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Russia is joining the WTO… asymptotically
Date: 31.12.2010

Russia is joining the WTO… asymptotically

In 2010, the main trend of the Russian economy was its recovering from the crisis. During the economic downturn, the one and only natural way for many countries to rescue was the shift from free trade principles to protectionism practices. The power of the World Trade Organisation standing up for liberalisation of international trade has somewhat slackened on the peak of the financial crisis. This was one of the reasons the question of Russia joining the WTO did not grab much attention in 2009, but it became the issue of the day in 2010 again.

In general, the process of accession to the WTO takes five to six years. But the case of Russia is definitely abnormal: the negotiations started in 1995, the same year the WTO was formed. They were followed by a chain of twists and turns. As with Aristotle, the situation was changing from one contrary opposite to the other. Every turn was connected with some antagonists, either inner or external. Sometimes objective economic conditions were to blame including the crisis that had broken off. But certain facts suggest that these conditions do not play a key role for Russia in its process of entering the WTO.

The first application letter covering the membership of Russia in an international trade system (back then it was the GATT / General Agreement on Tariffs and Trade) has been sent in 1993. Previously (it was in 1946), the Soviet Union declined the invitation to join the GATT and decided to found a socialistic alternative, the Council for Mutual Economic Assistance (Comecon) comprising the countries of the Eastern Bloc. Nevertheless, by 1979, the Politburo of the CPSU Central Committee changed its course for closer relations with the GATT and applied for observer status. The Soviet Union was granted the status in 1990, and Russia has inherited it successfully. It is clear that a long period of mutual rejection of the USSR and the GATT has resulted in a current political stereotype about Russia not conforming to the principles of the WTO. Today, we observe the rejection with the same ideological (meaning political) shade.

So in 1994, the application of the Russian Federation to the GATT transformed into a request for joining the WTO. As is typical of the WTO procedures, a special working party was formed open to all interested WTO members and focusing on accession of Russia to the WTO.

The “first reading” of Russian tariff propositions was concluded by the second half of 1999. Amendments to initial tariff offers were prepared then and approved by the Russian government in spring 2000. The documents were submitted to the members of the WTO. After a while, reports declaring fair initiatives aimed at Russia approaching the WTO started to transform into doubts about the reasonability of the step, which were expressed even more vividly than before. Certain examples are given below:

  • In January 2002, Sergey Kolesnikov, the State Duma deputy from Irkutsk region, expressed his regret about the lack of public access to real estimates of risks associated with an accelerated pace of accession to the WTO;
  • In about a month, Mikhail Grishankov, the deputy head of the Duma Security Committee, said: “Hasty joining of Russia to the WTO, which is not backed by economical or legal initiatives, will result in a total collapse of local light industry, food industry, aircraft and motor industries, and many other segments”.

A mirror impulse from the outside was soon to follow: in March 2002, after Russia had banned the import of chicken meat from the USA due to an outbreak of salmonella, the United States declared their intention to keep the Jackson–Vanick amendment established against the USSR and limiting trade between the two countries.

The process of becoming a member of an international economic organisation turned out to be unique for Russia as its success (even though a relative one) was dependent upon the relations of Russia and certain member states. Here are only some of the examples:

  • In May 2002, during the meeting with Vladimir Putin in St. Petersburg, George Bush Jr. offered him to join efforts for fighting the terrorism and assured the Russian president that the Jackson–Vanick amendment would be cancelled soon.
  • In the same 2002, the parliament of Georgia recommended the government to vote against Russia joining the WTO as long as it supports the self-declared independent republics of Abkhazia and South Ossetia. After “the five-day war” this stumbling block became a solid rock.
  • End 2008, Ukraine refused from bilateral negotiations with Russia as a WTO applicant. The country preferred to hold back its trump card till the moment of discussing Russian gas prices for Ukraine in 2009.

During the last year and a half Russia accelerated its efforts to enter the World Trade Organisation:

  • The country intended to accede to the WTO in a customs union with Kazakhstan and Belarus but the plan has been never implemented.
  • The USA has waived its objections against Russia as a WTO member.
  • On the threshold of the EU-Russia summit, Moscow and Brussels have signed a memorandum regarding the completion of the WTO bilateral negotiations.

Beginning October 2010, Russian Finance Minister Alexei Kudrin named end 2010 – beginning 2011 as an optimistic date for joining the WTO.

The following table contains a few facts of 2010 that made observers of the negotiation process between Russia and the World Trade Organisation feel like strong deja-vu.

From 2009 to the present time Up to 2009
In June 2009, it became known that Russia, Belarus and Kazakhstan are entering a joint negotiation process to accede to the WTO as a single customs union. End 2001, after the Russian president Vladimir Putin and the Ukranian leader Leonid Kuchma declared the intention to create a free trade area, a joint access to the WTO was proposed.
After the talks with Barack Obama in October 2010, Dmitry Medvedev met the first vice-premier Igor Shuvalov who was committed to the task of “technical execution of new arrangements with the USA” as far as the WTO accession is concerned. In November 2004, the U.S. Chamber of Commerce head Thomas Donohue said that the USA and Russia may sign a trade agreement already in 2005. In October 2005, the US Ambassador to Russia William Berns addressed deputies of the State Duma declaring that a bilateral agreement of Russia and the USA on entering the WTO may have been signed by the end of 2005.
In December 2010, Russian Economy Minister Elvira Nabiullina and European Trade Commissioner Karel de Gucht have signed a memorandum on completion of bilateral WTO talks. During Moscow talks in May 2004, Russian Economy Minister German Gref and European Trade Commissioner Pascal Lamy have signed a protocol according to which the European Union supported a WTO application of Russia.

The key difference of the last period was in consecutive positive trends, which followed each other. It seems like the ice has been broken and Russia will join the WTO in the nearest future. The problem is that overcoming current discrepancies may take more time that it is thought to. In fact, a couple of years at best are needed to complete the following:

  • final preparation of the copyright law;
  • final abolition of custom duties for raw lumber;
  • implementation of declared plans to limit state grants for Russian agricultural sector;
  • overcoming the position of Georgia, which threatened to block Russia's membership of the WTO after breaking off diplomatic relations with the country in 2008.

Opponents of Russia’s entering the World Trade Organisation state that the Russian economy is not advanced enough and will collapse being unable to compete with imported products while the lack of duties will influence the budget negatively. It should be noted though that not a single member country of the WTO expressed its willingness to quit the organisation. And the economy level of its members is often lower than in Russia.

It should be also kept in mind that the state of the world financial system remains obscure today. Old financial institutes, which appeared after the Second World War including the International Monetary Fund and the World Bank, are in a desperate need of reforming. Moreover, prospects of the European Union are under question after its severe shocks of 2010. The structure of the world financial industry may change in a couple of years, and so will the WTO. After that the problem of joining the organisation, which gradually has transferred into a way of pressing from other counties, will fall away. Eventually, it will be substituted by other issues.

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