This op-ed was originally posted on the Global Economic Governance 2012 Blog. It can be found here: https://globaleconomicgovernance2012.wordpress.com/2012/10/08/russia-joins-the-90/
On August 22, 2012, after the longest accession process in the history of the international body, the Russian Federation became the 157th nation to officially join the World Trade Organization. It took 18 years, but the Working Party (WP), a body comprised of sixty-member nations (including the U.S.) responsible for the negotiation of the Russian accession, reached an accord with the former communist superpower on the trade commitments it will undertake. The second longest accession process lasted 15 years. That country was China.
It should be noted that accession is no simple achievement. A country seeking to join the WTO must not only meet the terms of the WP, but also must engage in bilateral negotiations with each WP member, and essentially please everyone before it’s permitted to join. These steps, coupled with a country’s need to liberalize its trade and conform to the standards of a market-based economy, shed a bit of light on the challenge of joining the club, especially for a country like Russia.
So to what did Russia agree in order to join the community in which 90% of global trade occurs? According to a CRS report on Russia’s accession to the WTO, the Russians have agreed to several major issue provisions:
- Energy Pricing. Russia signed an agreement with the EU to gradually increase domestic energy prices into order to reduce the dual pricing practices that give energy importers a competitive disadvantage.
- Agriculture. This being the most sensitive trade issue to Russia, the country has been more reluctant to move toward liberalization. It has instead opted for longer phase-out periods, eventual reduction of export subsidies, a three-year quota on poultry imports, and tariff-rate quotas, which permits a lower import tariff until the quota in reached, as which point the tariff rate increases significantly.
- Sanitary Regulations. The U.S. and Russia reached an agreement on veterinarian inspections of American poultry in 2002. This allowed U.S. exports of chicken to resume, but there is a lingering fear that Russian will maintain its protectionist stance under the auspices of health concerns.
- Telecommunications. Russia will permit up to 49% of foreign ownership of service providers, despite the fact that the U.S. and the EU oppose any such ceiling. Russia also wishes to maintain a monopoly on long distance phone communications until 2010.
- Civil Aircraft. Maintain a 20% ad valorem tariff on all imported aircraft as a means of protecting its fledgling aircraft industry. Russia argues that in order for its domestic production to become competitive, it must apply the higher tariffs to discourage producers from using foreign manufacturers for aircraft production.
In short, they agreed to conform to a number of issues with several exceptions. But why would a country with a history like Russia’s agree to make such drastic, albeit gradual, changes to join the WTO? In an April 2002 speech to the Federal Assembly, President Putin made it quite clear: “The WTO is an instrument. He who knows how to use it grows stronger; he who prefers to sit behind a fence of protectionist quotas, and duties – he is doomed, absolutely doomed strategically.”
Stated simply, the WTO is too big to ignore and in order to remain relevant and competitive, Russia feels and has felt for the past 18 years that it must participate in order to shape the future rules of global trade.
For the United States and the rest of the WTO members, though they will potentially benefit from the improved access to Russian markets, there is a foreboding caveat. With the inclusion of another major economic player, the WTO just got a little more complex. The increased difficulty in achieving global consensus is foreseeable. If the experience with China and Russia in the UN Security Council is any indication, the U.S. will have to countenance another perennial dissenter to its trade policies.