The Kremlin's 'Protection' Racket

By DAVID B. RIVKIN JR. and LEE A. CASEY

Russia's invasion of Georgia will be a defining moment for America's credibility and global stability. If the Medvedev (or, rather, Putin) regime succeeds in using force to topple a democratic and pro-Western government, based on spurious claims of "protecting" Georgia's population against its own government, the stage will be set for similar aggression against the other states -- from the Baltics to Ukraine -- that border Russia but look to the free West. The dangers of the post-September 11 World will be combined with the challenge of a new Cold War.

Corbis

Some Czechs welcomed Hitler's invasion.

Russia is fully aware of these ominous implications. It has accordingly sought to cloak this act of aggression in the raiment of modern international justice. Its officials and surrogates (including Mikhail Gorbachev) have falsely accused Georgian leaders of violating international law in the South Ossetia and Abkhazia regions, which have "Russian" populations on account of Russia's extralegal issuance of its passports in those areas.

President Dmitry Medvedev has called for the "criminal prosecution" of the perpetrators of these supposed abuses and Vladimir Putin has alleged that if "Saddam Hussein [was hanged] for destroying several Shiite villages," Georgian leaders are guilty of much more. Ruthless Kremlin realists have learned the language of global humanitarianism.

The language of "protection" was once a favorite pretext for Tsarist expansion in the 19th century. It is also the same rationale that Germany offered for absorbing the Sudetenland in 1938. The Kremlin's current claims are no more credible than its tattered justifications for invading Hungary in 1956, Czechoslovakia in 1968, and Afghanistan in 1979. Russian assertions that Georgian forces provoked the conflict by attacking Russian troops call to mind Hitler's story that his 1939 invasion of Poland was justified by Polish attacks on Germans. This is particularly ironic, given the Kremlin's penchant for comparing Georgian President Mikheil Saakashvili to Adolf Hitler.

Moscow's sudden embrace of a "limited sovereignty" for Georgia doesn't square with Russia's own previous protestations about the sanctity of its sovereignty and stubborn insistence that it was free to act on its own soil as it saw fit. Moscow's concern about alleged atrocities and genocide is also preposterous in light of the Russian government's callous indifference to the very real genocides conducted by its allies in Iraq and the former Yugoslavia, and in Rwanda and Darfur -- not to mention Moscow's own exceptionally brutal military campaigns in Chechnya.

Predictably, Messrs. Putin and Medvedev also assert that their actions in Georgia are no different from Western behavior vis-à-vis Iraq and the former Yugoslavia. Accordingly, they have demanded Mr. Saakashvili's resignation.

Moscow's clear goal is to replace a pro-Western government with a new Russian satellite, both through military action and by discrediting Georgia's leadership through false war crimes and genocide accusations. Behind the hypocrisy, Russia may be trying to lock in a new set of international rules, by which Moscow will be free to intervene at will in its "near abroad" while the United States looks on. These claims, reminiscent of the Brezhnev doctrine which posited that Moscow had a right to use force to preserve its empire, ring particularly hollow in the 21st century.

Moscow's attack on Georgia is only part of a broader campaign against its real and perceived enemies, a mission that has been conducted without the least regard for settled principles of international law. This campaign includes the de facto annexation of South Ossetia and Abkhazia -- which must now be considered "Russia-occupied territory" protected by the Fourth Geneva Convention. It also encompasses cyber attacks against the Baltic states, state-ordered assassinations of individuals in Western countries, and economic intimidation, as in the recent cutoffs of Russian oil and gas shipments to Ukraine or the Czech Republic.

It is important that Moscow pays a concrete and tangible price for its latest aggression, at least comparable to the price it paid for the 1979 invasion of Afghanistan. Visa denials to all individuals connected to the Russian government and vigorous oversight and enforcement activities against Moscow's state-owned companies would be a good way to start. Given Russia's historic insecurities, and the desire of Russian plutocrats to travel freely throughout the world, educate their children in the West, and own property overseas, such modest measures would be quite effective. Russia's WTO membership should be blocked and its G-8 participation suspended.

The Bush administration should also make an assertive effort to deny the legitimacy of all Moscow's legal and policy claims, and defend Mr. Saakashvili without reservations. We should draw a sharp contrast between the American leadership in securing Kosovo's independence -- an infringement of Serbian sovereignty brought about by Belgrade's real genocide and war crimes -- and Moscow's cynical encouragement of secessionist movements in countries formerly a part of the Soviet Union, which was designed to reconstitute Russian imperial control. John McCain has already taken the lead on this, quickly reaching out to the Georgian president and condemning Russia's actions as a new form of empire building.

While rebutting Moscow's claims of today, the U.S. should also press for a historical accounting. Russia's history goes directly to its credibility. We should remind the world that Russia remains unrepentant for the sins of its past, not the least of which are its previous 1803 and 1922 invasions and annexation of Georgia, its 1939 partition of Poland with Hitler's Germany, and the Katyn massacre that claimed the lives of tens of thousands of captured Polish officers (which Moscow still falsely blames on Germany). Russia refuses to take responsibility for its past oppression of numerous non-Russian "captive nations" -- among them, of course, the Georgians.

American credibility is very much at stake here. If a true friend of the United States -- an ancient country already twice annexed by Moscow in the past two centuries, a democracy that has enthusiastically reached out to NATO and the European Union, and even sent troops to fight in Iraq -- can be snuffed out without concrete action by Washington, America's friendship will quickly lose its value and America's displeasure would matter even less. The repercussions would be felt world-wide, from the capitals of New Europe, to Jerusalem, Kabul and Baghdad.

How the West
Fueled Putin's
Sense of Impunity

By GARRY KASPAROV

Russia's invasion of Georgia reminded me of a conversation I had three years ago in Moscow with a high-ranking European Union official. Russia was much freer then, but President Vladimir Putin's onslaught against democratic rights was already underway.

"What would it take," I asked, "for Europe to stop treating Putin like a democrat? If all opposition parties are banned? Or what if they started shooting people in the street?" The official shrugged and replied that even in such cases, there would be little the EU could do. He added: "Staying engaged will always be the best hope for the people of both Europe and Russia."

The citizens of Georgia would likely disagree. Russia's invasion was the direct result of nearly a decade of Western helplessness and delusion. Inexperienced and cautious in the international arena at the start of his reign in 2000, Mr. Putin soon learned he could get away with anything without repercussions from the EU or America.

Russia reverted to a KGB dictatorship while Mr. Putin was treated as an equal at G-8 summits. Italy's Silvio Berlusconi and Germany's Gerhardt Schroeder became Kremlin business partners. Mr. Putin discovered democratic credentials could be bought and sold just like everything else. The final confirmation was the acceptance of Dmitry Medvedev in the G-8, and on the world stage. The leaders of the Free World welcomed Mr. Putin's puppet, who had been anointed in blatantly faked elections.

On Tuesday, French President Nicolas Sarkozy sprinted to Moscow to broker a ceasefire agreement. He was allowed to go through the motions, perhaps as a reward for his congratulatory phone call to Mr. Putin after our December parliamentary "elections." But just a few months ago Mr. Sarkozy was in Moscow as a supplicant, lobbying for Renault. How much credibility does he really have in Mr. Putin's eyes?

In reality, Mr. Sarkozy is attempting to remedy a crisis he helped bring about. Last April, France opposed the American push to fast-track Georgia's North Atlantic Treaty Organization membership. This was one of many missed opportunities that collectively built up Mr. Putin's sense of impunity. In this way the G-7 nations aided and abetted the Kremlin's ambitions.

Georgia blundered into a trap, although its imprudent aggression in South Ossetia was overshadowed by Mr. Putin's desire to play the strongman. Russia seized the chance to go on the offensive in Georgian territory while playing the victim/hero. Mr. Putin has long been eager to punish Georgian President Mikheil Saakashvili for his lack of respect both for Georgia's old master Russia, and for Mr. Putin personally. (Popular rumor has it that the Georgian president once mocked his peer as "Lilli-Putin.")

Although Mr. Saakashvili could hardly be called a model democrat, his embrace of Europe and the West is considered a very bad example by the Kremlin. The administrations of the Georgian breakaway areas of Abkhazia and South Ossetia are stocked, top to bottom, with bureaucrats from the Russian security services.

Throughout the conflict, the Kremlin-choreographed message in the Russian media has been one of hysteria. The news presents Russia as surrounded by enemies on all sides, near and far, and the military intervention in Georgia as essential to protect the lives and interests of Russians. It is also often spoken of as just the first step, with enclaves in Ukraine next on the menu. Attack dogs like Russian nationalist politician Vladimir Zhirinovsky are used to test and whip up public opinion. Kremlin-sponsored ultranationalist ideologue Alexander Dugin went on the radio to say Russian forces "should not stop until they are stopped." The damage done by such rhetoric is very slow to heal.

The conflict also threatens to poison Russia's relationship with Europe and America for years to come. Can such a belligerent state be trusted as the guarantor of Europe's energy supply? Republican presidential candidate John McCain has been derided for his strong stance against Mr. Putin, including a proposal to kick Russia out of the G-8. Will his critics now admit that the man they called an antiquated cold warrior was right all along?

The conventional wisdom of Russia's "invulnerability" serves as an excuse for inaction. President Bush's belatedly toughened language is welcome, but actual sanctions must now be considered. The Kremlin's ruling clique has vital interests -- i.e. assets -- abroad and those interests are vulnerable.

The blood of those killed in this conflict is on the hands of radical nationalists, thoughtless politicians, opportunistic oligarchs and the leaders of the Free World who value gas and oil more than principles. More lives will be lost unless strong moral lines are drawn to reinforce the shattered lines of the map.

Mr. Kasparov, leader of The Other Russia coalition, is a contributing editor of The Wall Street Journal.

Free Trade Can Fight Terror

By EDWARD GRESSER and MARC DUNKELMAN

When trade flares up as a political issue -- as it is likely to do in the presidential campaign this year -- one aspect of the debate is almost always neglected. There is a fierce competition among foreign countries to sell their products here, in the United States, the largest commercial market in the world.

Moreover, by opening up our market to Muslim countries, we could not only help American consumers, but also serve a larger strategic goal: that of boosting the economies which now produce large pools of unemployed, embittered youth. We can make trade an effective weapon against terrorism.

Our tariff regime puts many nations in the Middle East, whose young people are susceptible to the sirens of Islamic fundamentalism, at an unintended disadvantage. This works against our efforts to stamp out jihadism. Fortunately, the problem is easy to fix.

The U.S. buys about a fifth of all the goods and services traded world-wide -- importing $2.63 trillion worth of the world's products last year alone. Socks come in from the Caribbean, towels from Pakistan, cheese from France, and oil from Saudi Arabia.

But apart from oil, very little comes from the Muslim world. The 30 majority-Muslim states of the greater Middle East, from Morocco through Egypt to Pakistan and Central Asia, account for about 10% of the world's population. They provide about 1% of our manufactured imports, and an even smaller fraction of our farm imports.

The statistics hint at one of the least-studied but most ominous aspects of the modern global economy. Most of us frame the last quarter-century with narratives about globalization, the rise of China and the spread of the Internet. But for the Muslim countries of the Middle East, and their neighbors in Pakistan and Central Asia, it was a period of economic disaster rivaling our Great Depression.

Between 1980 and 2000, their share of world trade fell by 75%, and their share of investment fell even faster. The region's unemployment rate became the world's highest, rising to an average of 25% for young people. With the region's population rising by nearly a quarter-billion, the high unemployment rates mean a pool of perhaps 25 million jobless and sometimes hopeless young people, often easy targets for fundamentalists.

Will oil -- now selling at record prices -- put these legions to work? Historical experience is not promising. Oil can bring in money, but it also centralizes wealth and power. The effects mark a strong contrast with factory and farm exports, where revenue is spread more evenly through the working public.

Apart from gasoline, we rarely find consumer products from the Muslim world stocking our shelves (apart from the shirts and shoes trickling in from Turkey, Egypt and Pakistan). In part, that is because our tariff system makes life harder for developing countries. A Japanese car, for example, is subject to a mere 2.5% tariff, a Chinese TV 5%, and European medicines are subject to no import tax at all. Likewise, oil and natural gas get a nominal 0.1% tariff.

But tariffs on the items that are most important to developing economies are much higher. Clothes are subject to an import tax that averages 14.5% and can run as high as 32%. Luggage is taxed just as heavily. Shoe tariffs rise to 48%.

Trade pacts like the North American Free Trade Agreement, and preference programs like the African Growth and Opportunity Act, exempt many imported goods from those tariffs. Jamaica, Peru, Jordan, Kenya, Mexico and dozens of other nations export towels, clothes and luggage here duty-free, so American stores can sell their products at a lower price -- or a higher profit margin. Nice for them -- but not so attractive to the nations not privy to a special trade agreement with the U.S., and whose citizens compete with Jamaicans, Peruvians, Kenyans and Mexicans for factory jobs.

Towels, for example, are Pakistan's top export. Each container full of towels exported to the U.S. brings in enough income to employ about 500 Pakistanis. But while Pakistani towels are subject to a 7.5% tariff, competing towels from the Dominican Republic or Costa Rica -- both of which benefit from the Central American Free Trade Agreement -- come in duty-free.

Likewise, luggage made in Indonesia is subject to a tariff that can rise to 22%, but competes with tariff-free suitcases manufactured in Mexico. Lebanon, which exports preserved fruits and vegetables, must compete with similar duty-free items exported from Peru.

Sen. Maria Cantwell (D., Wash.) has taken a step toward fixing this problem, by introducing a bill, the Afghanistan and Pakistan Reconstruction Opportunity Zones Act of 2008, to waive tariffs on many goods from Afghanistan and Pakistan's frontier provinces. The next president should follow up with a broad, tariff-exemption initiative to help the Muslim world break its downwards spiral, revive trade and put its young people back to work.

Of course, a comprehensive solution to Middle East economic problems will require efforts to stamp out corruption, improve schooling and end political oppression. But few things could do more to combat terrorist recruitment than draining the pools of angry and unemployed youth that are spread across this region. Fixing American trade policy would be a good start.

Mr. Gresser is director of the Trade and Global Markets Project at the Progressive Policy Institute. Mr. Dunkelman is the vice president for strategy and communication at the Democratic Leadership Council.

America the Uncompetitive

The new international tax rankings are out for 2008, and congratulations to Washington, D.C., are again in order. Our political class has managed to maintain America's rank with the second highest corporate tax rate in the world at 39.3% (average combined federal and state).

Only Japan is slightly higher overall, though if you are silly enough to base a corporation in California, Iowa, New Jersey, Pennsylvania, or other states with high corporate levies, your tax rate on business income is even higher than in Tokyo. For the first time, the U.S. statutory rate is now 50% higher than the average of our international competitors, continuing a long-term trend as the rest of the world keeps reducing corporate tax rates. (See nearby chart).

Economists argue over how much this tax penalty on corporate profits injures U.S. competitiveness and drives capital overseas. We've long believed that it hurts a lot. And now even the folks at the Paris-based Organization for Economic Cooperation and Development (OECD) say they agree.

A new OECD study, "Taxes and Economic Growth," examines national tax burdens and their impact on growth and incomes in member countries. It concludes that "corporate taxes are most harmful for growth, followed by personal income taxes, and then consumption taxes." The study adds that "investment is adversely affected by corporate taxation," and that the most profitable and rapidly growing companies tend to be the most sensitive to high business tax rates.

In Washington, meanwhile, the politicians are still living in their own populist alternative universe. Last week Senator Byron Dorgan of North Dakota waved around a new politically generated study by the Government Accountability Office (GAO) finding that 28% of large U.S. corporations paid no income tax in 2005. "It's time for big corporations to pay their fair share," Mr. Dorgan roared.

Well, the Tax Foundation looked at those numbers and found that, among the large companies that paid no taxes, 85% of them also made no profits that year. American Airlines and General Motors escaped income tax for 2005 through the clever tax dodge of losing $862 million and $10.5 billion, respectively. How unpatriotic.

The GAO data only add to the case for cutting U.S. corporate rates. America now has the worst of all worlds: high corporate tax rates, but also lots of loopholes passed by Congress at the behest of favored businesses to avoid the confiscatory rate. This imposes huge compliance costs as businesses scramble to exploit the loopholes, with the result of less revenue for the government.

The average European nation has tax rates on corporate income 10 percentage points lower than the U.S., but those countries on average raise 50% more as a share of GDP in corporate taxes than does the U.S., according to a 2007 study by the Treasury Department. Ireland with its 12.5% rate captures a higher share of its GDP (3.4%) in corporate taxes than the U.S. does (2.5%) with its 39.3% rate.

To correct this revenue dearth, Barack Obama and Democrats in Congress are proposing to pry more tax money out of U.S. companies that have profitable affiliates outside the U.S. Mr. Obama is also shamelessly taking the Byron Dorgan line that the problem is venal U.S. CEOs rather than the nutty U.S. tax code.

One proposal would tax foreign profits when they are earned, rather than waiting until the dollars are brought back to the U.S. This may raise more revenue in the short term, but it would also accelerate the trend of U.S. companies moving entirely offshore, or being bought out by Asians and Europeans so they can escape onerous U.S. taxes.

John McCain has proposed cutting the 35% federal corporate tax rate to 25%. That's a good start, but even that would leave the U.S. with a combined state and federal rate nearly five percentage points above the global average. With corporate tax rates falling around the world, and with its damage to investment increasingly obvious, abolishing the U.S. corporate income tax should be on the table. Senator Jim DeMint of South Carolina and Congressman Paul Ryan of Wisconsin have proposed replacing the corporate tax with a value-added consumption tax. We worry about a VAT turning into a runaway money machine for government, but something has to give on the corporate tax.

Every month that goes by without tax reform, America is a relatively less attractive place to do business. Over the past 18 months, nine of the 30 most developed nations and 20 countries world-wide -- from Israel to Germany to Turkey -- have cut their corporate tax rates. Nations are slashing rates to attract capital and jobs from the U.S., and the tragedy is that our politicians keep making it easy for them.