The Guest Blog

Brank: Embracing Russia's WTO Entry

Laura M. Brank|Head of Russia Practice, Dechert

In December, after 18 long years of negotiations, Russia was finally formally asked to join the World Trade Organization (WTO). Russia now has until June 15 to ratify the Accession Agreement. While most commentators have focused on the length of Russia’s accession process or on whether Congress will finally grant Russia permanent normal trade relations (PNTR), few have commented on the broader and more positive implications of Russia’s accession.

Russia’s entry into WTO will lead not only to reduced tariffs and the gradual elimination of non-tariff barriers in Russia, but also Russia’s adopting the rules of the WTO.

It bears noting that Russia’s short term economic gains will likely be modest as the country already has many trade agreements providing lower tariffs to exporters.

What Russia gains, however, is acceptance into an important international institution that will allow it to enjoy the benefits of membership and give it a say in future trade initiatives. Moreover, in joining the WTO, Russia sends a positive and significant message that it is ready to fully engage with the international community and play by the same rules as other developed economies, including by agreeing to submit trade disputes to WTO dispute resolution procedures.

Russia didn’t have to choose to join the WTO.

In fact, Russian commentators have long argued that Russia is not sufficiently economically advanced to subject its developing economy to the strict rules of the WTO, which are generally intended to reduce government interference in trade by reducing domestic subsidies and granting national treatment to foreign companies. Many voiced concern that if Russia joined the WTO, nascent Russian industries would be wiped out before they had a chance to develop. In addition, during the economic boom times when Russia was experiencing significant economic growth, certain Russian government leaders expressed a dangerous, isolationist attitude that Russia didn’t need the WTO to support its economic growth or any measures, for that matter, designed to promote investment in the country.

Today, that attitude has changed.

The fact that the Russian government considers joining the WTO an important step in Russia’s economic growth and has shown its willingness to subject itself to the WTO rules demonstrates its commitment to becoming part of the international trading community. The Russian government appears to have learned an invaluable lesson from the global economic recession: that it is deeply interconnected with the rest of the world and that its policies and attitudes with respect to business and its application of the rule of law will directly impact on investment in the country and, ultimately, its economic security.

The U.S will ultimately achieve more in its diplomatic relations with Russia and its goal of promoting the rule of law and democracy in Russia by having Russia adapt its rules to international standards.
Russia Practice, Dechert
Laura M Brank

The Russian government recognizes that it is perceived as having an inhospitable investment climate and an ambivalent attitude towards the rule of law (not without cause). Accordingly, the government has taken steps in an effort to overcome that perception through the implementation and enforcement of laws designed to better protect business and reduce corruption and through the pursuit of admissions to western institutions (such as the WTO and OECD) that require it to conform to higher trade and investment standards. Russia, of course, still has a long way to go to fix its structural problems, and enforcement of laws remains inconsistent, but its efforts to improve the investment environment are often overshadowed by the highly public mistakes it has made in the process of undergoing massive economic, social and political changes.

The U.S. should embrace the Russian government’s commitment to adopting international rules of trade -- rules that the U.S. had a large role in developing -- by finally granting Russia PNTR and graduating Russia from the outdated Jackson-Vanik amendment, which denies Russia most favored nation trading status. These actions would send a positive message that the U.S. isn’t trying to exclude Russia from the international economic community. Moreover, U.S. industry has a lot to gain both from Russia joining the WTO and from Russia’s continuing integration into the global economy as indicated by the quick endorsements by numerous trade organizations such as the U.S. Russia Business Council. Russia’s tariffs on imports will be reduced (in some cases by up to 10 percent), and U.S. companies will benefit from the elimination of many non-tariff barriers to trade and better protection of their intellectual property in Russia. The U.S. aerospace, agricultural, automotive and financial services industries, in particular, will greatly benefit from Russia joining the WTO, but only if Congress acts to finally graduate Russia from Jackson-Vanik.

Keeping Russia isolated is an outdated policy with its roots in the past. The U.S will ultimately achieve more in its diplomatic relations with Russia and its goal of promoting the rule of law and democracy in Russia by having Russia adapt its rules to international standards.

Laura M. Brank, the head of Dechert's Russia Practice, has been acting for domestic and multinational clients on matters throughout Russia and the CIS since 1995, supervising major local and cross-border M&A, joint venture, and syndicated, corporate, and project finance transactions. She is listed as a leading lawyer in Russia for corporate/M&A, banking and finance, and mining by Chambers.