by Anders Aslund, Peterson Institute for International Economics
Op-ed in the Hill
June 20, 2012
© The Hill
For good reasons, Congress is turning its attention to granting Russia permanent normal trade relations (PNTR). This is an evident commercial interest of the United States. Gary Hufbauer and I have assessed that it could lead to a doubling of US exports of merchandise and services to Russia from $11 billion last year to $22 billion in 2017. If, on the contrary, the United States would not offer Russia PNTR, we would suffer from discrimination on the Russian market, since neither side would apply the beneficial World Trade Organization (WTO) trading conditions after Russia becomes a member of the WTO in August.
In his letter of June 12 on PNTR for Russia to Senator John McCain (R-Ariz.) and other senators, Senator Max Baucus (D-Mont.) stated: “I also want to reiterate my strong support for extending PNTR status and repealing Jackson-Vanik for Moldova.... I believe the Senate should repeal Jackson-Vanik and extend PNTR for Moldova at the same time that we do so for Russia.” That would make perfect sense.
The Jackson-Vanik Amendment to the Trade Act of 1974 was helpful in convincing the Soviet leadership to allow a large number of Jews to emigrate in the second half of the 1970s, but today it is entirely obsolete. It is aimed at a country that no longer exists, focusing on an issue—emigration—that has not caused concern since the end of the Soviet Union, and its means of action—the introduction of sky-high Smoot-Hawley tariffs that would stop all trade—is unrealistic and would be harmful.
It is bad enough that it applies to Russia, but it makes no sense at all to apply it to small, friendly, formerly Soviet countries. As ex-communist counties have joined the WTO, they have regularly been granted PNTR, sometimes before they have become members, sometimes afterwards. Only one country, small Moldova that is sandwiched between Romania and Ukraine, has joined the WTO but not been granted PNTR, although it became a member of the WTO in 2001. It is the poorest country in Europe after having been overtaken by Albania.
I have just visited Moldova and I was struck by it being poor but free and pro-Western. Freedom House ranks it as “partly free,” just below fully free and freer than any other formerly Soviet country (apart from the Baltic countries). It has a pro-Western president and government, which aspires to join the European Union and cooperates closely with the North Atlantic Treaty Organization (NATO). Politically, this would be the right time to do Moldova a great favor.
The United States has an evident geopolitical interest in maintaining good relations with Moldova, and the very first step should be to stop outright trade sanctions, which the absence of PNTR amounts to. The European Union sees Moldova as the most sympathetic of the formerly Soviet countries and has started negotiations on a deep and comprehensive free trade agreement, which it hopes to conclude next summer.
Moldova’s main problem is that it is so small and poor that few care about it, and much of its poverty derives from the protectionism of its neighbors. US exports have stagnated as the minimal level of $35 million to $40 million a year, less than a rounding error in the US trade statistics. It is so little that no US businesses care about the Moldovan market or lobby for PNTR for Moldova. But the absence of PNTR leaves Moldova in a legal limbo, and businessmen report that it is difficult to receive US credits for export to Moldova.
Yet, in 2010 the US Millennium Challenge Corporation sensibly signed a five-year $262 million compact on a grant to Moldova aimed at reducing poverty and accelerating economic growth. During her recent visit to Georgia, another pro-Western formerly Soviet republic, Secretary of State Hilary Clinton offered Georgia to start negotiations on a free trade agreement with that country. That is a welcome step, but it underscores the anomaly of applying the Jackson-Vanik Amendment to Moldova.
Fortunately, Senator Richard Lugar (R-Ind.) has introduced legislation on granting PNTR for Moldova in the Senate and Representative David Reichert (R-Wash.) has done so in the House of Representatives and both have found many cosponsors. As Senator Baucus has suggested, when Congress grants PNTR for Russia, it should do so for Moldova as well.
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