U.S. recognizes Russia as market economy

AP Economics WriterWASHINGTON (AP) -- The Bush administration announced Thursday that it will grant Russia the status of a "market economy," delivering a major economic prize that Russian President Vladimir Putin hopes will lead to full membership in the World Trade Organization.

The decision, by the Commerce Department's Import Administration, was a key goal Putin had hoped to win during President Bush's visit to Russia last month.

The designation means Russia will now receive the same treatment as other major U.S. trading partners in trade disputes.

In a statement, Commerce Secretary Don Evans said the new designation "reflects the tremendous economic changes that Russia has made over the last decade."

The decision by the United States follows by a week a similar designation by the European Union. It represents a recognition of the progress Russia has made in transforming its economy following 70 years of communism.

President Bush relayed the U.S. decision to Putin in a phone call Thursday, according to Russia's press service.

"Putin welcomed this step toward Russia, which is really a country with a market economy, noting that it will give a strong impulse to the development of bilateral economic ties. Both sides expressed satisfaction with the progress in principally important questions of cooperation," the press service said.

The Russian government had hoped to win the "market economy" designation during Bush's trip last month. But administration officials stressed that the issue had to be resolved according to U.S. law, which required a finding from the Commerce Department that Russia had met a number of criteria that showed its economy operating in accordance with free-market principles.

Russian Economics and Trade Minister German Gref said on state-run RTR television Thursday night that Russia had lost $1.5 billion in annual export sales in recent years because of America's resistance to recognizing Russia as a market economy.

"For Russian producers it means better access to the U.S. market. For the Russian population it means creation of new jobs, for the Russian economy it means new opportunities and new possibilities for the GDP," Gref said.

Gref said Russia's metallurgy industry, nuclear fuel producers and fertilizer and titanium producers had suffered most and were best poised to benefit from the U.S. decision.

"It's a sign, a symbol acknowledging the reforms that have been going on in Russia," he said. "It's good for investment because it makes investment (in Russia) more predictable."

The U.S. action followed a nine-month investigation conducted by Commerce's Import Administration.

Russia views the designation as an important milestone in its quest to gain membership in the WTO, the Geneva-based organization that sets the rules for global trade.

WTO Director General Michael Moore has predicted Russia could achieve WTO membership by the fall of 2003, a timetable Evans last week termed realistic.

However, WTO membership for Russia will depend on the country's striking agreements with the United States and other WTO members over the commitments Russia will make to lower trade barriers, a process that can prove arduous. China gained WTO membership last November after a 14-year effort.

The most immediate impact for Russia from the market economy designation in the United States will be in the country's treatment in trade disputes involving charges it is selling goods to Americans at unfairly low prices, a practice known as dumping.

Because of the new designation, which the government said would be retroactive to April 1, Commerce will have to use actual Russian price data on the costs of production to make a determination that Russian exports are being sold in the United States at unfairly low prices. Before, Commerce was required only to estimate what Russian production costs would be if the nation were a market economy.