Bridges Weekly Trade News Digest • Volume 14 • Number 34 • 7th October 2010
Russia Resolves Key Issues with US over WTO Accession
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Russia and the United States have reached bilateral resolutions on several trade issues, removing another set of hurdles facing the entry to the WTO of the world’s largest economy that is not already a member of the global trade body.
On October 1, Russian Finance Minister Alexei Kudrin announced in Yalta that Russia had resolved its bilateral negotiations with the US over WTO accession, and would now move to conclude its multilateral negotiations in Geneva. US Trade Representative Ron Kirk welcomed “bilateral agreement on key issues related to the accession process,” adding that Moscow would now be free to devote more attention to remaining barriers at the multilateral level.
According to a statement from Kirk’s office, Washington and Moscow have reached agreements in principle on issues such as intellectual property rights, government procurement, and transparency in the decision-making process on trade-related issues. The bilaterally-agreed solutions reflect what the US would like to see in Russia’s eventual WTO commitments; the compromises will now be considered by other countries in the WTO Working Party on Russia’s accession.
The breakthrough in bilateral negotiations marks the latest development in the long and convoluted history of Russia’s WTO accession process. Russia applied to join the GATT in 1993, shortly after the break-up of the Soviet Union — two years before the WTO even came into existence. For most countries, accession takes seven to eight years to negotiate. Russia has surpassed even China’s 15-year-long process.
Russia’s accession has never been a diplomatic certainty. Indeed, Russia’s desire to join the global trade body has at times seemed unclear. Just last year, for example, Russia threw a wrench into its accession negotiations by announcing that Belarus and Kazakhstan, two former Soviet republics, would join the WTO together with it as a single negotiating bloc and customs union. However, Russia later backed down on this demand, consenting to negotiate separately so long as all three countries synchronised their concessions.
Since at least the 2008 financial crisis, Russia’s former president and now prime Minister, Vladimir Putin, has displayed ambivalent feelings on the subject of WTO accession. Putin has stressed the importance of rebuilding Russia’s industrial capacity, particularly in manufacturing sectors such as motors, and WTO strictures could interfere with experiments in industrial policy. Putin has said that Russia will not implement any of its WTO concessions until its membership takes effect, arguing that to do otherwise would put Russian industry at a disadvantage. Similarly, Putin has downplayed expectations that Russia would meet its January 2011 goal for admission.
Despite Putin’s reluctance, other Russian leaders have expressed stronger support for WTO membership. For example, Kudrin, the finance minister who made last Friday’s announcement, is seen by analysts as a more enthusiastic supporter.
Shortly after Kudrin’s announcement, US President Barack Obama phoned Russian President Dmitry Medvedev and praised his government’s progress towards WTO accession. The encouragement from Obama comes as part of the United States’ initiative to “reset” bilateral relations; Washington is courting Russian cooperation on a myriad of issues, especially nuclear proliferation. The US president hopes Russia will ratify a new START treaty to reduce nuclear arms, and implement tougher sanctions on Iran for its nuclear programme.
Obama also praised Russia for the concessions it made on intellectual property rights. Indeed, newly-passed Russian legislation on intellectual property rights seems to be a major cause for the bilateral accession breakthrough. The new laws toughen the Russian intellectual property regimes for pharmaceutical drugs, CDs and DVDs to accord with US and EU demands. A Russian presidential decree also toughened enforcement rules concerning pirated copyrighted material. Now, as in the US and the EU, the mere use of pirated copyright material can involve a fine for users. Before, the pirated material had to be intended for “public distribution” to incur a fine.
Still, it may still be some time before Russia’s accession process finishes. WTO accession usually occurs in a phased process, where the country seeking accession first negotiates bilateral market access concessions with the other WTO member countries, and then seeks approval in the multilateral and consensus-based working group. For example, though the US concluded a market access agreement with Russia in 2006, other outstanding issues took years more to resolve. Other WTO members are still likely to make new demands on Russia in the multilateral phase. The European Union, for instance, is still seeking Russian concessions on timber export taxes, agricultural subsidies, and meat import quotas. The duties on timber exports are particularly contentious, as export taxes are not prohibited by the WTO (unlike export subsidies for non-agricultural products).
More seriously, Georgia has threatened to veto Russia’s accession unless Russia ends its occupation of the Georgian borders of South Ossetia and Abkhazia, both areas that Georgia claims as sovereign territory. Georgia lost control of this territory in its brief war with Russia in 2008. Georgia also disputes Russian import bans on Georgian wine and mineral water. Russia claims the bans are in the interest of public health.
Even though Georgia could theoretically reject Russian accession unilaterally, given the consensus-based nature of most WTO decisions, it is unclear whether Tbilisi will follow through on this claim. Traditionally, no small member has ever attempted to unilaterally stop the accession of a much bigger economy. Georgian President Mikheil Saakashvili claims that his country is not alone in its opposition to Russian membership, though he avoided naming other countries. Nevertheless, if Georgia is in fact alone, some analysts speculate that other big economies in the WTO, such as the United States, might pressure it into assenting to Russia’s accession.
Despite the recent accords, Russia may yet find obstacles to its WTO in Washington. If Russia were to join the WTO, the US Congress would have to modify Cold War-era legislation known as the Jackson-Vanik amendment, which denies Russia Permanent Normal Trade Relations (PNTR) status. Under this amendment, the US does not have to grant trade concessions to Russia which the Washington has already granted to other countries. The amendment is one of the few foreign policy instruments Congress can wield against Russia, independent of the policy taken by the US president. The November Congressional elections may produce a Congress that is less willing to follow the president’s lead on Russia.
The next session of the WTO Working Party on Russia’s accession is scheduled for 25 October. It will meet again on 6 December. The short amount of time remaining means that Russia is unlikely to finish its accession this year.
ICTSD reporting; “Russia, US conclude WTO talks: Russian government,” AFP, 2 October 2010; “Russia and US reach agreement on WTO accession,” RT, 3 October 2010; “Analysis: Putin’s industry plans cloud Russian WTO drive,” REUTERS, 22 September 2010; “Exclusive: Russian WTO bid picks up momentum,” REUTERS, 21 September 2010; “USTR Kirk Welcomes Bilateral Resolution of Key WTO Issues With Russia,” OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, October 2010; “Russia agrees to WTO agriculture package,” FEEDSTUFFS, 29 September 2010;”Russia to cut farm subsidies to meet WTO requirements,” XINHUA, 28 September 2010;”Russia ready to restrict itself only upon its admission to WTO: Putin,” XINHUA, 30 September 2010; “Georgia not only block on Russia WTO entry-Saakashvili,” REUTERS, 22 September 2010; “After 17 Years, Russia Resolves U.S. Objections for Entry Into W.T.O.,” NEW YORK TIMES, 1 October 2010; “Russia and U.S. Reach WTO Agreement,” WALL STREET JOURNAL, 1 October 2010; “Russia, US agreed on Russia joining WTO,” VOICE OF RUSSIA, 2 October 2010; “Russia wages war against users of pirated materials,” RT, 6 October 2010; “Georgia Position on Russia WTO Membership ‘Unchanged’,” CIVIL GEORGIA, 5 October 2010; “Russia to keep some export duties when it joins WTO,” RIA NOVOSTI, 5 October 2010; “Obama says Russia moving closer to joining WTO,” REUTERS, 1 October 2010; Russia to present amendments on WTO accession by year end,” RIA NOVOSTI, 30 September 2010.
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Russia will accede. Its biggest concern is putting its industries in a position where they will never be able to compete with multinationals from other regions. The WTO agreements maintain ways to protect industries in such circumstances.