Russia to join World Trade Organization


Members of the State Duma are seen during a session in Moscow on July 10, 2012. The Russian parliament voted Tuesday to ratify the country’s accession to the World Trade Organization. (Misha Japaridze/AP)
July 10, 2012

Russia’s parliament voted Tuesday to ratify the country’s accession to the World Trade Organization, capping 18 years of negotiations and wavering resolve.

President Vladimir Putin had supported the move, albeit at times unenthusiastically. As a member of the global system that is designed to ensure free trade, Russia will have to dismantle its protectionist policies, but the goal is to attract more foreign investors with the new reassurance that rules will be obeyed and not subject to bureaucratic caprices.

Membership becomes official in 30 days and will put U.S. companies at an immediate disadvantage. In 1974, a trade law amendment known as Jackson-Vanik was introduced to pressure the then-Soviet Union to allow Jews and others to emigrate, although the sanctions have been waived each year since the Soviet Union’s collapse. Once Russia joins the WTO, the amendment’s existence will put the United States in violation of the organization’s rules, resulting in unfavorable trade terms for U.S. firms doing business with Russia.

The vote in favor of ratification was 238 to 208, with opposition led by the Communists, who make up the second-largest group in the Duma, or lower house. They declared Russia’s industry too vulnerable to survive without protections. On Monday, they lost an appeal to the Constitutional Court against joining the WTO, but the ruling left the door open to further litigation.

“It’s important in many respects,” said Evsey Gurvich, head of the Economic Expert Group in Moscow. “It will remove some barriers for foreign trade, and it will enhance competition in the country.”

Playing by world rules, he said, will be as important for Russia as for foreign businesses. “We don’t have any rules of the game now,” Gurvich said, “and rules will benefit our economy.”

Putin, who once opposed WTO membership, changed his mind as financial crisis spread around the world. Russia, he decided, needed to be at the decision-making table when global events were affecting its economy.

“We joined the WTO because our economy is highly dependent on the external market in terms of both production and consumption,” he told investors at a recent economic forum. “Excessive protectionism invariably leads to stagnation, low quality and high prices.”

Russia does not expect that joining the WTO will, in the short run, help its exporters, because aside from raw materials the country manufactures little that is in demand globally. Pork producers, who have been protected by a high tariff on live swine, expect to take a hit, as do rice farms. Other agricultural companies here, including those that produce oil seeds, should benefit, because Russia will have to eliminate export tariffs.

But membership will prove successful only if the government works to make it so, said Peter Westin, chief equity strategist for Aton, an investment firm here.

“Membership gives you a framework,” Westin said. “If you join the WTO but don’t fight corruption, you won’t have as big of an effect.”

Signs of jockeying to protect domestic industry have emerged. Russia has raised the “scrapping” fees it adds to the price of an imported car to pay for its disposal at the end of its road life. That would make domestic cars more attractive price-wise.

The immediate cost to the Russian treasury in lost revenue will be $5.7 billion in 2013 and $7.8 billion in 2014, Economic Development Minister Andrei Belousov told parliament Tuesday. But he said the benefits from joining, in terms of more foreign investment, should offset some of those losses, RIA Novosti reported.

A delegation from Russia’s upper house, the Federation Council, is in Washington meeting with members of Congress over moves by the Obama administration and U.S. business leaders to repeal Jackson-Vanik. One of the arguments by the Russians is that Russia and Israel today allow reciprocal visa-free travel.

But there is a proposal to tie repeal of Jackson-Vanik to passage of the Magnitsky bill, which places U.S. visa and financial sanctions on Russian officials associated with the death in pretrial detention of a whistleblower who unearthed a $230 million tax fraud, only to be charged with the crime himself.

That bill has been denounced by Russian officials, who see it as an intrusion into their domestic affairs and worry about the precedent it would set.

The Obama administration has resisted the bill but is reportedly resigned to its passage.

Russia has a $1.9 trillion economy, making it the largest outside the WTO. According to different calculations, it ranks either ninth or 10th in the world.

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