Russia Moves Closer to WTO Membership With EU Deal Settling `Key' Issues

Russia moved a step closer to membership in the World Trade Organization by signing an agreement with the European Union settling “key questions” that have hampered its accession bid for years.

Russian President Dmitry Medvedev and EU leaders, including President Herman Van Rompuy and European Commission President Jose Barroso, today signed a memorandum of understanding that sets the terms to resolve all EU-Russia bilateral issues. Russia, the largest economy outside the WTO, applied for membership in the Geneva-based trade arbiter in June 1993.

“We have finished our negotiations with Russia on those terms of Russia’s WTO accession which were not yet agreed previously and were of particular concern specifically to the EU,” said John Clancy, the commission’s trade spokesman in Brussels. “This bilateral deal resolves a number of key questions for the EU and brings the accession moment closer.”

Among the bigger EU concerns that have been settled are Russia’s pricing policies for lumber exports and railway fees. Finland and the Baltic countries complained that the policies unfairly aid Russian companies by overcharging European rivals. Russia has agreed to cut the timber export duty to about 15 percent of customs value from 25 percent, though the lower levy won’t be applied until it joins the WTO.

Main Partner

The 27-nation EU is Russia’s biggest trading partner, accounting for 50.4 percent of volume in the first nine months of this year, according to the Federal Customs Service in Moscow. Trade in goods and services between the two economies climbed almost 35 percent in the first nine months of 2010 to $217.8 billion, according to data distributed by the Kremlin.

The EU shipped about 66 billion euros ($88 billion) of products such as machinery, transport equipment, food and live animals to Russia last year and bought 115 billion euros of Russian goods. Energy and mineral-fuels products make up 77 percent of EU imports from Russia. The bloc relies on Russia for more than a quarter of its natural-gas demand, according to EU statistics office Eurostat.

The accord signed at the EU-Russia summit in Brussels today doesn’t iron out all Russian WTO accession issues. The world’s biggest energy supplier must negotiate multilaterally on unresolved matters such as conditions for a trade-related investment regime and its application of health rules for food imports, some of which concern the EU, Clancy said.

Overflight Fees

“We will continue negotiations alongside other WTO members on technical regulations and will monitor that Russia implements the commitments it undertook in such areas as sanitary and veterinary conditions for agricultural imports, intellectual- property rights and other market-access-related non-tariff regulations,” he said.

Russia also agreed during discussions that ran parallel to its WTO accession talks to alter the way it imposes fees on European planes for the right to pass over Siberia. The changes will be made when Russia joins the WTO, Clancy said.

“Once all multilateral questions are resolved and negotiations in Geneva are finished, the EU countries will have to agree to the whole WTO accession package,” he said. “As Russia made the link to WTO accession, the implementation of the overflight agreement will be an important element to be considered at that stage, which could be in six to 12 months from now, if negotiations proceed in a good pace.”

Negative Impact

Russia, with an economy of $1.23 billion, expects to complete negotiations to join the WTO in the first half of 2011, Deputy Economy Minister Andrei Klepach said in a Nov. 30 interview. While accession will initially have a negative impact on the auto and aircraft industries, it will be positive for Russia in the long term, he said.

Russia and the U.S. won’t complete accession talks this year because sticking points remain over issues including U.S. demands for greater access for agricultural products, mainly poultry and pork, legislation to protect intellectual property and Russian curbs on imports and exports, Myron Brilliant, senior vice president for international affairs at the U.S. Chamber of Commerce, said in September.

Russia also has yet to reach an agreement on its WTO accession with Georgia. The former Soviet republic has threatened to block Russia’s entry to the WTO if its northern neighbor doesn’t lift a four-year-old economic embargo.

“Confirmation that Russia is finally at the last stages of entry to the WTO would be positive for the steel names, as it would remove some export barriers, and for the bank-sector stocks,” Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow, said in a research note today. WTO membership may also prompt credit-rating companies to raise Russia’s sovereign-debt grade, which is “long overdue,” he said.

To contact the reporter on this story: Jennifer M. Freedman in Geneva at jfreedman@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.

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