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Russia Moves Closer to WTO Membership With EU Deal

Russian President Dmitry Medvedev
Russian President Dmitry Medvedev pauses ahead of the EU-Russia summit at the EU council headquarters in Brussels. Photographer: Jock Fistick/Bloomberg

Dec. 7 (Bloomberg) -- Russia moved a step closer to membership in the World Trade Organization today by signing an agreement with the European Union settling “key questions” that have hampered its accession bid for years.

Russian Economy Minister Elvira Nabiullina and EU Trade Commissioner Karel De Gucht 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.

“This is really a milestone,” said European Commission President Jose Barroso. “Our difficult bilateral issues are resolved. Russia becoming a WTO member in 2011 is a realistic perspective.”

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.

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.

Mineral-Fuels Products

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.

Russian accession to the WTO has “practically become reality,” President Dmitry Medvedev told journalists in Brussels. “I’m very satisfied with the outcomes of this year in that respect.” After 17 years of negotiations, “this was the most successful year.”

Still, today’s accord 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, said John Clancy, the commission’s trade spokesman in Brussels.

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.”

‘Increasingly Likely’

Russia, with an economy of $1.23 trillion, 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’s accession to the WTO appears an increasingly likely possibility in the coming two years, allowing the country to fully join the other BRICs at the trade organization,” ING Groep NV said in a research report on Dec. 6. “This will prove of particular importance for increasing foreign direct investment limits on Russia’s telecoms, insurance and banking sectors, so we could see a ramp-up in valuations for corporates in these areas as WTO accession nears.”

U.S., Georgia

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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