Russia should prepare for U.S. introduction of trade remedy issues during accession negotiations by: (1) understanding basic U.S. trade remedy law; (2) being able to state Russia’s position on these issues; and (3) being willing to compromise. While the United States will undoubtedly seek concessions on two trade remedy fronts—non-market economy status and selective safeguards, Russia must not let these issues block its ultimate accession. This is not to say that Russia should not argue for the most advantageous position. It has a strong case for ending NME status, and should definitely state this position. However, Russia needs to prepare itself to offer a degree of compromise. Likewise, Russia should not let the prospect of WTO non-application with the United States (due to the Jackson-Vanik law) impede its accession negotiations.

Introduction

Bilateral accession negotiations with the United States are an important step for the Russian Federation’s accession to the World Trade Organization. U.S. trade remedy laws will weigh heavily on these negotiations, posing several obstacles to Russian accession. The following analysis is divided into two parts:

(1) an overview of U.S. trade-remedy laws

(2) analysis of primary issues concerning these laws that will impact Russia’s accession negotiations with the United States.

Four main issues are addressed: Russia’s non-market economy status under U.S. law, U.S. countervailing duty laws, and the Jackson-Vanik law. For each issue, we provide an analysis of the expected U.S. position and recommend responses for the Russian government.

Overview of U.S. Trade Remedy Law

Though U.S. trade remedy laws will continue to affect Russia as a WTO Member, accession negotiations with the United States will determine their future strength as applied to Russia. The U.S. trade remedy laws most likely be discussed during accession negotiations fall into two distinct categories, each authorized under the WTO:

(1) safeguards measures (GATT Article XIX)

(2) antidumping and countervailing duty measures (GATT VI).

Safeguards, or “escape clause” measures, provide relief to U.S. domestic industries from fair but injurious trade, while antidumping and countervailing duty measures are invoked against unfair and injurious trade.

Safeguards Measures

There are two major laws that comprise U.S. safeguards measures

(1) Section 201 Laws — Investigation of Injury from Increased Imports

(2) Selective Safeguards — Investigation of Market Disruptions by Imports from a Communist Country.[1][1]

During accession negotiations, the United States will likely pursue a strategy of strengthening U.S. safeguards, specifically selective safeguards, as applied to Russia.

The Section 201 law is intended to provide temporary protection of U.S. domestic industries against a surge of imports. Either the domestic industry or a governmental body may petition the US International Trade Commission (USITC) for action under Section 201 laws. The USITC has only one criterion in making its judgment: whether the imports have injured or threaten injure the U.S. industry. Following a finding of injury by the USITC, the President of the United States must approve the USITC decision in order for remedies to actually be applied. Remedies normally take the form of increased tariffs applied to the imported product.

Section 201 actions have become less common in the United States due to the low rate of success. Nevertheless, it is important that Russia understand these laws since the United States may seek to strengthen them through accession negotiations.

Under Section 201, a safeguard would be applied to a designated product, regardless of the item’s country of origin. Selective safeguards, however, allow a safeguard measure to be exclusively applied to products from a communist country. Thus, a finding of injury by the USITC under this provision allows the U.S. government to target the application of the safeguard to a communist country.

Selective Safeguards affect Russia because the United States considers the provision as applicable to Russia even though it is no longer a communist country. Furthermore, the United States will probably attempt to bolster Russia-specific selective safeguards through accession negotiations. In recent WTO accession negotiations between China and the United States, China agreed to terms that will allow the United States to apply a China-specific safeguard with a lower showing of injury.[2] The United States will likely propose a similar stipulation during Russian accession negotiations.

Antidumping/Countervailing Duties

Both antidumping and countervailing duty measures address “unfair” trade. Antidumping measures address imports that are priced below market value, while countervailing duties respond to unfair subsidies by the exporting country. Antidumping actions are a major market access barrier to Russian goods. The United States will seek to protect this mechanism through accession negotiations by retaining Russia’s status as a non-market economy under U.S. law for the purposes of antidumping investigations. The issue of countervailing duties will be less prominent in these negotiations.

The United States is one of the main users of antidumping measures against importing states. U.S. antidumping investigations ask whether foreign imports: (1) are priced below the market; and (2) cause “material injury” to the U.S. domestic industry. The United States International Trade Administration (ITA) determines whether dumping — pricing below the market — actually occurs. The USITC then decides if such dumping causes “material injury.” If it finds in the affirmative, the imports from the violating country will be subject to a duty equivalent to the dumping margin (the difference between the price of the goods in the home market and the price of the import in the U.S. market.)[3]

Antidumping investigations are a major barrier to U.S. market access for Russian goods. This is largely because such investigations consider Russia a “non-market economy,” allowing the ITA to use a surrogate country’s cost of production—instead of the Russia cost—as the comparison price for determining dumping. The United States will press Russia in accession negotiations to agree to continue its status as a non-market economy.

The United States is the primary user of countervailing duty actions.[4] Such duties may be levied upon a showing of: (1) unlawful subsidization of a U.S. import by a foreign government; and (2) actual or threatened material injury to domestic industry due to the subsidization.[5] The ITA initiates a countervailing duty investigation and determines if unlawfully subsidization exists.[6] The USITC then decides as to whether the subsidization causes or threatens material injury.[7][7] Countervailing duties must terminate within five years of its imposition, unless the USITC renews the duties upon review.[8]

Not all subsidies are prohibited. Under the Uruguay Round Subsidies Agreement, there are three types of subsidies—non-actionable, actionable, and prohibited.[9]Only actionable and prohibited subsidies are subject to countervailing duties. The ITA generally considers export subsidies prohibited. It is more lenient in regards to domestic subsidies, requiring that the subsidy be targeted to a specific enterprise or industry in order to be countervailable.[10]

As long as Russia continues to be viewed as a non-market economy by the United States, it will not face countervailing duty actions under U.S. law.[11] However, if Russia is successful in ending its status as a non-market economy, it must assess its susceptibility to these measures.

Issues on the Negotiating Table

Two major U.S trade remedy issues will be on the negotiation table

(1) Russia’s status as a non-market economy in antidumping investigations

(2) the application of selective safeguards and strengthened Section 201 remedies against Russia.

The resolution of these two issues will determine whether

(3)Countervailing duties is relevant to Russia.[12]

Additionally, Russian negotiators must remain cognizant that they are negotiating under the shadow of potential non-applicability of the WTO between Russia and the United States. Under the Jackson-Vanik law, the United States Congress must vote to “graduate” Russia from Jackson-Vanik in order to grant Russia permanent Most Favored Nation treatment and applicability of the WTO. Though the U.S. may attempt to use the threat of non-application as an incentive for Russia to lower its demands in accession negotiations, Russia should not be intimidated by the threat. WTO accession is possible without Jackson-Vanik graduation. Russia should focus on this goal.

Non-Market Economy

Russia’s status as a non-market economy (NME), for the purpose of U.S. antidumping actions, will not automatically terminate upon WTO accession. [13] Consequently, Russia’s NME status is a major issue in accession negotiations. For Russia, NME status strengthens U.S. antidumping claims — one of the biggest impediments to Russian exports to the U.S. [14] The United States currently has a number of antidumping orders and suspension agreements against Russian products.[15] It is generally easier for the United States to find dumping by a NME because the method used to determine the fair price of the product. In the case of a market economy, the US Department of Commerce (DOC) looks to the home country’s ex-factory cost as the comparison price. For a NME, the DOC uses a surrogate third country price to determine if dumping exists. Such a comparison is more likely to result in a definitive finding of dumping since almost any third country can be used. [16] Transitional economies such as Russia are likely to have low costs of production. If Russian prices were compared to the export price, there would often be no finding of dumping. The continued status of Russia as a NME, will continue to put Russia at a serious disadvantage in antidumping suits. Moreover, it will solidify the main barrier to Russian imports into the United States.

The United States is most likely to push for continued NME status for Russia. The recent US-China WTO Accession Deal supports this conclusion. Under this agreement, China consented to a 15-year classification as a NME for the purposes of U.S. antidumping investigations.[17] Russia can expect the United States to put forward a similar request.

Russia should state its case to end NME treatment, as it has previously done in replies to questions from the WTO Working Party on Russian Accession.[18] Though China consented to NME continuation, Russia has a good case for distinguishing itself. Unlike China, Russia is a not a communist country; it is a democratic country in transition. Since 1992, Russia has been implementing a massive privatization program, placing most production in private hands. Constantine Michalopoulos, Senior Economic Advisor to the World Bank, argues that Russia has a strong case for demonstrating it is not a NME, since the WTO accession process de facto imposes that a country demonstrate that they have a market economy. [19] Though this argument is not particularly cogent—especially given China’s recent concessions—it does provide a valid point. David Palmeter, an attorney with Powell, Goldstein, Frazer & Murphy in Washington, D.C., offers a more textualist-based argument against continuation of NME. He states that the authorizing provision under the WTO of NME status refers to countries with complete or near complete monopolies on trade and fixed domestic prices by the state.[20] Russia can point to its extensive private sector and relatively free prices as evidence against the lawful application of NME status to Russia post accession (assuming that United States does not invoke non-applicability of Russia’s WTO membership).

Though the end of Russia’s NME status will benefit Russia by producing a more level playing field in antidumping investigations, it will not end the use of U.S. trade remedies. If faced between an option of a phase-out period for NME classification and U.S. invocation of non-applicability of the WTO between the two countries, Russia should seriously consider making concessions on NME in order to ensure applicability. Non-applicability would preclude Russia from bringing any Dispute Settlement action concerning the United States before the WTO.

One additional consideration in regards to NME: NME status presently excuses Russia from any liability for government subsidies, shielding it from countervailing duties. The end of NME status may open Russia up to countervailing duties measures.

Strengthened Safeguard Law

The United States, via accession negotiations, will seek to bolster its ability to protect its domestic industry from waves of imports from Russia. In recent negotiations with China, the United States achieved two major concessions on this front: (1) the ability to apply country-specific safeguards against China for the next 12 years; and (2) a lower standard for showing injury in such cases than the standard under Section 201 law.[21][21] The country-specific application — similar to the existing Section 406 Safeguard laws which allow selective safeguards against communist countries — will enable the United States to apply such safeguards only against China. This differs from Section 201 safeguards, which must be applied on a non-selective, MFN basis.

Due to surges in Russian steel in the last few years as well as the potential for surges of textiles upon the phase out of the Multi-Fiber Agreement (MFA), the United States will likely push for special, selective safeguard measures in its accession negotiations with Russia.

Safeguard measures, as opposed to antidumping orders, are generally less restrictive of trade; the process is more transparent and imposed for a finite period of time. However, selective safeguards are more problematic. Such measures would restrict Russian imports while continuing to allow imports of the same product from other countries. Russia would be exposed to more arbitrary imposition of safeguards by the United States. Despite this potential exposure, Russia may still be better off agreeing to such temporary concessions if it will facilitate accession. Furthermore, safeguard proceedings may be less costly — both from a litigation standpoint, since the process is shorter and more transparent, and a remedies position, due to its finite application — than antidumping suits. Russia could benefit by moving the bulk of future U.S. trade actions against it from the antidumping arena to the realm of safeguards.

Countervailing Duties

As previously mentioned, Russia’s continued status as a NME automatically shields it from the imposition of countervailing duties. Thus, Russian subsidization practices will not be subject to scrutiny, and countervailing duties will not be imposed. This issue will be complicated once Russia is no longer considered a NME by the United States. The only types of subsidies permitted are those classified as “non-actionable.” Theses types of subsidies must be generally available as opposed to a special subsidy available only to a particular industry.[22]

As much as Russia would like to escape NME status, it does not want to open up a surrogate cause of action. The United States, as a primary user of countervailing duty actions, could easily pursue this avenue as a new protection against Russian imports. Thus, if Russia is successful in ending its NME status, it should try to negotiate an extended phase-in period for the imposition of countervailing duty actions by the United States. This is not a novel request. As part of the Uruguay Round Subsidies Agreement, the developing countries negotiated an eight-year grace period in order to bring themselves in compliance with parts of the agreement.[23] Russia should lobby for a similar provision.

Jackson-Vanik—the Shadow of Non-Applicability

Even if Russia accedes to the WTO, the United States has the ability to impose non-application of the WTO between itself and Russia through the U.S. Jackson-Vanik law.[24] The Jackson-Vanik law is an amendment to the United States Trade Act of 1974, which conditions the extension of NTR treatment to nations upon annual Presidential findings regarding “freedom of emigration.”[25] It “applies to all countries that (a) were denied MFN treatment when the Trade Act of 1974 entered into effect (on January 3, 1975), and (b) have not subsequently been graduated by Congress.”[26] Russia is one of the nations affected by Jackson-Vanik. If Russia accedes to the WTO before being graduated from Jackson-Vanik, the United States could not legally offer Russia unconditional NTR status, as required by GATT Article I. Consequently, the United States will be legally obligated to invoke the WTO non-application clause (WTO Article XIII) between itself and Russia.

The United States recently graduated China from Jackon-Vanik, thus relinquishing its right to invoke non-applicability of the WTO between itself and China. However, the United States may not be as willing to release this trump card in regards to Russia. Unlike China, the status of the Russian Federation within Jackson-Vanik is an important domestic political issue. It has less to due with communism and more to due with the long history of anti-Semitism in Russia. The American Jewish community, a powerful lobby group within the United States, will not tolerate Russian’s graduation from Jackson-Vanik because of its suspicions and fears of anti-Semitism in Russia. Furthermore, unlike the case of China, there are no strong U.S. industry interests that will lobby on behalf of Russia because U.S.-Russia trade is still very small. Among those that work extensively with the Jackson-Vanik issue, there is a general consensus that it will be almost impossible for Russia to be graduated from this law, at least in the short and medium term. As long as the Jewish community continues to constitute such a powerful interest group within the United States, Russia has a very slim chance of being graduated from Jackson-Vanik

If other former Soviet republics are any indication, the United States will invoke non-applicability. In the case of Georgia and the Kyrgyz Republic[27]two of the newest WTO members, the United States initially denied application of the WTO.[28] The United States may use the threat of non-application to force a variety of concessions, such as NME and strengthened selective safeguards.

At stake is Russia’s ability to benefit from WTO Dispute Resolution with the United States. Non-applicability means: (1) that the United States does not have any WTO obligations towards Russia; and (2) that Russia may not bring the United States before a WTO Dispute Settlement panel. Access to WTO Dispute Settlement would provide Russia with some leverage in trade disputes with the United States.[29]

Despite the prospects of non-application and the loss of WTO Dispute Settlement mechanisms with the United States, the Russian Federation must continue to seek accession to the WTO.[30] Membership in the WTO offers Russia tremendous benefits. Furthermore, Russia’s trade with the United States may not be greatly impacted by the non-application. It is to be expected that the United States will continue to grant Russia conditional NTR and GSP.[31] Additionally, the invocation of the non-application clause does not prevent Russia from engaging in bi-lateral accession negotiations with the United States. It is possible that these negotiations, which will include tariff issues, would improve terms of trade between the two countries. However, if Russia tries to seek graduation from Jackson-Vanik before seeking accession to the WTO, Russia would indefinitely delay its accession.

Conclusion

Russia should not lose sight of its number one priority in accession negotiations: WTO membership. Russia’s best course is to: (1) be prepared to face these trade remedy issues; (2) be able to state its position on these issues; and (3) be willing to compromise. While the United States will undoubtedly seek concessions on two trade remedy fronts — non-market economy status and selective safeguards, Russia must not let these issues block its ultimate accession. This is not to say that Russia should not argue for the most advantageous outcome. It has a strong case for ending NME status, and should definitely state this position. Nevertheless, as China was forced to accept a finite continuation of NME, Russia may also need to accept such provisions. Russia needs to prepare itself to offer a degree of compromise on these issues. At the same time, NME status is not an entire loss for Russia, since it shields Russia from countervailing duty measures. Additionally, Russia should not let the prospect of WTO non-application with the United States (due to the Jackson-Vanik law) impede its accession negotiations. Regardless of its stated position, the United States may ultimately have to invoke non-application due to domestic political pressure. Above all, Russia should remember that these contested trade issues are small compared to the ultimate goal of WTO accession.