Obama's strategic drift plays into Russian hands

Editor's note: an earlier edition of the following op-ed incorrectly described TMK IPSCO as a Russian owned company.  TMK IPSCO is the Americas Division of TMK, a public company based in Russia which is  Russia's main pipe producer. It was founded and is headed by a  Russian citizen, but has no government ownership.

Whether it’s the health care roll out or foreign policy, the Obama administration can’t seem to get its “implementation” act together.

Consider Ukraine, one of the former Soviet republics which Russia is trying to pressure into remaining in its orbit.

Rhetorically, President Obama’s team stands firmly with Ukraine’s stated desire to sign an agreement with the European Union at the end of November. The “association” accord would lift trade barriers with Europe and strengthen economic ties with the West.


Last month, Bill and Hillary Clinton joined a slew of U.S. and pro-European officials in urging Ukraine to ignore Russia’s bullying. Mrs. Clinton called the choice a “"crossroads moment" for this nation of 46 million people, which Russia has long considered not only its bread basket, but an integral part of its former empire.

Washington’s ambassador to Kiev claims that Ukraine’s right to choose closer ties to the EU has “very high priority” for his administration.

But apparently Obama’s White House and Commerce Department didn’t get the memo.

While the State Department has been promoting Ukraine’s integration with Europe, Commerce and the U.S. International Trade Commission are on the verge of taxing, and effectively banning steel pipes, one of Ukraine’s key imports to America, partly at the behest of a company owned by Russia.

Critics say the conflicting policies by State and Commerce at this delicate juncture reflect strategic drift by President Obama.

"At a moment when the U.S. and the EU are encouraging Ukraine to resist Russia's economic bullying and take difficult reform steps to achieve an Economic Partnership Agreement with the EU, a U.S. move to block Ukrainian exports contradicts U.S. interests,” said Robert Zoellick, the former head of the World Bank. “It's a frustrating example of policy incoherence."

At issue is whether Interpipe LLC, Ukraine’s largest exporter of steel tubes for oil and gas exploration and drilling, will be able to continue exporting steel tubes to the U.S. when its tubes are being blocked by Russia.

The company is owned by Victor Pinchuk, Ukraine’s second richest, most pro-Western oligarch who has vigorously championed his country’s integration with Europe.

To punish Pinchuk and deter Ukraine from moving closer to Europe, Moscow slapped huge tariffs on Interpipe’s exports to Russia this summer, effectively crippling sales to Russia, its largest market. Pinchuk, who borrowed heavily to build an environmentally sensitive tube plant in Ukraine last year, had hoped to increase sales to the U.S. with Washington’s blessing.

Instead, United Steelworkers of America, the industry’s largest union, U.S. Steel, America’s largest producer, and seven other domestic steel pipe producers, among them a Russian-owned company, filed an anti-dumping action in July against South Korea and eight other producers, including Ukraine, accusing them of selling their pipes at below-market cost.

In August, the ITC, the independent commission which examines such claims, issued a preliminary ruling in their favor, setting the stage for high duties imposed by Commerce in late 2013 or early 2014.

Though Ukrainian pipe exports to the U.S. accounted for roughly 3 percent of the total $1.8 billion in imports last year – 28.47% of them were South Korean -- the extra duties, would be a major blow to Interpipe and Ukraine, which is struggling with low growth and high unemployment.

Anders Aslund, an economist with the Peterson Institute for International Economics, in Washington, says the case indicates that the State Department and Commerce are operating at cross-purposes.

TMK IPSCO, Aslund says, one of the companies seeking relief, is the Americas Division of TMK, a public company based in Russia which is  Russia's main pipe producer. “It is difficult to understand why U.S. authorities should help a Russian company have a shared monopoly of the U.S. market.”

The administration’s lack of strategic focus could also undermine Ukraine’s tentative political and economic reforms – such as Ukrainian President Viktor Yanukovych’s recent willingness to release from jail his main political rival, Yulia Tymoshenko.

The EU has insisted on such measures before Ukraine signs the agreement.

Moscow has banned not only Ukrainian steel pipes, but Ukrainian products from chocolate to agriculture to pipes, which account for roughly a quarter of Ukraine’s exports. Russian taxes and fines could cost Ukraine $2.5 billion in the second half of this year.

Other former Soviet republics have already caved to Russian pressure.

Moscow’s threats to Armenia to increase arms shipments to Azerbaijan, its historic rival, prompted Yerevan to announce last month that it would join Russia’s Customs Union with Kazakhstan and Belorussia rather than the EU as planned.

Administration officials claim their hands are tied.

Anti-dumping claims are common, especially in the steel industry, which over time has filed roughly half of all such claims, some 200 of which were filed last year.

The White House cannot interfere with the ITC’s deliberations, one official said, because the commission is an “independent” agency.

“If we intervene for one country, we would have to do so for all the others whose cases may not be as vital to American policy,” a State Department official agreed.

But veterans of such inter-agency battles say previous administrations occasionally instructed the Commerce secretary to try to relieve pressure on a targeted company when key national security or foreign policy goals were at stake.

“Commerce can quietly slow or speed up consideration of such cases,” said one agency veteran, “or urge smaller penalties.”

The White House could also pressure petitioners to drop a country from its complaint, or reduce the total relief being sought.

Suspicion that Russia is trying to use the complaint for political ends is fueled by the involvement of its state-owned company among the complainants. TMK Ipsco has plants in the U.S. and Russia.

Neither the White House nor Commerce nor U.S. Steel would say whether officials have asked the nation’s largest steel producer to drop Ukraine from its effort to have anti-dumping duties ranging from 111% to 240 % imposed on Interpipe and the other producers.

“We’re hoping that Ukraine will ignore Russian pressure and choose the EU” one official told me.

Hope, alas, is not a policy.