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Russia finally joins World Trade Organization

November 11, 2011, 17:49 UTC+3 Alexandrova Lyudmila

MOSCOW, November 11 (Itar-Tass) — After eighteen years of negotiations Russia is finally joining the World Trade Organization (WTO). It will open foreign markets to Russian goods and help the country save billions of U.S. dollars it has been losing because of restrictive measures and anti-dumping procedures. As a price of WTO accession, Russia will have to bring down import duties and reduce federal support to farmers. Nonetheless, Moscow has managed to uphold many of its positions, such as regulation of domestic gas tariffs and the ban for foreign banks to open their branches in Russia. Lower duties on food are unlikely to seriously affect the domestic market, while high duties on motor vehicles will be in place till the year 2018.

On Thursday, the working group on Russia’s accession to the World Trade Organization endorsed a final protocol setting forth the terms for Russia’s WTO membership. “The process of Russia’s joining the World Trade Organization will be over by the mid-summer of 2012,” said Russia’s chief negotiator and director of the trade negotiations department of the Ministry of Economic Development, Maxim Medvedkov. “We have achieved the best of what could be achieved.”

A formal decision on Russia’s WTO membership will be passed at a WTO ministerial conference on December 15 through 17, 2011. After that, within six months Russia is to ratify the WTO membership agreement, which will come in force a month after the ratification date.

To be allowed to the World Trade Organization, Russia has agreed to bring down import duties on the bulk of imported products. It will be done within eight years, in several phases. “Once Russia joins the WTO, it is only to reduce anti-recessionary duties,” Medvedkov said. Negotiations on tariffs were virtually over as far back as 2007, “but as long as duties on certain goods were increased in the recession time, they are to be brought down to the pre-recession level,” he clarified.

Thus, as soon as Russia becomes a WTO member, duties on new motor cars will be reduced from the current 30 to 25 percent, and further down to 15 percent within the next seven years, Medvedkov noted.

In all, Russia will have to bring down more than a third of its import duties immediately after being admitted to the WTO. More import duties (about a forth) are to be lowered in a year after admission, while import duties on helicopters and commercial planes will be reduced in seven years, and on poultry – in eight years.

In general, Russia has undertaken to cut down an average weighted import tariff rate in the transition period from ten percent in 2011 to 7.8 percent in 2018. Import duties on industrial goods will come down from 9.5 percent to 7.3 percent, and on agricultural products – from 13.2 percent to 10.8 percent.

Tariff quotas will be fixed for beef, pork, and poultry. Duties applicable to products covered by the quota will be as follows: 15 percent for beef, 25 percent for poultry, and zero percent for pork, while products in excess of the quotas will be subject to protective tariffs, i.e. 55 percent, 65 percent, and 80 percent, respectively.

Moreover, Russia has undertaken to reduce federal subsidies to the agricultural sector from nine billion U.S. dollars in 2012, to 4.4 billion U.S. dollars in 2018, to cancel export subsidies to farmers and annul value added tax preferences on a number of products.

Russia has also agreed to reduce export duties on more than 700 types of goods, including some types of fish products, mineral fuels and oils, leather industry products, timber, paper pulp, and non-ferrous metals among others.

As concerns the banking sector, the terms of Russia’s WTO membership are as follows: foreign banks are allowed to operate via their subsidiaries but may not open branch offices. Foreign capital in the Russian banking sector may not exceed 50 percent. At the same time, foreign insurers are allowed to open branch offices nine years after Russia’s accession of the World Trade Organization.

Russia is sticking to its principled position not to let foreign banks open branch offices because the Russian financial market is not mature enough to withstand competition, the Vedomosti newspaper cites a source close to the Russian delegation to the WTO accession talks. “The fact that insurance companies have been allowed to set up branches may be considered as a concession, but in this case, the existing market players have been granted nine years to get prepared.”

Russia has promised to lift all restrictions of foreign capital participation in the telecommunications sector. Now the industry is listed among strategic ones and control stakes in telecommunications companies are to be squared with the government.

Along with the reduction of duties, Russia is obliged to observe or join WTO internal agreements that are applicable to both individual markets and to entire institutions, like in the case of telecommunications services. WTO membership obliges Russia to take more active intellectual property protection measures, to simplify customs procedures and WTO cargoes transit, and to make its state purchases absolutely transparent, in the long run.

Numerous bans and limitations, such as quotas, licensing and other requirements that are outside WTO regulations will be cancelled. Thus, railway transit tariffs will be brought in compliance with WTO rules. Importers of alcoholic products, pharmaceuticals and other products using coding technologies will not be obliged to obtain import licenses.

The Russian government believes Russia is joining the World Trade Organization on advantageous terms. Lower food duties do not mean that the Russian domestic market will be entirely open, and high duties on motor cars will be in place till 2018, or for the term of car assembly contracts, the Vedomosti quotes an official from the administration of the government.

Subsidies to farmers are to go down from nine billion U.S. dollars in 2012 to 4.4 billion U.S. dollars in 2018. “The current volume of subsidies to farmers is about 4.5 billion U.S. dollars, which means that we can first double them and then gradually reduce practically to the initial level,” a source close to the Russian delegation to the talks shares his joy.

Farmers, however, are not that positive, saying these admission terms are hardly ever advantageous.

Despite expectations, there will be no reform on the gas market. Under WTO terms and conditions, the government is allowed to regulate domestic gas prices as long as they bring profits to the national gas utility, Gazprom. Moreover, the gas giant will remain a monopolist in terms of gas exports.

In the mean time, the majority of experts believe that Russia and Russian consumers would rather benefit from the country’s entry to the World Trade Organization.

According to Maxim Medvedkov, who spoke to the Rossiiskaya Gazeta daily, quotas on Russian exports and other discriminative measures in such industries, as chemicals, metallurgy, and the agricultural sector, will be lifted.

“In all, there are about one hundred such limitations,” he said. “They infringe upon our commercial interests to a sum of about 2.5 billion U.S. dollars a year. Now, some of them will be automatically lifted, while some of them will not. As concerns certain such measures, we shall apply to the WTO court.”

It is absolutely clear, he noted, that in terms of access of Russian goods and services to foreign markets, the situation is to change dramatically. “It will be much better,” he promised.

The Russian chief negotiator believes Russia’s membership in the World Trade Organization will help to reverse capital flows back to Russia. “This is the time when Russia’s accession to the World Trade Organization may bring about positive results in this direction. Because, as a matter of fact, we are making the key elements of our foreign trade law coherent. And this way, we are making our business climate more predictable,” he said.

“There will be no short-term benefits from the WTO membership, but in the long-term perspective consumers are to benefit from the market transparency, fair competition and availability of high-quality goods,” said Professor Alexei Portansky from the Higher School of Economics.