • The revival of a commercial energy dialogue to promote shared objectives in energy security and efficiency.
  • The Obama Administration’s support for the repeal of the Jackson-Vanik amendment for Russia. This would recognize actions taken by Russia more than a decade ago and would be a notable symbolic gesture of goodwill. At the same time, the Obama Administration must make it clear that a good faith effort to repeal Jackson-Vanik for Russia will not compromise bilateral and multilateral objectives in negotiating Russia’s accession to the World Trade Organization on commercially meaningful terms.
  • A focus on matters that advance the interests of both countries: support for economic diversification, rule of law, and even-handedness in regulation should guide the discussions.

Full report by the USRBC


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Russian Big Four oil companies accused of price fixing

The Russian Federal Anti-Monopoly Service (FAS) has launched a suit against the country’s leading oil companies, Rosneft, Lukoil, Gazpromneft and TNK-BP,  accusing them of price fixing on the petrol market in late 2008 and early 2009.

FAS director Igor Artemyev says all four companies have failed to lower fuel prices to consumers despite the three-fold collapse in the oil price. “In my opinion the companies have challenged the government by increasing wholesale price by 30-60% in February. As the governments representative, today we accept this challenge” Artemyev says.

In December 2008 the FAS fined the four companies for setting high prices for petrol. On that occasion the fines were the lowest possible (Rosneft was fined 1.5 billion roubles, Lukoil 1.44 billon roubles, Gazpromneft 1.3 billion roubles and TNK-BP 1.1 billion roubles). The FAS warned the Big Four that if petrol prices increase again, new cases would follow immediately and penalties will be many times more.

The slump in oil prices in 2008 led to the oil price falling from US$147 in July to just US$40 in December, but petrol prices in Russia did not fall at the same speed, recording the biggest decline in the first month of winter – by 7.3%.


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