Russian Roulette Part 5

The FSB ordered Kaliningrad customs to prohibit bulk exports of Stolichnaya. Cases of the drink are routinely confiscated. Criminal charges were brought against directors and managers in the firm. The Deputy Minister of Agriculture is discrediting SPI in meetings with its distributors and business partners abroad. He is also accused by the firm of obstructing the court-mandated registration of its trademarks.

The courts have lately been good to SPI, coming out with a spate of decisions against the government's conduct in this convoluted affair.

But on February 1, the firm suffered a setback, when a Moscow court ruled against it and ordered 43 of its brands, the prized Stolichnaya included, returned to the government (i.e., re-nationalized).

SPI is doing its best to placate the authorities. It is rumored to have offered last month to use its ample funds to supplement the federal budget. It has indicated last September that it is on the prowl for additional acquisitions in Russia - a bizarre statement for a firm claiming to have been victimized. "The Moscow Times" reported that it is planning to sign a $500,000 sponsorship agreement with the Russian Olympic Committee.

Summit Communications, a country image specialist, placed this on its Web site in November last year:

"One example of a savvy Russian company that has managed to do well in the West by finding the right partner is the Soyuzplodimport company (see also p. 14). Soyuzplodimport, or SPI, has the exclusive rights to export Stolichnaya, which vodka lovers in the U.S. fondly refer to as 'Stoli'. Some 50% of the company's export turnover comes from the United States, thanks mostly to its strategic alliance with Allied-Domecq for U.S. distribution.

'I'm not sure that all Americans know where Russia is on the map, but most of them know what Stolichnaya is,' muses Andrey Skurikhin, general director of SPI. 'I want the quality of Stolichnaya in America to create an image of Russia that is pure, strong and honest, just like the vodka. At SPI, we feel that we are like amba.s.sadors and we will try to do everything to create a more objective and positive image of Russia in the U.S.' "

SPI's troubles may prove to be contagious. Allied Domecq, its British distributor in America and Mexico, now faces compet.i.tion from Kryshtal International, a subsidiary of the troubled Kristal distillery, 51% owned by Rosspirtprom, a government agency. Kryshtal signed distribution contracts for "Stolichnaya" with distilleries backed by the Russian ministry of agriculture.

Allied and Miller Brewing have announced a $50 million investment in product launch and marketing campaigns only two years ago.

"Stolichnaya" (nicknamed "Stoli" in the States) sells 1 million 12-bottle cases a year in the USA (compared to Absolut's 3 million cases).

The trouble started almost immediately with the first foreign investments in SPI. As early as 1991, Vneshposyltorg, a government foreign trade agency, tried to export Stolichnaya in Greece. This led to court action by the Greeks. Vodka wars also erupted between the newly-registered Russian firm "Smirnov" and Grand Metropolitan over the brand "Smirnoff".

The vodka wars are sad reminders of the long way ahead of Russia. Its legal system is rickety - different courts upheld government decisions and SPI's position almost simultaneously. Russia's bureaucrats - even when right - are abusive, venal, and obstructive. Russia's "entrepreneurs" are a penumbral lot, more enamored with off-sh.o.r.e tax havens than with proper management. The rule of law and private property rights are still fantasies. The WTO - and the respectability it lends - are as far as ever.

Let My People Go

The Jackson-Vanik Controversy

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

The State of Israel was in the grip of anti-Soviet jingoism in the early 1970's. "Let My People Go!" - screamed umpteen unfurled banners, stickers, and billboards. Russian dissidents were cast as the latest link in a chain of Jewish martyrdom. Russian immigrants were welcomed by sweating ministers on the sizzling tarmac of the decrepit Lod Airport. Russia imposed exorbitant "diploma taxes" (reimburs.e.m.e.nt of educational subsidies) on emigrating Jews, thus exacerbating the outcry.

The often disdainful newcomers were clearly much exercised by the minutia of the generous economic benefits showered on them by the grateful Jewish state. Yet, they were described by the Israeli media as zealous Zionists, returning to their motherland to re-establish in it a long-interrupted Jewish presence. Thus, is a marvelous fiat of spin-doctoring, economic immigrants became revenant sons.

Congress joined the chorus in 1974, with the Jackson-Vanik Amendment to the Trade Reform Act - now t.i.tle IV of the Trade Act. It was Sponsored by Senator Henry ("Scoop") Jackson of Washington and Rep. Charles Vanik of Ohio, both Democrats.

It forbids the government to extend the much coveted "Most Favored Nation (MFN)" status - now known as "Normal Trade Relations" - NTR - with its attendant trade privileges to "non-market economy" countries with a dismal record of human rights - chiefly the right to freely and inexpensively emigrate.

This prohibition also encompa.s.ses financial credits from the various organs of the American government - the Export-Import Bank, the Commodity Credit Corporation (CCC), and the Overseas Private Investment Corporation (OPIC).

Though applicable to many authoritarian countries - such as Vietnam, the subject of much heated debate with every presidential waiver - the thrust of the legislation is clearly anti-Russian. Henry Kissinger, the American Secretary of State at the time, was so alarmed, that he flew to Moscow and extracted from the Kremlin a promise that "the rate of emigration from the USSR would begin to rise promptly from the 1973 level."

The demise of the USSR was hastened by this forced openness and the increasing dissidence it fostered. Jackson-Vanik was a formidable instrument in the cold warrior's a.r.s.enal. More than 1.5 million Jews left Russia since 1975. At the time, Israelis regarded the Kremlin as their mortal enemy.

Thus, when the Amendment pa.s.sed, official Israel was exuberant. The late Prime Minister Yitzhak Rabin wrote this to President Gerald Ford:

"The announcement that agreement has been obtained facilitating immigration of Soviet Jews to Israel is causing great joy to the people of Israel and to Jewish communities everywhere. This achievement in the field of human rights would not have been possible but for your personal sympathy for the cause involved, for your direct concern and deep interest."

And, to Senator Henry Jackson, one of the two sponsors of the bill:

"Dear Scoop,

The agreement which has been achieved concerning immigration of Soviet Jews to Israel has been published in this country -a few hours ago and is evoking waves of joy throughout Israel and no doubt throughout Jewish communities in every part of the globe. This great achievement could not have been possible but for your personal leadership which rallied such wide support in both Houses of Congress, for the endurance with which you pursued this struggle and for the broad human idealism which motivated your activities on behalf of this great humanitarian cause. At this time therefore I would like to send you my heartfelt appreciation and grat.i.tude."

US trade policy is often subordinated to its foreign policy. It is frequently sacrificed to the satisfaction of domestic const.i.tuencies, pressure groups, and interest lobbies. It is used to reward foreign allies and punish enemies overseas.

The Jackson-Vanik Amendment represents the quintessence of this relationship. President Clinton tacitly admitted as much when he publicly decoupled trade policy from human rights in 1994.

The disintegration of the Evil Empire - and the privatization of Russian foreign trade - has rendered the law a relic of the Cold War.

Russian Jews - including erstwhile "refuseniks", such as Natan (Anatoly) Sharansky - now openly demand to rescind it and to allow Russia to "graduate" into a Permanent Normal Trade Relations (PNTR) status by act of Congress.

American Jews - though sympathetic - would like guarantees from Russia, in view of a rising wave of anti-Semitism, that Jews in its territory will go unharmed. They also demand the right of unhindered and unsupervised self-organization for Jewish communities and a return of Jewish communal property confiscated by the Soviet regime.

Congress is even more suspicious of Russian intentions. Senator Gordon Smith, a Republican from Oregon, recently proposed an amendment that would deprive Russia of foreign aid if it pa.s.ses legislation impinging on religious freedom. Together with Hillary Clinton, a Democrat from New York, he introduced a d.a.m.ning Jackson-Vanik resolution, saying:

"Any actions by the United States Government to "graduate" or terminate the application of the Jackson-Vanik Amendment to any individual country must take into account ... appropriate a.s.surances regarding the continued commitment of that government to enforcing and upholding the fundamental human rights envisioned in the Amendment. The United States Government must demonstrate how, in graduating individual countries, the continued dedication of the United States to these fundamental rights will be a.s.sured."

The Senate still refuses to repeal the Jackson-Vanik Amendment despite its impact on six former Soviet republics and other countries and despite pa.s.sionate pleas from the administration. On May 22 it pa.s.sed a non-binding resolution calling for PNTR with Russia. Jackson-Vanik remained in place because of the row with Russia over imports of US poultry.

Senator Joseph Biden, Chairman of the Senate Foreign Relations Committee, who represents a major poultry producing state (Delaware) made these statesmanlike comments following the session:

"I can either be Russia's best friend or worst enemy. They keep fooling around like this, they're going to have me as their enemy."

Mikhail Margelov, Chairman of the Foreign Relations Committee of the Federation Council, understandably retorted, according to Radio Free Europe/Radio Liberty quoting from strana.ru:

"By citing the controversy over chicken legs, the Democrats have openly acknowledged that Jackson-Vanik does not protect Russian Jews, but American farmers."

According to ITAR-Ta.s.s, he presented to President Putin a report which blamed Russia's "unstable" trade relations with the USA on the latter's "discriminatory legislative norms."

The Amendment has been a dead letter since 1994, due to a well-entrenched ritual of annual Presidential waiver which precedes the granting of NTR status to Russia. The waiver is based on humiliating semi-annual reviews. The sole remaining function of Jackson-Vanik seems, therefore, to be derogatory.

This infuriates Russians of all stripes - pro-Western reformers included. "This demonstrates the double standards of the U.S." - Anatoly B. Chubais, the Chairman of UES, Russia's electricity monopoly, told BusinessWeek. "It undermines trust." Putin called the law "notorious".

In October last year, the Russian Foreign Ministry released this unusually strongly-worded statement:

"The Jackson-Vanik Amendment has blocked the granting to Russia of most favored nation status in trade with the USA on a permanent and unconditional basis over many years, inflicting harm upon the spirit of constructive and equal cooperation between our countries. It is rightly considered one of the last anachronisms of the era of confrontation and distrust."

Considering that China - with its awful record of egregious human rights violations - was granted PNTR last year, Russia rightly feels slighted. Its non-recognition as a "market economy" under the Jackson-Vanik Amendment led to the imposition of import restrictions on some of its products (e.g. steel). The Amendment also prevents Russia from joining the WTO.

Worst of all, the absence of PNTR also inhibits foreign investment and the conclusion of long term contracts. Boeing expressed to the a.s.sociated Press its relief at the decision to normalize trade relations with China thus: