[Senate Hearing 112-796]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-796

                        RUSSIA'S WTO ACCESSION:
                   IMPLICATIONS FOR THE UNITED STATES

=======================================================================

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 15, 2012

                               __________



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                          COMMITTEE ON FINANCE

                     MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
Virginia                             CHUCK GRASSLEY, Iowa
KENT CONRAD, North Dakota            OLYMPIA J. SNOWE, Maine
JEFF BINGAMAN, New Mexico            JON KYL, Arizona
JOHN F. KERRY, Massachusetts         MIKE CRAPO, Idaho
RON WYDEN, Oregon                    PAT ROBERTS, Kansas
CHARLES E. SCHUMER, New York         MICHAEL B. ENZI, Wyoming
DEBBIE STABENOW, Michigan            JOHN CORNYN, Texas
MARIA CANTWELL, Washington           TOM COBURN, Oklahoma
BILL NELSON, Florida                 JOHN THUNE, South Dakota
ROBERT MENENDEZ, New Jersey          RICHARD BURR, North Carolina
THOMAS R. CARPER, Delaware
BENJAMIN L. CARDIN, Maryland

                    Russell Sullivan, Staff Director

               Chris Campbell, Republican Staff Director

                                  (ii)














                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
  ...............................................................
Baucus, Hon. Max, a U.S. Senator from Montana, chairman, 
  Committee on Finance...........................................     1
Kyl, Hon. Jon, a U.S. Senator from Arizona.......................     3
  ...............................................................

                               WITNESSES

  ...............................................................
Allen, Samuel, chairman and CEO, Deere and Company, Moline, IL...     5
Pollett, Ronald, president and CEO, GE Russia/CIS, Moscow, Russia     7
Taylor, Watty, president, Montana Stockgrowers Association, 
  Helena, MT.....................................................     8
Williams, Paul, president and chairman of the board, American 
  Society of Composers, Authors, and Publishers, New York, NY....    10
Larson, Hon. Alan, chairman of the board, Transparency 
  International USA, Washington, DC..............................    12
  ...............................................................

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

  ...............................................................
Allen, Samuel:
    Testimony....................................................     5
    Prepared statement...........................................    33
Baucus, Hon. Max:
    Opening statement............................................     1
    Prepared statement...........................................    37
    Letter from Sergey Aleksashenko, et al. to Chairman Baucus, 
      dated March 12, 2012.......................................    39
    Letter from Lyudmila Alekseeva, et al. to Senator Reid, et 
      al., undated...............................................    41
Cornyn, Hon. John:
    Letter from Senator Cornyn, et al. to Leon E. Panetta, dated 
      March 12, 2012.............................................    43
Kyl, Hon. Jon:
    Opening statement............................................     3
    Prepared statement...........................................    46
    ``The Right Way to Sanction Russia,'' by Garry Kasparov and 
      Boris Nemtsov, Wall Street Journal, March 15, 2012.........    48
Larson, Hon. Alan:
    Testimony....................................................    12
    Prepared statement...........................................    50
Pollett, Ronald:
    Testimony....................................................     7
    Prepared statement...........................................    55
Taylor, Watty:
    Testimony....................................................     8
    Prepared statement...........................................    58
Williams, Paul:
    Testimony....................................................    10
    Prepared statement...........................................    62
  ...............................................................

                             Communications

  ...............................................................
American Farm Bureau Federation..................................    69
American Russian-Speaking Association for Civil and Human Rights.    73
Bipartisan Policy Center.........................................    76
Medtronic, Inc...................................................    77
National Association of Manufacturers (NAM)......................    80
Pharmaceutical Research and Manufacturers of America (PhRMA).....    82
U.S. Chamber of Commerce.........................................    85

 
                        RUSSIA'S WTO ACCESSION: 
                   IMPLICATIONS FOR THE UNITED STATES

                              ----------                              


                        THURSDAY, MARCH 15, 2012

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:05 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Max 
Baucus (chairman of the committee) presiding.
    Present: Senators Kerry, Wyden, Menendez, Grassley, Kyl, 
Cornyn, and Thune.
    Also present: Democratic Staff: Russ Sullivan, Staff 
Director; Amber Cottle, Chief International Trade Counsel; Hun 
Quach, International Trade Advisor; Chelsea Thomas, 
International Trade Advisor; and Bruce Hirsh, International 
Trade Counsel. Republican Staff: Chris Campbell, Staff 
Director; Everett Eissenstat, Chief International Trade 
Counsel; Paul Delaney, International Trade Counsel; and Maureen 
McLaughlin, Detailee.

   OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM 
            MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order.
    Catherine the Great once said, ``There is nothing so 
difficult as to escape from that which is essentially 
agreeable.'' Russia joining the World Trade Organization 
presents a lucrative opportunity for the United States' economy 
and American jobs. We can all agree on that. We must all 
embrace, rather than escape, this opportunity.
    Russia is the largest economy currently outside the WTO. It 
is the 6th-largest economy in the world. To allow American 
businesses, workers, farmers, and ranchers to seize the 
opportunity that Russia joining the WTO presents, Congress must 
act. We must pass permanent normal trade relations, or PNTR, to 
ensure that our exporters can access the growing Russian 
market.
    If the United States passes PNTR with Russia, U.S. exports 
to Russia are projected to double within 5 years. If Congress 
does not pass PNTR, Russia will join the WTO anyway, and U.S. 
exporters will lose out to their Chinese and European 
competitors. These competitors will expand their exports at our 
expense.
    Russia PNTR is a 1-sided agreement that benefits American 
workers and businesses and requires them to give up nothing in 
return. Unlike a free trade agreement, the United States will 
not further open its market to Russia. We will not lower any of 
our tariffs or make any other changes to our trade laws. It is 
a 1-way street.
    Russia, on the other hand, will lower its tariffs and open 
its markets to U.S. exports. U.S. service providers will gain 
access to Russia's telecommunications, banking, and other key 
markets. U.S. meat producers will secure greater access to the 
Russian market, including a generous U.S.-specific beef quota 
of 60,000 metric tons. And the United States will get new tools 
for our toolbox to hold Russia accountable to its obligations. 
These include binding legal enforcement and transparency 
measures.
    But, in order for U.S. businesses and workers to benefit 
from Russia joining the WTO, Congress must pass PNTR and repeal 
the Jackson-Vanik amendment. Jackson-Vanik denies normal trade 
relations to communist and former communist countries unless 
the President determines that the country permits free and 
unrestricted emigration of its citizens.
    Congress originally passed the law in response to the 
Soviet Union's emigration restrictions, particularly with 
respect to its Jewish citizens. Jackson-Vanik served its 
purpose and helped millions of Jews emigrate freely, but it is 
now a relic of the past. Every President, regardless of 
political party, has waived Jackson-Vanik's requirement for 
Russia for the past 20 years.
    When I traveled to Russia last month, I met with Russian 
and American business leaders, including Ron Pollett, who is 
here with us today. I also met with activists working to 
improve democracy, human rights, and corruption in their 
country, and I met with leaders of the Jewish community. The 
message from all of these activists was clear: the United 
States should repeal Jackson-Vanik and pass Russia PNTR.
    In fact, earlier this week leading Russian democracy and 
human rights activists wrote two letters calling on Congress to 
repeal Jackson-Vanik. I am entering both letters into the 
record as part of this statement.
    [The letters appear in the appendix on p. 39.]
    The Chairman. One letter from the activists states that 
today the Jackson-Vanik amendment ``only hinders the 
interaction of the economies and the peoples of the two 
countries and worsens the human rights situation in Russia.'' 
Repealing Jackson-Vanik weakens the ability of the hard-liners 
in Russia to rally anti-American forces.
    The activists in the other letter explain that Jackson-
Vanik is a very useful anti-American propaganda tool. As they 
stated, it provides a tool that helps ``to depict the United 
States as hostile to Russia, using out-dated Cold War tools to 
undermine Russia's international competitiveness.''
    Repealing Jackson-Vanik takes away this tool and opens 
Russia to U.S. competition, to ideas, and to transparency. 
These activists have all raised serious questions about 
Russia's human rights and democracy record. I share these 
questions. But, like the activists, I believe that PNTR should 
not be in question.
    We owe it to American businesses, ranchers, and farmers who 
are working to increase exports to the growing Russian market. 
We owe it to U.S. workers whose jobs depend on those exports, 
and we owe it to the Russia activists who are asking for our 
help in their fight for democracy.
    So let us embrace this opportunity for our economy and for 
American jobs. In the spirit of Catherine the Great, let us 
move forward with that on which we can all agree. Let us work 
together to pass Russia PNTR.
    [The prepared statement of Chairman Baucus appears in the 
appendix.]
    The Chairman. Senator Kyl?

              OPENING STATEMENT OF HON. JON KYL, 
                  A U.S. SENATOR FROM ARIZONA

    Senator Kyl. Thank you, Mr. Chairman.
    I think that I understand the message this hearing is 
intended to convey: American businesses want access to Russian 
markets, so we should repeal Jackson-Vanik and grant Russia 
permanent normal trade relations without delay and without 
conditions. It is a slam-dunk.
    But it is not a slam-dunk. Let us stipulate that American 
businesses, farmers, and ranchers should be able to sell 
products to Russia, and that free trade is important and 
beneficial to the United States. We still need to determine 
whether America is getting a good deal through Russia's WTO 
accession, and whether more should be done to protect our 
interests.
    For example, Russia has never ratified the bilateral 
investment treaty that the Senate ratified years ago. That 
treaty would prevent Russia from expropriating businesses, an 
admittedly big problem in Russia. This is a very basic economic 
right that is not being protected. In addition, one of our 
witnesses will discuss Russia's failure to remit royalties, 
which is also not directly covered by the WTO agreements.
    And I submit, the administration is missing a point on the 
repeal of Jackson-Vanik, which ties most favored nation status 
to freedom of emigration. While emigration may no longer be an 
issue, Russia's blatant disregard for human rights and the rule 
of law is every bit as relevant today as it was decades ago.
    Human rights cannot be divorced from the discussion of our 
economic relationship with Russia, particularly since some of 
the most egregious cases of abuse involve citizens exercising 
their economic and commercial rights. Consider the case of 
Sergei Magnitsky, the young lawyer who was imprisoned, 
tortured, and died in prison because he sought to expose 
economic corruption at the highest levels of Russian 
government.
    Several of us have joined Senator Cardin in co-sponsoring 
legislation to send a clear message to those who commit gross 
violations of human rights that they will not have the 
privilege of visiting or accessing the financial network of the 
United States.
    Mr. Chairman, I would like to submit for the record, at the 
conclusion of my statement, an op-ed in the Wall Street 
Journal, March 15, by Garry Kasparov and Boris Nemtsov on this 
issue.
    The Chairman. Without objection.
    [The article appears in the appendix on p. 48.]
    Senator Kyl. When the U.S. Ambassador to Russia, Michael 
McFaul, suggests that there is no association between a 
country's respect for individual liberties and its business 
environment, he is simply denying reality. When two parties 
enter into a contract, it is essential that both parties 
operate in good faith. There is scant evidence that the Russian 
state operates in good faith. It has a troubling pattern of 
intimidation, disregard for the rule of law, fraudulent 
elections, human rights abuses, and government-
sanctioned anti-Americanism.
    Contrary to the administration's assertion, Russia is 
moving further away from international norms and values. In 
recent months, Moscow has not only blocked U.N. Security 
Council action on Syria, but has continued to sell arms to 
Assad's regime, which is responsible for the slaughter of 
innocent citizens. This is not a government that can be trusted 
to uphold its international commitments or give a fair shake to 
American businesses.
    In looking only at the WTO context, Russia has not even 
lived up to all of the commitments it has already made on 
intellectual property rights, for example, as a condition of 
joining WTO. Russia remains on the U.S. Trade Representative's 
Special 301 Priority Watch List for IP violations. What makes 
us think it will live up to its commitments after being allowed 
to join WTO? Yes, we would have access to a WTO dispute 
settlement process if we grant Russia PNTR, but what has that 
gotten us in our trade relationship with China?
    Twelve years ago Congress repealed Jackson-Vanik and 
authorized PNTR for China, and how did that work out? Well, 
USTR reports to Congress annually on China's compliance with 
WTO commitments. The most recent report is 127 pages long, 
filled with problems. The U.S. has used the formal dispute 
settlement process to address these issues only in a handful of 
cases. One case has remained open since 2007. Even in the rare 
cases that we would get justice, it is not speedy justice.
    Despite all the structures of the WTO, China cheats, and 
continues to get away with it. If this is what we get from 
China, which ranks 75th among all countries on Transparency 
International's Corruption Perceptions Index, what can we 
expect from Russia, which ranks a dismal 143rd on the same 
list?
    China was not granted PNTR without condition and without 
delay. It takes only a couple of pages of legislative text to 
repeal Jackson-Vanik, but the bill Congress passed had six 
separate subtitles dealing with the U.S.-China relationship. 
Given the current problems with our trade relationship with 
China, it probably was not enough.
    It is simply unreasonable to believe that PNTR can be 
extended to Russia without a more thorough examination of the 
issues. So, yes, we should have free trade; yes, Russia should 
become part of the community of law-abiding commercial nations. 
The question is whether the proposed agreement and repeal of 
Jackson-Vanik gets us there.
    Mr. Chairman, I hope this is not our last hearing on this 
subject.
    [The prepared statement of Senator Kyl appears in the 
appendix.]
    The Chairman. Thank you, Senator, very much.
    I will now turn to our witnesses. First, we have Mr. Samuel 
Allen, who is chairman and CEO of Deere and Company. I must 
tell you, Mr. Allen, as you already know, when I was in Russia 
not long ago, I visited one of your plants there, an assembly 
operation just outside of Moscow. I was very impressed with the 
people, and the products that you are selling to Russians are 
helping Russian agriculture. I very much appreciated that 
opportunity.
    Next we have Mr. Ron Pollett. Good to see you again, Ron, 
having talked with you when I was over there in Russia, in 
Moscow, not long ago. Mr. Pollett is president and CEO of GE 
Russia. Thanks very much again, Mr. Pollett.
    Next, Mr. Watty Taylor. Watty is one of our guys; he is 
from Montana. He is president of the Montana Stockgrowers 
Association, a 2nd-generation family rancher from Kirby, MT. 
Thank you, Watty, very much for coming to join us.
    Next, we have Mr. Paul Williams, president and chairman of 
the board of the American Society of Composers, Authors, and 
Publishers. Thank you very much, Mr. Williams. Senator Hatch 
sends his special regards to you. He could not be here today, 
but he wanted me to tell you how much he appreciates working 
with you in various matters. It has meant a lot to him, and he 
deeply regrets he cannot be here.
    Mr. Williams. I appreciate it. He has been very kind.
    The Chairman. Yes. And finally, Mr. Alan Larson, chairman 
of the board of Transparency International USA. I must tell 
you, Mr. Larson, I enjoyed meeting with the director of 
Transparency International Russia in Moscow last month. I think 
her name was Elena. Very, very impressive, sharp, intelligent 
lady, and a very compelling story to tell of why she is back in 
Russia and did not stay over in Brussels. But thank you, all 
five of you, very much for coming today.
    The usual practice, as I am sure you are aware, is just to 
submit your statements for the record and speak about 5 
minutes. I urge you to be just very direct and forthcoming, 
candid. Tell it like it is.
    Mr. Allen, you are first.

         STATEMENT OF SAMUEL ALLEN, CHAIRMAN AND CEO, 
                 DEERE AND COMPANY, MOLINE, IL

    Mr. Allen. Thank you. Chairman Baucus, Senator Kyl, 
distinguished members of the committee, my name is Sam Allen, 
chairman and CEO of Deere and Company. On behalf of John Deere 
and the Business Roundtable, thank you for the opportunity to 
provide testimony today on the importance of establishing 
permanent normal trade relations with Russia to John Deere and 
the U.S. business community.
    Granting PNTR is crucial for U.S. manufacturers, service 
providers, and agricultural producers to receive the full 
benefits of Russia's WTO accession. It is essential to enable 
us to compete on a level playing field for Russian customers.
    The reasons are clear. First, PNTR will ensure equal 
treatment for U.S. companies doing business in Russia. Here is 
a concrete example: Russia has committed, upon accession, to 
significantly reduce its tariffs on imported agricultural 
equipment from 15 percent to 5 percent. However, it is likely 
that Russia would not extend the lower tariff rates to U.S.-
made products until it is granted PNTR.
    U.S. companies like John Deere, thus would be at a 
competitive disadvantage relative to our foreign competitors, 
and we would have no recourse to the WTO should disputes arise. 
This would negatively affect our U.S. operations, because many 
of the products we sell in Russia utilize components closely 
connected to jobs in our facilities in the American Midwest.
    Second, PNTR will strengthen commercial ties between the 
two countries. PNTR will subject U.S.-Russia trade to the WTO-
based adjudication process for trade disputes. It also will 
promote transparency and certainty through WTO rules, ranging 
from service regulations to agricultural standards to 
intellectual property rights.
    Third, granting PNTR will directly benefit U.S. workers, 
manufacturers, service providers, and agricultural producers, 
helping to maintain and create good jobs here in the United 
States. Russia's large and growing economy, coupled with PNTR, 
presents significant opportunities for U.S. companies to serve 
customers across many sectors. Russia is already one of the 
world's largest markets, with a nearly $2-trillion economy and 
a rapidly growing, well-
educated middle class.
    John Deere has had a presence in Russia for over 100 years. 
This has greatly expanded in recent years with investments in 
two factories, including our newest facility just outside 
Moscow, which Chairman Baucus did recently visit. These 
facilities use components produced and exported from John Deere 
facilities in Iowa, Illinois, North Dakota, and other States to 
produce agricultural, forestry, and construction equipment for 
the Russian market.
    This activity directly affects jobs at eight Deere 
factories that are supported by almost 2,800 suppliers located 
in 45 States. In fact, we recently announced a $70-million 
investment in our Waterloo, IA facility to expand our 
production capabilities for large tractors for which Russia is 
a leading export market.
    We are also exporting Deere business values and standards. 
Our Russian operations apply the same high standards for 
compliance, integrity, safety for our workers and customers, 
product quality, and environmental stewardship that we have in 
our facilities here in the United States and around the world.
    Our interests and investments reflect the enormous 
potential for the Russian economy in the segments which are 
especially significant for our business. Russia can become a 
major contributor to meeting the world's fast-growing demand 
for food and forestry products as the global population expands 
and becomes more affluent.
    Let me close with a few words about Deere's business 
experience in Russia. Our experience overall has been 
positive--yes, with frustrations from time to time, but little 
different than in any other emerging market.
    We understand the challenges of doing business in Russia, 
but we recognize the enormous opportunity as well. Enhancing 
trade relations and strengthening business connections will 
improve the overall business climate to the benefit of both the 
American and Russian people.
    PNTR with Russia is, simply put, a benefit to the United 
States rather than an accommodation to Russia. There is a 
strong business case for congressional approval of PNTR. I urge 
the Congress to carefully consider the matter, but then to act 
quickly to ensure that U.S. companies, their workers, and 
shareholders receive the benefits from the outset of Russia's 
long-awaited WTO membership.
    Thank you again for the opportunity to testify. I will be 
pleased to respond to any questions that the committee may 
have.
    The Chairman. Thank you, Mr. Allen, very much.
    [The prepared statement of Mr. Allen appears in the 
appendix.]
    The Chairman. Mr. Pollett, you are next.

        STATEMENT OF RONALD POLLETT, PRESIDENT AND CEO, 
                 GE RUSSIA/CIS, MOSCOW, RUSSIA

    Mr. Pollett. Chairman Baucus, Senator Kyl, and 
distinguished members of the committee, thank you for the 
opportunity to testify today on a subject that I feel is of 
critical importance: the opportunity to grow the U.S. economy 
and U.S. jobs by establishing permanent normal trade relations 
with Russia.
    Just a moment of background about me. I am a U.S. citizen, 
born and raised in New York. I joined GE in 1991 and for the 
past 13 years have been living and working in Russia. For the 
past 6 years, I have also served as chairman of the board of 
the American Chamber of Commerce in Russia, with more than 700 
member companies, the largest and most influential foreign 
business association in the country.
    So I have been in a unique position to witness firsthand 
the dramatic changes Russia has undergone in such a short 
period of time, and I truly believe that Russia is now poised 
to become an even more active and significant player in the 
global economy. But I have also been in a position to observe 
how, on the whole, U.S. businesses are under-represented in the 
Russian market. I believe PNTR can change this.
    Russia presents extremely good opportunities for U.S. 
companies, provided--and this is an important proviso--we are 
able to have a level playing field. Such a level playing field 
is essential for U.S. companies to take advantage of these 
opportunities.
    Russia is a big, fast-growing economy. But the U.S. has a 
relatively small presence in the Russian market, accounting for 
just 4 percent of Russian imports. By contrast, east Asia and 
the European Union accounted for 29 percent and 43 percent, 
respectively.
    When I arrived in Russia in 1998, GE had $110 million in 
sales. Last year, we had more than $1.6 billion in sales, and 
our industrial businesses alone saw almost $1.2 billion in 
U.S.-origin orders from Russia, up from $410 million in 2010. 
These orders support more than 3,000 jobs for GE and its 
suppliers in the United States, and we believe that our sales, 
with PNTR, could triple by 2020.
    For U.S. companies to take full advantage of Russia's 
growing market, however, Congress must repeal the Jackson-Vanik 
amendment and establish PNTR with Russia. Let me offer a few 
concrete examples of what Russia's WTO accession and PNTR will 
mean for GE.
    Russia is the 4th-largest electricity market in the world. 
GE Energy, with 38,000 U.S. employees, will see average tariffs 
fall from 12 to 5 percent on gas turbines. These turbines are 
principally produced in South Carolina and Texas.
    Russia is looking to double its spending on health care. 
With more than 22,000 U.S. employees, principally in Wisconsin, 
Texas, and New Jersey, GE Healthcare will see tariffs on 
medical equipment fall from 15 to 4.3 percent.
    Russia has the world's second-largest railway system. Some 
10,000 locomotives will need upgrades, to the tune of $10 
billion. This is an enormous opportunity for GE's 
transportation business, based in Pennsylvania, which employs 
over 8,300 U.S. workers.
    GE is also the largest supplier today of foreign aircraft 
engines to Russia and the largest aircraft lessor. GE Aviation, 
with 25,000 U.S. workers, and our GECAS leasing business stand 
to benefit as Russia reduces its tariffs on aircraft engines 
from 20 to 5 percent. These GE products are made in Ohio, 
Vermont, Kentucky, and North Carolina, not to mention hundreds 
of suppliers in 34 States.
    It is not simply lower tariffs. WTO commitments to 
eliminate non-tariff barriers, implement a high standard of IPR 
protection, and improve transparency are critical for U.S. 
companies. Without PNTR, the U.S. would have no recourse to WTO 
dispute settlement should disputes arise.
    If the U.S. does not grant PNTR to Russia, American 
companies and their workers will be at a significant 
disadvantage relative to our global competitors. Equally 
concerning is the signal that would be sent to Russia. At a 
time when export growth is key to the U.S. economy, we would be 
rejecting an important opportunity while our competitors take 
advantage of our absence.
    One thing is clear: Russia will join the WTO whether or not 
the U.S. grants PNTR status. The vote to accord PNTR to Russia 
is about one thing and one thing only. It is about the ability 
of American companies to compete on a level playing field, 
according to the same set of rules, with foreign companies 
eager to do business in a fast-growing economy.
    I urge this committee and the full Congress to allow the 
American economy and American workers to be able to reap the 
benefits of these opportunities. Thank you.
    The Chairman. Thank you, Mr. Pollett, very much.
    [The prepared statement of Mr. Pollett appears in the 
appendix.]
    The Chairman. Mr. Taylor?

             STATEMENT OF WATTY TAYLOR, PRESIDENT, 
          MONTANA STOCKGROWERS ASSOCIATION, HELENA, MT

    Mr. Taylor. Good morning, Chairman Baucus.
    The Chairman. Good morning.
    Mr. Taylor. Senator Kyl, distinguished members of the 
committee, thank you for the opportunity to speak to you on 
behalf of the Montana Stockgrowers Association regarding our 
point of view on Russia's accession to the World Trade 
Organization.
    My name is Watty Taylor, and I am a rancher from Kirby, MT. 
I currently serve as the president of the Montana Stockgrowers, 
one of the Nation's oldest and most historically significant 
cattle ranching organizations, established in 1884. I, along 
with my wife Lyla and three sons, operate a commercial Hereford 
and Angus cow/calf operation on 30,000 acres in southeastern 
Montana. Ranching has been a vital part of my family heritage 
for many years.
    Ninety-six percent of the world's population lives outside 
the borders of the United States. We must have access to the 
additional demand for beef from consumers who live outside the 
U.S. if we hope to remain successful. Russia was the U.S.'s 
5th-largest export market for beef in 2011.
    We can now achieve a significant increase in our exports to 
Russia, thanks to the provisions of Russia's WTO accession 
agreement. These provisions include a large, country-specific 
beef quota and lower tariffs for high-quality beef. This will 
be greatly beneficial to my family's ranch if Congress passes 
PNTR legislation. I am confident that we can provide a 
significant amount of high-quality beef, as defined by the 
agreement.
    Montana is leading the way to produce large volumes of USDA 
quality grade ``choice'' and ``prime'' cuts of beef. We have a 
reputation for raising superior cattle genetics that perform in 
many different kinds of harsh environments. Our hardy northern-
tier ranch-level certified calves will meet the demand for high 
quality.
    It is also exciting that Montana is currently exporting 
several thousand head of our superior cattle to Russia to help 
establish a more vibrant domestic beef industry. The 
possibilities are endless. In fact, Montana ranchers are 
currently living and working in Russia to establish western-
style cattle ranching enterprises.
    While Russia is a tremendous opportunity for our beef, we 
need to ensure that we do not run the risk of facing 
unscientific restrictions. Montana ranchers have always 
appreciated the efforts by Chairman Baucus to move us toward 
trade agreements that are based on sound science and 
international standards.
    In particular, ensuring that Russia lives up to its WTO 
commitments on sanitary and phytosanitary standards, along with 
other technical issues for beef, is crucial. Without PNTR, we 
will not be able to enforce these commitments.
    Recognizing the international science-based standards is 
very important. It not only creates less market volatility, but 
it also encourages the safest, most prudent production 
practices. Issues that are most important to ranchers with 
regard to Russia include:
    (1) Tetracycline. We encourage the adoption of the Codex 
Standard for tetracycline residues in beef.
    (2) Beta-agonists. We encourage the adoption of standards 
for beta-agonist residues in beef that are based on scientific 
risk assessments conducted according to internationally 
recognized methods.
    (3) Bacterial parameters. We encourage the adoption of 
science-based standards for bacterial contamination in the 
unfortunate event that beef becomes contaminated with bacteria, 
such as salmonella or lysteria.
    (4) Sanctions policy. Once Russia has adopted science-based 
standards, we encourage them to implement a risk-based sanction 
policy for U.S. beef shipments that do not comply with those 
standards.
    (5) Veterinary equivalents. We encourage the use of the 
2012 meat plant audits by the Russian veterinary service to 
make a determination of the equivalence of the U.S. meat 
inspection system.
    (6) USDA food safety inspection service as the competent 
authority. We encourage the recognition of FSIS as the 
competent veterinary authority of the United States. This 
includes recognizing FSIS authority to approve and suspend U.S. 
beef establishments for export to Russia.
    (7) In addition, we need to ensure that Russia fully 
implements the tariffs and quota concessions they have agreed 
to make on beef. Extending permanent normal trade relations to 
Russia will give us the means to enforce those concessions and 
give Montana family ranchers the momentum we need to benefit 
our rural ranching economies at home.
    Exports create jobs. Our competitiveness depends on 
profitability and attracting the next generation of ranchers 
back into the business. Our ranch families' livelihood depends 
on exports, which are our most dynamic and vibrant opportunity 
for long-term sustainability.
    I appreciate the opportunity that I have been granted to 
present my testimony today, and I look forward to working with 
you throughout the course of this process to secure permanent 
normal trade relations with Russia.
    I am happy to answer any questions that you may have. Thank 
you.
    The Chairman. Thank you, Mr. Taylor, very, very much.
    [The prepared statement of Mr. Taylor appears in the 
appendix.]
    The Chairman. Mr. Williams?

   STATEMENT OF PAUL WILLIAMS, PRESIDENT AND CHAIRMAN OF THE 
             BOARD, AMERICAN SOCIETY OF COMPOSERS, 
             AUTHORS, AND PUBLISHERS, NEW YORK, NY

    Mr. Williams. Thank you, Chairman Baucus, Senator Kyl, and 
members of the committee. My name is Paul Williams. I am an 
American songwriter. It is an honor and a privilege to appear 
in my capacity as president and chairman of the board of ASCAP, 
the American Society of Composers, Authors, and Publishers, and 
on behalf of our 427,000 American songwriter, composer, and 
music publisher members.
    Senators, I am not here today to address rampant Russian 
copyright piracy, which other U.S. copyright interests have 
historically addressed. Rather, I am here to bear witness to 
the challenges U.S. music creators face in securing fair 
compensation for public performance of our music through 
``normal'' channels in Russia.
    With reproduction royalties declining globally, public 
performance royalties increasingly determine whether a talented 
music creator can remain a professional or is forced to take a 
day job to subsidize a music hobby. Bill Withers at one time 
said to his Senator, ``You don't want us taking day jobs, 
Senator, because you're liable to wind up with Ozzy Osborne as 
your plumber, and then you're in a lot of trouble.''
    Such a transition would be a huge loss not only for 
American culture, but also for our economy. ASCAP members are 
overwhelmingly the owners of small, innovative businesses. I 
have always said that I am metaphorically the perfect president 
for ASCAP. I am a small businessman, Mr. Chairman.
    Music creators and owners depend on the efficiencies of 
performing rights organizations, PROs, like ASCAP to license 
their public performance rights and collect and distribute 
royalties. For example, I have been blessed to make a living 
writing songs, but I live in California. How am I, a songwriter 
living in California, expected to collect royalties for 
performances of my songs throughout the world? ASCAP does this 
for me. I love ASCAP.
    We rely on a network of reciprocal relationships with 
foreign PROs in countries all over the world. These foreign 
royalties can constitute an ever-increasing portion of American 
music creators' income. It is over one-third, and it makes a 
positive contribution to our balance of trade.
    I am sad to report, however, that we are grossly underpaid 
for public performances of our works in Russia. A few 
comparisons prove my point. With the French and Italian 
economies, roughly the same size, our performance royalties 
collected in 2009 in France are 11 times greater--viva la 
France!--and in Italy, almost 9 times greater.
    Denmark--Denmark--with only 4 percent of Russia's 
population and an economy one-tenth the size of Russia, 
collects nearly twice as much for public performances as does 
Russia. It is clear that American music creators are not 
reaping the benefits from Russia's passion for American music 
and movies. Why is this? We believe the Russian legal system 
handicaps the efforts of RAO--that is ASCAP's Russian 
counterpart--in collecting public performance royalties.
    RAO is fully qualified under Russian law to act as a 
collecting society for U.S. music creators. Yet, Russian courts 
often do not follow the law. They do not follow the law. 
Russian courts demand extraordinary, costly documentation of 
RAO's right to represent ASCAP members, and sometimes they 
simply refuse to recognize the standing of RAO to do so. It 
makes no sense.
    Further, ASCAP composers are supposed to receive royalties 
for the public performance of music in movies exhibited in 
Russian theaters. In fact, RAO has sent us royalties through 
the years in the past. But there is no doubt that such 
royalties could be increasingly significant, as American movies 
are enormously popular and widely distributed in Russia. 
Everybody loves American movies.
    In January, three of the top five grossing films in Russia 
were American, including the wonderful film Hugo, whose score 
was written by an ASCAP writer, Howard Shore. However--
however--meritless legal challenges now threaten RAO's 
authority to collect from this critically important source of 
royalties for U.S. music, which translates to food on the 
table, gas in the car, and taking your kids to school.
    Finally, Russian fiscal authorities require RAO to 
collect--this is the icing on the cake--a value-added tax, or 
VAT, at a statutory rate of 18 percent from our royalty 
distribution! Eighteen percent from our royalty distribution. 
No other PRO in the world deducts this VAT from our members' 
royalties.
    Although Russia grants a VAT exemption for other 
intellectual property, this exemption is not extended to 
copyrights. Senator, this is just plain unfair and adds insult 
to injury, given the apparent under-collection of royalties.
    We are realists. We know there is no magic wand that our 
government can wave to ensure American music creators and 
copyright owners are fairly compensated in Russia.
    However, regardless of what happens with PNTR, we ask that 
the U.S. Government help us achieve the following goals, three 
simple things.
    Three things we ask: Russian judges and lawyers must 
receive better training and education in the handling of 
foreign copyrights; Russia must stop its discriminatory VAT 
treatment of U.S. songwriters; and they must clarify that its 
law provides a performance right for music incorporated in 
audiovisual works and movies.
    Based on our ongoing problems with China, we are under no 
illusions that Russia's entry into the WTO by itself will 
improve the predicament of ASCAP members. If Congress decides 
to grant PNTR, the U.S. Government must aggressively use all 
available enforcement tools to protect American songwriters, 
composers, and publishers. Agreements without enforcement may 
be worse than no agreement at all.
    It is a great honor, Senators, to sit down in front of you 
and share my thoughts with you. It is a privilege to be here, 
and I thank you for that.
    The Chairman. Thank you, Mr. Williams. As I said, Senator 
Hatch wished he were here to participate with you. Thank you.
    Mr. Williams. He is a damn good songwriter, did you know 
that?
    The Chairman. I know.
    Mr. Williams. And a member of ASCAP.
    The Chairman. I know that, too. I have heard some of his 
songs. They are pretty good.
    Mr. Williams. They are good.
    The Chairman. Yes. They are very good.
    Mr. Williams. Exactly.
    The Chairman. Yes.
    Mr. Williams. They get even better when I am in his office. 
[Laughter.]
    [The prepared statement of Mr. Williams appears in the 
appendix.]
    The Chairman. Next, Mr. Larson, former--were you Under 
Secretary of State in the Bush administration?
    Mr. Larson. Yes, sir.
    The Chairman. Clinton and then Bush administration?
    Mr. Larson. Clinton and Bush.
    The Chairman. Clinton and Bush. So, thank you very much. 
The Honorable Alan Larson. Thank you very much.

     STATEMENT OF HON. ALAN LARSON, CHAIRMAN OF THE BOARD, 
         TRANSPARENCY INTERNATIONAL USA, WASHINGTON, DC

    Mr. Larson. Chairman Baucus, Senator Kyl, distinguished 
Senators, thank you for the invitation to testify. My testimony 
is informed by many experiences: formerly as Under Secretary of 
State for Economics during the Clinton and George W. Bush 
administrations, currently as senior international policy 
advisor at Covington and Burling, and currently as chairman of 
the board of directors of Transparency International USA.
    In 2009, my Transparency International counterpart--whom I 
am very pleased you had the opportunity to meet, Mr. Chairman--
and I participated in a private sector group that prepared and 
submitted a joint report to President Medvedev and President 
Obama entitled, ``Russia-U.S. Joint Working Group on Investment 
and Institutional Integrity.'' Separately in 2009, I served as 
co-chair of a private sector advisory committee that provided 
the administration with recommendations on a new bilateral 
investment treaty.
    My written statement describes three sets of disciplines. 
You could think of them as a triangle that forms the foundation 
for a solid rule of law framework for international business 
activity: first, trade disciplines; second, investment 
disciplines; and third, institutional integrity.
    When only one or two of those are in place, the rule of law 
framework for business is not as strong, nor as stable as it is 
when all three sides of the rule of law triangle are in place. 
I believe Congress and the administration should be partners in 
ensuring that all three sides of the rule of law triangle 
become firmly established in our economic relationship with 
Russia.
    In my testimony--in my written testimony--I urged that six 
actions be taken: one relating to trade, two recommendations 
relating to investment, and three recommendations relating to 
institutional integrity and controlling corruption.
    I believe Congress should be engaged in, and exercise 
continuing oversight on, these actions which will strengthen 
the rule of law for business. First, Congress should extend 
permanent normal trade relations to Russia. Doing so is in our 
foreign policy interest, and it is in our economic interest.
    Second, the administration and Russia should initiate, and 
vigorously pursue, negotiations for a bilateral investment 
treaty which both countries' legislatures then should ratify. 
Russia failed to ratify an investment treaty negotiated in 
1992, and, as a result, U.S. investors in Russia lack important 
rule of law protections.
    Third, the administration should advocate for U.S. 
investors in Russia and vigorously espouse the claims of U.S. 
investors in Yukos Oil, whose investments were expropriated in 
2004 through 2007. In the absence of an investment treaty, 
these investors do not have the opportunity to pursue dispute 
settlement through investment treaty arbitration mechanisms.
    Fourth, the administration should vigorously work to ensure 
that all parties to the OECD anti-bribery convention, including 
Russia, fully carry out their commitments under the convention 
to prevent overseas business bribery by their nationals.
    Fifth, Russia and the United States should intensify work 
to ensure that Russia's customs tax administration and 
judiciary are freer of corruption.
    Sixth, Russia and the United States should cooperate to 
expand the scope for civil society organizations such as 
Transparency International to monitor, investigate, and report 
on suspected instances of corruption.
    I believe the executive branch and the Congress can be, and 
should be, partners in this work. I would urge the executive 
branch to present to Congress a plan to implement all of these 
measures to strengthen the rule of law.
    I would urge the Congress to exert active and continuing 
oversight to ensure that the executive branch presents a plan, 
implements that plan vigorously, and makes progress for 
business in putting into place all three sides of the rule of 
law triangle--the trade side, the investment side, and the 
institutional integrity side. Thank you.
    The Chairman. Thank you very much, Mr. Larson.
    [The prepared statement of Mr. Larson appears in the 
appendix.]
    The Chairman. Some American businessmen tell me they do not 
want to do business in Russia, do not even try, because of 
corruption. It is just not worth it. In fact, I think I saw a 
study somewhere where an international organization ranked 
countries according to political corruption, and Russia was 
pretty close to, not the bottom, but it was way down near the 
bottom.
    So I would like to ask Mr. Allen, Mr. Pollett, or you, Mr. 
Larson, Mr. Taylor, any of you who wishes to respond, what 
should be done about that from the U.S. perspective? Does 
granting PNTR help or hurt in that effort? Mr. Allen?
    Mr. Allen. From our perspective, we have been doing 
business, as I indicated, for a long time and have had a 
significant presence now in the last decade. Corruption is an 
issue. There is no doubt that it exists.
    But there is corruption in a number of countries, and it is 
the company and its business conduct that is the important part 
of this. When we go to these countries, countries like Russia, 
we establish strong conduct guidelines, and we assure that our 
operations run themselves that way. We think that ends up being 
a promoter of improved conduct in the entire business 
community.
    I can tell you that, when you establish a reputation there, 
that way you can be effective. The plant that you visited was 
built in 9 months. Nine months. That is hard to do anywhere in 
the world. People say it cannot be done in Russia because of 
all of the ``corruption.'' It was done ethically, all above 
board, and done in a 9-month period of time, working in 
conjunction with Russian government officials.
    So it is something that we have to deal with. We take it 
very seriously. We enforce it very seriously with our people. 
But no doubt about it, permanent normal trade relations will 
only continue to improve the climate. You will not solve it 
overnight, but it will improve the climate.
    The Chairman. Mr. Pollett, what do you say about that? I 
have talked to a good number of American businessmen who say, I 
am not going to go over there, it is too corrupt.
    Mr. Pollett. Mr. Chairman, I would like to echo many of the 
comments made by Mr. Allen. We have had the similar experience 
in many markets around the world. When you work outside the 
United States, you need to be prepared to be working in 
different environments, including addressing corruption.
    At GE, of course, we work according to the rules in every 
country where we are. It does make it more challenging, 
probably more expensive. You have to have a lot more lawyers in 
Russia.
    The Chairman. What do you tell a mid-sized company, not as 
large as GE?
    Mr. Pollett. It is more challenging, to be honest. We have 
a very large profile in the country. We have a large profile at 
the government as well, and they know who we are. It is easy 
for us to push back, to be very honest with you. But I have 
been there for 13 years, and I have seen a very dramatic 
improvement from what it was like back in the late 1990s, early 
2000s.
    The Chairman. So, how much will granting PNTR, or failure 
to grant PNTR, help or hinder mid-sized American companies from 
doing business in Russia?
    Mr. Pollett. I think it would help because it brings us 
together into the WTO rules-based system. I think it is 
something that is very important that will help all American 
companies, not just the large multinationals.
    The Chairman. Will it help encourage Russia to join the 
OECD?
    Mr. Pollett. Yes, it will.
    The Chairman. Why?
    Mr. Pollett. They have already signed up to do that. There 
is a real sense, from what I see, that they do want to start 
doing some of the right things. They need foreign investment. 
They need companies to come in, and they need to be improving 
their operating environment. They recognize that as something 
they need to work on.
    The Chairman. All right.
    Let me ask you, Mr. Larson, about corruption and how to 
deal with it. You mentioned that a bilateral investment treaty 
needs to be negotiated. Will we be more likely or less likely 
to get that treaty with or without PNTR for Russia?
    Mr. Larson. Thank you. First of all, I would like to say 
that I do think that the two corporate leaders who just spoke 
have organizations that have shown themselves to be very 
serious about overseas corruption, and they have, frankly, very 
fine track records. We are privileged to be able to work with 
them on some of these issues.
    Second, Senator Kyl mentioned in his remarks that Russia--
as you did, too, Chairman Baucus--ranks very, very low on the 
Corruption Perceptions Index, and that reflects the fact that 
there is a widespread view among international business leaders 
and others that this is a serious problem in Russia.
    Third, I think it is a very good thing that Russia has 
decided to become a member of the OECD anti-bribery convention 
and has passed a law. They will not necessarily implement that 
instantly--a lot of western European countries did not--but it 
is a very good start that they are trying to discipline their 
own companies in respect to overseas bribery.
    Many, many observers say there is a very serious problem in 
Russia, especially in the customs tax administration and the 
judiciary. I think that the administration needs to continue to 
work with Russia on that.
    I noticed that Vladimir Putin, in an op-ed that he 
published in the Washington Post recently, said that there is a 
problem of systemic corruption, and he wants to, he said in 
this op-ed, tackle it.
    Well, we ought to take him up on it. The administration, in 
my opinion, ought to propose to Congress a plan for how they 
can follow up and work with the Russian government to tackle 
this problem to the benefit of our U.S. businesses.
    I do think that civil society organizations like 
Transparency International have a role to play. I think there 
should be scope for them to report on suspected instances of 
corruption, to be able to do that.
    Finally, Mr. Chairman, you asked about PNTR and its impact 
on all this. I think PNTR is definitely a plus, not just for 
trade relations, but it imposes a degree of discipline in trade 
relations that is a positive step on the rule of law. It is 
necessary. It is not all we need to do, but it is very, very 
important.
    The Chairman. Thank you. Thank you very much.
    Senator Kyl?
    Senator Kyl. Thank you, Mr. Chairman. I think we are 
getting right to the nub of the problem here, and that is, you 
talk about the three legs of the stool. When is the best time 
to negotiate over the other two legs of the stool, is it after 
you have granted PNTR or before?
    That is really the question, it seems to me. You have a 
little bit stronger hand to play if we explain that on, for 
example, the Bilateral Investment Treaties, we want the Duma to 
ratify the treaty that the United States has ratified. 
Expropriation is not something that in this day and age ought 
to be permitted among rule-abiding commercial nations.
    We will talk about Yukos in just a moment here, but is it 
not--rather than urging the administration to begin addressing 
the problem after PNTR--is this not the time that we would be 
better off addressing these problems, so that we could get the 
commitments up front, rather than trying to achieve them after 
we have granted the status? Let me ask you first, Mr. Larson.
    Mr. Larson. Senator Kyl, I think you raise a very important 
point. It is not an easy one, to be quite honest. I think that, 
in my experience in diplomacy, it is important not to let 
perfect be the enemy of good. I think my own personal view is 
that we should seize the opportunity that is created by PNTR, 
extend PNTR and have Russia be in the WTO.
    But if we stop there, then we have only done part of the 
job. I think, as I said in my oral remarks, this is something 
where the Congress and the administration should work together. 
It need not be a partisan issue. It is something that----
    Senator Kyl. Yes. Let me just interrupt. This is not a 
partisan issue.
    Mr. Larson. I know.
    Senator Kyl. And yes, Congress and the administration need 
to work together. My question goes to when we are most likely 
to get cooperation, which, let us face it, has been very 
difficult coming.
    I want to ask Mr. Williams a question, if I could here.
    Mr. Larson. But can I just----
    Senator Kyl. Sure.
    Mr. Larson. One half-sentence to finish.
    Senator Kyl. Sure. Sure.
    Mr. Larson. All right. Thank you, sir.
    I do think it is very important that Congress seize the 
opportunity to ask the administration to come forward with a 
plan for how they are going to implement these other sides of 
the rule of law triangle.
    Senator Kyl. Yes. Great. And I appreciate that. Our 
leverage is, we will withhold action until that plan is 
forthcoming, and we can negotiate with the Russians. None of us 
here objects to the proposition that Russia can accede to WTO 
with U.S. approval. And our good folks doing business abroad 
will do even more, and that will help us here in the United 
States. There is no disagreement about that.
    The question is, how do you negotiate the very best 
situation with a country that has dragged its feet over and 
over and over? And again, I hope to be able to get to the Yukos 
situation in just a moment. But Mr. Williams talked about a 
very practical problem, the very practical problem of the 
Russian court system.
    I just want to ask you, given the track record that you 
identified, do you have concerns that granting Russia PNTR 
before the Russian Duma takes steps to implement the 
intellectual property reforms and the other WTO accession 
commitments, reduces the leverage that we might otherwise have?
    Mr. Williams. Absolutely. I do have concerns. I am also 71 
years old, and I have reached that point in my life where I 
know that, when you move into an area where I lack the 
expertise to say one is better than the other, I would have to 
point it out that I am the wrong person to tell you that we 
need to make these adjustments before or after PNTR is granted.
    I will tell you, we are in the rare position at ASCAP and 
as music creators, unlike these gentlemen who have--and I 
understand your stance completely. We are in a position where, 
whether it is granted or not, our music is going to continue to 
grow, and movies will continue to grow in the country.
    So my specific concern, and as an organization, we do not 
have a specific stance on PNTR. I am sympathetic to it. 
Individually, I will tell you right now, I sit here and I can 
imagine watching the prospects of China stepping in if we 
cannot do business.
    For my organization, I have to represent them, and I would 
say that what we need is, no matter what happens with PNTR, we 
need some aggressive action from the part of the U.S. 
Government dealing with the Russian government, and dealing 
with the judges, dealing with the value-added tax that is 
totally unfair. Hopefully we will not wind up with a situation 
like China, where--you know, Senator, I get more money from 
Honduras than I do from China. It is terrifying.
    Senator Kyl. And because my time is so short, that is the 
point I am trying to make here. We tried to anticipate all the 
things that we could hold China to. We had a very thick 
document with China. Yet, you saw the report that I held up. It 
is very difficult, after you have granted the status, to then 
get them to really fulfill the commitments that they have made. 
That is the concern we have about granting the status to Russia 
prior to the negotiation of these other two legs of the stool.
    I am not suggesting that we can have perfection at any time 
when you are dealing with an emerging country like Russia, but 
at least you ought to try to understand, when you have the best 
negotiating position, to demand those things that, after all, 
are simply matters of rule of law that other commercialized 
nations recognized long ago.
    Mr. Williams. If I may, Senator, the one element that is of 
greatest concern to us too is that the value-added tax could 
become a precedent for other countries, and the damage to 
American music creators, songwriters, and composers is beyond 
what I could state here. It would be huge.
    Senator Kyl. I thank all of the witnesses. I wish I had a 
chance to visit with all of you. Thank you.
    Mr. Williams. Thank you.
    The Chairman. Thank you very much, Senator.
    Senator Cornyn?
    Senator Cornyn. Thank you, Mr. Chairman. Mr. Chairman, I 
want to spend my time actually covering a subject that may or 
may not call for a response from the witnesses, but I will 
invite that at the end. On February the 5th, Russia and China 
blocked a U.N. Security Council resolution that would have 
endorsed an Arab League plan for Assad in Syria to step down. 
It would have supported a demand that Syrian troops withdraw 
from towns and start transitioning to democracy.
    This is just the latest incident in which Russia has, for 
its own reasons, intervened in a way that destabilizes the 
world and helps Iran, in this instance, which is the main 
beneficiary of the continued regime of President Assad, to stay 
in power. But I want to highlight this issue. This has to do 
with how President Assad is getting arms with which to kill 
innocent Syrian citizens, some 8,000 of them according to 
reports from the United Nations.
    It is not only a question of Russians exporting arms to 
Syria to kill innocent civilians, it is also the fact that the 
Department of Defense, the U.S. Department of Defense, has a 
contract with that same Russian arms exporter.
    I sent a letter, Mr. Chairman, to Secretary of Defense 
Panetta, along with 16 colleagues, a bipartisan letter raising 
this issue, and I would like to have that made part of the 
record.
    The Chairman. Without objection.
    [The letter appears in the appendix on p. 43.]
    Senator Cornyn. I appreciate that.
    Well, imagine my surprise when I found that Russia is not 
only selling weapons to Hugo Chavez in Venezuela and to the 
Mullahs in Tehran, also Syria, but also that we have a contract 
at the Department of Defense to sell a set of helicopters, the 
21 dual-use MI-17 helicopters for the Afghan military from 
Rosoboronexport. This is a no-bid contract awarded by the Army 
just last summer, several months after the Syrian uprising 
began, and it is worth $375 million.
    That is $375 million U.S. taxpayer dollars going to a 
Russian arms merchant, arming President Assad, and with which 
he is killing innocent Syrians. It does not require a leap of 
logic to conclude that the proceeds of this contract are 
helping to finance these mass atrocities. I should also note 
that Syria has a history of not actually paying for those 
weapons.
    According to press reports, during a 2005 state visit by 
Assad to Russia, then-President Vladimir Putin wrote off nearly 
75 percent of Syria's $13.5-billion debt to Russia for past 
arms sales. I think it is unconscionable that U.S. taxpayers 
would be put in this position where their hard-earned tax 
dollars would indirectly subsidize mass murder.
    Yet, the Department of Defense has so far refused to cancel 
this contract, even in the face of mounting evidence that 
Rosoboronexport remains a key enabler of the Assad regime's 
campaign of murder and intimidation.
    Let me just conclude by asking a rhetorical question, and 
any comment any of the witnesses would care to make would be 
welcomed. Sure, we want to create jobs here in America. We want 
to trade with international partners and grow the economy both 
in those trading partners' countries and here in the United 
States.
    But at what point, whether it is corruption, whether it is 
enabling international terrorists, States like Iran, whether it 
is arming thugs and murderers like President Assad in Syria, do 
we say the cost is just too high in terms of sacrificing our 
basic values and protecting human rights? Mr. Allen?
    Mr. Allen. That is quite a set-up.
    Senator Cornyn. Well, I did not intend it as a set-up. I 
intended it as an honest question, and if you have anything you 
would like to say about it, I would appreciate it.
    Mr. Allen. I will try to do my best. As I was listening, 
those are all other issues out there. What I am not able to 
correlate is how PNTR status will--and preventing it--in any 
way, change those issues. Those issues still need to be solved. 
I would argue that giving Russia PNTR status, giving a chance 
for all of us to continue to move that country along, will be a 
positive.
    I think what a lot of people are not looking at right now 
is, this is not just about growing jobs. They are going into 
the WTO. If we do not go with it, it is about losing jobs 
because our businesses are all going to go down vis-a-vis our 
competitors. I have real-life examples I could give you.
    The Chairman. Senator Menendez? No, Senator Kerry, you are 
next. I will let them decide between themselves who is ready. 
Do you want to wait, Senator?
    Senator Kerry. I will just wait one round, yes.
    The Chairman. All right.
    Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman. I want to pick 
up on what some of my colleagues have spoken about here. I 
appreciate that Russia presents a tremendous business market 
for American companies and that WTO rules will hopefully level 
the playing field for American companies to do business in 
Russia.
    But at the same time, lifting Jackson-Vanik is a huge 
benefit to Russia, and I am sure all of you as business people 
understand the essence of leverage in a negotiation. That is 
not something that is abstract. I think you do that all the 
time in your businesses. It seems to me this is a moment in 
which there is leverage at the end of the day. This is a huge 
benefit to Russia, both politically and economically.
    A lot of us are not feeling like this is a good time to be 
rewarding Russia for anything. The recent elections make a 
mockery of democracy. Democratic governments are far better for 
business to operate under. Transparency, rule of law, safety of 
contracts, protection of intellectual property--that happens 
more likely in a democracy than not. The human rights situation 
in Russia is not improving.
    The case of Sergei Magnitsky, which my colleague Senator 
Cardin has been the champion of, is not an exception, 
unfortunately, by any means. When we asked for help from Russia 
at the U.N. Security Council to stop Iran from acquiring a 
nuclear weapon, and to help prevent the killing of innocent 
citizens in Syria, we got ``nyet'' in return.
    Now, let me make the case for our business friends about 
how that affects us here. Look at what gas prices are going 
through because of instability in Iran, gas prices not only for 
consumers in America and drivers in America, but for the 
creation of products, when all of you use fuels that are 
necessary for creation of a product or the transportation and 
delivery of your products to the marketplace. So I look at 
this, and I can make real connections, not only on the 
principle of human rights, but on the economics of it as well, 
domestically.
    So what I would hope we would see from the business 
community, which seems to be lacking, is a dual-track approach 
that addresses everyone's needs and concerns, where we find a 
way forward on repealing Jackson-Vanik but also find a way 
forward on trying to improve Russia's human rights records. We 
need a vehicle like the Magnitsky bill, for example, that sends 
a message to Russia that we are serious about human rights and 
that we will deny visas and block assets of persons who are 
human rights violators.
    So I would like to ask, particularly the members of the 
business community here, do you not see the correlation between 
the consequences of a Russia that does these things and the 
domestic concerns that we have that actually affect your 
businesses, in addition to the value that you obviously see, as 
it relates to WTO accession?
    And can you not join in the voices that say, yes, let us 
remove Jackson-Vanik so that we can get the full benefit of 
Russia's participation in the WTO, but let us also pursue these 
other things that actually have an effect, not only in terms of 
our legitimate interests in human rights and democracy, but 
also in real economic consequences here back at home.
    And then finally, I would like to ask that of all the 
business leaders. To Mr. Larson, I would like to ask, do you 
perceive the ability of Russia to eliminate the pervasive 
corruption that seems to affect all aspects of Russian life?
    Many American companies, particularly in the energy sector, 
have seen contracts broken and agreements altered by heavy-
handed regulation and open-handed bureaucrats. Will the WTO 
membership actually solve all those problems? So I would like 
to get those two, quickly if we can, because I have about a 
minute left.
    Mr. Allen. So, my quick part, I would say, first, most 
people recognize India as a large democracy. We deal with every 
bit of the corruption in India that we deal with in Russia. So 
I think we certainly want to see that corruption change, but 
the culture and the continued movement forward is going to be a 
long process. It will not be an event-driven process.
    Senator Menendez. And on the first part of my question, do 
you not see the nexus between the actions Russia takes that 
affect us here domestically, economically? You do not see that 
effect upon your company?
    Mr. Allen. Yes, I do see those actions. There is a timing 
issue that is also--the part that I keep trying to reinforce 
is, they are going to move into the WTO, and we are going to 
lose any additional leverage as a result of that. They will be 
doing trade with other partners, and we will be at the 
disadvantage, and we will have less opportunity to influence 
them going forward as a result of that.
    Senator Menendez. Mr. Chairman, if I could just get Mr. 
Larson to answer the latter question.
    Mr. Larson. Thank you, Senator Menendez. What I have 
recommended is that, on the occasion of congressional 
consideration of PNTR, that the administration should present a 
plan for tackling some of these corruption issues: (1) making 
sure that Russia adheres to its obligations under the OECD 
anti-bribery convention, which it has just joined; (2) that 
there be serious cooperative effort to tackle the issue of 
corruption in customs, tax administration, and the judiciary; 
and (3) that there be scope for civil society organizations to 
report on instances of suspected corruption.
    I think all of that is part of creating a strong rule of 
law framework for business. I also believe that the extension 
of PNTR and repeal of Jackson-Vanik is a part of that rule of 
law framework. That also will assist, but I think we should do 
both.
    The Chairman. Thank you.
    Senator Kerry?
    Senator Kerry. Mr. Chairman, thank you. I want to thank you 
for your statement. I thought you hit the nail on the head, and 
I appreciate your leadership in this effort. As chairman of the 
Foreign Relations Committee, I think we are all, on our 
committee, pretty sensitive to the complexity of our relations 
with the Russian Federation. We held hearings recently on the 
subject of human rights and democracy in Russia, and I expect 
we will continue to do that.
    But, I would say to Senator Kyl and others who are sort of 
questioning this thing, we are sort of talking past each other 
a little bit here and I think missing the point. Russia is 
going into the WTO. This is not a negotiation like Panama or 
one of the other trade treaties we had, where we were opening 
up and lowering tariffs, and doing things. We are not there. We 
do not do anything. Russia is in the WTO. If we do not lift 
Jackson-Vanik, we are denying our own workers access. That is 
all that happens here.
    What is interesting is--I hope, Senator Kyl, you have seen 
the letter recently. It was an open letter by Russian 
opposition activists stating their strong view that the 
continued application of Jackson-Vanik to Russia is ``not 
helpful for the promotion of human rights and democracy in 
Russia,'' and efforts to punish Russia by retaining Jackson-
Vanik restrictions only ``darken Russia's political future, 
hamper its economic development, and frustrate its democratic 
aspirations.'' So, I think we have to listen to the folks in 
Russia who are on the ground fighting for some of these things, 
number one.
    Number two, we ought to just sort of look basically and 
factually here. Russia is going to join the WTO whether or not 
we grant PNTR. Granting PNTR is the only way American workers 
and producers are going to see the benefits of Russia's 
accession to the WTO. So, if we want to cut off our nose to 
spite our face, we can sit here and complain about what is 
happening there. It is a pretty simple equation.
    So let me ask Mr. Pollett, who produces in our State--and 
we are proud of what GE does up there in its aviation 
subsidiary--will failing to pass PNTR for Russia not put your 
workers in Massachusetts at a disadvantage when we are trying 
to sell into the market without it?
    Mr. Pollett. It would absolutely put us at a competitive 
disadvantage to our European and Asian counterparts.
    Senator Kerry. And you would not have recourse to WTO 
arbitration, would you?
    Mr. Pollett. Correct, Senator.
    Senator Kerry. So what are the risks of losing market share 
in Russia if we do not pass PNTR?
    Mr. Pollett. To the tune of hundreds of millions of 
dollars, and probably several hundred U.S. jobs in the aviation 
industry.
    Senator Kerry. And I understand that the bilateral treaty 
that we have on the most favored nation status only applies to 
exports in goods. Is that correct?
    Mr. Pollett. Correct.
    Senator Kerry. So even with our bilateral agreement, if we 
do not pass the PNTR, that does not deal with it, because the 
largest trade gains are probably going to be in services. Is 
that not correct?
    Mr. Pollett. Also correct.
    Senator Kerry. And the only way we open that up is to lift 
Jackson-Vanik?
    Mr. Pollett. Correct.
    Senator Kerry. Because Jackson-Vanik, which is--
incidentally, I would say to my colleagues, we ought to do the 
things we say we are going to do. Jackson-Vanik is about 
emigration. Every President has signed off, since it went into 
effect in 1974, that they are dealing with emigration. We did 
it in order to allow the emigration of Soviet Jews. That has 
happened, and is happening.
    So we send a terrible message as we try to negotiate with 
people when we kind of pull things out and misapply them and 
counter-apply them. We do not have any protection under the 
bilateral agreement, do we, on intellectual property rights? I 
think Mr. Williams spoke to that. And the dispute settlement 
process at WTO at least gives us that kind of protection, does 
it not, Mr. Williams?
    Mr. Williams. Well, in China WTO did not exactly solve all 
of our problems. To give that specific example, in 2001 China 
was admitted to WTO. In 2009, they established a rate for our 
music on radio and television. Incidentally, it was a tiny 
rate, and they paid us for that year and that year only.
    So, as I listen to you talk about the human rights issues 
and all these elements and the problems everyone is facing, you 
make amazing sense. I understand that. But for my organization, 
we are looking at a situation where WTO is simply, without 
really aggressive action from our government to protect----
    Senator Kerry. Well, we need aggressive action. I mean, a 
lot of folks here, myself included, have been arguing that we 
need to get tougher.
    Mr. Williams. Yes.
    Senator Kerry. And we can do more within the context of 
China, and I think we are pushing to do that. But my time is 
running out. I do not mean to cut you off, but I want to ask 
Mr. Larson one question here.
    Does the existence of Jackson-Vanik today further the cause 
of democracy and human rights in Russia in any way that we can 
measure?
    Mr. Larson. I have testified that I think that removal of 
Jackson-Vanik and extension of PNTR is an important step in 
establishing a rule of law basis for our relationship. I think 
there are a lot of other things that we should do, and I am 
urging that we go forward with those as well.
    Senator Kerry. Our Ambassador to Russia has called for $50 
million of new money to be supportive of civil society 
development efforts in Russia. Given your familiarity with 
Russia, do you think we should make that money available, and 
could it be put to good use for reform efforts?
    Mr. Larson. I think that would be a good step. We have to 
strengthen civil society in Russia. One of the things I 
advocate is that we work with the Russians to establish more 
space and freedom for civil society organizations, like 
Transparency International, to call out instances of suspected 
corruption and deal with them. I think strengthening non-
governmental organizations such as those is a good thing. As I 
understand this proposal, that would be one additional tool for 
doing so.
    The Chairman. Your time is----
    Senator Kerry. Sorry. My time is up.
    The Chairman. I think Senator Kyl would like to----
    Senator Kyl. Just one second. Since Senator Kerry might 
have been out of the room when I put the letters in the record, 
the piece in the Wall Street Journal by Kasparov and Nemtsov 
specifically referred to the letter that you quoted.
    As they say, of course no one in Russia is foolish enough 
to defend Jackson-Vanik, but we also understand it should be 
replaced with something else, and we said as much in our letter 
when we recommended the passing of the Magnitsky Act, as has 
been done in Europe.
    The Chairman. Next, Senator Grassley?
    Senator Grassley. I was in and out because of other 
committee meetings. I think that, looking over your testimony 
and hearing what I heard, I do not have any disagreement with 
the points you made.
    I would like to make this point, and maybe it refers more 
to agriculture than it does to other aspects of our economy. 
But Russia was invited into the WTO, and, if they change their 
laws by a certain date in June that they have to change them, 
then it is our responsibility to deal with Jackson-Vanik. In 
various times in the past, I have found reason to vote to 
change Jackson-Vanik for particular countries.
    The thing that bothers me is that, once a country is in the 
WTO, I know we have the process of the WTO to resolve 
differences. It is kind of a very rigorous process, and one 
that is not very easy to predict what might happen, but you 
hope the rule of law is going to govern in the final analysis.
    But between now and whenever we have to deal with Jackson-
Vanik, it seems to me that the White House is not doing what 
they ought to be doing to use the pressures that we have yet to 
make sure that, particularly in agriculture and particularly 
with pork, that Russia lives up to the spirit as well as the 
responsibilities of the WTO. That is what I would call upon the 
White House to do, if they want to have smooth sailing on the 
Jackson-Vanik proposition.
    I will yield back the rest of my time, Mr. Chairman.
    The Chairman. All right. Thank you, Senator.
    Senator Wyden?
    Senator Wyden. Thank you very much, Mr. Chairman. I thank 
you for holding this hearing. I think it is particularly 
important. I chair the Trade Subcommittee here at the Senate 
Finance Committee, and to me, really the threshold question on 
this whole issue is respect for rules.
    The question about how permanent normal trade relations for 
Russia would in effect bring about better compliance of trade 
rules--as a trade supporter, I have consistently supported 
these trade agreements. What I have tried to say is, free trade 
does not mean trade free from rules.
    I have real questions with respect to the United States 
using its WTO rights to insist that Russia comport with global 
trade rules, and I think part of what you have said in 
particular today, Mr. Williams, raises some of those concerns. 
That is what I want to explore for a minute. You all have 
talked about the challenges in terms of doing business in 
Russia. We are talking about discrimination, corruption, 
expropriation, a failure to enforce intellectual property 
rights, a host of issues that relate to this question about 
rules compliance.
    For me, an indicator of the administration's appetite to 
enforce Russia WTO commitments might be found in looking to the 
degree of interest we have seen in enforcing the eligibility 
criteria for the Generalized System of Preferences, what is 
known as GSP. I want to just spend a quick minute looking at 
how GSP has applied to Russia.
    Now, GSP is a preferential program--we have looked at it on 
the Trade Subcommittee--that provides duty-free treatment of 
imports from Russia so long as Russia complies with the 
eligibility criteria that Congress established in the program. 
The criteria include effective protection of intellectual 
property, equitable access to Russian markets, and a 
requirement that Russia not expropriate property. So I want to 
ask a question of you, Mr. Williams, and you, Mr. Larson, 
because you have touched on it.
    So you have had some experience, Mr. Williams. This is not 
an abstract kind of question. You have had experience with 
respect to the intellectual property question. I would just 
like to ask you about what happened when you brought your 
concerns about Russia's lax enforcement of intellectual 
property to the U.S. Trade Representative. What did they do 
about it?
    Mr. Williams. You know, this is a greatest country in the 
world to be a songwriter in. I had complete access to State, to 
Commerce. I can sit down with Victoria Espinel at the IP 
Enforcement Office, and I get an immediate response. We have 
used a 301 in other areas, in China and in the Caribbean. What 
we are dealing with in Russia that is unique, I think, is that 
the organization that we are dealing with, RAO, is pretty 
straight-ahead.
    This is not a fly-by-night organization, but they are 
constantly--the Russian government is completely unwilling to 
really accept the fact that they represent us and that we can 
do business back and forth.
    So my problems are not with the way that we are being 
handled in the United States. I have had wonderful access. What 
you have given us today, the opportunity to really, as you look 
at PNTR, you give us the unique position of being able to come 
and walk into this room and state our position.
    So, we have had wonderful response from our own government, 
but we need more aggressive--if we are going to move forward 
with or without the PNTR, we really need more aggressive action 
from our government to the Russian government in protecting our 
rights. This value-added tax is horrific and has the potential 
for affecting our livelihood in the future.
    Senator Wyden. My concern, Mr. Williams, is, if we are not 
seeing GSP criteria used to try to get you and others a fair 
shake--and it goes to a point Mr. Larson made as well--why 
would we expect it would be used on WTO rights?
    Mr. Williams. I do not know. The quick, honest answer is: I 
do not know. All I know is we have tools that can be used 
within the government, and my request is that you will honor us 
with that.
    Senator Wyden. My time is up. Mr. Chairman, can Mr. Larson 
just respond?
    The Chairman. Go ahead. Did you have another question?
    Senator Wyden. No, no, Mr. Chairman. My time is up. If Mr. 
Larson could just respond to the question.
    The Chairman. Sure.
    Senator Wyden. Great. Thank you, Mr. Chairman.
    Mr. Larson. Senator, my point of view is that we do need to 
make a concerted push as a country on a range of rule of law 
issues in Russia. I advocate the extension of PNTR and the 
repeal of Jackson-Vanik. But I think at the same time it would 
be important for the administration to come forward, to the 
Congress, with a plan for addressing some of the issues you 
just raised, some of the issues I raised in my testimony about 
the investment relationship, and some of the issues that we all 
have with the corruption environment, and to present it to the 
Congress, and for the Congress to have a process for holding 
accountable the administration and making progress to address 
these issues.
    This would be a path going forward that would have us 
working together, between the Congress, the administration, and 
Russia, to strengthen the rule of law. It would not interfere--
I am not talking, Mr. Chairman, about a conditional extension 
of PNTR. I am just saying, let us tackle all of these problems 
right now as we tackle immediately the PNTR issue.
    Senator Wyden. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Mr. Larson, I am glad you made that very clear, that it 
would not be conditional. I think that is a very important 
point you just made, that it not be conditional. You would like 
the United States, as we all would, to negotiate a bilateral 
investment treaty with Russia.
    You would like us to grant PNTR to Russia. Ordinarily, in 
all negotiations with countries and businesses and whatnot, you 
sequence your goals and you try to leverage one against the 
other to get a mutual agreement. You would agree, would you 
not, that this is not that case? That is, there is no leverage 
here. I believe that countries generally do not grant 
concessions, trade concessions, altruistically out of the 
goodness of their heart. They do not do that. They only do it 
if there is leverage. You have to leverage a country to give in 
to something, to do something it knows it should do, but 
otherwise gets away with not doing. You need leverage.
    Now, in this case PNTR is not leveraged. There is no 
leverage here. If the United States does not grant PNTR, that 
does not hurt Russia one whit. It hurts the United States 
dramatically. If we do grant PNTR, it helps Americans. It does 
not help Russia, it helps us. As was pointed out earlier, this 
is not a free trade agreement negotiation. There is no 
negotiation going on here. Either we grant PNTR--that is, 
ourselves--or we do not.
    If we do not, we deprive Americans access to Russian 
markets, we deprive Americans access to the WTO procedures. We 
are just hurting ourselves; we are not hurting the Russians. I 
agree, we should talk to Russia about a bilateral investment 
treaty. We cannot sequence these things, because there is no 
leverage. There is no leverage here.
    The United States has no leverage over Russia on PNTR. We 
only hurt ourselves; we do not hurt them. But it is true. At 
the same time, in my judgment, we should start talking 
aggressively and seriously to Russia and to China, and every 
other country that is not following the law and the rules here.
    Mr. Larson?
    Mr. Larson. I agree with that. But I do think we have 
leverage with Russia, but not on PNTR.
    The Chairman. Not on PNTR.
    Mr. Larson. No. We are in agreement.
    The Chairman. And this hearing is on PNTR.
    Mr. Larson. No, no. And all I am saying is that I think in 
the context of considering extending PNTR, it is the time to 
have a plan for tackling these other issues, and to make sure 
that we are aligned between the Congress and the 
administration.
    The Chairman. Right. And I think, why did Russia join the 
WTO? Well, Russia wants to join the WTO, and I guess it will if 
the Duma grants it later on this year, because it wants to be 
part of the world community, and it will help Russia's economy 
as well as its stature if it is part of the WTO. But Russia is 
already going to be part of the WTO, irrespective of what the 
United States does here.
    So the question is, once Russia has joined the WTO, do we 
help ourselves by granting PNTR, or do we hurt ourselves by not 
granting PNTR? At the same time, I believe Russia very much--
many in Russia, not all; I am sure there is a battle in Russia 
going on--does want to address a lot of the concerns we have 
been talking about.
    For example, a more independent judiciary. I have spent a 
lot of time--not a lot, some time--in Russia talking about the 
need for a more independent judiciary in several ways. One is 
to have a transcript. Have a transcript of proceedings, 
judicial proceedings. There are no transcripts these days. 
Second, to have default to trial by jury, not by the judge. 
Third, transparency--open judicial proceedings, not closed 
judicial proceedings. You get all that together, and that is 
going to very much help.
    I asked President Medvedev about those three points and he, 
I will not say disagreed, but he basically agreed. Then I 
asked, do you agree with the premise of my question that these 
changes are really critically necessary for Russia to advance, 
and he said, yes, he agrees to the premise of my question.
    Then after that, too, with all the points that human rights 
groups have made over there in Russia, namely repeal of 
Jackson-Vanik helps us address our human rights causes. It does 
not hurt us, it helps us, because otherwise sometimes Putin, 
sometimes others, will then use the failure of the U.S. to 
grant PNTR as leverage, as a foil to attack the United States 
and help themselves politically. So I just think this is a no-
brainer.
    At the same time, we have to work very hard to address the 
Syria issues, Iran, Magnitsky, missile defense. They are all 
extremely important, but we do not have leverage over Russia on 
any of those issues with respect to PNTR. We would have to find 
other ways to use leverage.
    Senator Kyl?
    Senator Kyl. Well, Mr. Chairman, let me just ask a question 
of Mr. Larson. If we pass legislation for PNTR and nothing 
else--in other words, we do not deal with Jackson-Vanik--have 
we accomplished anything?
    Mr. Larson. Senator, I think the way that we can accomplish 
something, and what I----
    Senator Kyl. No, this is a really simple question. I will 
put it a different way.
    Mr. Larson. All right.
    Senator Kyl. Is it not necessary to repeal Jackson-Vanik 
for the adoption of PNTR to mean anything for U.S. businesses?
    Mr. Larson. We need to repeal Jackson-Vanik and extend PNTR 
for our businesses to get the benefit of Russia joining the 
WTO.
    Senator Kyl. Exactly. That is why there is leverage. Nobody 
here can say that the Russians do not want repeal of Jackson-
Vanik. They do. This is something the Russian leadership wants 
desperately. It is something Putin talks about. Mr. Chairman, 
your comments reflect that. So there is leverage. There is 
leverage with regard to Jackson-Vanik.
    The Chairman. Just so I am clear--because that is not what 
I said--I want to make clear what I said. I said that Putin and 
others used failure to repeal Jackson-Vanik as leverage. So, if 
we repeal it, it is no longer leverage.
    Senator Kyl. The point is, in deciding whether or not to 
repeal----
    The Chairman. You want leverage to help them?
    Senator Kyl. Mr. Chairman, if you want to argue with me--
they need Jackson-Vanik repealed. They want it repealed 
desperately. That is beyond any argument.
    The Chairman. I disagree with that.
    Senator Kyl. All right. Then we have a disagreement here on 
the dais.
    The Chairman. That is not what I found.
    Senator Kyl. And I believe that the United States has 
leverage with Russia, that good Russian commercial business 
folks would like to see the United States have an opportunity 
to do better business with Russia. They would like to see these 
rule of law changes that all of you have identified here. They 
understand that corruption and the lack of an investment treaty 
are hurting investment in Russia. They understand that.
    They would like to see Jackson-Vanik repealed so that the 
PNTR would be effective, and that would help us as well. But I 
think it is absolutely erroneous to say that there is no 
leverage for the United States with respect to Jackson-Vanik.
    The question is, will it go beyond the human rights abuses, 
like the Magnitsky Act, which I presume will be a part of this, 
or will it involve other changes as well? I am simply 
suggesting that we have an ability here to get the Russians 
more engaged than they have been, and that rather than doing 
this without any other conditions, as you say, like the 
Magnitsky Act, I think we ought to consider that. This is not a 
question, but I think, Mr. Larson, your comment is, yes, it 
would be ineffective without the repeal of Jackson-Vanik, just 
passing PNTR.
    Mr. Larson. What----
    Senator Kyl. And also your point, which is that there is 
some leverage between the two branches of government here, that 
Congress has an ability to engage the administration perhaps 
more than the administration has been engaged.
    Mr. Larson. I just want to state the sentence the way I see 
it, and try not to step in between the chairman and Senator Kyl 
on this last issue.
    The Chairman. No, no, no.
    Mr. Larson. But here is what I am advocating, Mr. Chairman.
    The Chairman. You can step in wherever you want to step in. 
Do not worry about that.
    Mr. Larson. Here is what I am advocating. I think that it 
is the right time for the administration to work with the 
Congress to establish a plan for moving forward on all of these 
aspects of rule of law. They all relate to the business 
environment: investment, corruption, and PNTR. I think, as I 
have said before, that we should move forward.
    As part of that consideration, we should move forward with 
the extension of PNTR. I think you said, Mr. Chairman, that the 
Duma itself has to--Russia has to take its actions. I 
understand that intelligent observers believe that is likely to 
happen sometime in June or July.
    So I think we should be thinking about what needs to be 
done in the United States in that same time frame, one, on 
PNTR, but two, on cooperation between the Congress and the 
administration on how we are going to tackle the other rule of 
law issues that we see.
    Senator Kyl. Thank you.
    The Chairman. Thank you.
    Just one final point for Mr. Taylor. Watty, I might tell 
you that a few people in our State have been following this and 
want us to grant PNTR. Last weekend when I was home, I got my 
hair cut at the Capital Barbershop in Helena, MT by Larissa. 
Larissa is a Russian. She told me that she has been following 
this, and that she had written to her relatives in Russia, 
telling them they could expect to get more American beef, 
especially Montana beef. I was very, very pleased to hear that.
    Could you just tell us a little bit about how we can 
improve our export markets under this proposal?
    Mr. Taylor. Senator Baucus, going to PNTR is going to give 
us country-specific tariff rate quotas that we do not currently 
have under the bilateral agreement or Jackson-Vanik. The other 
thing that this does is, this opens us up to high-quality beef, 
which is what we are very good at producing in this country. 
That will go in under, I believe, a 5-percent tariff with no 
quota. I think we can take full advantage of this.
    To address some of these other issues, I guess what I would 
like to say is this. If we do not do it, if we are not trading 
with Russia, somebody else will. I think we want our influence 
to be in Russia. I think we want them to go to a democratic 
style of government.
    Our people who are sending cattle over there, and are in 
those enterprises over there, I think are a perfect example, 
and they can show these people what democracy is all about. I 
think that is something that agriculture, I think, displays 
very well.
    The Chairman. Thank you so much for saying that. One thing 
that struck me, and I had mentioned this already to Mr. Allen, 
and it just stuns me, is how big the potential of agriculture 
is in Russia. When your manager there, Mr. Allen, told me that 
in Russia--first of all, I was very impressed with the 
equipment over there. He was very, very careful when I asked, 
well, what is your Russian competition?
    He did not want to be too critical, but he was very 
appropriate in describing just the high quality that Deere has. 
But the main point I am making is, your manager over there told 
me that, when a manager of a Russian farm tells his operator 
where to combine, where to disk, where to drive his tractor, 
the manager tells the operator, well, you get up first thing in 
the morning and you just go straight as far as you can, and do 
not turn. You just go straight. Then midday, you stop and you 
turn around and come back. That is how big some of those fields 
and pastures are over there. I was just stunned.
    He told me also about the arable lake regions in Russia. He 
told me about the water. Irrigation is going to soon be 
available. How much water there is in Russia on a per-person or 
per-hectare basis compared with other countries--it is just 
tremendous potential over there. But I would tell you, Watty, 
we think we have big places in our State? Some of the places 
over there are pretty big. But thank you for your testimony.
    Senator Thune?
    Senator Thune. Thank you, Mr. Chairman. Thanks for holding 
the hearing. I want to thank our panelists for coming and 
providing your testimony and responding to questions. This 
hearing is somewhat unique in that we are actually talking 
about whether or not to repeal the law, the Jackson-Vanik 
amendment as it currently applies to Russia. I think a lot of 
people believe it has outlived its usefulness.
    I know that that will probably be a discussion that will 
continue here. But I think it is important that we do 
everything we can to provide U.S. businesses greater access to 
markets. There is a growing export market in Russia.
    I know that people like Mr. Williams are interested in 
intellectual property protections, which is something obviously 
that would be addressed when Russia does come into the World 
Trade Organization, with some of the disciplines that exist 
there.
    So I guess this is an issue where, as you look at the 
economics of it at least, it certainly looks like it is sort of 
a 1-way street in terms of the benefit to U.S. producers and 
exporters.
    But I wanted to just ask a question, and I guess maybe of 
Mr. Pollett and Mr. Allen. It is hard to ignore the fact that 
American companies have very little market penetration in 
Russia. In fact, right now, U.S. producers account for about 4 
percent of Russia's total import market, while the EU accounts 
for about 43 percent.
    I guess my question is, why is this the case? Then perhaps 
a follow-up to that, if the United States does not grant Russia 
PNTR status, do you expect this disparity to grow even larger 
than it is today?
    Mr. Allen. From our standpoint, maybe to frame it, we did 
about $800 million of business in Russia this last year. 
Seventy percent of that was products that came out of the 
Midwest. So, that is kind of the opportunity. Because of what 
the chairman talked about in terms of Russian agriculture 
potential, we think our market is going to grow by 4 to 5 
times.
    It has not grown up to this point in time because the whole 
country is starting to develop and move away from the Russian-
based equipment that is very low in productivity, to running 
high-productivity farm operations, but that transition is now 
going on.
    To answer the second part of your question, our number-one 
competitor over there is another western company called Claas 
out of Germany. Germany will have the benefits of WTO with 
Russia, so, if we do not pass PNTR, what is going to happen is, 
they immediately have a major benefit from a cost standpoint to 
us, and, instead of seeing our business grow 4 or 5 times, we 
will see our business shrink.
    Mr. Pollett. Senator, I think one of the reasons why we are 
so small over there is because of historic and geographic 
issues. They are pretty far away. Germany is much closer, 
France is much closer, much more competitive as well. I mean, I 
think one of the things that these countries do is they very 
much focus on exports. They bring out their principals to sell 
their products, and that is something that the U.S. could do 
more of to help us sell more.
    I also think that the improvement of U.S.-Russia relations 
has helped to actually improve the business case, and it is 
going to help us going forward. We might say that the 
relationship has not improved, but I think it has improved 
pretty much over the last several years from what it used to 
be, and that has helped U.S. businesses; it has helped open 
doors.
    Senator Thune. If we do not grant Russia PNTR status, the 
second question is, do you see the disparity that exists today 
between--I mean, you have described what I think are some of 
the geographic advantages built in for Europe, but does that 
disparity in terms of penetration in that market grow----
    Mr. Pollett. We will be looked at as basically giving them 
an economic slap, and they can throw their government orders to 
other countries that would cooperate more on an economic front 
with them. I think it would have a negative reaction.
    Senator Thune. I want to just follow up. The Senator from 
Montana would like to export more Montana beef. We would like 
to export more South Dakota beef.
    The Chairman. A little of both.
    Senator Thune. Yes. A little of both. It is a big pie. We 
need to grow the pie. But in your testimony, and I would say 
this to Mr. Taylor, you did talk about the importance of beef 
producers and of Russia's WTO commitments on sanitary and 
phytosanitary standards.
    Which of these commitments do you believe are most 
important to ensure market access for U.S. beef? How important 
is it for beef producers to have access to the WTO dispute 
settlement procedures to ensure that Russia's commitments are 
enforced?
    Mr. Taylor. Senator, I think all these are important, 
simply from the fact that, as you go down the road, some of 
them always become protectionism. But I think trying to bring 
Russia in line with scientific data and international standards 
is what we seek from all our trading partners. That is what 
levels the playing field for all of us.
    But we most definitely have a product that, 10 years ago, 
was not even going into Russia. Today, we are exporting over 
45,000 metric tons. That is more than what we are sending to 
the EU. So, it is definitely an expanding market. From our 
standpoint as cow/calf producers, the profit that is coming to 
our business is from our export market, whether it be Russia, 
Korea, or whatever. That has substantially helped us. We need 
it, to keep up with the cost of doing business.
    I know from my standpoint, I am not making any more money 
today than I was 5 years ago, maybe less, because it costs me 
that much more to do business than what we have been getting.
    Senator Thune. I see my time has expired, Mr. Chairman. I 
do think that there is tremendous upside for American 
agriculture. If we are going to continue to see the types of 
commodity prices that have helped agriculture prosper in the 
last few years, we have to continue to look for ways to open up 
more markets around the world. Ninety-six percent of the 
world's population, as we know, lives outside of the United 
States. So there is, I think, tremendous upside. You look at 
what we are doing in Russia today relative to what we might be 
able to do, and it certainly looks like a target-rich 
environment.
    Mr. Taylor. Senator, your State is involved in this, in the 
export of live cattle to Russia. It has been brought to my 
attention that the population of cattle in Russia in 1917 was 
18 million. That is roughly one-fifth of what we have in the 
United States. Today, it is 400,000. We will probably ship 
somewhere close to 50,000 head to Russia in the next year.
    We have a long ways to go to get Russia up to the standards 
they need to meet. We have an expanding population worldwide 
that we are going to have to feed on the same land that we have 
today. So, I think it is pretty crucial and critical to all of 
us to move Russia forward.
    Senator Thune. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Thank you, all witnesses. You were all very, very helpful. 
I deeply appreciate your taking the time to come and talk to 
us. Thank you very much.
    The committee is adjourned.
    [Whereupon, at 11:47 a.m., the hearing was concluded.]


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