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U.S.-Russia Trade Pact Paves Way for Russia to Join WTO

BY Admin  November 20, 2006 at 3:50 PM EST

Susan Schwab and German Gref

“This is a strong and far-reaching commercial agreement that meets the high standards of President Bush’s market-opening trade agenda and moves Russia closer to full integration into the global, rules-based trading system,” said U.S. trade representative Susan Schwab after signing the agreement with her Russian counterpart German Gref in Hanoi, Vietnam at the meeting of the Asia-Pacific Economic Cooperation.

WTO membership would boost Russia’s economy by increasing trade opportunities with international partners. Russia already has a major role in the international community with its veto-wielding permanent member status on the U.N. Security Council.

“WTO membership is about trade, but really it is about normalizing the economy. A more normal Russia will be more peaceful and more integrated,” said Gary Hufbauer at the Peterson Institute of International Economics.

To join, a country must sign bilateral agreements with all 149 members and then finalize the deal through multilateral negotiations within the WTO. Vietnam, a country still controlled by the Communist Party, will become the 150th member after the deal is ratified by the Vietnamese government.

For the WTO, Russian membership would boost the relevance of the organization that has become bogged down in the Doha Round of trade talks, some analysts believe.

“This cements it as a true world trade organization,” said Dan Griswold at the Cato Institute. “Russia was kind of the big piece of unfinished business in terms of including all the big trading nations in the world.”

Russia started negotiating its terms of entry into the WTO in 1993 and since President Vladimir Putin came to power, he has pushed for membership in the world body as a foreign policy tool. In a speech in June 2002, Putin said, “Russia today is the only major world economy outside the WTO — the only one. Staying outside this organization, outside this process is dangerous and stupid.”

Benefiting from a booming oil and natural gas market, Russia has posted a trade surplus for the last eight years. According to the WTO, Russia is the world’s 13th largest exporter selling $243.6 billion — about 2.3 percent of the world’s trade.

But while the energy sector pulls in profits from abroad, the industry remains volatile. WTO membership would help modernize, diversify and expand an economy that was for years regulated by a centrally planned system under Communism by opening domestic markets.

Once a member, Russia will need to comply by WTO rules, trade pacts and its dispute settlement process. Adopting these global standards will help discipline the domestic economy, making Russian businesses more attractive to foreign direct investors.

“It’s good for foreign companies to know they are following international agreements. The more predictable actions by other parties, the more reliable as business partners,” said William Antholis at the Brookings Institution.

This new investment is expected to create competition for domestic companies that will need to modernize in order to stay in business. As part of a rules-based system, Russian companies will find it easier to export their goods and services in the energy, financial and computer-based industries.

Joining also earns Russia the opportunity to weigh in on worldwide trade negotiations.

Finalizing the deal with the United States marks a significant step for Russia, but it faces some obstacles. Both Georgia and Moldova — two countries with outstanding trade disputes with Russia — need to sign bilateral agreements before Russia enters multilateral negotiations within the WTO. At that stage, intellectual property right enforcement, Russia’s closed services market, and energy discounts for domestic firms could be more difficult to work out than deals with individual countries.

Once it joins — likely in 2007 — the U.S. Congress must extend Permanent Normal Trade Relations status to Russia in order for American companies to profit from the increased market access.