WTO Accession: Russia Strikes Deal with EU

26 October 2011

Russia and the EU announced on Friday 21 October that they had reached an agreement regarding Russia's accession to the WTO. While disagreements continue between Russia and neighbour Georgia, the EU agreement puts Moscow one step closer toward becoming the global trade body's next member.

This membership bid for Russia has been in the works since 1993, making Russia the largest economy still outside of the global trade body.

European Trade Commissioner Karel De Gucht, told reporters on Friday that "We have struck a deal on the final outstanding bilateral issues, leaving the way open for Russia to join the WTO by the end of the year."

One of the main points of contention between the EU and Russia was Russian incentives to domestic automobile producers. In announcing the deal, the European Commission outlined a compensation mechanism that will come into effect should exports of EU car parts to Russia decrease owing to the new investment regime. The mechanism is aimed at calming fears that Russian WTO membership would have an adverse effect on EU jobs.

The Commission mentioned several other resolved issues, including "clearer rules for exporting agricultural products and foodstuffs to Russia, and a reliable quota regime for wood exports."

The EU was also able to secure a guarantee from Russia to amend a system that had proven costly to EU airlines in the past. Russia agreed to implement changes to their system of taxing European flights over Siberia, an agreement initiated back at a 2006 EU-Russia summit in Helsinki. This tax has levied about €320 million in annual charges, according to a study by the Association of European Airlines, for European airlines whose flights to Asia cross over Siberia.

The Russian economy would also stand to benefit from a WTO membership, especially after suffering during the global financial crisis, experts say. Anders Aslund, a Senior Fellow at the Peterson Institute for International Economics, a Washington-based think tank, stressed to Bridges that "Russia had a declining GDP of 8 percent in 2009 - the most of any G20 country."

Along those lines, Randi Levinas, the Executive Vice President for the US-Russia Business Council and Executive Director of the Coalition for US-Russia Trade, told Bridges that the accession of Russia would send a very important and positive message to the business community.

Joining the global trade body would both open up trade and provide "an environment in which you have certainty in terms of rules and transparency in terms of how the rules are made," she explained.

Consensus issue

However, the path forward to Russia's membership bid still has several hurdles.

Traditionally, members have joined the WTO with the consensus of all current members. However, Russia's ongoing disputes with Georgia, a WTO member, have made achieving consensus a difficult task.

Russian-controlled enclaves in Georgia, South Ossetia and Abkhazia, have been a topic of dispute between the countries - leading to a short war in 2008. The Georgian Ministry of Foreign Affairs stated as recently as last month that Russia has been proactively and continually "seeking to undermine Georgia's statehood, sovereignty and territorial integrity."

Georgia has requested that Russia increase trade transparency along these borders, stating that power should be ceded to allow international officials to monitor cross-border trade.

Talks between the two have been generally slow and in some cases unsuccessful; such was the case last week where the "meeting ended with no result again," said Georgia's Deputy Foreign Minister, Sergi Kapanadze.

US continues strong accession push

The US has also been pushing for Russian accession, with Chris Wilson, the Assistant US Trade Representative, stating at a US-Russia Business Council meeting earlier this month that Russian membership in the WTO "is one of the Administration's top priorities this year for the US-Russia relationship."

Aslund said that the US should be very interested in Russian accession because "[it] is one of the few ‘game-changers' in the Russian system."

However, the tensions between Russia and Georgia have made the US-Russia relationship more nuanced.

The administration of US President Barack Obama has been lobbying and supporting the end of a Cold War era restriction on trade with Russia - the Jackson-Vanik amendment - which allows the US to deny most favoured nation (MFN) status to nations with limited freedom of emigration under Article XXXV of the WTO's General Agreement on Tariffs and Trade (GATT).

Some US politicians are crying foul at the attempts to support Russia's accession in light of the current conflict situation.

Two US Senators, Republicans Roy Blunt and James Inhofe, recently sent a letter to US Trade Representative Ron Kirk and Secretary of State Hilary Clinton insisting that "it should not come as any surprise that Georgian leaders are insisting on maintaining at least some semblance of territorial integrity through the customs process."

Speaker of the House John Boehner, also a Republican, agreed that "[the] administration should resolve this stalemate in a manner that respects the territorial integrity of Georgia."

Counting on the need for Congress to approve "permanent normal trade relations" (PNTR) with Russia, Boehner has threatened to block any sort of legislation until this dispute is justly resolved.

Despite these hurdles in the Russia-US relationship, Aslund noted that both Russia and the US would benefit from WTO accession. Citing World Bank statistics, he noted that accession could increase Russian gross domestic product (GDP) by 11 percent in the long run due to foreign direct investment and increased competition in services; US exports to Russia could also double, he added.

Levinas, of the US-Russia Business Council, noted that if Jackson-Vanik remains in place and PNTR is not granted to Russia, "many aspects of the current US-Russia commercial relationship will not be at a state-of-the-art WTO level."

She cited a series of areas that would be lacking if accession did not move forward, including access to dispute settlement, sanitary and phytosanitary measures, technical barriers to trade, and notably intellectual property rights.

Prospects for negotiations

The WTO Ministerial is scheduled for 15 to 17 December; the WTO Working Party on Russia's accession is scheduled to meet on 10-11 November. Russian accession has largely been considered one of the major goals for the December gathering.

Levinas admitted, "this has been a chequered process where there's been engagement followed by large periods of time where nothing has moved forward."

"However, the US-Russia Business council is hopeful that this unofficial deadline, of the December Ministerial, will motivate action towards completing the accession, because delays into 2012 could raise questions of how committed everybody is going to stay to the process," she suggested.

ICTSD reporting; "EU, Russia clinch deal on WTO," ASSOCIATED PRESS, 22 October; "Boehner Says Russia's Trade Status Depends on Georgia Border," BLOOMBERG, 26 October; "Georgia: No WTO deal with Russia, to talk again," REUTERS, 20 October; "US senators back Georgia in WTO talks with Russia," REUTERS, 19 October;" Russia Nears WTO Membership, Clearing EU Hurdle," WALL STREET JOURNAL, 22 October 2011.

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