Publication: Russia and Eurasia Review Volume: 1 Issue: 2

By Harry Kopp

Russians who sought and won U.S. recognition as a market-economy country are in for a shock. Acting on a request filed last year by two Russian steel companies, the U.S. Department of Commerce declared Russia a market economy on June 6. The decision followed a nine-month investigation into Russian policies and practices in five areas: currency convertibility, negotiation of wage rates, foreign investment, government control of production and government control of resource allocation.

The Commerce Department’s decision is retroactive to April 1. The department said it deliberately withheld the announcement beyond the May Bush-Putin summit, to make clear that its decision was taken purely on the merits and was not politically motivated. Nevertheless, press reports say President Bush called President Putin with the news. Readers are forgiven if they chalk this action up as a late “deliverable.”

Economy Minister German Gref hailed the news. Prime Minister Mikhail Kasyanov said he was “deeply satisfied.”

What’s it all about?

United States and international trade law protects domestic producers against cheap imports dumped by foreign exporters or subsidized by foreign governments. Goods are considered “dumped” when the price for export to the United States is below the price at which they sell in their home market, or when the export price is below the cost of production. Goods are subsidized when government benefits, direct or indirect, bring their prices down. When dumped or subsidized imports injure American producers, the U.S. government can impose penalty tariffs equal to the margin of dumping or the size of the subsidy.

But the United States does not apply these rules to exports from nonmarket economies, where domestic costs and prices do not reflect relative scarcities or supply and demand. Instead, the United States considers a product from a nonmarket economy “dumped” if its price is below the cost of production in some third country. If Belarusan widgets, for example, are sold to the United States for less than the cost of making widgets in Spain, the United States might slap antidumping tariffs on the Belarusan widgets to raise their prices. And recognizing the impossibility of calculating subsidies in state-controlled economies, the United States does not apply its antisubsidy trade laws to nonmarket imports at all.

As a market-economy country, Russian goods will now face the same generous treatment that U.S. import-administration authorities apply to goods from Korea, or Brazil, or India. In particular, imports from Russia that entered the United States after April 1, 2002, the effective date of the Commerce ruling, will for the first time be vulnerable to challenge as subsidized products. And in Russia many basic inputs–electric power, fuel, transportation, workers’ benefits–are heavily subsidized, as is much of the industrial infrastructure acquired by its present owners at a tiny fraction of its real value.

It is safe to say that Russian imports into the United States are far more open to attack now than before. Attorneys for import-competing American industries are no doubt preparing their briefs. Although American authorities may find from time to time that Russian imports do not injure U.S. producers, and so cannot be penalized, for many years to come they will rarely if ever find that Russian imports are not subsidized.

Welcome, Russia, to the marketplace. Bring your lawyers.

Harry Kopp is executive editor of Russia and Eurasia Review.