A Project of the American Enterprise Institute and the Federalist Society

Still no deal to get Russia into WTO

The San Francisco Chronicle

July 18, 2006

It's only been a few years since President Bush, welcoming Russian President Vladimir Putin to his Texas ranch, declared he had looked Putin in the eye and seen the man's soul.

But as with many ex-soul mates, the lovefest between the two leaders and their countries has cooled considerably. Washington is unhappy with Russia's attitude toward Iran's and North Korea's nuclear ambitions, the lack of transparency in Russian business, limits on Russian democracy and the Kremlin's increasing control over the country's huge reserves of oil and natural gas.

Moscow is frustrated with American trade policies and increasingly resentful of American lectures about how Russia should be run.

The lack of progress in securing American approval for Russia's entry into the World Trade Organization represents the latest evidence of love's labor lost. Although it is overshadowed by war news out of Lebanon, Israel and Gaza, this unresolved trade issue could have far-reaching ramifications.

American and Russian trade negotiators, meeting on the sidelines of the Group of Eight summit of leading industrial nations in St. Petersburg, Russia, conceded Monday that they have failed to cut a deal that would speed Russia's entry into the WTO. Russia applied in 1993 to join the WTO, which sets rules and regulations for international trade and adjudicates disputes between its 149 member states.

Despite its reservations about Russia, the Bush administration would like to see Russia in the WTO because it would bring a powerful economy into the global trading system and help Russia complete its rocky transition from a state-controlled economy to a market-driven economy. It might also bump up the relatively paltry U.S.-Russia trade that stood at $19 billion for all of 2005 -- about the same amount of business that the United States does in three weeks with Canada, its largest trading partner.

Russia's putative membership in the WTO has sparked skepticism in some U.S. business circles, however. In a July 6 letter to Bush, a coalition of business groups that included the U.S. Chamber of Commerce, National Association of Manufacturers and Motion Picture Association of America asserted that Russia needs to do much better in protecting U.S. intellectual property and end caps on foreign direct investment in banking and insurance.

"Concrete progress ... is imperative to demonstrate Russia's commitment to and respect for WTO rules,'' the letter read.

Potentially lucrative

Russia is a raw but potentially lucrative market for foreign investors and companies. San Ramon's Chevron Corp., for example, is one of five finalists bidding to develop a $12 billion pipeline that would enable Russia to export liquid natural gas from the Berents Sea.

Russia, which has observer's status at the WTO, is one of the last major powers kept out of membership in the organization, which holds periodic rounds of multilateral talks designed to roll back tariffs and quotas and end trade-distorting export subsidies.

Earlier this month, the latest round of WTO talks that was held in Geneva ended in stalemate. That failure so worried the leaders at the G-8 summit that they called Monday on the WTO's secretary-general, Pascal Lamy, to reconvene meetings of trade ministers and try to get a deal done on world agricultural issues this year.

"We urge all parties to work with utmost urgency for conclusion of the round by 2006-end, to strengthen the multilateral trading system,'' G-8 leaders said in a statement.

Russia can have little input on the WTO's efforts to reform global farming -- or anything else on the WTO's ambitious, multi-faceted agenda -- until it becomes a member. And it can't become a member until it agrees on terms of entry with the United States.

The WTO, which operates on a slow-moving if democratic consensus basis, requires applicants to hammer out bilateral pre-membership terms with current members before the organization as a whole can vote to accept or reject an applicant.

The United States is the sole remaining large WTO member that hasn't signed a bilateral pre-admission deal with Russia -- another irritant in the deteriorating relationship between erstwhile Cold War enemies that showed great promise after the fall of communism and breakup of the Soviet Union.

Pushing for change

U.S. negotiators believe Russia needs to step up its protection of intellectual property, open up further to investment, and greatly enhance transparency in business dealings.

Russian officials have issues of their own with Washington. In St. Petersburg over the weekend, Russian officials declared themselves dissatisfied with the safety of U.S. beef and pork and said they could not sign an agreement with Washington until such concerns were cleared up.

Russia has previously expressed frustration with the glacial pace of trade talks with the United States and its subsequent inability to join the WTO.

Last year, German Gref, Russia's minister of economic development and trade, asked the WTO for flexibility and understanding. Going from a centrally planned economy to one ruled by market forces is complicated and time consuming in itself, Gref said.

Trade between the United States and Russia takes place outside the WTO structure. It is not large considering the size of the two countries but would presumably expand were Russia to join the WTO and come more fully into the world trading system.

In 2005, two-way trade was $19.3 billion. The United States exported $4 billion worth of goods to Russia -- mostly meat, machinery, chemicals, tobacco and electronics -- and imported $15.3 billion worth -- chiefly raw materials and oil. This left Moscow with an $11.3 billion trade surplus with this country.

The U.S. trade representative's office says Washington has not given up on doing a deal that would enable Russia to end its 13-year wait to join the WTO and now hopes to come to terms with Moscow sometime this fall.

In the meantime, not only Russian officials but U.S. business executives with stakes in Russia's economy are frustrated by the slow pace of progress.

"We think it is in the U.S.'s best interests to see Russia join the World Trade Organization,'' Andrew Somers, president of the American Chamber of Commerce in Russia, said last week. "Until WTO membership is resolved, trade is in limbo.''

"The lack of a bilateral agreement between Russia and the U.S. is having an impact on some major industrial transactions under negotiation between U.S. and Russian companies in the energy and aerospace sectors, among others,'' Somers said, without naming the companies.

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Joining the WTO

Russia's long wait to get into the World Trade Organization: -- Applied for membership in 1993. -- Entry requires approval from two-thirds of the 149 members of the trade group. -- The United States is the only major member that hasn't negotiated a pre-admission bilateral deal with Russia. -- The United States wants Russia to strengthen intellectual property law and open up more to foreign investment. Meanwhile, Moscow is unhappy with the safety of U.S. beef and pork imports and says the shift from a socialist economy to a market economy will take time.

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