Russia could mean big opportunity for exporters

Mar 2, 2012

While China and other Asian countries are making friendly gestures and taking steps towards deepening trade negotiations with the U.S., another vast, growing economy on that side of the Pacific deserves some attention: Russia.

According to 2011 data compiled by the U.S.-Russia Coalition for trade, Russia is currently among the world’s top 10 importers of pork and beef (ranked 5th and 8th respectively). Most recent 2009 data from the Food and Agriculture Organization of the United Nations lists pork and beef as Russia’s top two imports by value, at about $3.3 billion combined total across all global sources. Agricultural commodities in general are some of Russia’s biggest imports.

Since 1993, Russia has been trying to accede to the World Trade Organization (WTO). As of Dec. 16, 2011, Russia’s membership was unanimously voted in by current member nations. It has until July 23, 2012, to bring its regulatory system in-line with WTO rules and obligations.

Chief among these are existing burdensome import policies (licensing, registration, certification and so on), fees which exceed the necessary costs they are said to cover or tariffs on items not conflicting with Russianproduced items, countryspecific import quotas, import taxes and non-tariff barriers such as regional sale or distribution practices of imported goods. The everpresent issue of regulations being in keeping with internationally-accepted, sciencebased standards is also a concern.

Barriers to trade with Russia aren’t limited to that side of the Pacific, however. Remaining Cold War-enacted rules regarding trade with Russia exist on U.S. books. Among the most impactful is the Jackson-Vanik Amendment. Created in 1974, ostensibly in response to the then-Soviet Union’s punitive actions against certain types of emigrants, the amendment effectively bans permanent normalized trade relations with Soviet-block countries which now include Russia.

Some U.S. officials, such as Sen. Max Baucus of Montana, have been moving to get Russia exempted from the 1974 measure or else easing restrictions associated with it in general. The goal for some is to remove U.S. barriers to establishing permanent normalized trade with Russia before its probationary period is over by midsummer 2012.

“We’re certainly viewing August, potentially even earlier, as the deadline for Russia to get in, and that’s the deadline by which U.S. companies will start to lose out to our competitors,” a Baucus aide said in an interview to the Wall Street Journal. “So we would very much like to get it done by the end of the summer.”

The concern is that if normalized trade can’t be established with Russia prior to it becoming a full WTO member, U.S. exporters would be well behind competitor countries at the beginning of the race for Russian export market share. As it is, European Union products already make up over 47 percent of Russian imports (as of 2010). Despite different export offerings, the U.S. would already have its work cut out for it in claiming and growing its portion of the Russian import market even without the hindrance of normalized trade relation bans.

Some in U.S. government are still wary of approaching Russia as anything other than an adversary, regardless of the potential negative impacts on exports. An unnamed “group of Republicans” in office have cited recent examples of corruption in the upper levels of Russian government toward U.S. or other Western businesses as among the causes for concern.

Other issues include the questionable nature of the country’s election system, which is poised to again reelect Vladimir Putin as president. The long heralded outcome of the March election has caused many to question how “open and free” Russia’s elections truly are.

Though political and domestic concerns are certainly an issue, the matter of potential export market expansion is worthy of attention. In 2011, U.S. beef exports to Russia were valued at $237 million, up almost 50 percent from the 2010 numbers. U.S. pork exports to Russia also went up in 2011, to $230 million, but only 5 percent more than the value of 2010 pork exports.

Russia’s population is growing and with the economic boons from Russia’s energy exportation, incomes are rising. This, coupled with trends in other growing/developing economies, suggests a population whose meat demands will grow quickly. Considering the almost 50 percent one-year increase in Russian demand for U.S. beef prior to Russia’s WTO membership and without eased trade agreements, red meat export markets could see a big and growing opportunity. — Kerry Halladay, WLJ Editor