The Biden administration has questioned Russia’s “market economy” status in an initiative that revives a weapon not used since the 1990s to punish Russian trade.
The “market economy” designation is important because without it, the United States can impose special duties on Russia’s exports to the rest of the world which could be more painful than the blunt weapon of sanction bans, as the duties cost money and can make exports uncompetitive.
In the 1990s, the United States refused to grant Russia market economy status, arguing that the state subsidized energy and other inputs into the production of goods that were in fact part of the economy. ‘a pseudo-centrally planned economy which gave Russian goods an unfair advantage, so the duties were a tax to counter the artificial prices of Russian goods.
By reviving the weapon of market economy status, Washington partly admits that the sanctions regime, imposed in 2014 following Russia’s annexation of Crimea, has been largely ineffective and is short of things to sanction that won’t boomerang and hurt America. businesses too. The Biden administration is seeking to broaden its toolbox to deal with the “Russian problem” and the obligations related to the lack of market economy status appear to be able to constitute a comprehensive and more effective tool.
Washington has treated Russia as a market economy since 2002, when it bestowed this designation in recognition of Russia’s economic and political transformation during the 1990s. Russia and the United States have enjoyed friendly relations during the first years of Russian President Vladimir Putin’s tenure, but things quickly deteriorated after the United States withdrew from the ABM Treaty in 2002, then Putin caused an international scandal by arresting oil tycoon Mikhail Khodorkovsky in 2003 .
If market economy status is revoked, the United States can impose anti-dumping import duties and penalties, which it can impose on Russian exporters. Russia said it unlocked an additional $ 1.5 billion in trade after winning the highly prized 2002 designation, reports the Moscow Times. It also paved the way for Moscow to join the World Trade Organization (WTO) in 2012 after a 15-year wait. The WTO imposes the maximum rate of import taxes that members can impose on each other on different sets of goods. It is not clear whether the United States can impose the new duties if both countries are members of the WTO, and Russia will be certain to file a complaint against the United States with the conflict resolution body of WTO if anti-dumping duties are imposed. However, the WTO has no real powers to enforce its rulings if the United States challenges its findings.
Only 11 countries in the world are still currently designated as marketless economies by the United States, including China, Vietnam and nine former Soviet republics.
The wide consultation was sparked by a complaint from an Oklahoma-based company that claimed that certain Russian fertilizers – nearly $ 1 billion of which are sold in the United States each year – are “in progress or likely to be sold in the United States at below fair value … and that such imports seriously injure and threaten to harm an industry in the United States, “according to a statement published in the US Government’s Federal Register and cited by the Moscow Times.
No decision has been made and the process is still at the stage of investigating the complaint. Among the issues the survey will examine are: convertibility of the Russian ruble, government ownership of companies, labor laws and wage agreements, state control over resource allocation, and the status and role of foreign investment and business in Russia.
When calculating anti-dumping tariffs to be levied against firms in non-market economies, the United States selects third-country benchmark production prices to estimate the market cost of the product. This is considered a stricter interpretation and may result in higher penalties than for market economies, where the United States uses the country’s production costs.
Washington argues that in non-market economies the breadth and complexity of state support to domestic producers is so “pervasive” that it is “impossible to establish” a precise market price.
Russian exports to the United States totaled $ 24 billion in 2020, the vast majority of which were industrial products and hydrocarbons.
Despite the country’s controversial privatization campaign in the 1990s, the Russian economy remains heavily dominated by state and state-controlled companies. Alexei Kudrin, a longtime former finance minister and now head of the Chamber of Accounts, recently lamented that only four of the country’s 10 largest companies are private companies, and said only 25% of the privatization plan of Russia had been completed.