Monday, December 17, 2012

Russia - US Trade Relations Strained

In an update to Russia officially joining the World Trade Organization (see Russia officially joins the World Trade Organization", August21, 2012), US President Obama signed into law which ends the 1974 legislative provision known as the Jackson-Vanik amendment and extends permanent normal trade relations to both Russia and Moldova.

The 1974 Jackson-Vanik amendment tied trade relations between the United States and the former Soviet Union to the emigration of Jews and other Soviet minorities.

According to President Obama, “The legislation will ensure that American businesses and workers are able to take full advantage of the WTO [World Trade Organization] rules and market access commitments that the United States worked so hard to negotiate.”

Combined with the signing of this law, Obama also signed legislation that sanctions alleged Russian human rights abuses. Known as the Magnitsky Act, it blacklists Russian officials allegedly implicated in the prison death of lawyer Sergei Magnitsky.

Based on data from the office of the US Trade Representative, Russia is the US’ 20th largest trading partner, with $42.9bn in trade for 2011, growing double-digits since 2010. Exports totaled $8.3bn, while imports totaled $34.6bn.

Major US exports to Russia for 2011 included machinery ($2.2bn), automotive vehicles ($1.1bn), aircraft ($741m), meat ($697m), and optic and medical instruments ($548m).

Major US imports from Russia for the same time period include mineral fuel ($25.4bn), iron and steel ($1.7bn), precious stones ($1.4bn), inorganic chemical ($1.4bn), and fertilizers ($1.1bn).

Despite the growing trade between the two countries, trade harmony between the two countries appear to already be under strain as Russia recently announced it would not accept meat imports from the US because of the presence of ractopamine in which is a food additive known for reducing fat content in beef and pork.  The drug is said to turn fat into muscle in livestock.

The United States claims the ban is Russia’s response to the passage of the Magnitsky Act by the US Senate and accuses Russia of violating World Trade Organization rules.

The World Trade Organization will likely be called upon to officiate between the two countries. Questions surround Russia’s intentions of joining the WTO while the US cracks down on human rights violations as a condition of trade. Transportation and logistics providers will need to monitor this tradelane carefully as more trade conditions/bans may occur.

Dec. 20 Update: Russian President Vladimir Putin is contemplating signing a bill banning US adoptions of Russian children. According to news agencies, Putin regards this as a "legitimate response" to the US passage of the Magnitsky Act.

Open dialogue is needed between the two countries in order for both to benefit from a potential strong trade relationship.

Dec. 29 Update: Putin has signed a bill banning US adoptions of Russian children. A new cold war brewing?