Significance
The Director-General of the WTO yesterday welcomed the Russian delegation to the organisation after negotiators concluded 18-year-long talks.
Implications
Russia finally overcame a key hurdle in its bid to join the WTO, first launched in 1993. Until the last minute the optimism on both sides was also cautious, given the past failures of negotiating teams promising imminent membership that did not materialise.
Outlook
After crucial backing by the WTO Working Party on Russia’s accession, the deal will enter the second and final stage of approval by the WTO Conference of Ministers in mid-December. Given that all major obstacles have been removed, this is unlikely to be problematic. The deal is an achievement for President Dmitry Medvedev, as well as being the result of collective realisation by key WTO members that it was time to end the longest pursuit of membership by the largest economy outside the bloc.
"Welcome to the WTO… Finally"
Russian negotiators yesterday (10 November) celebrated winning crucial backing from the World Trade Organization (WTO) Working Party on Russia’s Accession. Their team, led by experienced and long-standing negotiator Maxim Medvedkov was greeted by the WTO Director-General, Pascal Lamy, who handed over a T-shirt saying "Welcome to the WTO… finally."
This encapsulated the ups and downs of 18 years of talks first launched back in 1993. Far too many times it has been announced that Russia’s accession to the Geneva-based international trade regulating body was imminent, only to admit that there were still disagreements keeping Russia outside the 153-member organisation.
But with the backing of the WTO Working Party, the longest accession process in the history of WTO is nearing its end. The next formality will be securing the approval of the accession package at the WTO Conference of Ministers due to take place on 15-17 December.
Given that most of the obstacles have been removed the Ministerial Conference is likely to endorse Russia’s membership which is not only an important milestone for opening the country to global trade but also for the WTO. As the Icelandic chairman of the WTO Working Party on Russia’s Accession Stefan Johannesson put it, the breakthrough was a "historic achievement for the WTO", adding that "Russia’s accession to the WTO will bring substantial benefits both to Russia and to the members of this organisation."
The news also generated positive reception from the European Union (EU) Trade Commissioner Karel De Gucht, who said, "I look forward to the upcoming WTO ministerial in December to formally endorse Russia’s accession to the WTO membership." US president Barack Obama also congratulated his Russian counterpart Dmitry Medvedev saying that after nearly two decades Russia will finally be able to join the WTO.
Once the Ministerial Conference formally endorses Russian accession, Moscow will have until 15 June 2012 to ratify the accession package and within 30 days of ratification by the Russian legislature, the country will become a formal member of the WTO.
Last-Minute Trouble?
While US administration hailed the WTO-Russia breakthrough, some members in the US Congress remain reticent about the news. Thus a bipartisan group of key US lawmakers, including Democratic Senator Patrick Leahy, Republican Senator Chuck Grassley, Republican Representative Lamar Smith, Democratic Representative John Conyers, as well as the chairmen and ranking members of the House and Senate Judiciary Committees told US Trade Representative Ron Kirk, have expressed in a letter to the US administration their serious concerns over the "continuing gaps and lapses" between Moscow’s enforcement of intellectual property rights.
In a reference to a recently released report by the US intelligence agency claiming that Russian cyber-espionage is targeting the US corporations, the US lawmakers demand that Moscow not only commits itself but also demonstrates substantive and prompt actions for protection of intellectual property rights. They further state that "the findings in these reports raise serious questions about the intention and commitment of the Russian government to abide by and enforce the obligations it will assume as a member of the WTO."
One potential problem that could arise for Russia is the removal of anachronistic 1974 Jackson-Vanik Amendment that both Houses of the Congress should approve. The bill was adopted when Russia was part of the Soviet Union and a non-market economy. It essentially linked issues of human rights as well as securing free emigration of the Russian Jews from the Soviet Union to trade relations. Since then Russia has become a free market country as recognised by the US as well as the EU.
However, there is some US lawmakers are reluctant to allow this last leverage on Russia to let go. In recent years there has been an effort to link Russia’s human rights and generally protection of economic rights to link to the 1974 Amendment. This piece of legislation needs to be removed so that Russia is granted the Most Favoured Nation status, a privilege that Russia will receive once a WTO member. However, in their letter the US lawmakers have warned Obama’s administration that "a high standard accession package will be essential before both Houses of Congress can consider a vote to remove Russia" from a 1974 US law.
This could potentially block Moscow’s membership to the WTO.
Outlook and Implications
Never before Russia was so close to gaining its WTO membership as it is now. Securing the crucial nod from the Working Group and prior to that removing strong opposition of the Georgian government are all strong and positive signals. Politically, the accession to WTO will be a trophy for the Russian president, whose predecessors tried—perhaps not whole-heartedly—and failed to enter WTO.
This is an important development in Russia-West relations and will be once again hailed as part of the US-Russia "reset" of diplomacy in the upcoming meeting between Obama and Medvedev on the sidelines of the annual Asia-Pacific Economic Cooperation (APEC) summit that launched today (11 November) in Honolulu.
Against the backdrop of Russian prime minister Vladimir Putin’s plans to return to power after March 2012 presidential election and his intentions to great regional economic blocs reuniting former Soviet Union republics, the decision by the Kremlin negotiators to make painful concessions and agree to terms of the WTO give cautious rise to optimism that Russia is not inward-looking after all but is seeking wider integration with the rest of the world. However, the WTO accession is set to be a controversial victory owing to the side-effects of more open competition.
The key to the WTO rules is lowering tariffs and removing other restrictions, such as quotas, that could affect free trade. Even with Lamy’s admission, Russia has agreed to much tougher terms of accession than China did nearly a decade ago. As a result of negotiations with over 60 WTO members, Russia has agreed that for all products tariffs will be lowered from current 10% to 7.8% once the accession is formalised. The average tariff ceiling for agricultural products will be lowered from 13.2% to 10.8% and for manufactured products from 9.5% to 7.3%.
Furthermore, the agricultural subsidies will be limited to USD9 billion in 2012 and incrementally reduced to USD4.4 billion by 2018. Most importantly, Russia has agreed that all producers and distributors of natural gas in Russia would "operate on the basis of normal commercial considerations". This has been a serious stumbling block in WTO-Russia talks for some time as Moscow was dismissing the accusation by some WTO members that low rates for energy inputs gave unfair advantage to its domestic producers.
The negative result of Russia’s WTO membership will be the impact on unstructured and technologically ageing companies which are unlikely to survive the competition from foreign competitors. In the short to medium term this will translate into bankruptcy of the enterprises unable to restructure themselves and optimise their production, which in turn could lead to rise in unemployment and social discontent.
However, the good news is that the Russian companies that are strongly positioned exporters are set to benefit while their rights will be better protected. The idea is that competition will bring a painful but healthy overhaul of the Russian economy and creation of modern and competitive enterprises. Ultimately the Russian consumer will be the winner as the competition will bring better and cheaper goods and services.
But for Russia to benefit to the maximum from the WTO membership it faces an important challenge—improving its business environment. Pervasive corruption and ineffective bureaucracy are curbing the economic and entrepreneurial potential of the country, and businesses need a friendly business environment to grow and complete with the foreign firms.
