Russia becomes 156th WTO member on Wednesday

The Russian Federation officially became a full-fledged member of the World Trade Organization on Wednesday - the 156th country to join the WTO.

On July 23, the Russian government notified the WTO that Russia had completed all the internal procedures required for membership, including the ratification of the April 15, 1994 Marrakesh agreement establishing the founding of the WTO signed in Geneva December 16, 2011. Per WTO rules, Russia's accession took place August 22 - the thirtieth day after that notification was given.

However, trade between Russia and the United States will not be governed by WTO rules and principles until the Jackson-Vanik amendment is repealed, something the U.S. Congress has not managed to do. The amendment, named for the congressman who sponsored it in 1974, denies most favored nation status to countries that restrict emigration. The amendment to U.S. trade law was aimed specifically at the USSR, which ceased to to exist in 1991, and it is inconsistent with WTO rules.

A July 21 Russian government resolution approving export duty rates goes into effect on Wednesday, and the new Unified Customs Tariff of the Customs Union, which defines import duty rates, will take effect on August 23. Russia on August 23 will lower only so-called anti-crisis duties that were raised on certain goods in 2009. For example, import duties on new cars will be lowered from 30% to 25% upon joining the WTO, and subsequently they will be gradually reduced to 15% over a period of seven years.

The weighted average import tariff in Russia averaged 10.3% in 2008-2010, including 15.6% for agricultural goods and 9.4% for manufactured goods. During the transition period, duties will be lowered and the weighed average import tariff will eventually drop to about 7.1%, including 11.3% for agricultural goods and 6.4% for manufactured goods. The weighted average rate is therefore supposed to be reduced by about 3 percentage points from the current level to the final level agreed upon in negotiations. There will be a similar reduction for manufactured goods, while rates for agricultural goods and foodstuffs are supposed to come down by about 4.4 percentage points.

The Economic Development Ministry estimates that at the end of all transition periods for reduction of import duties to the final level, about half of all rates will remain at a level that is no lower than the current Unified Customs Tariff of the Customs Unions. About 30% of rates will be lowered by no more than 5 percentage points.

Russia will assume obligations on 116 service sectors (out of 155 sectors specified in the WTO classification). In a number of sectors, the obligations allow for the possibility of imposing tougher measures than the current regime. For example, Russia can, if needed, impose a state monopoly on wholesale trade of alcohol.

Joining the WTO does not require the Russian government to abandon regulation of prices for the services of natural monopolies. There is only one restriction: natural gas prices for domestic industrial consumers must be set so that they earn a profit for gas companies, which has already been the case for several years. In the social sector, the government can set prices at any level, regardless of the profitability of sales to households.

Russia's obligations in the area of agriculture differ from the standard obligations assumed by other countries that have joined the WTO. Under the standard approach, countries tie up the total amount of support distorting trade conditions at the level of the three-year period preceding accession, and reduce it over a short period after joining.

Russia will be allowed to have a level of support of $9 billion, which is more than twice the amount that would have been allowed under the standard rules. Then the permitted amount of support will be gradually reduced, and in 2018 it will be fixed at the current level.

The most obvious benefit of joining the WTO will concern consumers, namely the potential reduction of the cost of living thanks to the reduction of trade barriers. Prices could fall not only for finished imported goods and services, but also for domestic products, particularly those made with imported components.

The Economic Development Ministry reckons prices could fall for fish, fruit, vegetables, nuts from tropical countries, chocolate, flowers, high-quality wine and spirits, drugs, textiles, clothing, footwear, construction materials, jewelry, furniture, electronics and electrical equipment, medical devices and equipment, cosmetics, perfume, detergents and automobiles. Among producers, the first to benefit from WTO accession will be exporters, particularly in the metallurgy, chemicals and power industries, as a result of the elimination of barriers for access of Russian goods to the markets of WTO members, losses from which are estimated at more than $2 billion.

However, the Economic Development Ministry reckons that joining the WTO will lead to the automatic elimination of only four out of 96 restrictive measures in place against imports from Russia in member countries. It is expected that restrictions in trade of Russian steel in the European Union, trade of Russian alcohol products (including beer) in Kyrgyzstan, and restrictions on provision of satellite services in the United States and insurance services in Ukraine will be lifted automatically. In order to eliminate other restrictive measures against Russian products, it will be necessary to hold consultations, and in a number of cases there may be litigation within the context of the WTO.

Mikhail Margelov, the head of the Russian Federation Council committee on international affairs, believes the industries that will have stood the test of the world market due to Russia's accession to the World Trade Organization will be determined only in seven years. The protocol on Russia's accession to the WTO has taken effect, marking the end of the work that has taken 18 years, Margelov told Interfax on Wednesday.

"At the same time, the debate on the consequences of this step still continues. Active opponents allege that accession to the WTO will negatively impact the domestic economy because the state will lose some of the leverage on export and import, and opponents believe openness and competition will, on the contrary, cause our producers to produce competitive products," Margelov said.

In addition, membership in the WTO will help Russia more actively defend its businesses on the world market and fight direct discrimination against Russian products, the senator said. "Protection of economic interests is also protection of national interests. According to predictions, some industries may be hurt by the changes in duties, etc. Among these industries are machine-building, food industry, and consumer industry," Margelov said.

However, Margelov said these industries are not developing well even without accession to the WTO and Russia still has some time to carry out technological modernization in them. "This means that transition to the WTO norms will take us five to seven years, and in that time it will become clear which industries have stood the test of the world market and which haven't," Margelov said.

The WTO, the successor to the General Agreement on Tariffs and Trade (GATT) founded in 1947, began to operate on January 1, 1995. The WTO is intended to regulate trade relations among members based on the package of agreements that came out of the Uruguay Round of multilateral trade negotiations (1986-1994).

The highest authority of the WTO is the Ministerial Conference, which includes representatives of all members. The Conference convenes at least once every two years to discuss and make decisions on fundamental issues related to the Uruguay Round agreements.

The Ministerial Conference (or General Council) appoints the director general of the WTO, a post that has been held since September 2005 by Pascal Lamy, the EU's former trade commissioner.

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