Russian Federation: Russia’s Long Road to the WTO is Over

Originally published November 11, 2011

Keywords: Working Party report, World Trade Organization, import, export, multilateral trading system

Following yesterday's approval of its Working Party report, Russia is on track to join the World Trade Organization (WTO) in the first half of 2012. Emerging details of Russia's WTO commitments suggest increased market access and legal certainty for foreign suppliers of goods and services. Russian exporters will see new opportunities arising from a greater legal protection of their market access and investments in third countries.

Background

Russia is the largest economy not yet covered by the multilateral trading system established in the WTO Agreements: it applied to join the WTO in 1993, but only now has completed the accession negotiations. The WTO Ministerial Conference will act on the Russia's accession package on 15-16 December 2011. The actual accession will occur upon Russia completion of its internal ratification procedures within 220 days following the invitation from the WTO Ministerial Conference. Once Russia notifies its acceptance of the accession protocol, it will legally become a member of the WTO 30 days later.

Key Elements of Russia's Accession Package

Russia's WTO commitments will be reflected in its Protocol of Accession to the WTO Agreement. The Protocol will reflect Russia's principled commitment to implement the WTO Agreement on the date of accession. It will list in an annex its market access commitments for specific goods and services. And it will cross-reference certain paragraphs of the WTO Working Party Report on Russia's WTO accession, which will deal with Russia's "horizontal" commitments.

The draft Protocol of Accession, together with the Annex reflecting goods and services schedules and the Working Party Report, are a voluminous set of document (the draft Working Party Report is, by itself, 759 pages long). The key elements of the accession package are:

  • Import Tariffs. As of the date of accession, Russia will apply all import duties at a level not exceeding that agreed in the Schedule attached to the Protocol of Accession. While Russia will benefit from a transition period for certain products, some of the tariff reductions will occur upon accession, namely with regard to the so- called anti-crisis tariffs that significantly exceed agreed tariff bindings. Russia's overall bound tariff rate on industrial and consumer products will average around 8 percent. Importantly, Russia' WTO commitments will apply within the Customs Union of Russia, Belarus and Kazakhstan.
  • Export Tariffs. Russia will enter into specific commitments with regard to the level and the mode of application of its export duties. Export duties for steel scrap and copper cathodes will be gradually reduced.
  • Services. Russia has undertaken a number of important commitments on services. In the banking area, Russia will preserve most of its existing market-access measures and will somewhat liberalize treatment of foreign bank subsidiaries. In the insurance area, it will allow 100 percent foreign ownership of non-life insurance issuers and will gradually phase-out limits on the number of life insurance licenses granted to foreign firms. Russia will open its telecommunications services market and will allow foreign telecommunications companies to operate as 100 percent foreign-owned enterprises.
  • State-trading Enterprises. Russia will notify Gazprom as a State-trading enterprise in accordance with Article XVII of the GATT 1994. Domestic gas supplies to industrial users will be made at prices that not only cover the cost of production of gas, but also bring a profit.
  • Border Policies Affecting Trade in Goods. Russia will eliminate quantitative restrictions on imports, or other restrictions having equivalent effect. In its customs valuation practice, Russia will follow the provisions of the WTO Customs Valuation Agreement—particularly in terms of: the methods that should be followed to set the customs value; acceptance as a principle of transfer prices between affiliated parties; and elimination of the current practices of using minimum values, reference prices or fixed valuation schedules to establish the customs value of imports.
  • Internal Policies Affecting Foreign Trade in Goods. Russia will abandon any subsidies aimed at the exportation of goods. Agricultural subsidies will be bound up to a certain level, while any other subsidies will need to apply in a way that does not cause serious prejudice to imports. Under its accession terms, Russia will specify any goods for which price controls are in place and will not apply those for purposes of affording protection to domestic industries.
  • Technical Barriers to Trade. Upon accession, Russia will have to follow the WTO Agreement on Technical Barriers to Trade that ensures that regulations, standards, testing and certification procedures do not create unnecessary obstacles to trade. Namely, Russia will apply a non-discrimination and a national treatment regime with regard to technical regulations and under certain conditions harmonize technical regulations and conformity assessment procedures with relevant international standards.
  • Sanitary and Phytosanitary (SPS) Measures. Following WTO accession, Russia will be required to fully implement the WTO SPS Agreement. SPS requirements will be harmonized with international standards and implemented with respect to imported products in the same way as applied to domestic products. Going forward, Russia cannot apply measures that are not based on international standards without providing a scientifically based explanation of the measures. Under certain circumstances, Russia will accept sanitary and phytosanitary measures of other WTO members, even when they are different than its domestic requirements.
  • Transparency. Membership in the WTO will bring much greater transparency to Russia's trade regime. The WTO Agreements will require Russia to provide notifications to Members, publish information for traders, comply with time limits, and adopt measure that will bring greater predictability to Russia's trade regime. In addition, Russia will be subject to periodic "trade policy reviews"—comprehensive assessments of Russia's trade and investment regime during which WTO members have an opportunity to raise concerns and seek answers to questions from Russia regarding the implementation of WTO agreements. 

Delay for the United States

Upon acceding to the WTO, it is likely that Russia will be able to withhold many of market openings mentioned below from the United States. This is because the US legal regime has a provision of law (generally referred to as "Jackson-Vanik," named after the sponsors of an amendment to the Trade Act of 1974) mandating an annual review of then-communist countries' willingness to let Jewish people emigrate. While the US President has routinely certified compliance by Russia since the end of the Cold War, the provision's existence means that the US formally treats Russia differently than other WTO members, which would violate WTO most-favored nation rules. Thus, the US will have to invoke "non-application" upon Russia's accession, and cannot reverse that until the US Congress enacts Permanent Normal Trade Relations for Russia (and removes Russia from the Jackson-Vanik list). The timing of Congressional action is unclear: the Obama administration hopes that it occurs in 2012.

Learn more about our Global Trade practice.

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© Copyright 2011. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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