Commentary

Trading with the Bear

By Aaron Lukas
July 17, 1998

The Russian bear isn’t looking very healthy these days. The country’s stock market has tanked while interest rates have soared — up to 150 percent at one point. For the moment, the Russian economy appears to have stabilized, but its underlying troubles have hardly disappeared.

In response, Western officials and big investors have focused their attention on channeling more money to Russia through the International Monetary Fund. The new assistance will be on top of a $9.2 billion aid package that is already in the works.

But while Washington concentrates on lending billions of dollars more to the Russian government, it continues to maintain pervasive trade barriers that prevent significant increases in Russian exports to the United States. President Clinton publicly proclaims the U.S. desire to help Russia, but those trade barriers are stifling the chances of her 150 million citizens to build better lives.

Ironically, the Russian economy might today be stronger if the Clinton administration had followed its own advice. In a 1995 speech, for example, Vice-President Al Gore said that “President Clinton and the supporters of Russian reform in Congress have long maintained that it would be trade, not aid, that would be the ultimate guarantor of economic growth in the former Soviet Union.” He further declared that “The door is [now] open for Russia to build a vibrant, mutually advantageous trade and investment relationship with the United States and the other market democracies.”

In reality, that door was never fully open. Washington has always imposed curbs such as high tariffs and quotas on a range of Russian goods. Those barriers cost Russia $700 million in desperately needed sales each year, according to Russian Deputy Minister for Foreign Economic Relations and Trade Roald Piskoppel.


“The only support Russia needs is that of free and fair competition,” declared Prime Minister Sergei Kiriyenko recently. “We don’t need any other aid.”


Of particular concern is the U.S. use of anti-dumping penalties. Russia’s losses from those measures alone amount to $150 million per year, Piskoppel reported. That’s hardly surprising, considering the United States has used them to block Russian imports — from pure magnesium to sponge titanium — at every turn.

Even when anti-dumping penalties aren’t imposed, Russia loses. In September, for example, the Department of Commerce agreed to suspend its anti-dumping investigation on imports of carbon steel plate. Instead, “voluntary” quotas and price floors were imposed. That’s good news for anti-dumping dependents like Geneva Steel and Utah Steel: they reap gains from protection at the expense of Russian manufacturers, U.S. consumers and downstream producers. According to those companies, American industries shouldn’t be allowed to buy steel at the best available price.

Now Americans may be forced to pay again — this time with their tax dollars — if Congress approves new funding for the IMF. Indeed, officials are already citing Russia’s troubles as evidence that an additional $18 billion of U.S. funds is needed to shore up IMF reserves.

Russian officials are understandably frustrated by Western hypocrisy. Dmitriy Sukhoparov of the Ministry for Foreign Economic Relations summed up their sentiments, saying, “In response to an almost complete opening of its market in 1992, Russia by 1998 got a sixfold increase in trade barriers” to its exports.

It’s time for the United States to bring trade policy towards Russia in line with general foreign policy goals.

The first step should be to change Russia’s “non-market economy” classification. Dumping margins for non-market economies are calculated using a hopelessly biased process that often results in astronomically high penalties. The European Union has already re-classified Russia; Washington should do the same.

That change alone, though, is not sufficient. The anti-dumping law needs reform across the board. Its biased policies penalize as “unfair” business practices that are perfectly legal when engaged in by American businesses. Until such discrimination against imports is ended, exporters in Russia and elsewhere will continue to be vulnerable to exclusion from the U.S. market.

“The only support Russia needs is that of free and fair competition,” declared Prime Minister Sergei Kiriyenko recently. “We don’t need any other aid.”

He’s right. In the long term, what Russia needs isn’t continued reliance on foreign loans and aid, but simply the opportunity to trade.

Aaron Lukas is an analyst at the Cato Institute’s Center for Trade Policy Studies.