Last week, Russia passed a key hurdle in its effort to join the World Trade Organization (WTO). Moscow reached agreement with Washington, the lone major trading power with which it had not concluded a deal, on the terms of Russia’s entry into the global trade body. The deal does not mean that Russia can now join the WTO: The new Democrat-led Congress must approve the terms, and Moscow must still reach separate agreements with other WTO members. While WTO membership focuses on trade, political issues may yet dominate those discussions.
Russia has sought to join the WTO since the collapse of the Soviet Union. Negotiations began some 13 years ago. It is the last major economy to remain outside the group. Membership confers a stamp of approval on member governments, facilitating trade, development and investment. Even though most economists agree that Russia, because of its industrial structure, will not benefit as much as some countries — China, for example — President Vladimir Putin has made membership a priority, believing rightly that participating in future trade negotiations increases his country’s leverage and influence.
Joining the WTO requires both multilateral and bilateral agreements with member nations. Japan has already concluded its negotiations with Russia. The United States was the last major economy with which Moscow had not reached a bilateral accord. The key obstacles to agreement included protection of intellectual property rights (IPR) and the liberalization of the country’s financial sector.
It was hoped that the two governments would reach agreement in time for U.S. President George W. Bush to sign an accord at the Group of Eight summit held last summer in St. Petersburg and hosted by Mr. Putin. That deadline slipped when the talks broke down over demands to inspect U.S. beef and pork exports to Russia. Talks resumed and the two sides reached agreement “in principle” last week. Presidents Bush and Putin are now scheduled to sign the deal in Hanoi this week at the leaders’ meeting of the Asia-Pacific Economic Cooperation forum.
While reaching agreement with the U.S. is a milestone, it is not the end of the road for Russian trade negotiators. The deal itself must be ratified by the U.S. Congress, which is increasingly critical of Russian behavior on a range of issues — from human rights to Iran’s nuclear-energy program.
Congress may object to Russian membership on purely economic grounds, citing Moscow’s restrictions of foreign investment in the banking and insurance sectors to 50 percent of total capitalization. Or it could demand that Russia actually enforce IPR, rather than merely pledge to do so. The Bush administration, with support from Japan and other trading partners, has said it intends to press this issue in multilateral negotiations; Moscow has already begun to crack down on counterfeiters.
The U.S. is not the only government that stands between Moscow and the WTO. Russia must reach deals with all member countries. Two of the holdouts include Georgia and Moldova, both of which have issues with Moscow. Georgia’s relations with the West have long put it at odds with Moscow; moreover, it fears that Russia is supporting separatist movements in the country. Political relations have deteriorated since Georgia arrested Russian military officials on spying charges and Moscow retaliated with trade embargoes. After giving its approval to Russian WTO membership, Tbilisi rescinded it this summer. Tbilisi will demand that the outstanding issues be settled before it reaches final agreement with Moscow.
Implementation of the actual WTO requirements is likely to be more difficult. Russia has a poor tradition of respect for private property or the rule of law as required by the world trade body. Mr. Putin’s desire to centralize political power, neutralize potential opposition, and support state-backed monopolies like Gazprom may conflict with WTO provisions. The government has arrested and expelled businessmen who have crossed it, and speculation abounds that seamy relationships exist among criminals, politicians and business.
While WTO membership alone will not solve those problems, it will make it more likely that Russia will embrace desired changes. Reaching a deal with the U.S. could smooth the troubled relations between Moscow and Washington. It is a victory for Mr. Putin, a tangible achievement and a sign of equality with other G8 nations. He will use WTO membership to try to gain the world’s confidence in his country and its government. Two questions remain: Will Russia enforce the changes that the WTO requires? And how will Moscow use that vote of confidence and the influence it bestows? Both will determine Russia’s place in the world and its relationships with the other governments with which it must deal on a daily basis.
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