Order Code RS21123
Updated January 17, 2006
CRS Report for Congress
Received through the CRS Web
Permanent Normal Trade Relations (PNTR)
Status for Russia and U.S.-Russian
Economic Ties
William H. Cooper
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
At several meetings with Russian President Vladimir Putin, President George W.
Bush stated that his administration will work with the Congress to grant Russia
permanent “normal trade relations” (PNTR) status. The change in Russia’s trade status
will require legislation to lift the restrictions currently applied to Russia under Title IV
of the Trade Act of 1974, which includes the “freedom-of-emigration” requirements of
the Jackson-Vanik amendment. The Bush Administration requested the 108th Congress
to act. Two bills were introduced in the Senate and one in the House but none of them
received further congressional action. The second session of the 109th Congress may
take up the issue. This report will be updated as events warrant.
President Bush has stated that his Administration would work with the Congress to
extend permanent normal trade relations (PNTR) status to Russia. This effort is part of
a group of bilateral economic, foreign policy, and national security measures supported
by the Bush Administration to forge a closer working relationship between the United
States and Russia. Granting Russia PNTR status requires a change in law because Russia
is prohibited from receiving unconditional and permanent NTR under Title IV of the
Trade Act of 1974, which includes the so-called Jackson-Vanik amendment. This report
examines this legislative issue in the context of U.S.-Russian economic ties.
What are NTR Status and the Jackson-Vanik
Amendment?
“Normal trade relations” (NTR), or “most-favored-nation” (MFN), trade status is
used to denote nondiscriminatory treatment of a trading partner compared to that of other
Congressional Research Service ˜ The Library of Congress

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countries.1 Only a few countries do not have NTR status in trade with the United States.
In practice, duties on the imports from a country which has been granted NTR status are
set at lower, concessional rates than those from countries that do not receive such
treatment. Thus, imports from a non-NTR country can be at a large price disadvantage
compared with imports from NTR-status countries.
Section 401 of Title IV of the Trade Act of 1974 requires the President to continue
to deny NTR status to any country that was not receiving such treatment at the time of
the law’s enactment on January 3, 1975. In effect this meant all communist countries,
except Poland and Yugoslavia. Section 402 of Title IV, the so-called Jackson-Vanik
amendment, denies the countries eligibility for NTR status as well as access to U.S.
government credit facilities, such as the Export-Import Bank, as long as the country
denies its citizens the right of freedom-of-emigration. These restrictions can be removed
if the President determines that the country is in full compliance with the freedom-of-
emigration conditions set out under the Jackson-Vanik amendment. For a country to
maintain that status, the President must reconfirm his determination of full compliance
in a semiannual report (by June 30 and December 31) to Congress. His determination
can be overturned by the enactment of a joint resolution of disapproval concerning the
December 31st report.
The Jackson-Vanik amendment also permits the President to waive full compliance
with the freedom of emigration requirements, if he determines that such a waiver would
promote the objectives of the amendment, that is, encourage freedom of emigration. This
waiver authority is subject to a annual renewal by the President and to congressional
disapproval via a joint resolution.2 Before a country can receive NTR treatment under
either the presidential determination of full compliance or the presidential waiver , it must
have concluded and enacted a bilateral agreement that provides for, among other things,
reciprocal extension of NTR or MFN treatment. The agreement and a presidential
proclamation extending NTR status cannot go into effect until a joint resolution approving
the agreement is enacted.
Russia’s NTR Status
In 1990, the United States and the Soviet Union signed bilateral a trade agreement.
The agreement was subsequently applied to each of the former Soviet states. The United
States extended NTR treatment to Russia under the presidential waiver authority
beginning in June 1992. Since September 1994, Russia has received NTR status under
the full compliance provision. Presidential extensions of NTR status to Russia have met
with virtually no congressional opposition.
1 MFN has been used in international agreements and until recently in U.S. law to denote the
fundamental trade principle of nondiscriminatory treatment. However, “MFN” was replaced in
U.S. law, on July 22, 1998, by the term “normal trade relations.” (P.L. 105-206). MFN is still
used in international trade agreements. The terms are used interchangeably in this report.
2 For more information on the Jackson-Vanik amendment see CRS Report 98-545, The Jackson-
Vanik Amendment: A Survey
, by Vladimir N. Pregelj.

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Russian leaders have continually pressed the United States to “graduate” Russia from
Jackson-Vanik coverage entirely. They see the amendment as a Cold War relic that does
not reflect Russia’s new stature as a fledgling democracy and market economy.
Moreover, Russian leaders argue that Russia has implemented freedom-of-emigration
policies since the fall of the communist government, making the Jackson-Vanik
conditions inappropriate and unnecessary.
While Russia remains subject to the Jackson-Vanik amendment, some of the other
former Soviet republics have been granted permanent and unconditional NTR. For
example Kyrgyzstan and Georgia received PNTR in 2000, and Armenia received PNTR
in January 2005. Perhaps what has irked Russian leaders greatly is that as of January 1,
2002, the United States granted permanent and unconditional NTR status to China,
ostensibly still a communist country.
U.S.-Russian Economic Ties
During the Cold War, U.S.-Soviet economic ties were very limited. They were
constrained by national security and foreign policy restrictions, including the Jackson-
Vanik amendment restrictions. They were also limited by Soviet economic policies of
central planning that prohibited foreign investment and tightly controlled foreign trade.
With the collapse of the Soviet Union, successive Russian leaders have been
dismantling the central economic planning system. This has included the liberalization
of foreign trade and investment. U.S.-Russian economic relations have expanded, but
the flow of trade and investment remains very low, as reflected in table 1, which contains
data on U.S. merchandise trade with Russia since 1995.
Table 1. U.S. Trade with Russia, 1994-2003
(Billions of U.S. Dollars)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Exports
2.8
3.3
3.4
3.6
2.1
2.1
2.7
2.4
2.4
3.0
Imports
4.0
3.6
4.3
5.7
5.9
7.8
6.3
6.8
8.6
12.6
Balances
-1.2
-0.2
-1.0
-2.3
-3.9
-5.6
-3.5
-4.4
-6.2
-8.9
Source: U.S. Department of Commerce. International Trade Administration.
The table indicates that U.S.-Russian trade, at least U.S. imports, has grown
appreciably. U.S. imports have more than trebled from $4.0 billion to $12.6 billion from
1995 to 2004. U.S. exports surged somewhat but declined in 1999, because of the rapid
depreciation of the ruble after the 1998 Russian financial crisis. Despite the increase in
trade, Russia accounts for only 0.8% of U.S. imports and 0.4% of U.S. exports. U.S.
trade accounts for a small portion of total Russian trade, although it is more significant
than Russia is to U.S. trade. In 2004, the United States accounted for 3.9% of Russian
exports and 4.6% of Russian imports.3
3 World Trade Atlas. Global Trade Information Services, Inc.

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U.S. exports to and imports from Russia are heavily concentrated in a few
commodity categories. In 2004, the top five 2-digit Harmonized System (HS) categories
of imports, accounted for over 70% of total U.S. imports from Russia and consisted of
precious stones and metals, inorganic chemicals, mineral fuels, aluminum, iron and steel,
and fish and other seafood. About 50% of U.S. exports to Russia consisted of products
in two 2-digit HS categories: meat (mostly poultry) and machinery (mostly parts for oil
and gas production equipment). Art and antiques, electrical machinery, and optical
equipment make up the remaining top five categories, which together accounted for 70%
of U.S. exports to Russia in 2004.4
U.S. investments, especially direct investments, have increased since the
disintegration of the Soviet Union, although as with merchandise trade, the levels are far
below their expected potential. As of December 31, 2003, cumulative U.S. foreign direct
investment (FDI) in Russia was $4.3 billion, according to Russian official data. The
United States was Russia’s second largest source of FDI, with investments largely
concentrated in the transportation, energy, communications, and engineering sectors.
Cyprus was the largest source of foreign direct investment with $5.0 billion (probably
re-investments from third countries or repatriated investments from Russian investors),
while the United Kingdom was the third largest source with $2.8 billion.5
Issues in U.S.-Russian Trade
The United States, under successive presidential administrations, has implemented
policies to encourage trade and investment with Russia. These have included not only
annual renewals of Russia’s NTR status but also access to U.S. Export-Import Bank credit
facilities and insurance for U.S. investors in Russia through the Overseas Private
Investment Corporation (OPIC).
On June 6, 2002, the Commerce Department announced that Russia would no
longer be treated as a “nonmarket economy” under U.S. trade remedy laws eliminating
an irritant in U.S.-Russian trade ties. Under U.S. antidumping laws, “fair value” for
imports from nonmarket economies is calculated differently than prices on imports from
other economies. The methodology used to make these calculations leads to higher
dumping margins and antidumping duties and, therefore, places imports from Russia at
a competitive disadvantage vis-a-vis other imports or U.S. domestic production. In
response to requests from Russian steel producers, the U.S. Department of Commerce
examined the possibility of no longer treating Russia as a nonmarket economy under trade
remedy statutes.67
4 World Trade Atlas.
5 OECD. OECD Investment Policy Reviews: Russian Federation — Progress and Reform
Challenges.
Paris, 2004.
6 Commerce to Review Russia’s Status as a Non-Market Economy. Inside U.S. Trade. October
5, 2001.
7 Washington Trade Daily. June 7, 2002.

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However, other issues persist. For example, on January 23, 2003, the Russian
government announced that it would be imposing a three-year quota on poultry imports
effective May 1, 2003. At the same time the government announced tariff-rate quotas
(TRQs) on imports of beef and pork to go into effect April 1, 2003, and to remain in effect
until 2010.8 The United States and other meat-exporting countries have expressed stiff
opposition and have suggested that the restrictions threaten Russia’s accession to the
World Trade Organization (WTO). (See discussion below.)
This issue emerged just as the United States and Russia had appeared to have
resolved another issue involving U.S. exports of poultry. Russia had imposed a ban on
imports of U.S. poultry in March 2002 because of a reported breakout of a flu
contamination. Eventually Russia agreed to lift the ban if Russian veterinary officials
would be allowed to inspect U.S. processing plants. Differences arose regarding the
inspection process but discussion have been conducted to resolve these differences.
Russia has become the largest market for U.S. chicken exports. Problems regarding U.S.
poultry and other meat exports to Russia may play a role in the congressional debate over
PNTR. In two separate letters to President Bush, 50 Senators and 128 House Members
criticized the Russian restrictions. The Office of the USTR, while condemning the
Russian action, stated that the how to deal with them and whether to grant Russia PNTR
should be treated as two separate issues.9
Russian economic policies and regulations have been a source of concerns. The
United States and the U.S. business community have asserted that structural problems and
inefficient government regulations and policies have been a major cause of the low levels
of trade and investment with the United States. Russia maintains high tariffs on some
goods that U.S. manufacturers try to export. For example, tariffs on cars plus the excise
tax that is prorated for engine displacement adds close to 70% on the price imported U.S.
passenger cars and sports utility vehicles. Russia also maintains a 20% tariff on aircraft.
U.S. exporters have also cited problems with Russian customs regulations that are
complicated and time-consuming.10
While they consider the investment climate to be improving, U.S. investors and
potential investors complain that the climate for investment in Russia remains
inhospitable. They have pointed to lack of effective intellectual property rights protection,
burdensome tax laws, jurisdictional conflicts among Russian federal, regional and local
governments, inefficient and corrupt government bureaucracy, and the lack of a market-
friendly commercial code as impediments to foreign investments.11 The House passed
(421-2) and the Senate passed (voice vote) H.Con.Res. 230 on November 16 and
8 USDA. Foreign Agricultural Service. Russian Federation Livestocks and Products. Gain
Report # RS3006. .
February 20, 2003. p. 7. USDA. Foreign Agricultural Service. Russian
Federation Poultry and Products. Gain Report. #RS3001. February 10, 2003. p. 1. TRQs are
restrictions in which a limited volume of a product can be imported at one tariff rate but imports
above that limit can be imported only at another, usually much higher tariff rate.
9 International Trade Reporter. March 20, 2003 and Inside U.S. Trade. March 21, 2003.
10 United States Trade Representative. 2001 National Trade Estimate Report on Foreign Trade
Barriers.
p. 388.
11 Ibid.

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December 22, 2005, respectively, calling on Russia to improve IPR enforcement or face
denial of its benefits under the U.S. Generalized System of Preferences (GSP) program.
Russia’s Accession to the WTO
President Putin has made Russia’s entry into the World Trade Organization (WTO)
a high priority. The issue is closely tied to PNTR since unconditional nondiscriminatory
treatment, or MFN, is a fundamental principle of WTO membership. President Putin and
his government see WTO membership as an important step in integrating the Russian
economy with the rest of the world and promoting economic reform. It would also
symbolize another break with Russia’s Soviet past, as the Soviet Union had refused to
join the General Agreement on Tariffs and Trade (GATT), the predecessor of the WTO.
China’s accession to the WTO in December 2001 has probably intensified Russia’s
determination. The United States has continually supported Russia’s accession to the
WTO as a way of encouraging the development of a market economy in Russia and to
obtain greater access to Russian markets.
Implications and Legislation

Granting Russia permanent and unconditional NTR status will have little direct
impact on U.S.-Russian trade. Russian imports have entered the United States on a NTR
or MFN basis since 1992. The initiative would be a political symbol of Russia’s treatment
as a “normal” country in U.S. trade, further distancing U.S.-Russian relations from the
Cold War. It would also be a step in the direction of Russia’s accession to the WTO. For
investors and other business people, permanent NTR may mean a more stable climate for
doing business.
The Bush Administration requested that 107th Congress move expeditiously to pass
legislation to remove the Jackson-Vanik restrictions and grant Russia PNTR. Two bills
were introduced — H.R. 3553 (Thomas) and S. 1861 (Lugar) but did not receive action.
In the 108th Congress, three bills were introduced, two in the Senate and one in the
House, but none received further congressional action. S. 580 (Lugar et al.) would have
simply terminated the application of the Jackson-Vanik amendment and the rest of Title
IV of the Trade Act of 1974 to Russia thus allowing the President to grant Russia PNTR.
A second Senate bill, S. 624 (Baucus et al) and a companion House bill, H.R. 1224
(Rangel et al), would have eliminated the application of Title IV to Russia but would
make Russia subject to section 421, special safeguards actions that now apply to China.
These two bills would have also required the United States to monitor religious and other
human rights protection in Russia and would have subjected the U.S.-Russian agreement
on Russia’s accession to the WTO to a possible joint congressional resolution of
disapproval. Legislation has yet to be introduced in the 109th Congress.
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