Russia Formally Joins World Trade Organization

“Joining the WTO is a sign of confidence in the organization and in what it can deliver for its members,” said WTO Director-General Pascal Lamy Wednesday in Geneva, welcoming the Russian Federation as the 156th member of the organization that moderates trade between nations.

For Russia, the road to WTO ascension was long and bumpy. The application was formally received in June 1993 and a so-called Working Party established the same month. “Accession to the WTO is essentially a process of negotiation—quite different from the process of accession to other international entities, like the IMF, which is largely an automatic process,” reads the organization’s website—and negotiations with the Russian Federation were long.

The working party is a committee made up of several members that negotiate with the applicant which tariffs, quotas, and subsidies they need to reduce or scrap in order to gain ascension status.

In the case of Russia, meetings of the working party and negotiations involving several memoranda took place every year from 1994 to 2011, when finally the Ministerial Conference ratified the package negotiated by Russia on Dec. 16, 2011. Russia agreed to impose a maximum 7.8 percent tariff on goods and “made specific commitments on 11 services sectors” according to the WTO, but transitional provisions for several sectors will apply.

That the outcome of these negotiations differ from country to country is illustrated by the example of Vanuatu, a country that will formally ascend Aug. 24. The South Pacific Ocean island was allowed to apply a maximum tariff of 39.7 percent on goods, much more than Russia’s 7.8 percent.

“The accession of Russia to the WTO is a win-win deal. It will cement the integration of the Russian Federation into the global economy. It will bring greater certainty and stability to business operators and trading partners. It is a contribution to the rule of trade law,” Lamy said at the conference. The last hurdle to pass was a complaint by two opposition parties, which was finally rejected by the Russian constitutional court on July 10. President Vladimir Putin then signed into law measures that would make the country WTO compliant on July 21, and Aug. 22 was the day of formal ascension.

Free Trade to Spur Growth

In an interview with German daily Handelsblatt, Russian Trade Minister Denis Manturow sees huge potential for growth, despite the current economic slow-down: “Western companies want to diversify. They want to invest in the automobile and pharmaceutical sectors of our country. These sectors are seeing increased domestic demand. The Russian car market is the second largest in Europe, we are going to be number one in a few years.” These expectations are corroborated by a report from the World Bank, which expects GDP to grow over 11 percent in the medium term.

A report by the investment bank Citigroup lists other potential advantages of being part of the WTO: “Russia has already made a number of legislative changes, and we expect that, as in other countries, WTO accession will help to anchor necessary domestic reforms, which will have the impact of improving the business climate, increasing FDI and stimulating growth.” The report also says that foreign service providers will benefit from lowers tariffs and the Russian consumer should benefit from lower prices.

According to economists, companies from the European Union are expected to benefit disproportionally, as Russia is already the bloc’s third biggest trading partner, and many companies already have profitable

operations there. The EU currently exports $134 billion worth of goods to Russia and the liberalization from trade would create greater access to the country’s 118 million consumers. U.S. companies are currently still limited in doing business in Russia by the Jackson-Vanik amendment from 1974 that precluded favorable trade status with the Soviet Union. Pascal Lamy expects this amendment to be scrapped soon though, now that Russia is a full-fledged member, he said in an interview with Bloomberg Television.

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