Russian Federation: Russia Becomes A Member Of The WTO

Last Updated: 14 June 2012
Article by Igor Orlov

Lengthy negotiations on Russia's accession to the World Trade Organization ("WTO") (which began in 1993 and from 1993 to 1995 took place in terms of Russia's accession to the GATT-47, and then to WTO) ended in November 2011, and on 16 December 2011 the Protocol on the Accession of the Russian Federation ("Protocol") was signed. Russia was eventually invited to accept the Marrakesh Agreement which established the WTO.

Soon after completion of the negotiations the Report of the Working Party on Russia's accession to the WTO ("Report") became available in English and in Russian. It can be found both on the official websites of the WTO and the Ministry of Economic Development and Trade of Russia and in other public sources. The Report was drawn up following the results of the review of the Russian economic policy and foreign trade regime, and of discussion of the conditions of Russia's accession. This Report is one of the official documents which effect Russia's accession to the WTO. Among other official documents there are Commitments on Goods, Commitments on Services ("Commitments") and the Protocol – these documents have also recently become available. Apparently, the Report, the Commitments and the Protocol contain the exhaustive information on all aspects of Russia's accession to the WTO, including all the rights and obligations that Russia will undertake following the results of negotiations. However, it is quite a large and complex package of documents, difficult to understand by non-specialists, according to, for instance, Director of Trade Negotiations Department of the Ministry of Economic Development and Trade of Russia, M.Yu. Medvedkov, who was the head of the Russian delegation during the negotiations.

However, there is some other publicly available information from the official sources which will help non-specialists and those who will not be able to study all the documents indicated above, to identify the most important aspects of Russia's accession to the WTO. Both the WTO and the Ministry of Economic Development and Trade of Russia have published information on the conditions and Russia's commitments (see, for instance, the informational message that appeared on 10 November 2011 on the WTO official website http://www.wto.org/english/news_e/news11_e/ acc_rus_10nov11_e.htm .

To anyone interested we would recommend reading if not the entire package of documents related to accession, then at least the relevant Commitments and official certificates. We would like to draw attention to certain aspects of the accession which may be of interest to our readers.

1. Commitments on goods

In general, Russia committed to lower its import tariffs on a wide range of goods. After full implementation of relevant commitments it is expected that the average duties on goods will reduce to 7.8% (as compared to 10% in 2011).

Agricultural goods

Duties for agricultural goods will reduce from 13.2 to 10.8% and for manufactured goods, from 9.5 to 7.3%. (According to the Ministry of Economic Development and Trade, on the whole, the reduction of the weighted average tariff from the current level to the final agreed level will amount to about 3 percentage points (which is also true for manufactured goods). As for agricultural goods and foodstuffs, the rate reduction will amount to approximately 4.4 percentage points. The transition periods for the reduction of duties are 2-3 years (and for certain types of goods (like, for example, new automobiles and aircrafts) up to 7 years.

Process/Construction/Scientific/Measuring Equipment

More specifically, duty rates for process, construction, scientific and measuring equipment will be considerably reduced.

Computers/Hardware

Within 3 years from the accession, duties for computers, tools of their production and hardware components will be cancelled. Duties for household electrical goods and electronics will be reduced from 10% to 7-9%.

Pharmaceuticals/Cosmetics

Duty rates for foreign medications will reduce from 15-5% to 6.5-5%, duties for medical equipment and drug substances will also be considerably reduced (up to 2-3%). The duty rate for cosmetics, soap and detergents will be considerably reduced.

Beer

The duties for beer will be several times reduced; duty for wine will be reduced considerably.

Footwear/Clothing/Foodstuffs

The import of footwear, clothes, seafood, chocolate, and tropical fruit will become cheaper.

Beef/Pork/Poultry

At the same time Russia will continue to apply tariff rate quotas to the import of beef, pork, poultry and some other products.

Export duties

In relation to export duties, Russian obligations stipulate "binding" and the reduction of the relevant rates for a number of goods (about 700 tariff lines). A special formula of rate calculation, similar to the one currently in use, will be applied to oil and oil products. A rate of 30% is applied to natural gas (without the obligation to reduce).

2. Commitments on services

Russia has made commitments on 116 sub-sectors of services out of 155 stipulated by the relevant WTO classification. For the remaining 39 sub-sectors (such as pipeline, railway, inland water transport, most of the medical services, etc.) Russia has not made any commitments, which makes it potentially possible to apply any possible limitations for foreign market players.

Commitments without limitations were undertaken in 30 sub-sectors (such as advertising and consulting services). This means that Russia is entitled to apply non-discriminatory internal regulation of such services without limitations which changes the conditions of competition between foreign and domestic service suppliers in favor of domestic suppliers.

Obligations related to other service sub-sectors were undertaken with various limitations or capacity to introduce such limitations, which will result in certain changes of the existing regulation system.

Insurance

One of the most substantial changes is connected with the regulation of financial services, in the first place, the insurance sector.

Thus, the total quota of foreign participation in the sector will be increased from 25 to 50%, and the 49% limitation for foreign participation in, for instance, capital of life insurance and compulsory insurance companies will be replaced with 51% starting from the accession day, and in 5 years after accession will be eliminated. In 9 years after Russia's accession to the WTO foreign insurance companies will be allowed to conduct business directly through their branches in Russia subject to their compliance with licensing and financial stability requirements and also with 50% quota of foreign participation in the aggregate capital of Russian insurance companies.

Banking

In the banking services sector prohibition on foreign bank branches' activity in Russia ("direct" branches) will remain and the 50% quota for the foreign participation in the aggregate capital of Russian banks. However, there are no limitations stipulated for certain types of banking operations for banks with foreign participation, that is to say, subject to obtaining necessary licenses such banks will be able to work in all the segments of the Russian banking market.

Telecommunications

In the telecommunication services sub-sector the 49% limitation for foreign participation in the capital of Russian companies will be eliminated in 4 years after Russia's accession to the WTO.

State Monopoly Services

In some sub-sectors Russia's obligations stipulate the possibility to introduce more stringent measures in comparison with the existing regime (e.g. state monopoly for alcohol products wholesale, etc.).

Horizontal commitments

The list of Russia's obligations also includes "horizontal" commitments related to all service sectors (limitations on land ownership by foreigners, requirements of foreign investors who take part in production sharing agreements, etc.).

3. General commitments

Support of agriculture and subsidies

After the accession and up to 2013 the permitted total trade distorting agricultural support will amount to USD 9 billion for Russia. Then it will gradually be reduced and by 2018 will be bound at USD 4.4 billion (which corresponds to the average funding level of Russian agriculture in 2006-2008). Russia also committed not to provide export subsidies to the agriculture sector (they are not currently used).

On the whole, it is prohibited to directly subsidize exporters and use subsidies provided only on conditions of use on domestic goods (e.g., subsidizing purchase of only domestic manufactured goods or manufactured only from domestic components).

Technical regulations, sanitary and phytosanitary measures

Russia committed to ensure that the legislation related to technical regulations complies with the WTO Agreement on technical barriers to trade ("TBT"). Domestic technical regulations will be developed on the basis of international standards and recommendations, but with regard to the needs and in accordance with the purposes in view.

Russia undertakes to develop and apply sanitary, veterinary and phytosanitary measures based on international standards, but will, however, retain the right to apply more stringent requirements compared to the indicated international standards, if it is required by the domestic protection level. It is expected that Russia will actively take part in the activity of the relevant international organizations whilst developing standards and recommendations.

Industrial assembly and special economic zones ("SEZ")

The investment agreements related to "industrial assembly" of automobiles and vehicle components which directly contradict the WTO rules will not be terminated immediately upon Russia's accession to the WTO. The transition period, during which elements of the "industrial assembly" regime will be preserved, will last until 1 July 2018. A similar transition period with relevant privileges is stipulated for investors in Kaliningrad and Magadan SEZs.

Transparency and adaptation of laws

Russia will ensure the necessary level of legislation transparency that directly regulates or relates to trade, provision of services and intellectual property rights. All relevant regulatory acts will come into force only after their official publication. Whilst developing such legislation Russia generally commits (if the issue is not related to national security, etc.) to provide interested parties with the opportunity to review such legislation and provide comments within a reasonable period of time (but not less than 30 days) before passing such legal acts.

On a separate note, in the course of negotiations the work on bringing Russian legislation into conformity with the WTO requirements was performed to a considerable extent. That is why it is expected that there will be no need to considerably change the Russian legislation (except for certain acts on subsidizing industry and agriculture and regulatory acts related to veterinary, sanitary and phytosanitary regulations).

All the matters above are only a small part of Russia's commitments connected with its accession to the WTO. Those who wish are recommended to review the final documents and more detailed comments on them.

Ratification of the documents on Russia's accession to the WTO by the Russian parliament should be finished by the summer of 2012 (around 3 July); in 30 days after ratification the Protocol will come into force and thus it is expected that in August 2012 Russia will become a full-fledged member of the WTO.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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