Foes With Benefits: US, Russia Spar Over Human Rights Provision In Historic Trade Bill

Death came seven days too soon for Sergei Magnitsky, a Russian attorney who was imprisoned after uncovering a pattern of theft and fiscal mismanagement perpetrated by Moscow officials.

Had he survived to see the one-year anniversary of his arrest, Magnitsky might have been released: In Russia, it is illegal to hold a suspect for more than 365 days without trial. But illness claimed the prisoner’s life on Nov. 16, 2009, a week before the year was up. His death made international headlines, and his name became a rallying cry for Russian human-rights activists.

Three years later, that name has taken on new significance. On Thursday, the U.S. Senate passed the Magnitsky Act, which allows the American government to punish corrupt Moscow officials with asset freezes and travel sanctions. The measure had bipartisan support, sailing through the Senate as easily as it did in the House of Representatives last month.

But the Magnitsky Act didn’t make it alone. It was part and parcel of an historic bill that permanently normalizes trade between the U.S. and Russia, which will pave the way for a big boost in economic cooperation between the world’s largest and ninth-largest economies, respectively.

This push-and-pull between human-rights issues and economic imperatives has resulted in a strange piece of legislation that has the two countries shaking hands even as they spit in each other’s faces.

A Long Cold War

The new bill marks the end the Jackson-Vanik Act, a Cold War relic that stayed on the books for years after it became irrelevant.

Jackson-Vanik was enacted by the U.S. in 1974, back when Leonid Brezhnev still ruled as the general secretary of the Soviet Union's Communist Party. The measure enforced U.S. trade restrictions against the communist bloc as long as it refused to permit free emigration rights to Jewish citizens.

Of course, that era is over: Free emigration has long been permitted in Russia. And although Jackson-Vanik was rendered null and void informally by repeated waivers since 1993, it was not formally repealed.

But when Russia formally joined the World Trade Organization this August, Jackson-Vanik suddenly became a liability for U.S. enterprises.

“Because of Jackson-Vanik, the United States could not, as WTO rules require, immediately extend ‘Most Favored Nation’ status to the incoming member,” explained Edward Verona, CEO and president of the U.S.-Russia Business Council in Washington. “By the same token, Russia, the new entrant, was under no obligation to extend ‘Most Favored Nation’ to the United States, which made us outliers in the WTO. Consequently, our companies could not avail themselves of the opportunities created by the concessions that Russia made as part of its accession to the WTO.”

Now that Jackson-Vanik is a thing of the past, that roadblock has been dissolved, and trade is expected to grow even more rapidly than it has for years.

But because lawmakers tacked on the Magnitsky Act to shine a spotlight on Russia’s human-rights abuses, Moscow officials have responded bitterly.

“Probably people in Washington forgot what year it is and are thinking that the Cold War isn’t over yet,” the Russian foreign ministry said in a statement Thursday. It added the U.S. is in no position to throw stones: “It’s weird and strange to hear human-rights-related complaints against us from the politicians of a country where torture and abductions of people all over the world were legitimized in the 21st century.”

Miffed In Moscow

The Magnitsky Act was first drafted in April by U.S. Sen. Ben Cardin, D-Md., and human-rights advocates from across the political spectrum have been fighting for it ever since.

“Visiting the United States and having access to our financial system, including U.S. dollars, are privileges that should not be extended to those who violate basic human rights and the rule of law,” Cardin said in a statement this week.

Longtime proponent Rachel Kleinfeld, president and co-founder of the Truman National Security Project, said the measure is a step in the right direction. “This bill imposes a new form of human rights conditionality,” she said. “It shows that we’re a country that stands for values.”

Like many others, Kleinfeld maintained that crafting the legislation with a global scope would have been a good idea, since Russia is not the only U.S. trade partner with a history of human-rights abuses. But such a measure would be nearly impossible to pass for various reasons involving diplomacy and economic interests. Even the Magnitsky Act was held up by opposition from the administration of U.S. President Barack Obama.

“The Obama administration had mixed feelings,” Kleinfeld explained. “The State Department tends to be less focused on human-rights conditionality [as a tool to effect change]. They don’t feel it’s as useful, so they look for other ways to impose human rights.”

The administration finally voiced support for the bill after it passed the Senate -- and Moscow isn’t happy. Officials there are now threatening to implement similar measures against U.S.

“[Russia] will ban entry to the Americans who are in fact guilty of violating human rights,” Russian Foreign Minister Sergey Lavrov announced Thursday, according to the Associated Press.

But behind all the bluster, some pragmatists are calling for calm. Russian First Deputy Prime Minister Igor Shuvalov downplayed the international row during a visit to the New York Stock Exchange Tuesday.

“I hope that this will mean absolutely nothing for businessmen,” Shuvalov said, according to the Moscow Times. “Maybe this will affect officials, but it won't affect businesspeople engaged in mutual trade.”

New Deals

As a new member of the WTO, Russia will have to abide by some new rules. In exchange for easier access to foreign markets, it will have to lower import tariffs and allow the WTO to act as arbiter in disputes.

The other 156 WTO member countries are keen to take advantage of those changes. And with the repeal of Jackson-Vanik, the doors between U.S. enterprises and the Russian market -- encompassing a population of about 142 million with an expanding middle class -- have been thrown wide open. The Magnitsky Act does nothing to make trade relations contingent upon human-rights issues.

That’s good news for both economies. Russia and the U.S. are struggling with high unemployment rates and sputtering growth in their respective gross domestic products, and better trade access can help to address those very serious problems.

According to the U.S.-Russia Business Council's Verona, the former Cold War rivals already enjoy a growing trade relationship.

“Over a 10-year period, we’ve seen average annual growth of U.S. exports to Russia of about 15 percent. And that’s without the WTO -- that’s without Russia really meeting the standards of the world’s largest trade-based organization,” Verona said.

Now that Russia has to meet the standards of the world’s largest trade-based organization, he added, “We are confident that we could see a doubling of U.S. exports, which are currently about $9-10 billion per year, bringing that figure up to $20 billion within five years. Some economists believe that that is a conservative estimate, and that exports could triple over that time frame.”

Russia accounts for only about 1 percent of trade turnover annually, so the big-picture impact of the bill won’t be monumental. But a range of high-tech, value-added industries stand to benefit significantly, including commercial aircraft, farm machinery, and oil-and-gas equipment.

That’s why corporate heavyweights such as the Boeing Co. (NYSE:BA), the General Motors Co. (NYSE:GM) and Caterpillar Inc. (NYSE:CAT) signed onto the Coalition for U.S-Russia Trade, an arm of the U.S.-Russia Business Council that lobbied for the repeal of Jackson-Vanik.

Changing Times

Given the Magnitsky Act’s inability to hinder trade, there are some concerns that the human-rights legislation will be more symbolic than effective. But the Truman National Security Project's Kleinfeld maintained that Russia’s vehement reaction to the measure hints otherwise.

“Russia is certainly quite concerned about this bill; that suggests to me that it might actually be effective," Kleinfeld said.

“It’s worth remembering the Helsinki Accords in the Cold War days,” she added, referring to the 1975 agreement that promoted trade with the Soviet Union and included human-rights provisions. “The Russian people used the Helsinki Accord against the Soviet Union, and it provided a real rallying cry.”

Then as now, opposition activists are struggling against an oppressive administration. Things reached a tipping point in March, when thousands rallied to protest Vladimir Putin's election to a controversial third term as president. Since then, a series of high-profile arrests has garnered international attention. In July, for instance, three members of the punk band Pussy Riot went on trial after being arrested for putting on a disruptive anti-Putin performance in a Moscow cathedral. Two of the band members have been sentenced to two years in a brutal penal colony.

Also this year, investigations have also been launched against a range of high-profile opposition activists, including Alexander Navalny, Leonid Razvozzhayev, Kseniya Sobchak, and Sergei Udaltsov.

The protest scene in Russia has calmed down since it exploded this summer, but international pressure is still building. The U.S. has not been shy about condemning Moscow for human-rights abuses: On Thursday, U.S. Secretary of State Hillary Clinton blasted Russia for its transgressions, both domestic and international, going so far as to charge Moscow with trying to “re-Sovietize” the region.

With a new trade relationship on the horizon, business between the two superpowers is sure to bloom despite political animosities. Human-rights violations will be a tougher nut to crack, and the Magnitsky Act certainly won’t change things overnight.

But for those activists still fighting for justice in honor of the late attorney, it’s a start.

“In the memory of one courageous Russian,” the Senate's Cardin said, “we are setting a precedent for future trade agreements that tells the world that gross violators of human rights cannot escape the consequences of their actions even when their home country fails to act.”