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Grayling perception research_on_wto_accession_consequences

  1. 1. 1Accession to the WTO in 2013 and beyond:What consequences business and expertcommunities perceive ahead?Moscow, January, 2013Prepared and published by GraylingBld. 3, Krasnoproletarskaya str. 16, 127473 MoscowTel.: +7.495.788-67-84© 2013 Grayling
  2. 2. 2ContentOpening remarks....................................................................................................3Executive Summary................................................................................................4Methodology of Research ......................................................................................9Research ..............................................................................................................10Life after the WTO Accession: Performance of Dispute Settlement Body.............31Afterword.............................................................................................................33Annex 1. The WTO in Facts and Figures................................................................35Annex 2. Brief Information: Russia and the WTO .................................................36Information on Grayling.......................................................................................40Information on Law Firm ‘Muranov, Chernyakov, and Partners’..........................41
  3. 3. 3Opening remarksThe goal of the WTO is free trade across the globe. The main objective of theorganization is to promote free trade of goods and services and intellectualproperty products among WTO members by removing all barriers set up by statesto protect their national manufacturers.In this regard, the WTO is an instrument promoting unified and general standardsamong WTO members’ in terms of approaches to internal controls in trade ofgoods and services by foreign entities and their imposition and removal.Thus, the world is witnessing emerging economic areas with their ownboundaries, possibly not corresponding to the political boundaries of states. "Theage of complex boundaries” is indeed becoming a reality.WTO procedures also promote development of a network society and networkeconomy based on the system of electronic networks. It becomes a center ofother effective "horizontal" communication channels as opposed to hierarchicalor "vertical" ones that are more typical for governmental bodies.This is perhaps one of the most important consequences of Russias accession tothe WTO. Russia gained access to the complex, contradictory, evolving (accordingto non-linear rules), and multidimensional body of global trade, regulation ofwhich varies with the rapidly changing world. For Russia, this may make real timepractical integration in trade and economic regimes on more or less equal termswith other countries, a new reality, with the existing system of checks andbalances facilitating further development of Russian business and its transition toa completely new, more competitive level. Business and expert communities’perception of the consequences of Russia’s access to world trade, which ispresented in this research,1gives plenty of food for thought. And who said that itwould be easy?Alexander Muranov, Managing Partner of the law firm ‘Muranov, Chernyakov &Partners’1This research is the second part of the joint project of law firm ‘Muranov, Chernyakov & Partners’( and communications agency Grayling ( aimed at analyzing theconsequences of Russia’s accession to the WTO for business. The information on the first part of the project withthe legal analysis of Russia’s commitments in 14 sectors of services can be found at
  4. 4. 4Executive Summary“Accession to the WTO in 2013 and beyond: What consequences business andexpert communities perceive ahead?”, January, 2013 The majority of participants think that the WTO will retain its positions inthe international arena for at least another decade, and its institutionalbasics will not undergo substantial changes. The WTO effectiveness is accounted for by its working mechanisms: disputesettlement, trade policy reviews, internal market protection and newmembers’ accession mechanisms. Interestingly, when the research was started in May, 2012, with Russia stillnot a WTO member, most respondents were more critical in theirassessments of the situation and agreed to be cited. However, just fourmonths into WTO membership, when the country is facing regimetightening measures, most businessmen agreed to take part in the researchonly on condition of anonymity and offered much softer statements. Somebusinessmen refused being cited and opted for non-participation inprinciple. Experts have confirmed that Russia joined the WTO knowing in advancethat it may well go beyond the WTO limits, the same way as China does. The shift of financial and trade flows toward developing countries and theirrapid growth in contrast with developed countries will be a challenge forthe WTO as an international organization. In general, the research has revealed that the expert community cannotreach a consensus in evaluating such an important step for Russia as theaccession to the WTO.*** Expert opinions concerning Russia’s accession to the WTO and theirevaluation of the delegation performance during the accession talks differ. A US government source believes that everybody has achieved the bestpossible results.
  5. 5. 5 The primary question, according to the experts, is how the accession to theWTO will be implemented in legislative and law-enforcement practices. One of the experts believes that Russia’s WTO accession was not a part ofRussia’s development strategy as we do not have one. Some expertspointed out the political reasons for the accession.*** The majority of experts believe that the role of the Eurasian Economicspace (Customs Union) as an international organization will slowly declineand finally will be dissolved within the WTO, it being the more powerfulorganization. The Eurasian Economic space regulatory framework is being adjusted toWTO requirements, which should facilitate negotiations betweenKazakhstan, Belarus and WTO members. To join the WTO, Kazakhstan willneed another six months or a year, while Belarus is barely half way there. Some experts predict multilevel conflicts aimed at protecting Russianinterests. Different levels of customs control, different interests with regardto tariff protection and different standards in pharmacopoeia may lead toconflicts in the Eurasian Economic space. And these future conflicts willshow who is who. The state management system has not been completely formed withregard to WTO issues, and even responsibilities of the Eurasian Economicspace.*** Expert opinions are deeply divided over the role of the Russian accessionfor certain industries and business as a whole:o One group of experts expects negative consequences from theaccession for the light industry, agricultural industry, agriculturalmachinery, machinery engineering, pipe industry, aviation industry,and machine tool engineering.
  6. 6. 6o Another group of experts argues that companies exporting rawmaterials and processing industries are comfortable with the WTOconditions and that their interests will not be jeopardised.o Gas companies will have potential problems as there is somepressure on prices due to ongoing processes going on in parallel withWTO accession such as the emergence of LNG and shale gas, anddiversified European gas sources.o Steelworkers are scared of the tightening of the situation andrequirements on them in international markets.o The legal consulting market will become more competitive.o The Russian software market will hardly be affected by the WTOaccession and the intellectual property protection market will losecertain attention on the part of the government.o There are sectors, like fishery, where the consequences varydepending on the business specialization and interpretation. Forinstance, the WTO accession is beneficial for enterprises selling fishbut not beneficial for enterprises catching and processing fish.o Some experts point at increasing competition and transparency, aswell as lesser corruption and GDP growth. Experts argue that the first consequences may become apparent within thefirst year after the accession. Other experts expect the first consequencesin 2 to 10 years. One group of respondents considered first results could have beenexpected in the form of customs duties by the end of 2012. Allowingparallel imports may be one of the negative consequences of the accessionfor businesses. There also will be good consequences, i.e. the simplificationof customs rules. A gradual reduction of aviation prices as airplanes can be bought abroad ata cheaper price. Nevertheless, some predict no results in several years and no visible resultsin a decade as the Russian production protection by tariff methods remainsa priority for the government aiming at retaining business and jobs.
  7. 7. 7*** Some experts criticize the government for poor information support of thebusiness society and State Duma representatives regarding the futurechanges. Other experts disagree with this opinion. One of the most serious issues in this regard is lack of established channelsfor bilateral dialogue among business and the authorities and no initiativeon the part of business. Head of Department of Trade Negotiations under the Ministry of EconomicDevelopment, Maksim Medvedkov provided no answer regarding theparticipation in this research.*** There are few companies which are actually preparing strategies to adapttheir businesses to the WTO requirements. The reason for this is the factthat everything is changing rapidly in Russia, the environment is unstableand few people think several years ahead. Business received ambiguous signals that Russia was really willing to jointhe WTO. Experts believe that foreign competitors are better prepared for Russia’smembership in the WTO. The U.S. Department of Commerce has prepareda special section on its website dedicated to this issue. The Departmentanalyzed the terms and conditions of Russias accession to the WTO forAmerican businesses, and gave an overview of the opportunities forbusinesses in terms of improved access to the Russian market. Producers of meat and poultry products from the EU prepared too and willalso benefit from Russias accession to the WTO, as their products will nolonger be discriminated against. Some businessmen think that it is not necessary to prepare for the WTOuntil 2015. The strategy will be prepared when customs officers, taxinspectors and the Finance Ministry publish legislation and legal frameworkchanges, which will have an impact on business.
  8. 8. 8*** Russia is expected to be a defendant in cases connected to anti-dumping,sanitary, and phytosanitary measures and intellectual property rights(TRIPS). In practice, an applicant usually wins a case. However, about 70 percent ofDispute Settlement Body’s decisions on dispute resolution is appealed asappeals are free, help delay decisions, and provide local politicians with theopportunity to ‘save face’ in their respective countries. A country, which is found guilty as a result of the dispute resolutionprocess, is expected to amend its legislation to remove or change itsaspects that are at odds with the WTO. Meanwhile, the US most often acts as an applicant as well as defendant. During the whole period of the commission activity since the formation ofthe WTO in 1995, there have been 454 disputes brought to the WTO;however the volume of appeals has been decreasing recently.*** The mobilization of legal and governmental relations consultants by Russianand foreign companies in order to develop adaptation strategies for theirbusinesses to meet the WTO rules will allow the prediction of potentialrisks and prevent real ones. It will also provide a basis for favorableconditions for business in order to respond to future regulatoryrequirements and establish long-term relations with key staterepresentatives responsible for trade and investments.
  9. 9. 9Methodology of ResearchGlobal communications agency Grayling ( conducts researchon various topical issues2; and the issue of Russias accession to the WTO waschosen precisely because of its ambiguity.The research is based on more than 20 in-depth interviews with heads of Russianand foreign companies operating in Russia, experts and state representatives whoanalyze the WTO.Grayling interviewed CEOs of Russian aviation and steelworkers companies andheads of foreign energy equipment companies, discussed the issue with expertsfrom the Russian scientific community and consultants working with the Chinesegovernment, spoke with representatives of the Russian Ministry of Agriculture,the Eurasian Economic Commission, and the US government.To get the most discreet answers, our respondents were given an opportunity toremain anonymous; some of them enjoyed this right.The research was conducted during 6 months from May to December, 2012. Wesought to analyze the period prior to and after the WTO accession on August 22,2012 to confirm or refute some of our assumptions not only in experts’ answersbut also in practice.2The Realization of the Farma 2020 strategy: Challenges from the Perspective of Russian Manufacturers andMeaning for Foreign Investors (June, 2010); Reassessing Investments to Russia (June, 2011) and other researchthat you can receive by sending a request to
  10. 10. 10ResearchRussia joined the WTO against a background of economic and political problems.In economy, we have witnessed the second wave of the financial crisis, largefinancial outflow from the country (USD 84.2 billion in 2011 and USD 56.8 billionin 20123), large social obligations taken by Vladimir Putin as a presidentialcandidate as well as the lower tax collection rate due to the increased tax rates in2011 and the growing pension fund deficit.In politics the new president has to consider the awakening middle classchallenging Mr. Putin’s abilities to implement drastically new policies tomodernize Russia. The reform on establishing new strong institutions in society islong postponed and there is no real dialogue between state, business, and societyon urgent issues.To implement a new economic strategy, the new government needs significantresources to develop and maintain the aging infrastructure and fulfill budgetobligations in the social area, military rearmament, and strengthening of the lawenforcement system.Given the abovementioned problems, the attraction of foreign investments isvital for the new government as well as for the whole Russia. Thus, in theory, thegovernment is interested in more favorable conditions for business and animproved investment climate.Nevertheless, the implementation of the strategy faces serious limitations,namely the unique features of private property in Russia implying that morepowerful people or organizations can capture the property of others usingpolitical and administrative pressure; prevalent informal economic relations andthe powerful role of the state significantly reducing potential investments; thespecific character of the legal system dependent on the executive power orinfluence groups; and indeed, widespread corruption linking all these elementstogether are also significant obstacles for investors.4Despite all the limitations, the WTO accession will increase business transparencyfor foreign companies and investors that in their turn will make them feel more3Central Bank Data4Twenty Years of Reforms – Midterm Results? (Russian Society as a Process). G.A.Yavlinsky, A.V.Kosminin. MirRossii. 2011. № 2
  11. 11. 11comfortable in the Russian market in the long run. At the same time, theinternational nature of the agreement will ensure equality for Russian and foreigncompanies in the Russian market. The latter will be able to use a lot of leveragesto protect their interests in many ways, namely via WTO dispute settlementmechanisms, pressure on Russian investment bodies and the international massmedia.5The research shows how business and expert communities perceive the WTO andconsequences of Russia’s accession to the international organization.What is the future of the WTO mechanism? Will the WTO keep its position as aglobal regulator in the next decade?Most respondents believe that the WTO will retain its positions in the world arenafor at least another decade.At the same time, "the WTO is not a usual administrative regulator. In legalterms, the WTO system is a multilateral contract, a package of bilateralagreements." (Evgeny Zverev, Executive Secretary of the Commission for thetextile and light industry, Russian Union of Industrialists and Entrepreneurs)"Today the WTO is one of the most efficient international organizations. Having157 members, the WTO ensures the execution of its decisions by all member statesthrough interstate mechanisms, namely dispute settlement, trade policy reviews,domestic market protection, and new members’ accession mechanisms. The firstone is vital for ensuring the fulfillment of commitments by member states and,therefore, for retaining the efficiency and safety of the WTO multilateral tradingsystem." (Alexey Portansky, Professor of the Department of World Economy andInternational Affairs at the Higher School of Economics (HSE), Leading ResearchFellow of the Institute of World Economy and International Relations of theRussian Academy of Sciences (RAS)On the one hand, the internal consensus-building mechanisms play a positiverole, as they help reaching a consensus and take balanced decisions. On the otherhand, these mechanisms have a reverse side, for instance when an organizationmay be affected by policies of several member states whose national interestsmay go against the interests of the WTO.5For more information see our research on foreign direct investments “Reassessing Investments to Russia” (June,2011). You may have the research by sending a request to
  12. 12. 12"The problem is that other WTO members do not know what policies Russia isgoing to pursue as a WTO member, since there is a conflict between the WTOinterests and rules and Russia’s own interests." (Executive Director of a largeAmerican company)Another Russian expert also agrees with him: "The WTO is like the World HealthOrganization (WHO) for me. We signed conventions, but it does not mean thatRussia executes all WHO decisions. Perhaps we implement only 5% percent of thedecisions. I think that it is also the case with the WTO." (David Melik-Guseinov,Director of Cegedim Strategic Data, Cegedim).This contradiction will be apparent when Russia starts implementing standardsopposing and undermining the WTO system, which will weaken the organization:"In the future, the WTO may lose its influence because its member states willactively use hidden subsidies, especially in agriculture." (Vyacheslav Pronin,Deputy Director of analytical center WTO-Inform) This practice already exists.In June, 2012 during parliamentary hearings Minister of Agriculture NikolaiFyodorov said that the USA spends billions of dollars on its Agricultural SupportProgram. The following discussion was dominated by the idea that since the USAprovided such support in the form of hidden subsidies, Russia would also be ableto pursue similar polices after its accession to the WTO.Arkady Dvorkovich, Vice-Premier of the Russian government, substantiated thisthought in an interview given later: “All WTO members violate rules. They usuallydo things that are on the fringe and even beyond the fringe, and then litigateagainst each other. It is essential. Indeed, we knew in advance that we would alsolitigate and exceed the WTO limits and then gradually adjust to the respectiverules6.”The shift of financial and trade flows toward developing countries and their rapidgrowth in contrast with developed countries will be an additional challenge forthe WTO as an international organization."This international trade club is changing, and the needs of its members arechanging as well. The WTO is becoming less important for international tradebecause trade is no longer organized between the North and the South, butbetween the South and the South, i.e. within the southern hemisphere. China7, for6Kommersant, November 22, 2012 available at became WTO member on December 11, 2001.
  13. 13. 13example, is probably the world’s fastest growing economy, thus predeterminingthe changes in the world order. China can buy debts of developed countries andthus influence them, using this instrument.” (Laurence Brahm,8Founder of NGOHimalayan Consensus, China)Experts also believe that the WTO institutional framework will not undergosignificant changes in another decade. Yet, given that the role of manyinternational organizations is changing as a result of the ongoing global shifts andthe global financial crisis, it is time to start WTO organizational reforms as well."The WTO decision-making mechanism has its shortcomings. When the WTOconsisted of dozens of member states, it was easy to use the consensusmechanism. But now there are 157 members; so reaching consensus is much moredifficult. Some possible reforms of the WTO are discussed and will be discussed inthe future, but the WTO will retain its role, and there are no plans to significantlychange its framework." (Alexey Portansky, Professor of the Department of WorldEconomy and International Affairs at the Higher School of Economics (HSE),Leading Research Fellow of the Institute of World Economy and InternationalRelations of the Russian Academy of Sciences (RAS)At the same time, "the WTO perpetuates the current economic situation, i.e. thestrength of the strong and weakness of the weak, and preserves the domination oftransnational corporations both in politics and in the economy. I think that theneo-liberal economic model will be hit by a crisis, but the WTO blocks thetransition to a new model. The WTO will retain its role as long as a new model toreplace the existing one is defined in the future." (Pavel Kudyukin, AssociateProfessor at the Higher School of Economics (HSE), Analyst at the Institute ofGlobalization and Social Movements)What is your perception of Russia’s accession terms and the performance of theRussian delegation during the negotiations? Was it possible to negotiate morefavorable terms? If yes, in which areas?Briefly summarizing the results of Russia’s accession to the WTO, we can highlightthat Russian companies got non-discriminatory access to international markets;meanwhile foreign businesses have been granted with reduced tariffs for a moreactive entry into the Russian market (one-third of tariffs was reduced on August22, 2012, a quarter of them will be decreased in 2015, and the remaining tariffswill be reduced in 2018). These reductions are expected to drastically increase8Laurence Brahm is an economist, advisor of the Chinese Prime Minister Zhu Rongji on China’s preparation for theWTO accession.
  14. 14. 14import of goods. The European Union as a main Russian trade partner assessesthat reduced tariffs will save European exporters USD 2.5 bln on import tariffsonly. It will allow the European Union alone to export additional goods in theamount of EUR 3.9 bln annually.9At the same time Russia has taken on commitments on 116 out of 155 serviceslisted in the WTO services nomenclature, including banking and other financialservices, all insurance and insurance related services, accounting and audit,telecommunication services, etc. According to the World Bank experts, theconsumption of services in Russia will increase by 5.3 percent after the WTOaccession.10"Russias accession to the WTO was an economic priority for US foreign policytoward Russia. The lead Russian negotiator, Max Medvedkov was highly respectedby the US officials. These were long and difficult negotiations but everybody gotthe best possible deal” . (US Government source)"Russias accession to the WTO was supported by the European Union and theUnited States." (Art Franczek, President of the American Institute of Business andEconomics)The primary question, according to the experts, is how the accession to the WTOwill be implemented in legislative and law-enforcement practices.The experts who believe that the accession will bring positive results for Russiaalso positively assess entry terms and conditions and the Russian performanceduring the negotiations."Russia has bargained reasonable terms and conditions. For example, for theautomotive sector, the transition period is 7 years. In agriculture the terms couldhave been better. But it is usual practice for negotiations, and concessions createa kind of balance." (Head of a company protecting intellectual property rights)9Europe Portal (2011), EU welcomes Russias WTO accession after 18 years of negotiations. Available at Rutherford, University of Colorado and David Tarr, The World Bank. Russia’s WTO Accession: What arethe macroeconomic, sector, labor market and household effects?, Available at
  15. 15. 15In general, some experts positively evaluate the performance of the Russian teamduring the accession process."99 percent of citizens know nothing about either Russia’s or Chinas entry termsand conditions, which are commonly used as an example. How many people, inyour opinion, have read fifteen hundred pages of a complicated text on Russiasaccession to the WTO?China’s entry terms and conditions were less favorable than ours. For example,China was not recognized as a market economy for 15 years. Other WTO membershave noticed that over the last 10 years China has been violating its commitmentsvery often, and there are a lot of complaints about it. Russia’s entry terms andconditions can be considered as balanced and optimal." (Alexey Portansky,Professor of the Department of World Economy and International Affairs at theHigher School of Economics (HSE), Leading Research Fellow of the Institute ofWorld Economy and International Relations of the Russian Academy of Sciences(RAS))"Everybody knows that the negotiations have turned into a long-term processaimed at harmonizing controversial issues. Reaching the agreements was not onlyan economic, but also a diplomatic success. As for concessions made by Russia, Ido not think that they were significant. Coupled with the effective administration,Russias accession to the WTO is a great opportunity to develop competitiveindustries without governmental support and focus on the export of rawmaterials.” (Alexey Misailov, Managing Partner, Parkline Group)Other experts are critical about the WTO accession terms. Interestingly, some oiland gas companies told us prior to the accession that in their opinion the WTOaccession was wrong but after the accession asked to remove their statements.Several respondents suggested constructive comments and ideas on theaccession preparation. "Before signing the protocol, Russia could have conducteda thorough analysis on about 200 sectors to divide them into three groups withGroup A including priority sectors that need to be supported; Group B consisting ofindustries that are doing well; and Group C comprising the remaining sectors,where we would lose competition in any case. Then it was necessary to developspecific strategies for each group, and then we might have obtained differentresults and conditions." (Vyacheslav Pronin, Deputy Director of WTO-InformAnalytical Center)Perhaps, these questions should have been addressed; however, by an economicteam in the government rather than by negotiators.
  16. 16. 16"I believe that Russias accession to the WTO at some point was considered asgoal itself. At the same time our government has no clear development strategy,except formal papers such as "Russia – 2020." (Pavel Kudyukin, AssociateProfessor at the Higher School of Economics (HSE), Analyst of the Institute ofGlobalization and Social Movements)We need a valuable, measurable and explicit strategy (and not a ‘paper plan’)with governmental activities seeking to achieve final goals rather than resolveunpredicted popping issues as the case is now."They could have done more. I believe that in this case, the key performanceindicator is the preparedness of industries for joining the WTO. If we are notready, then we did not work efficiently enough. For example, the pharmaceuticalindustry was not prepared." (David Melik-Guseinov, Director of Cegedim StrategicData, Cegedim)"The negotiators were instructed to protect national interests and "not to bow."Overall, Russias accession to the WTO was a political decision, not an economicone." (Executive Director of a large American company in Russia)"To understand the situation, we should examine the following questions: Inwhose interests were they negotiating? Did they act in the interests of the Russianoil and gas elites or farmers? Was it done in the interests of the business elite, or99 percent of Russian people?" (Laurence Brahm, Founder of HimalayanConsensus NGO, China)"It is hard to assess the performance of the delegation during the talks. Theinformation on its work was limited; and it was hard to monitor the negotiations.In any case, taking into account the duration of the negotiation process, I had animpression that it was possible to finish the negotiations earlier.I cannot assess the entry terms and conditions because there is no informationabout them, except for general phrases, such as "consumers will benefit from theWTO", "some manufacturers will have to compete for a market share after theaccession to the WTO”. (Representative of a large European company)Several businessmen indicate negative practical aspects that are yet to emerge.For example, the WTO accession process may follow the path of the CustomsUnion establishment: they still cannot lift a strange rule regulating the entry ofpersonal belongings for foreigners working in Russia who have to pay 4 euro perkg for import of personal belongings and luggage.
  17. 17. 17Russia joins the WTO, and at the same time it forms the Customs Union-Eurasian Economic Space11with states outside the WTO. What is the most likelyoutcome of this collision? And the most desirable one?Most experts believe that the role of the Eurasian Economic space (CustomsUnion) as an international organization will slowly decline and finally will bedissolved within the WTO, the latter being a more powerful organization.“The Customs Union is a relic of the Iron Curtain era. The whole world is movingtowards minimizing customs formalities; thus, it will be good to simplify customsprocedures not only for the Customs Union, but also for all other countries."(Former Regional Director of a British company in Russia)“In May 2011, it was agreed12that the WTO rules will prevail over the rules of theCustoms Union." (Art Franczek, President of the American Institute of Businessand Economics)Some experts predict multi-level conflicts aimed at protection of Russias owninterests. "There will be a conflict between the Russian national interests whichRussia will protect on the one hand and the interests of the Union and the WTO onthe other hand. The reasons for this conflict are hidden in geopolitics: Russia is nota NATO member, and it never will be, but it needs some allies among CIScountries, this zone of influence being a state priority. Following the rules of theWTO is not among Russias interests, because it runs against the interests of itsallies, i.e. the CIS countries.The WTO wanted Russia to join the organization, but Russia wants to act as anequal partner abroad and maintain its own production, so the future conflicts willshow who is who.” (Executive Director of a large American company in Russia)Experts expect that Belarus and Kazakhstan will benefit rather than lose fromRussias accession to the WTO. "Russia is the locomotive that drags both Belarusand Kazakhstan into the WTO. By adjusting the legal framework of the CustomsUnion and the Eurasian Economic Space (which derives from the commitments ofthe Russian Federation to the WTO) to the WTO norms and rules, we challengeclaims by WTO members on the non-compliance of the Kazakh and Belarusian11The Customs Union is currently transforming into the Eurasian Economic Space starting February 2012 and isintended to be reorganized into the Eurasian Economic Union by 2015.12Agreement on the Functioning of the Customs Union in the Multilateral Trade System (signed on May 19, 2011in Minsk)
  18. 18. 18national legislations with the WTO rules in the areas of the Commission’sjurisdiction. This, in turn, should greatly facilitate negotiations on their accessionsto the WTO on systemic issues." (Vitaly Aristov, Head of bilateral and multilateralcooperation of the Department of Trade Policy of the Eurasian EconomicCommission)To join the WTO, “Kazakhstan will need another six-twelve months, while Belarusis barely half way there.” (Alexey Portansky, Professor of the Department ofWorld Economy and International Affairs at the Higher School of Economics (HSE),Leading Research Fellow of the Institute of World Economy and InternationalRelations of the Russian Academy of Sciences (RAS))For Russia, it could well lead to negative consequences. "In the area of counterfeitgoods, the customs control on the border of China and Kazakhstan is weak andless efficient. If such goods are imported to Kazakhstan, they can be easilyimported to Russia, which poses a threat to the industry of trademarks and theirprotection." (Head of a company protecting intellectual property rights)."Kazakhstan planned to join the WTO in autumn 2012. However, Kazakhstan doesnot produce agricultural machinery or mechanical engineering. Therefore, wehave different interests: they will decrease their duties to import Westernmachinery; but it is not beneficial for Russia.” (Vyacheslav Pronin, DeputyDirector of WTO-Inform Analytical Center)"The global pharmaceutical industry is deeply integrated, there are no borders.Russia is trying to build factories at home and distinguish between overseas andits own production. Yet, the location of drugs production is not important for thepharmaceutical industry. What really matters is where patent holders areregistered. Moreover, the production of drugs in Russia, which only focuses onRussian customers, is not modern anymore. At the moment both in terms of theeconomy and logistics the planning of business operations is conducted based onlarge regional sectors.On the other hand, Belarus and Kazakhstan are already enjoying the standards ofthe European Pharmacopoeia. Yet, Russia has its own system that is notharmonized with the European one. If we want to access the global market, wewill need to resolve this issue. If we continue the same strategy, either our goodswill be uncompetitive in the world market, or our services will not meet theinternational standards and requirements." (David Melik-Guseinov, Director ofCegedim Strategic Data, Cegedim)
  19. 19. 19"Practical issues associated with cooperation in the framework of the CustomsUnion will be addressed through bilateral channels between the U.S. and Russia.Thus the USA will address issues directly with Russia, Kazakhstan and Belarus.Businesses are now feeling that there are some tensions between the Ministry ofEconomic Development and the Eurasian Economic Commission in terms of policycoordination and practical work related to Russia’s WTO obligations. Bothagencies are sending contradictory signals to the business community, and each ofthem says that “you should work with us and not with them." (US governmentsource)What are the consequences of Russia’s accession to the WTO for variousindustries and for business in general? What are the consequences for yoursector? When can we expect the first results of the accession?Experts were seriously divided over the role of Russia’s accession for certainindustries and business as a whole:"Light industry will have to put up with increased competition, but it is alreadyunder great pressure from producers, primarily from Asia. Things will get worse, ifthe issue of "gray imports” is not resolved in the near future. It can be tackled byimproving domestic tax legislation. In addition, joining the WTO is not only aboutcustoms tariffs. We should understand that being a WTO member means a newlife in a completely new legal framework." (Evgeny Zverev, Executive Secretary ofthe Commission for the textile and light industry, Russian Union of Industrialistsand Entrepreneurs)"A software license is sold in the international market with no borders, so it’sunlikely that Russia’s accession to the WTO will affect the software industry.In the legal sphere, many regional, Eastern European law firms are entering themarket now, because prior to the accession to the WTO it was dominated byinternational giants or Russian companies, and now it is becoming morecompetitive. The WTO accession is conducive in terms of legal protection ofcompanies’ interests, and greater enforcement of other international legal acts.In fact, nobody knows the consequences of Russia’s accession to the WTO, so legaland consulting companies benefit from this uncertainty; as it creates new businessopportunities.
  20. 20. 20At the same time, many people are concerned about the possible weakening ofgovernmental efforts to protect intellectual property rights compared with theprevious years of active work. The WTO used to be a compelling politicalargument, a trump card for the legislation development and law enforcement. Itset the direction and pace of development, and provided a powerful argument ininternational negotiations. Now, when the legislation has been adjusted tointernational rules and certain results have been achieved in law enforcement, thegovernment pays less attention to protect intellectual property. With the maingoal having been achieved, intellectual property protection is no longer on a toppriority list for the government, so everyone pays less attention to the issue."(Head of a company protecting intellectual property rights)"Overall, both Russian businesses and domestic fishing industry will benefit fromthe accession. With regard to increasing competitiveness and adjusting numerousregulatory bodies and administrative barriers to international norms, it willgreatly release an average fisherman from the existing bureaucratic burden andcorruption-related “costs” of business.In the fishing industry, Russia’s accession to the WTO is currently beneficial forenterprises selling fish but not beneficial for enterprises catching and processingfish. They bear risks (wear navy, outdated processing technology, poor logistics,etc.); but it is possible to minimize them during the transition period, including viasubsidies.The Russian economy today is quite open to international competition, but thelevel of its own protection mechanisms is extremely low. A significant part of thedomestic export-oriented companies have long been competing with foreigncompanies under WTO rules, but they do not use their rights under it to the fullextent.” (Anna Gornova, aide to an or a Member of Parliament - a member of theState Duma Committee on natural resources, natural management, and theenvironment; Vice-president of National Prestige foundation13, Head of theoceanic fishing department)."The industries that will be badly affected by the WTO are the light industry,agriculture, agricultural machinery, heavy machinery, and pipe industry. It isimpossible to say that some industries will definitely benefit. We can only say thatthere are industries that will not ‘lose’: oil and gas industry, primary processing13The National Prestige Foundation was established in 2009 to facilitate the development of social projects,support of national art, and popularization of national culture. The foundation places specific attention to thedevelopment and popularization of basic principles of the national industrial policy, which in the globalizationconditions is understood as the creation of an optimal and comfortable environment on Russia’s territory.
  21. 21. 21industries, chemical industry. Some steelworkers, for example, are also scared ofthe WTO accession, in particular of the tightening of the situation andrequirements on them in international markets." (Vyacheslav Pronin, DeputyDirector of WTO-Inform analytical center)“Everyone understands that Russia’s accession to the WTO will affect the wholeeconomy, including agricultural sector. I have an indefinite opinion. I think theconsequences will be negative. Some sectors of Russia’s agriculture aretechnologically outdated compared with other countries.Due to the lack of division of labor in a number of industries our prime cost is high,and the quality is worse than the quality of foreign companies. If we do notovercome this gap, we will be flooded with imported products after joining theWTO.” (A source in Russian Ministry of Agriculture)"The first results will be visible immediately after Russias accession to the WTO,and we can expect a lot of complaints filed with the Dispute Settlement Bodywithin WTO. The World Bank estimates that Russia can expect an annual GDPgrowth rate of 3.3 percent in the short term and 11 percent in the long term as aresult of its accession to the WTO. These growth estimates are based on Worldbank studies, I would add that other analysts believe that the short term impact ofWTO will be minimal in fact some analysts believe the short term impact mayhave a negative effect on GDP.” (Art Franczek, President of the AmericanInstitute of Business and Economics)"The first consequences may become apparent very quickly, and we will see themin the form of duties change. Allowing parallel imports may be one of thenegative consequences of the accession to the WTO for businesses. There also willbe good consequences, i.e. the simplification of customs rules.” (Representative ofa large European company)"Joining the WTO will facilitate further integration of Russia in two ways: theinflow of capital to the country and domestic companies’ expansion overseas. Thiswill accelerate the integration of Russia into the world economy. In my opinion,one of the factors that may affect foreign companies’ entry into the Russianmarket is careless attitude to intellectual property rights in Russia, due to whichcompanies usually do not bring technologies to Russia that can be copied (forexample, Boeing).There is yet another issue. Buying the aircraft abroad including customs duties andVAT was 40 percent more expensive than its original cost. Thus, most companiesleased an aircraft and few people bought it, and the costs were passed on to final
  22. 22. 22consumers, seriously increasing the price of airplane tickets. After the accession,this situation is expected to gradually change for the better." (Former RegionalDirector of a British company in Russia)"The first results will be visible in six-twelve months, and there will be a clearerunderstanding of the situation in two years.” (Laurence Brahm, Founder of NGOHimalayan Consensus, China)"We can expect first consequences in about two years in the pharmaceuticalindustry if there are no major changes and disturbances in the Healthcareadministration. If the leadership in the Ministry of Healthcare is changed, theprocess will slow down." (David Melik-Guseinov, Director of Cegedim StrategicData, Cegedim)"The negotiations on Russias accession to the WTO were conducted with the aimto prevent crisis situations in all industries after the accession. We shouldunderstand that we are consciously moving towards greater competition in thedomestic market. It is impossible to promote further economic development andgain access to foreign markets without this strategy.The WTO also benefits from Russia’s modernization of its production and moreexport of finished products. And then we will be competitive in internationalmarkets. All in all, it will be possible to see the first positive results in five years atleast.” (Alexey Portansky, Professor of the Department of World Economy andInternational Affairs at the Higher School of Economics (HSE), Leading ResearchFellow of the Institute of World Economy and International Relations of theRussian Academy of Sciences (RAS)“Results are expected in 3-5 years. We can predict the increase of cheap productsimport into Russia, and also an increasing volume of non-raw material exportsfrom Russia. However, over the next 2-3 years, which is during the transitionperiod, significant changes should not be expected.As a customs broker our company is not afraid of the entry of new players into themarket. And the particularity of our business hardly allows foreign companies tocompete with the Russian ones. Yet, mergers and acquisitions are possible.”(Alexey Misailov, Managing Partner, Parkline Group)"They say that the economy will be more transparent, less corrupt and more open,but it is just good PR. Upon accession to the WTO, Russia reduces tariffs only inthose sectors of the economy where it does not have its own production, and notwhere it has strategic local factories. Russia wants to keep them in order to retain
  23. 23. 23business and jobs. The key question is how the accession will be implemented, sothere will be no results for several years and no visible results in a decade."(Executive Director of a large American company in Russia)"Companies exporting raw materials and processing industries are comfortablewith the WTO conditions. Oil companies did not have problems in theinternational market, but steelmakers faced some problems, for example in theUSA. We expect that gas companies will have potential problems as there is somepressure on prices associated with the processes going on in parallel with RussianWTO accession such as the emergence of LNG and shale gas, and diversifiedEuropean gas sources.Agriculture and a major part of the manufacturing industry (machinery, aircraftindustry, machine tools, and agricultural machinery) will be among the losers.Is it possible to take necessary measures to protect the domestic industry duringthe 7 year transition period? Negotiations on Russia’s accession to the WTO lasted18 years. We could have prepared for the accession during this time, but in realitynothing had been done. How can we assume that the government will achievemore during the transition period?" (Pavel Kudyukin, Associate Professor atHigher School of Economics (HSE), Analyst of the Institute of Globalization andSocial Movements (RAS))To what extent are you informed of Russia’s commitments to the WTO andchanges that will take place?"We all saw the text of the accession only on December 16, 2011, and thedocument in Russian became available only from February 1, 2012. Yet, accordingto Medvedkov, all the rules were agreed in 2006. We knew nothing about termsand conditions, and we could not reasonably prepare for the accession, andgovernment officials did not listen to us. There is an answer to the question "Whydid businesses keep silent?" The business community just knew nothing about theWTO entry terms and conditions." (Vyacheslav Pronin, Deputy Director of WTO-Inform Analytical Center)"Business is poorly informed about the future developments. In particular, it is notclear how the customs tariffs will be changed. The website describing theaccession process and all materials are only available in English. New customstariffs were published on the eve of its entry into force on August 23, 2012, and itis not clear what duties will be changed after January 1, 2013." (Representative ofa large European company)
  24. 24. 24"Businesses in the pharmaceutical industry are not very well informed about theconsequences of the accession to the WTO. We’re running educational programsfor pharmaceutical companies. The Ministry of Healthcare has other problems,namely standards and quality of treatment. The Ministry of EconomicDevelopment has other priority areas. The Ministry of Industry and Trade keepssilent. The government has not prepared even a road map of the process» (DavidMelik-Guseinov, Director of Cegedim Strategic Data, Cegedim)However, some experts disagree with the abovementioned opinion:"In 2001 the Ministry of Economic Development launched a large informationcampaign on the accession to the WTO among businesses; and Russian Union ofIndustrialists and Entrepreneurs, Chamber of Trade and Industry, the State Dumaactively participated in it. As the organizer and participant of this campaign, I cansay that overall, it was successful.We held more than 150 seminars, conferences, round tables in 64 Russian regionsand conducted about 350 meetings on the accession in total. Those companiesand businessmen who wanted to get the necessary information and prepare forthe WTO, managed to do this. In some regions, for example, several researchstudies on the possible consequences of joining the WTO have been conducted.But not everybody was equally active in this regard. Most people were sitting andwaiting for the decree from Moscow: "Right, we are on our way to join the WTO,do this and do that." Some, roughly speaking, “overslept" and now feeluncomfortable.After Russia’s formal accession to the WTO on December 16, 2011 the "critics"claimed that documents on the accession to the WTO were not translated intoRussian. Its not true; the translation was available on the Internet. However, itshould be taken into account that the authentic text is in English.” (AlexeyPortansky, Professor of the Department of World Economy and InternationalAffairs at the Higher School of Economics (HSE), Leading Research Fellow of theInstitute of World Economy and International Relations of the Russian Academyof Sciences (RAS)"The business community has been informed about ongoing developments. TheRussian Federation carried out tremendous work in order to provide all the expertsconcerned (I would like to emphasize this word) with the information about thenorms and rules of the WTO. We will see how wisely businesses use the acquiredinformation." (Vitaly Aristov, Head of bilateral and multilateral cooperation of theDepartment of Trade Policy of the Eurasian Economic Commission)
  25. 25. 25"Those who work with foreign customers and suppliers are aware of Russia’scommitments. The government, its ministries and agencies publish all therequirements and necessary information. The fishing industry cannot ‘feel’ most ofthe changes concerning the WTO yet because it requires some time and statistics.There are pros and cons, but it will take some time to see them." (Anna Gornova,aide to an MP who is a member of the State Duma Committee on naturalresources, natural management, and the environment; Vice-president of NationalPrestige foundation, Head of the oceanic fishing department)."Large companies are well informed about the WTO. The Ministry of EconomicDevelopment has had dialogue with the business community, has heldconferences and has given briefings, and also has provided full access to theinformation. It is willing to respond to any requests. We also provide our clientswith analytical materials and prepare a selection of the materials that havepractical value for our customers. Therefore, both Russian and internationalcompanies represented in the Russian market are aware of the main trends andknow how to develop their business in the future." (Alexey Misailov, ManagingPartner, Parkline Group)"We are very well informed about the situation in copyright protection." (Head ofa company protecting intellectual property rights)"Textile and light industry enterprises are aware of tariff concessions, but there isa lack of information on possible compensation measures and procedures for anti-dumping investigations under WTO rules." (Evgeny Zverev, Executive Secretary ofthe Commission for the textile and light industry of Russian Union of Industrialistsand Entrepreneurs (RSPP)There are also conflicting points of view."Business associations are better informed than specific companies. Yet, a largenumber of companies are not affiliated with business associations. Our society,including the business community, is not prone to self-organization in principle.First, our business community does not have its own social identity, a “business”social group is non-existent, and this is an indicator of their weak ability toorganize themselves. Second, there are no established channels for bilateraldialogue among business and authorities and no initiative on the part ofbusiness." (Pavel Kudyukin, Associate Professor at the Higher School of Economics(HSE), Analyst of the Institute of Globalization and Social Movements)With regard to the practical aspects of the preparation for the WTO accessionthat are available for the general public, the Ministry of Economic Development
  26. 26. 26has developed a separate section on its website14containing an overview onarticles published on Russias accession to the WTO and a number of documentson this topic.Head of Department of Trade Negotiations under the Ministry of EconomicDevelopment, Maksim Medvedkov provided no answer regarding theparticipation in this research.Are you aware of Russian businesses developing any special strategy on theadaptation to WTO membership? Are you developing such a strategy? If yes –what is it focused on?According to opinion polls, most companies have not given too much attention toRussia’s accession to the WTO. For example, Strategy Partners and DelovayaRossiya in their survey of top managers of Russian companies carried out inDecember, 2011 – January, 2012 stated that only 6 percent of the respondentshad developed an adaptation strategy. Another 11 percent were planning todevelop such a strategy and 48 percent said that "perhaps, some measures will betaken." 34 percent of surveyed companies claimed that they were not planning tointroduce adaptation strategies or measures.Twenty two percent of the companies think that Russia’s accession to the WTOwill have a minimum impact on the Russian economy whilst 52 percent believe inthe "positive" and "extremely positive" impact of this process. Twenty fourpercent of the companies claim that it will have a "negative" or "extremelynegative" impact. Yet, the respondents are more pessimistic when it comes toevaluation of the impact on their own businesses. Forty eight percent of therespondents are sure about the "positive" and "very positive" impact of the WTOregimes on their companies, while 46 percent predict a negative impact.15The research prepared by Grayling confirmed the opinion poll results. Apart fromstating that it should be done, few entrepreneurs are really preparing strategiesto adapt their businesses to the WTO requirements.Our expert reflects on the reasons for this approach. "Few people think a fewyears ahead. This is a too distant future for Russia because everything is changing14 dated February 14, 2012. Available at
  27. 27. 27rapidly, and the environment is unstable." (Head of a company protectingintellectual property rights)"I did not come across these strategies. Both corporate and governmentmanagement are at a low level in Russia, thus it is difficult to talk about anystrategy. Upon Russia’s accession to the WTO something will start to collapse, andsomething will be done in haste to save the economy." (Pavel Kudyukin, AssociateProfessor at the Higher School of Economics (HSE), Analyst of the Institute ofGlobalization and Social Movements)"There are no adaptation strategies in the automotive engineering industry. Thereis a general development strategy until 2020 – 90 percent of the measures thatneed to be taken to support the economy are prohibited by the WTO. We will notbe able to develop light industry, furniture and clothing production, metalproducts manufacturing, and electronics.” (Vyacheslav Pronin, Deputy Director ofWTO-Inform Analytical Center)However, this opinion is not supported by all the respondents."Our business has already adapted to the WTO." (Alex Misailov, ManagingPartner, Parkline Group)"Since 2012 the Government of the Russian Federation has paid great attention toreducing risks for individual industries and sectors under the WTO framework. Ithas already taken some specific measures.I should note that businesses could have prepared better for the new terms andconditions, but, unfortunately, during the negotiation process, business receivedambiguous signals from the government about whether we were really willing tojoin the WTO. Thus, many believed that the issue was not resolved and it waspointless to prepare for the accession. Business sensed the doubts. This wasespecially true at the beginning of the global economic crisis. For example, inSeptember 2011 top governmental officials claimed that businesses had to beprepared for two scenarios: "Russia is in the WTO and Russia is not in the WTO."Of course, everybody interpreted it as “the accession has been postponedindefinitely." (Alexey Portansky, Professor of the Department of World Economyand International Affairs at the Higher School of Economics (HSE), LeadingResearch Fellow of the Institute of World Economy and International Relations ofthe Russian Academy of Sciences (RAS)Businesses have started to respond to Russias accession to the WTO only now.Experts believe that in contrast to Russia, foreign competitors are better prepared
  28. 28. 28for Russia’s membership in the WTO. The U.S. Department of Commerce hasprepared a special section on its website dedicated to this issue. The Departmentanalyzed terms and conditions of Russias accession to the WTO for Americanbusinesses and how it would affect them. The Department also selected 17priority sectors and gave an overview of the opportunities for businesses in termsof improved access to the Russian market. This analysis was carried out not onlyby industry, but also in the context of the potential applicability to each of the 50states."Businessmen are implementing such changes partially. We are trying to helpthem as far as we understand the situation ourselves. We explain processes, try tointerpret them. Nobody has got a pattern and it makes it difficult for companies toprepare for the risks that may be incurred by the industry and also get ready forthe work under the WTO." (David Melik-Guseinov, Director of Cegedim StrategicData, Cegedim)"We know that Boeing will significantly benefit from Russias accession to theWTO in the next 7 years, since the customs duties on commercial aircrafts will bedecreased from 20 to 7 percent. And Russia is expected to have a need for about1,000 airplanes in the next 10 years. Boeing has definitely such a strategy.Producers of meat, chicken poultry products from the EU will also benefit fromRussias accession to the WTO, as their products will be no longer discriminated”.(Art Franczek, President of the American Institute of Business and Economics)"Businesses need an adaptation strategy for WTO requirements only if theserequirements have become tougher. If they are favorable, there is no point indeveloping such a strategy. Adaptation is necessary for those industries that wereonce protected by customs duties, for example, the aircraft industry. Thegovernment thought that it protected domestic producers, but they should nothave imposed high import duties, and should rather have made its own productionmore competitive. Instead of improving aircrafts, raising competition, andreducing prices, they protected the aircraft industry." (Former Regional Director ofa British company in Russia)"Its hard to prepare for accession to the WTO, because you must havegovernment support and protectionist measures. What will Russian regions do,will they be supported by the federal government? It’s important to see how thelocal practice will be used, how local authorities will handle this.” (LaurenceBrahm, founder of Himalayan Consensus NGO, China)Interestingly, only one participant mentioned the regional aspect of the WTOaccession. This may be explained by the fact that this aspect concerns
  29. 29. 29government and society rather than business; but in any case Russia’s imbalancedregional, social, and economic development is one of the main difficulties thatneeds to be addressed during the WTO accession process as, according to socialscientists, Russia represents four different countries:161. “Big cities Russia” – 12 cities with population exceeding 1 million and citieswith population exceeding 500 thousand people (30 percent of the countrypopulation).2. “Medium industrial towns Russia” with the population from 20 thousand to250 thousand, sometimes including big towns with the population from300 thousand to 500 thousand (Cherepovec, Nizhny Tagil, Magnitogorsk,Naberezhnye Chelny) and even Tolyatti with the population of 700thousand (25 percent of the country population, 10 percent of them livingin single-industry cities).3. “Peripheral Russia” consisting of 38 percent of the country population livingin villages and small towns.4. “Northern Caucasus and Southern Siberia Russia” (The Republic of Tyva andAltay) composing 6 percent of the country population.Balancing between the interests of the four Russias, minimizing negativeconsequences, and using new opportunities related to their accession to the WTOis a serious challenge which, according to the experts, has not been addressed yeton either regional or federal levels.However, some business representatives do not see any point in preparing forRussia’s accession to the WTO."It is too early to develop a strategy. You can start doing that not earlier than2015. No one knows yet how to work in the framework of the Customs Union, letalone the WTO. The WTO is a kind of a «rocket science». At the moment we’rewaiting, looking, observing and enjoying the show. The strategy will be preparedwhen customs officers, tax inspectors and the Finance Ministry will publishlegislation and legal framework changes, which will have an impact on business.Until we get customs rates for the relevant product codes from customs officers,the WTO remains on paper. Until the speed of customs clearance changes and wesee the results of this in profit and loss statement, all the changes have an indirectimpact." (Executive Director of an American company in Russia)16Natalia Zubarevich, Four Russias. Vedomosti. December 30, 2011. Available at:
  30. 30. 30"Those companies that were actively involved in the preparation to the WTO andwere interested in receiving information were the first to start preparingadaptation strategies. Many businessmen pointed out that the biggest issuerelated to the WTO accession is our bureaucracy, namely how fast and in whatway state representatives respond to the enquires and complaints of businesses.Indeed, large companies have started to develop such strategies. As always, thereare better performers and laggards hoping that the government will help and savethem in critical time.” (Alexey Portansky, Professor of the Department of WorldEconomy and International Affairs at the Higher School of Economics (HSE),Leading Research Fellow of the Institute of World Economy and InternationalRelations of the Russian Academy of Sciences (RAS).
  31. 31. 31Life after the WTO Accession: Performance of Dispute Settlement Body17The performance of the Dispute Settlement Body is not in the scope of ourresearch of WHO. Nevertheless, as it was already mentioned, the disputesettlement mechanism of WTO is one of the most effective in the internationalarena, and Russia will probably start its work within the WTO facing disputesettlement. Russia is expected to be a defendant in cases connected to anti-dumping, sanitary, and phytosanitary measures and intellectual property rights(TRIPS). Therefore, this section is devoted to the most interesting issues related todispute settlement and the performance of the Body.About 70 percent of the decisions taken by the Body on dispute settlement areappealed as appeals are free, help delay decisions, and provide local politicianswith an opportunity to ‘save face’ in their respective countries. In practice, anapplicant usually wins a case.Dispute settlement remains confidential during the whole process until theofficial result of the Body and the appeal committee of the WTO is publiclyannounced. Since disputes are not discussed in public (except for disputeinitiation), the image of a defendant country is usually negatively affected.If a state is found guilty of violating the WTO rules, it should amend its nationallegislation to remove or change all aspects that are at odds with the WTO.Monetary compensation for damage is not used to settle disputes.Meanwhile some sort of compensation (additional favorable conditions offeredby the side which was found guilty) could be temporarily used as a legal remedybefore proper amendments to the legislation are introduced. The compensationcould also be legalized as reimbursement (suspension of favorable conditions);however, this practice needs a special approval of the Dispute Settlement Body.A country that was found guilty is expected to fulfill the decision of the Bodypromptly. As it is not always possible to do it promptly, it needs to be done in areasonable period of time.The Body considered 26 disputes in 2011 alone, which is a significant amount forone year. Most disputes were about trade protection measures, namely use ofanti-dumping and compensation measures and guarantees, as well as services(GATS) and investments (TRIMS).17Materials for this section are provided by the Senior Lecturer, City University London, David Collins.
  32. 32. 32Interestingly, the US has most often used the trade settlement mechanism and itmost frequently acts as an applicant as well as a defendant.During the whole period of the Body’s activity since the WTO establishment in1995, there have been 454 disputes brought to the WTO; however the number ofappeals has been decreasing recently.
  33. 33. 33AfterwordAccording to the research, the discussion about Russia’s accession to the WTOand its consequences has led to a serious division within the expert community,similar to the one that used to be between the “Westerners” and the “Slavophils”on Russia’s development.In our opinion, reasons for this division are hidden in culture and the doubts ofexperts concerning the need to join the WTO are based on the following.Russian18(Российская), and previously Soviet and Russian (Русская) culturaltraditions implied binary (dual) world perceptions: white against black, goodagainst bad, ours versus alien.In our case black-white responses to Russia’s WTO accession are predeterminedby our historic and cultural traditions. The lack of serious and substantivediscussion on this and other topics urgent for Russia’s development in practiceleads to ‘bad’ – expensive and not most optimal – decisions and unpredictabilityof the government’s actions for business and society when such decisions have tobe developed and revised and mistakes have to be corrected on the run.Meanwhile the development of the civilization entails Russian society shifts frombinary (dual) to the ternary (triple) cultural paradigm, which is more common formost Western cultures. The western cultural tradition implies that the world isdiversified and oriented more on the evolutionary consciousness anddevelopment.Russia’s accession to the WTO helps us engage more not only in trade relationsbut also in further cultural dialogue with the rest of the world to preserve theopportunity for further evolutionary development of our country. Russia’sparticipation in such organizations as the WTO is also important from theperspective of a constructive dialogue aimed at reaching reasonable compromiseswith the rest of the world without ignoring national interests.“Transition from the thinking of revolutionary explosions to the philosophy basedon evolution gains a special meaning, because all our previous cultural patternstilted to polarity and maximalism.” “The current cardinal change in relationsbetween Eastern and Western Europe may be an opportunity to switch to theEuropean ternary (triple) cultural paradigm and abandon the idea to completely18For more details on binary and three side cultural paradigms read Lotman Y. The point of turn //Literature newspaper. June 12, 1991. № 23.
  34. 34. 34destroy the past to build a new future. It would be a disaster to miss this historicmomentum.”1919Lotman, Culture and Explosion, 2009.
  35. 35. 35Annex 1. The WTO in Facts and FiguresWorld Trade Organization (WTO)20 A global organization regulating trade relations between its member states; Is established on January 1, 1995 based on the Uruguay Round ofnegotiations taking place from 1986 to 1994 and the 1947 GeneralAgreement on Tariffs and Trade; 157 member states; The WTO headquarters is situated in Geneva, Switzerland; Director General — Pascal Lamy; Budget is EUR 163 mln as of 2012; 640 employees; Official languages: English, French, and Spanish.WTO and Russia Full member sinсe August 22, 2012; Unprecedented 18-year accession negotiations from 1993 till 2011. Duringthis period the Working Group conducted 29 regular sessions to harmonizeaccession terms; After Russia’s accession the WTO controls about 95-97.1 percent of worldtrade (different estimates); Some consequences of Russia’s accession:o Equal access to the economies of 156 states in the world;o Gradual reduction of average customs tariffs from 10 to 7.8 percent(average?);o Up to a 11 percent GDP growth rate in the long term (World Bankestimates);o Removal of export restrictions amounting to $ 2 bln annually(estimate by the Ministry of Economic Development of Russia).20Data as of January, 2013. Details are available at the WTO official web-site
  36. 36. 36Annex 2. Brief Information: Russia and the WTOThe longest negotiations on Russia’s accession to the WTO had been conductedfor 18 years, from 1993 till 2011. Russia is the last member of the Group oftwenty major national and EU economies (G20) and the last member of the fiveBRICS emerging economies to become the 156-th WTO member. It officiallyjoined the WTO on August 22, 2012.21Chiedu Osakwe, Director of the WTO Accessions Division, said that with Russia theWTO would regulate up to 97.1 percent of world trade.22Underlying Principles and Rules of the WTO Provision of mutual most favorable treatment regime in trade; Provision of mutual national regime to goods and services of foreign origin; Trade regulation predominately by tariff means; Removal of quantitative and other restrictions; Transparency of trade policies; Dispute settlement through consultations and negotiations, etc.Main Functions of the WTO Liberalization of trade regimes and removal of barriers in trade betweenmember states; Multilateral trade negotiations between member states concerned; Trade disputes settlement; Monitoring of national trade policies; Technical assistance and training for developing countries within the WTOjurisdiction.21Federal law ‘On Ratification of the Protocol on the Accession of the Russian Federation to the MarrakeshAgreement on the Establishment of the World Trade Organization dated April 15, 1994’ was adopted by the StateDuma on July 10, 2012, approved by the Federation Council on July 18, 2012 and signed by the President July 21,2012. Russia has become a full member of the WTO on August 22, 2012.22Director-General’s Statement on Russia’s Accession, December 16, 2011// Available at
  37. 37. 37Russia’s WTO obligations are enshrined in the Protocol, List of Commitments onGoods, and List of Commitments on Services that are part of the Protocol as wellas the Report of the Working Group on Russia’s WTO accession.The rights and commitments to WTO members will affect Russia in three mainways. First, its membership will influence the goods exports and imports, second,commitments will impact the services market, third, and they will concerninvestments and intellectual property.As a result of Russia’s accession to the WTO customs duties of imported goodsshould be reduced from the current average 10 percent rate to the new 7.8percent rate. In specific sectors such as machinery customs duties rates should bereduced from the current average rate of 25 percent to the new 15 percent rate.Import customs duties rates on 1/3 of all goods are expected to be reducedstarting from 2012, on another 1/3 of all goods – starting from 2015, and on afinal 1/3 of all goods – starting from 2018. These reductions are expected tocardinally increase import of goods. The European Union as the main tradepartner with Russia assesses that reduced tariffs will help European exporters tosave EUR 2.5 bln on import tariffs only. It will allow the European Union alone toexport additional goods in the amount of EUR 3.9 bln annually.23Russia has taken on commitments on 116 out of 155 services listed in the WTOservices nomenclature. These services include banking and other financialservices, all insurance and insurance related services, accounting and audit,telecommunication services, etc. The World Bank estimates that the consumptionof services in Russia will increase by 5.3 percent after the WTO accession.24Within the WTO framework, Russia takes on commitments ensuring nationaltreatment (NT) for foreign services providers, i.e. the application of the samerules for both foreign and Russian services providers. Russia also provides accessto Most-favoured-nation (MFN) treatment implying that if Russia providesfavorable legal treatment for foreign entities from one WTO member thistreatment is also extended to all other WTO members.23Europe Portal (2011), EU welcomes Russias WTO accession after 18 years of negotiations. Available at Rutherford, University of Colorado and David Tarr, The World Bank. Russia’s WTO Accession: What arethe macroeconomic, sector, labor market and household effects? Available at
  38. 38. 38The WTO is based on the system of agreements in six main sectors. Russia’scurrent status with regard to them is as follows: Trade in Goods (regulated by the Agreement on Goods)Reduced imports customs duties rates: on 1/3 of all goods starting from2012, on 1/3 of all goods starting from 2015, on final 1/3 of all goodsstarting from 2018. Trade in Services (regulated by the Agreement on Services)Russia has taken on commitments on 116 out of 155 services listed in theWTO services nomenclature. Investment (regulated by the Agreement on Trade-Related InvestmentMeasures (TRIMS)With regard to the obligations on investment programs in the automotiveindustry Russia has retained the right to introduce temporary measuresinconsistent with WTO rules. Intellectual Property (regulated by the Agreement on Trade-RelatedAspects of Intellectual Property Rights (TRIPS)It sets the conditions for extending the 1994 GATT regime to results ofintellectual activities, defines rights and obligations of Russia as a WTOmember in intellectual property protection for trade in goods. Dispute Settlement Mechanisms (regulated by the Understanding on rulesand procedures governing the settlement of disputes (DSU)Trade disputes are settled in the WTO in different ways. Settlement ofnational trade disputes through consultations and negotiations ispreferable; and this procedure is obligatory at the initial stage of disputes;but it is not always effective. Access to the WTO dispute settlementmechanism ensures the protection of Russian interests if they are impingedon by its partners (see more on this in a section p. 31) State Procurement (regulated by Trade Policy Review Mechanism (TPRM)
  39. 39. 39It regulates rules and procedures on tenders in conducting stateprocurement of goods and services. Government agencies will concludeagreements based on transparency under the published laws, regulations,and recommendations. The Russian Federation submitted an application ofthe observer status under this Agreement after its WTO accession and hasstarted negotiations on joining this WTO Agreement.Russia in its commitments has made several reservations with regard to foreignpartners, they include: Pricing (a transition period to harmonize railway rates meanwhile theydiscriminate import of goods); Special economic zones (transition periods for the Kaliningrad andMagadan SEZs); Technical regulation (the permission to keep All-Union State Standards thatare incompatible with WTO rules if they are not challenged by WTOmembers); Agriculture (the permission to increase federal government’s aid toagriculture); TRIMs (as concerns the obligations on investment programs in theautomotive industry Russia has retained the right to introduce temporarymeasures inconsistent with WTO rules).Following Russia’s accession to the WTO Russian entities may enter foreignmarkets in line with commitments made by the respective WTO members. Suchcommitments may be more favorable for Russian entities than their treatmentprior to Russia’s accession.
  40. 40. 40Information on Grayling A leading PR-agency in the world: more than 1,000 employees in 70 offices and 40countries in the world as well as a network of reliable partners across the world. Strongpositions in Russia and CIS countries. A wide range of provided services: public relations and government relations, corporateand financial communications, crisis communications, work with new media and socialnetworks and organization of events. Our consultants have experience of facilitating decision-making at high governmentlevels across the world. We consult international and Russian companies in strategic communications in a widerange of areas including healthcare and pharmacy, financial and professional services,technologies, mass media and telecommunications, and consumer brands. Grayling Russia has a long experience in crisis management and the establishedmethodology that we propose to our clients in training on crisis and mediacommunications. Our team on government relations is effective and compliant with all the ethicalstandards. We have a deep understanding of the federal government and parliamentwork. We also have developed a unique and detailed regional and federal methodologyto support large foreign direct investments, including the search for construction sitesand license obtainment. In 2008 Grayling Russia was praised as the best agency in government and publicrelations in Europe, the Middle East and Africa, according to the Holmes Report, aleading international PR-magazine, and in 2009 was awarded with the internationalStevie award for the “Communication campaign of the year in Europe.” In 2011 Graylingachieved European Excellence Award as the best European agency of the year.Grayling’s PULSE project received Holmes Report Silver SABRE Award in 2013.ContactsPavel Melnikov,Vice-President on Public Affairs and CrisisCommunications,Grayling in RussiaOffice: +7.495.788-67-84;Mobile: +7.963.963.19-29;
  41. 41. 41Information on Law Firm ‘Muranov, Chernyakov, and Partners’ Established in 2003; the geography of activities covers Russia and CIS countries, WesternEurope, and the US. More than 30 high-quality attorneys and lawyers work in the firm; and it provides legalservices to a wide range of clients, including Russian and international companies,financial institutions and governmental agencies. The firm is annually included in top ratings of international legal guides such asChambers Global, Chambers Europe, The Legal 500, Whos Who Legal, Best Lawyers; thelawyers of the firm are rewarded by such international awards as CorporateInternational Global Awards 2012, The Lawyer European Awards 2012, ILASA Awards2012, Legal Success 2012, The British Legal Awards 2011, etc. We represent the interests of clients and consult them in litigation and internationalcommercial arbitrage and provide legal services in the WTO legislation, antimonopolylaws and corporate laws. Sectoral specialization: banking, real estate and construction, energy and naturalresources, communications and telecommunications.Experience in the WTO legislation We consulted international and Russian companies with regard to Russia’scommitments to the WTO, positive and negative consequences of the WTO accessionfor oil, banking, steelworkers companies, alcohol and food industries. We presented the interests of the group of 131 Russian MPs in the RussianConstitutional Court concerning the possible unconstitutionality of the then non-ratifiedProtocol on Russia’s accession to the WTO. We represented the Federal Chamber of Attorneys in the WTO context in its relationswith governmental agencies (The Ministry of Justice of Russia and the Ministry ofEconomic Development of Russia). We conducted a basic analysis of the legal consequences of Russia’s WTO accession forvarious sectors of economy (these reviews are available at as wellas an analysis of the consequences for the Russian legal business; the work was followedby the project Muranov,Managing Partner,Head of the WTO Legislation Practice+7.495.783-74-50;