Bridges Weekly Trade News Digest • Volume 8 • Number 13 • 8th April 2004
Energy Prices Holding Up Russia’s WTO Bid
The WTO Working Party on the Accession of the Russian Federation met on 2 April, following a week of informal talks on Russia’s ten-year bid to join the WTO. Officials involved characterised the talks as intense, and while Members signalled that progress was made, key sticking points remain. Russian Deputy Minister of Economic Development and Trade Maksim Medvedkov said on his return to Moscow that Russia would not be able to join the WTO in 2004 as hoped. According to Medvedkov, a conservative estimate for when Russia would join was "when he retired". "We believed in 2003 that in 2004 we would complete the negotiating process, and in 1996 we thought that we would complete it in 1997 — neither variants happened," Medvedkov said. He singled out the issue of energy pricing as a main reason for the deadlock.
Dual energy pricing a major sticking point
Before Russia enters the WTO, it has to clinch a bilateral deal with any Members that so request. In these talks, the EC is asking Russia to abolish its low domestic gas and electricity prices, arguing that they amount to a de facto subsidy to industry, providing an unfair advantage over foreign competitors. The price that Russia charges for gas exports to the EC is approximately fourfold as compared to Russian domestic prices. The EC would also like to see the Russian energy market deregulated. Moscow, however, argues that dual energy pricing is not prohibited under WTO agreements, and Medvedkov reiterated that the energy requirements "exceed the WTO parameters to a large extent". Russian President Putin has argued that abundant sources of energy are Russia’s comparative advantage, and fears that an abrupt increase in prices would dampen Russia’s economic growth and fuel inflation. Observers have commented that a possible solution might be for Russia to maintain its dual pricing, with a commitment to gradually raise domestic prices.
"A look at the map shows that Russia is the leading gas supplier and that the EC is the leading gas consumer and we cannot live without each other," Medvedkov noted, but added that the WTO was not the forum to resolve this "regional" issue, and said he hoped it would be resolved on an informal basis in bilateral talks scheduled for April with Brussels.
The EC and Russia recently came out of talks in Brussels on bilateral trade issues, including Russia’s WTO bid and the EC’s expansion to include ten new members on 1 May (see BRIDGES Weekly, 31 March 2004); Russian Economic Development and Trade Minister German Gref and EC Trade Commissioner Pascal Lamy will meet again on 22 April. An EU-Russia Summit is scheduled for 21 May.
Tensions with the US on the increase?
At the meeting of the Working Party, the US reportedly took a tough stance on intellectual property (IP) violations in Russia. The US targeted, in particular, pirated goods such as CDs and DVDs, allegedly produced for an export market. Medvedkov, however, said that "the indications we have and the signals from the market show that, in all spheres, including optical disks, the situation is gradually improving," and noted that Russia has committed to getting new IP legislation in place by mid-year.
Members also expressed concern over new Russian sanitary and phytosanitary standards. Russia continued to disagree with demands to further open up its banking and insurance sectors, preferring to limit overall foreign ownership. Russia also took a tough stance on the WTO’s plurilateral agreement on trade in civil aircraft, with Medvedkov noting that "we will never sign an agreement under which we reject subsidies and eliminate customs duties for [foreign] aircraft".
The next meeting of the Working Party on Russia’s accession — set to focus on industrial policies and subsidies, licensing practices, exports and customs procedures — is expected to take place in late June or early July this year.
"Russia Rules Out Joining WTO in 04," MOSCOW TIMES, 6 April 2004; "Russia hopes to settle energy dispute with WTO in May," RBC, 5 April 2004; "Russia will not end negotiations on WTO entry in 2004," INTERFAX, 5 April 2004; "EU, Russian Officials Signal Progress On WTO Accession Deal; U.S. Assails Piracy," WTO REPORTER, 7 April 2004.