Russia and WTO agree to Russian membership of the World Trade Organisation

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Better Late Than Never
On the 11th November 2011 the Russian and WTO working parties agreed
terms that will pave the way for Russia’s acceptance to the World Trade
Organisation. Russian lawmakers are expected to approve membership
early next year following the December parliamentary elections.
Russia will then formally join the group 30 days after Duma ratification.
Alexander Rogan reports.
The path to He was less diplomatic when interviewed on
membership has, to put Russian TV when he lambasted the EU and USA for
it lightly, been arduous. procrastination and for causing deliberate delays to
Original negotiations Russian accession. This back drop is against open
started in 1993 and hostility to Russia by some US lawmakers who
have been ongoing since. wrote to the US WTO Trade Representative on the
Following his successful 10th November about their ‘significant concerns’
presidential election in and demanding that Russia display “transparent,
2000, Vladimir Putin substantive and prompt action” in its’ adherence to
got behind the accession WTO obligations. “Substantive” could be used as
plans and was a key player in the eventual outcome. a Russian accolade but neither ‘transparency’ nor
He displayed his frustrations more than once at ‘prompt’ are virtues I see much of in the Federation.
the negotiations and how “the rules of the game” were As an organisation the WTO supervises and
changed to suit different WTO partners. Although liberalises international trade, regulating trade
the WTO is ostensibly an apolitical global trade between member countries and providing the
organisation, the delays and barriers that Russia has negotiating and trade agreements platform.
dealt with in recent years have been politically charged. Importantly for Russian success and her ability to
Vladimir Putin Prior to the agreement, Vladimir attract fresh inward investment, the WTO enforces
Putin said in a recent Chinese TV interview; “We dispute resolution aimed at member’s adherence to
want to join the World Trade Organisation. This is WTO agreements.
our goal and our objective. In our opinion this would The WTO has 153
have a generally positive impact on the Russian members and represents
economy, mostly because it will increase the level of more than 97% of the
trust in the economy, and on the administrative and world’s population so
legal procedures within the economy. By the way, we Russia’s absence since the
have fully adjusted our domestic legislation to WTO fall of the USSR has been
requirements. We have done this. We have also settled anachronistic. With a $1.5
the major problems with all of the key partners. I think trillion GDP and as the
that it has become more of a political issue.” world’s largest oil and gas

2. producer Russia should have been in the WTO years who and what these ‘small’ industries are, I do not
earlier. know. Russia today is a huge importer of consumer
Membership of the WTO will not change the goods and distributors may find they have fresh
business environment or the high risk assessment competition on their hands but the absence of a
given to Russia by foreign investors. What it should cottage industry begs the question.
do is add impetus to the significant reform and Russia exported over $400 billion in 2010
efficiency drives and reflect the seriousness the predominantly to the EU, Ukraine, Turkey, China and
Russian government places on combating inefficiency, Belarus. WTO membership opens up new markets
corruption and cronyism. where historically Russian products have been blocked.
Look at the closure of hundreds of customs posts, Russian steel and iron manufacturers have been vocal
the dismissal of many customs officers and the supporters of Russian accession and will be major
opening of new import facilities to promote faster, beneficiaries as trade barriers are lowered and Russian
fairer growth plus the billions of dollars attracted from products allowed access, if not actually welcomed
the auto and pharma sectors in the last 12 months. to the new markets. General imports were valued at
There is no doubt that membership is good for nearly $250 billion
Russia. It brings much-needed capital to the Russian
markets. Strained relations with the West followed
the 2008 five-day Georgian conflict and, in the seven
months following hostilities, investors pulled $300
billion out of Russia. In 2011 further outflow may
reach $70 billion against a $36 billion forecast by the
Russian central bank.
According to the World Bank, Russian WTO
membership will bring both sustainable and
incremental annual economic growth of 2% and this
success is measured against the backdrop of shrinkage
and uncertainty in the global markets. Russia joining
the WTO is the ‘good news’ the world markets are
looking for following the WTO failure at Doha,
the incessant Euro-zone doom and unremitting,
depressing news from the US markets.
The consensus to join the WTO (the final barrier Maxim Medvedkov, the chief Russian negotiator
fell when Russia and Georgia signed an agreement to the WTO, said “More than one third of our GDP is
approving Russia’s WTO entry on November 9 in made abroad...we are seventh in the world in terms of
Geneva, after both agreed on international monitoring exports. We need a stable predictable instrument to
on the disputed crossings with South Ossetia and develop trade”.
Abkhazia) comes weeks after Vladimir Putin confirmed European companies are initially best positioned
his return to the presidency on September 24th. to take advantage from Russia’s WTO entry. EU
Since then, the rouble has been the strongest business prevails in Russia’s external trade and has
performing of the top 25 currencies, having gained been integrated for longer than other blocs. In the
over 5% against the US dollar. The Russian stock short term U.S. opportunities are constrained because
market gained over 15% in what has been the world’s of the Jackson-Vanik amendment, but as Jackson-
biggest jump and Russian oil jumped 7% in the same Vanik violates WTO membership, Russia will have
period. to be released very quickly. For all the U.S. political
Whether WTO accession is good in the immediate blustering and anti Russian sentiment, Jackson-
term for smaller or inefficient industries is another Vanik will go by default or U.S. companies will miss
story. Fears are rife that cheap imports will flood the opportunities.
market and ‘small’ Russian industry will suffer. Quite

3. What will be the differences? and non-commercial users.
Domestic consumer goods producers will face The limit for foreign equity ownership of 49% for
greater competition from imports and this sector has the telecom industry will be scrapped in 2016.
been earmarked for protection and measures to help it 100% foreign-owned banks will be allowed to open
become more efficient. in Russia for the first time but with an overall 50%
WTO rules require liberalisation on the domestic limit of foreign bank control of the sector.
energy market and an end to monopolies and gas Foreign insurance companies can open owned
subsidies. This means more competition in the Russia branches nine years after Russia joins the WTO
domestic gas market and easier access for independent 100% foreign-owned companies will be able to
producers with domestic prices moving closer to the operate in wholesale, retail and franchise sectors
export price. immediately after membership.
Given the effort the Russian government has put In summary we may say ‘better late than never’
in to attracting inward investment in both R&D and and appreciate that the accession marathon was not
manufacturing it is no surprise that protection will a waste of time (for Russia) as the terms negotiated
be in place for the nascent and remerging industries by Russia are advantageous. They guarantee Russian
for seven years. Agricultural, automotive and aviation access to foreign markets (“most favoured nation”
manufacturing sectors are ring-fenced. status) and enable Russia to use the WTO for
Exporters will face fewer obstacles in terms of settlement of any trade dispute. Membership creates
import tariffs and quotas which will be phased out a better foreign investment climate and gives greater
gradually, rather than overnight with membership. Russian opportunities for investment in the WTO
member-countries.
The main terms of the WTO agreement are: Russia can now better defend her economic
The average import tariff will be cut from 10% to interests in negotiations on international trade
7.8% with an agreement to lower 33% of the tariffs agreements.
from the date of accession. 25% of tariffs will drop Of enormous importance are the transition
after a three year lead time while other tariff changes concessions which limit access of foreign goods
(e.g. automotive and aviation) will drop after seven to Russia whilst Russia upgrades production and
years. Agriculture tariffs are protected for eight years. infrastructure to challenge international competition.
The average agricultural import tariff will be cut Russia has shown that it is unafraid to make the
from 13.2% to 10.8%. Dairy import tariffs will drop necessary investment and has committed hundreds of
from 19.8% to 14.9% and cereals from 15.15 to 10.0%. billions of dollars in brand new and replacement infra
Import tariffs for poultry products will be protected structure and manufacturing projects.
for eight years and the total Russian government Russia’s entry to the WTO is the biggest step in
agricultural subsidy will be capped at $9 billion in 2012 global trade since China joined over ten years ago.
and then cut to $4.4 billion by 2018. If you are sitting in Strasbourg or Washington DC
The average manufactured import tariff will be cut you may want to consider that Russia has negotiated
from 9.5% to 7.3% unfettered access to the world markets whilst securing
The automotive import tariff will be cut from its domestic manufacturing base against foreign
15.5% to 12.0% but with a seven year protection incursions for a lengthy period and, that it has done
period. Preferential tariffs for automakers making this in the course of the worst downturn in global
large investments in Russian-based production will be trade in modern history. You may not respect the
cut by July 1 2018, well within the Decree 166/566 stroke of genius that negotiated access to new markets
agreements. whilst ensuring protection of his own. This negotiation
The import tariff for chemicals will be lowered from skill would imply that not only do Russia’s leaders
6.5% to 5.2% know what they are thinking of; they also know what
Russia agreed to develop market-based pricing everyone else is thinking.
for the domestic market but, in line with its social
programs, will keep regulating prices for households