#2
Jamestown Foundation Monitor
March 7, 2002
Steel and poultry: is a Russian-U.S. trade war looming?
TRADE RECRIMINATIONS ROIL RUSSIAN-U.S. TIES.

Russia and the United States stood on the verge of a trade war yesterday as government leaders in Moscow joined with their counterparts in a host of other affected countries to condemn the Bush administration's decision this week to impose tariffs on steel imports. The steel dispute, moreover, has already boiled over into another vital area of Russian-U.S. trade. In a move that most Russian sources have interpreted as a preemptory strike aimed at giving Moscow some leverage in the looming faceoff over steel, Russia's Agricultural Ministry announced on March 1 that it had stopped issuing import licenses for U.S. poultry and that a total ban would be in effect as of March 10. That decision elicited sharp criticism from U.S. officials, who have gone so far as to suggest that a Russian ban on U.S. poultry could ultimately complicate bilateral trade relations and might also lead the United States to rethink its support for Russia's admission to the World Trade Organization (WTO).

The trade volumes involved are no small matter. Calculations done by the U.S. government estimate that the tariffs being imposed by the Bush administration will affect 33 percent of Russia's steel exports (to the United States), a Russian trade official said yesterday. And Economic Development and Trade Minister German Gref told reporters that the U.S. tariffs would cause annual losses of US$400-500 million for Russian steel producers. The poultry figures are of a similar scale. Last year, U.S. producers reportedly sold about 1 million tons--or US$700 million worth--of poultry to Russia. The U.S. poultry industry employs people in thirty-eight states, and half of all its exports go to Russia. Russia itself produced only 564,000 tons of poultry last year, the Russian business daily Vedomosti reports.

Despite its expectations that the United States might move forward with the steel tariff announcement, official reactions from Moscow yesterday were not entirely consistent. Prime Minister Mikhail Kasyanov, for example, denied that a trade war was imminent and also suggested that Russian authorities could yet relent over the decision to block U.S. poultry imports. Other officials, including representatives of Russia's steel industry, took a harder line, however. A deputy agriculture minister, for one, said that the poultry ban would indeed take effect this weekend. And Gref said that he could not rule out that Russia might take retaliatory measures.

According to one of Gref's deputies, the Russian government is now awaiting a legal explanation from the United States for its decision to impose the tariffs on Russian steel. Those same Russian officials say that the U.S. move violates two existing trade agreements between Russia and the United States. One is a 1990 accord that defines procedures and measures for market protection, and the other is a 1999 Comprehensive Trade Agreement that lays down quotas for a series of Russian steel exports to the United States and serves, according to the same trade official, "as a sort of guarantee of access to the U.S. market." As proof that the United States is legally unjustified in levying the new tariffs, Russian officials argue in part that Russian imports could not be harming U.S. steel producers because Russian exports last year totaled 1.9 million tons--or less than the 2 million tons allowed by the bilateral agreements. A Russian steel official was quoted as saying of the U.S. move that "For a country that preaches free trade to follow hypocritical policies, ...[and] that gets no small benefit from the free trade system ... this is beyond our comprehension."

Russian agriculture and trade officials, meanwhile, have denied in their public statements that there is any link between their decision to ban U.S. poultry products and the dispute over steel. Officially, they say that the poultry ban has been put into effect because of alleged violations by the U.S. side of various technical and quality requirements imposed by Russian regulatory officials. But Russian media observers are having no part of that explanation. A commentary posted by the Kremlin-backed Strana.ru website, for example, argues that, in effect--and with pun intended--the Russian poultry ban kills two birds with one stone. It responds to the U.S. steel tariffs and it helps to support Russia's domestic poultry producers. Indeed, unlike many of the other governments angered by the U.S. tariffs who intend to take their cases to the World Trade Organization, Russia as a nonmember does not have that option. In this context, the poultry ban, which is probably being used primarily at this point as a bargaining chip, probably seemed like the most effective counter-measure available to Russian government officials.

It remains to be seen who will blink first in this game of chicken, or whether the two sides will be able to find a compromise that keeps diplomats--and steel and poultry producers--in each country happy. In comments made on March 5, the U.S. ambassador to Russia, Alexander Vershbow, warned that the Russian poultry ban could jeopardize broader economic ties and create an unpleasant tone for U.S. President George W. Bush's spring summit visit to Moscow. And if not brought under control, that presumably means the trade dispute could have an adverse impact on Russian-U.S. talks in other areas, including strategic arms cuts and cooperation in the antiterror war. Russian Foreign Ministry spokesman Aleksandr Yakovenko, meanwhile, offered a dour commentary of his own. On March 6 he criticized the Bush administration for drawing a link between the poultry ban and such fundamental bilateral issues as repeal of the Soviet-era U.S. trade restrictions contained in the Jackson-Vanik amendment and U.S. support for Russia's WTO membership. He complained that such a linkage politicized the issues involved and suggested that it also undermined trust and predictability in Russian-U.S. ties more generally (Moscow Times, March 5, 7; Reuters, March 5; AP, March 6-7; AFP, Interfax, Strana.ru, March 6).

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