Russia and the WTO Membership

Russia and the WTO

Membership in the World Trade Organization (WTO) benefits the trade posture of member nations and so is sought as a way of gaining access to more external markets. WTO membership has been important in China, for example, and Russia has also sought membership, though Russia has also experienced some opposition.

When Russia changed its form of government after 1989, it also sought to join the world trade in goods and services just as China has been trying to do. Russia also liberalized domestic trade and eliminated many non-tariff restrictions on foreign trade. State-subsidized imports were phased out in 1994 along with the system of quotas and licensing for exports. To increase foreign trade in the future, Russia applied in June 1993 to the General Agreement on Tariffs and Trade (GATT), the predecessor to the World Trade Organization (WTO). The United States supported Russia's efforts to join the WTO, and Clinton and Yeltsin set a target date for Russia to gain admittance (Background Notes 7).

By 1997, Russia's average tariff rate was 13%. Russia had a trade surplus since 1993 with major trading partners in Europe and the United States. China and Japan also had a strong trading presence in Russia, and the nation had a strong presence in the industrialized products markets in the NIS. Russia also continued to supply large amounts of energy to the NIS at a discount (Background Notes 7).

Russia and the United States also worked to advance bilateral co-operation through eight working committees and several working groups known as the U.S.-Russian Joint Commission on Economic and Technological Cooperation (the Gore-Chernomyrdin Commission). The committees addressed issues in the fields of science and technology, business development, space, energy policy, environmental protection, health, defense conversion and agriculture. In addition, the commission provided for high-level discussions of high priority security and economic issues ("Russian Outlook Improving, but Still Uncertain" 29).

Becoming a member of the WTO (referred to as "acceding to the WTO") involves a process set forth by the organization. Any state of customs territory with full autonomy in the conduct of its trade and economic policies is eligible, if WTOI members agree to the terms. There are four stages to the process. In the fist stage, the applicant must describe all trade and economic policies that bear on WTO agreements. This data is submitted in the form of a memorandum, and this document is then examined by the working party created to deal with the country's application. Such working parties are open to all WTO members.

The second stage involves working out elements of the trade policies of the applying country. This stage is conducted in the form of bilateral talks between the prospective new member and individual countries. Different countries have different trading interests, and talks cover such elements as tariff rates and specific market commitments. Even though commitments made by the prospective member are developed in bilateral talks, the provisions agreed to apply equally to all WTO members under non-discrimination rules. These talks can be very complex.

In the third stage, membership terms are drafted by the working party, which publishes these provisions in a report along with a draft membership treaty and lists of the commitments made by the applicant. In the last stage, the final package is presented to the WTO General Council of the Ministerial Conference. It requires a vote of approval by a two-third majority, after which the applicant may sign the protocol and accede to the organization. The country's own parliament or legislature may also have to ratify the agreement for membership to be complete ("Membership, alliances and bureaucracy" paras. 1-4).

Observers note that Russia's accession has been contentious both domestically and with respect to some of the entry demands made by some WTO members. Lissovilik and Lissovilik find that Russian membership in the WTO would have a major impact on the structure and possibly the level of trade may be quite significant and could be much higher than current estimates. They find that on average, Russia's exports to WTO countries underperformed its exports to other countries in 1995-2002, all the more surprising given "Russia's trade reorientation toward the more advanced developed and developing countries, all of which are or have recently become WTO members" (para. 3).

The value of membership is noted by Mike Moore when he writes, "Joining the WTO sends a clear message to the world community about a nation's commitment to the rule of law, property rights and good governance" (Moore 30).

In 2004, it was noted that Russia still had to sign agreements with several WTO countries, including Japan, South Korea, and the United States. It had already signed an agreement with the European Union, and in October 2004, China officially endorsed Russia's WTO membership. The United States was not ready to agree based on concerns over Russian music piracy and displeasure with President Vladimir Putin's crackdown on government opposition. In the past, the U.S. has tried to use favorable trade policies as a reward for stable governance ("Russia Summary" para. 2).

Before the agreement with the EU, a key issue for the EU was the dual pricing of energy products:

The cost of energy in Russia is artificially low. Natural gas costs as little as one-sixth of the world price. The net effect of low prices is an annual subsidy of around $5 million for Russian industry. Manufacturers are able to export goods at prices that are unfairly low. The issue is too important for the EU to ignore. (Lamy para. 10)