Reopening Russia One Step at a Time

Russia is one of the largest dairy importers in the world, purchasing about 440,000 metric tons of milk powder, cheese, butterfat, whey protein and lactose in 2011 worth nearly $2 billion. Yet for more than two years, the United States has been locked out of the market due to Russian export certificate demands.

The U.S. government with the support of the U.S. Dairy Export Council (USDEC) has been working diligently to resolve the certification question and reopen U.S.-Russian dairy trade. The Russian market access issue is multifaceted, involving the separate but related complications of the dairy certificate, the 2010 formation of the Customs Union between Russia, Belarus and Kazakhstan, and Russia’s accession this year to the World Trade Organization (WTO).

Early in the last decade, the United States and Russia essentially agreed to disagree on dairy certification for U.S. products. But in 2009, the Russian government informed the United States that it would close its borders to U.S. dairy if the two countries could not develop an export certificate that the U.S. government would sign and a plant inspection protocol that Russian regulators would accept.

The two sides renewed certificate negotiations in earnest, but talks stalled and Russia formally closed the market to U.S. dairy suppliers in September 2010.

Nonetheless, efforts continued, with USDEC working with the government throughout the process. USDEC, using input from its members, acted as the industry voice, providing technical assistance on each proposed certificate iteration, evaluating Russian technical regulations and identifying “non-starters,” all in an attempt to reopen the market.

The creation of the Customs Union complicated matters. The U.S. government had to begin talks with all three nations rather than Russia alone, causing new headaches. Belarus, for example, is a significant dairy exporter to Russia with no interest in gaining another competitor, and to date has been unresponsive to U.S. overtures.

Progress then halted completely this year as Russia acceded to the WTO.

Russia’s membership in the WTO might sound like a positive development since the organization’s enforceable dispute settlement mechanism should help deter Russia from enacting spurious sanitary and phytosanitary (SPS) barriers to trade.

However, a giant roadblock currently stands in the way of further progress: the failure of the United States to approve permanent normal trade relations (PNTR) with Russia. Until the United States agrees to give Russia PNTR – the designation that assures all WTO members receive equal trade advantages – none of the WTO tools available to bring Russia into compliance will apply to U.S. businesses. While our dairy export competitors potentially gain market access and a means for dispute settlement, we are sitting on the sidelines, because we can neither resolve our SPS issues nor bring a WTO case.

The U.S. delay in putting in place full PNTR provisions with Russia has given their negotiators a motive to withdraw from talks. In essence, Russia has turned a deaf ear to any further serious discussions on resolving the dairy certificate negotiations, obviously in protest of the United States’ inaction on PNTR. Only U.S. congressional action on PNTR can break the logjam at this stage.

The good news is that a bipartisan effort to remove the biggest impediment to PNTR, the Jackson-Vanik Amendment (a relic of the Cold War era that denies PNTR to countries with discriminatory emigration policies, and a law the United States has waived annually since 1992), passed out of the Senate Finance Committee and the House Ways & Means Committee in August.

The bad news is that a full floor vote in either the House or Senate has been delayed, in part by the U.S. election and Russia’s positions on geopolitical issues such as Syria and Iran.

The push needed to move PNTR will be difficult. Yet, history has shown that the best way to advance such legislation is for individual businesses to make their voices heard. That is exactly what more than 500 dairy and other food and ag companies did this week in signing a joint letter to Congress and the White House urging reinstatement of PNTR in the upcoming lame duck session.

It is a specific example of how U.S. business—the dairy industry included—can help remove an impediment to increase our position in global markets by becoming more vocal about the benefits of trade. With almost 14 percent of U.S. milk solids shipped overseas annually, the U.S. industry has significant “skin in the game” and would be a credible source of information to legislators and the general population.

Trade often is characterized as a villain, yet, virtually every trade agreement since and including NAFTA has yielded positive results for the U.S. dairy industry. It’s a story that needs to be told by those whose livelihoods are at stake.

Even in this case, PNTR is only Part 1 on the road to renewing U.S. dairy trade with Russia. The United States still needs to negotiate a dairy certificate and the plant inspection protocol. But those negotiations cannot restart until Russia and its Customs Union partners are seriously at the negotiating table.

(This article first appeared in Cheese Market News in November 2012.)

The U.S. Dairy Export Council is primarily supported by Dairy Management Inc. through the dairy farmer checkoff that builds on collaborative industry partnerships with processors, trading companies and others to build global demand for U.S. dairy products