Jackson-Vanik, Russia and Leaky Dishwashers

When you see a small puddle of water at the bottom of your automatic dishwasher, you don’t stand by and say "that’s not so bad" or "I’ll take a look at it later." Later might mean a burst hose and a big mess across the floor.

Undersecretary of State for Economic Growth, the Environment and Energy Bob Hormats found himself in that situation last week at a House Foreign Affairs subcommittee hearing on US trade relations with Europe.

From the very beginning of the Obama Administration in early 2009, a big deal was made of reviewing the "mistaken" policies of the preceding Bush Administration. On the trade front, it was a wholesale review of an almost complete updating of a model Bilateral Investment Treaty – which was last revised in 2004.

Under the tutelage of the State Department – along with the US Trade Representative’s office – the Administration held open public hearings on a new model treaty and then turned the whole review over to a private-sector economic policy advisory committee within State. After several weeks of drafting a long report, the industry-academic-lawyer-labor-nongovernmental organization committee came up with extensive recommendations, with an equally extensive minority report written mostly by the business side of the committee.

The rub is how much emphasis should be put particularly on labor provisions in any binding and enforceable treaty. Labor – obviously – wants strong guarantees in any treaty, which at least matches Congressional intent in a May 20, 2007 "letter" to the Bush Administration. Business, led by the National Association of Manufacturers, insists that no country would negotiate any such agreement with the United States as long as there are peripheral labor provisions included.

The model treaty has sat motionless within the Administration since.

And the United States has been unable to negotiate bilateral investment guarantees with such major markets as China, India, Brazil, Indonesia and Vietnam – along with Russia.

Getting back to the hearing, subcommittee chairman Rep. Dan Burton (R-Ind) asked Mr. Hormats what the Administration intends to do to get back the billions of US dollars invested in Russia’s once private Yukos oil company. Moscow recently nationalized the huge oil company.

Mr. Hormats sat, scratched his head and said only that the United States is watching the outcomes of compensation talks between Russia and other countries that have investment treaties.