9. Russia’s WTO Accession: A Never-ending Story

7 September 2009

In June 1997, Belarus, Kazakhstan and Russia agreed to conduct separate WTO accession processes. Twelve years later, the leaders of the three countries announced a complete reversal of this approach. What are the likely pitfalls of this extraordinary new development?

There is no doubt that Prime Minister Putin's 9 June announcement that Russia, Belarus and Kazakhstan would seek a new approach to their WTO accession negotiations as a single customs union will be highlighted in textbooks on the history of the international trade relations of the three countries. However, it is unlikely that these records will adequately reflect the shock and misunderstanding that the unprecendented joint accession bid has created among the trading partners of the three countries, as well as experts on WTO issues. The question is not only how far have the legal and technical aspects of such a step been considered, but also what will be the impact on the future trade policy relations of the three countries with WTO Members.

The task set by the leaders of Belarus, Kazakhstan and Russia for their trade negotiators is not an easy one. If the first step - informing the WTO secretariat and Members about ‘the intention to start negotiations on accession of the customs union' - went without significant difficulties, the second part - the real beginning of negotiations - will require intensive consultations and challenging, unprecedented decisions by WTO Members. This is a complex enterprise.

Many Open Questions Remain

First of all, there are some fundamental questions with regard to how the proposed customs union would operate and how far the integration process would go. The EurAsEC Interstate Council is expected to approve the future customs union's draft common external tariff soon. It will be applied on imports of goods from third countries into Belarus, Kazakhstan and Russia as of 1 January 2010. The final formation of a single customs territory is to be completed by1July 2011. Will the accession process of the customs union to the WTO, which is evidently a priority, therefore not begin until 2011?

At some point, issues relating to supranational bodies should probably be addressed, as well as the nature of political and economic relationships of the customs union with third countries and international organisations. In particular, the latter is mentioned as the second stage of implementing of the customs union in Article 2.4 of the Agreement on Customs Union between the Russian Federation and the Republic of Belarus of 1995.

Importantantly, a question also arises as to whether the proposed customs union can join the global trade body under Article XII.1 of the Agreement Establishing the WTO. This clause sets out clearly who may apply for membership. It states that "[a]ny State or separate customs territory possessing full autonomy in the conduct of its external commercial relations and of the other matters provided for in this Agreement and the Multilateral Trade Agreements may accede" to the institution. In the history of GATT/WTO accessions, several ‘separate customs territories' have acceded to the WTO, including that of Taiwan, Penghu, Kinmen and Matsu. However, there is no precedent for accession of a customs union, and it is unlikely that WTO Members will wish to amend Article XII.1 in order to satisfy a demand by Belarus, Kazakhstan and Russia.

If the coalition wishes to be considered as a ‘separate customs territory' for the purpose of WTO accession, there remains the question of the requirement under Article XII.1 that the proposed customs territory establishes full autonomy in managing the whole range of issues covered by the WTO (i.e. trade in goods, services, intellectual property rights as well as systemic issues). According to the text of 1995 agreements on the formation of a customs union between Belarus, Kazakhstan and Russia, the aims and principles of its operation focus on trade in goods, in particular the removal of tariff and non-tariff measures within the three parties. However, the agreements do not cover trade in services, intellectual property or systemic issues. It therefore appears that the proposed customs union will not fulfil requirements of Article XII.1.

Second, the decision to change the negotiating format raises a number of procedural issues. In particular, it is not clear what is going to happen with regard to the initial, individual applications of the three countries and with the working parties currently negotiating their accession. Do Belarus, Kazakhstan and Russia intend to withdraw their initial applications and submit to the WTO a formal membership application either as a customs union or as a ‘separate customs territory'?

Another problem relates to the fact that the countries of the future customs union are at different stages of their accession to the WTO. Russia has completed individual bilateral negotiations on market access for goods and services. Kazakhstan has completed talks with some WTO Members and is continuing negotiations with several others. Belarus has considerably more modest results in comparison with its partners.

Bilateral protocols on the completion of negotiations are important because they are the basis for the preparation of consolidated goods and services schedules, i.e. the binding commitments that become an integral part of the protocol of accession to the WTO. It should be kept in mind that the most liberal market access conditions to which an acceding country has agreed in its bilateral negotiations with individual WTO Members will become the commitment applying to all countries incorporated into the consolidated schedules. It would be interesting to know which of the three countries' negotiated commitments in goods and services are the most liberal.

Based on the order of Prime Minister Putin to the Minister of Economic Development of Russia (Elvira Nabiullina) about safeguarding the agreements reached so far by Russia with its trading partners in the course of its WTO accession negotiations, it seems that leaders consider that commitments of the proposed customs union will be based on Russia's bilateral protocols.

On one hand, that seems logical - Russia is the most advanced in its bilateral talks, but, on the other hand, the commitments of Kazakhstan and Belarus may provide for more liberal terms in many cases. Will Russia agree to further liberalisation of its market access commitments? If not, what compensation will WTO Members require?

Third, technical complexities associated with potential negotiations on behalf of the proposed customs union should be soberly assessed. The process of accession of one country requires well-functioning and co-ordinated work by several bodies of executive power in order to prepare a mandate and to promptly take the necessary decisions during negotiations. Accession of three countries in a single process will mean a significant increase in the volume of work at internal levels, as well as externally with the trading partners of the customs union.

Possible Ways Forward

These are just a few of the potential problems to consider when pursuing the academic search for an answer to the question of how to achieve both goals of regional integration and obtaining membership in the WTO. Perhaps, instead of putting the accessions of the three countries on hold until 2011 or even later, it may be prudent to consider continuing them while, at the same time, seeking to synchronise the commitment levels of the three applicants.

The WTO is a Member-driven organisation and ultimately it will be up to the membership to decide how to proceed in the case of this customs union. Is there anyone - either among the applicants or the WTO membership - who wants to start all over again after 16 years of hard work on the accessions of Belarus, Kazakhstan and Russia?

Natalia Shpilkovskaya is Editor of Mosty, Bridges regional edition in Russian.

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