Siberian Shuffle 2011: Russia Finally Joins WTO?

♠ Posted by Emmanuel in ,, at 2/24/2011 12:01:00 AM
Holy moley, I have written about Russia joining the WTO for practically the entire time this blog has been in existence [1, 2, 3, 4, 5, 6, 7, 8]. To be sure, the Russians themselves have been the source of delay more often that not. It had ill-advised run-ins with neighbouring states Georgia and the Ukraine--precisely those it could not afford to offend since it needs all existing members' assent for it to join the WTO. Then the Russians floated the weird idea of it, Belarus and Kazakhstan applying jointly as a customs union. On the balance, there has been a whole lot of posturing, but it appears Russia is now concentrating on appeasing those important to its (sole) bid. Namely, its EU trade partners are keen on seeing some governance improvements to go with less arbitrary treatment of foreigners.

First come the "now is the time" rhetoric along with the West's set of trade demands:
Officials from both Russia and WTO member states have said that 2011 is the year the country will finally sign up — after having started talks in 1993. "The only person who hasn't said it yet is Putin," said Anka Schild, an adviser on international relations at the lobby group BusinessEurope.

At a meeting last fall, the EU and Russia cleared up some of the main obstacles to Russia's WTO membership. They include Russia's high export duties on wood, which have pummeled Nordic paper makers in recent years, and royalties airlines have to pay when they fly over Siberia [en route to . The United States also made similar progress bilaterally. "Now it needs to be multilateralized," said Schild, because all 153 WTO members need to sign off on a newcomer.

One of the demands from foreign countries and companies is that Russia start changing its trade laws and rules on intellectual property now, rather than after it has secured entry into the WTO. Until then, businesses will remain skeptical of Russian promises. "We've heard this story before," Schild said of Russia's request for quick entry to the WTO.
Making concessions granted by Russia to the EU available to others as well is necessary in a multilateral arrangement like the WTO. For those who regularly fly between Europe and Asia, I find it interesting carriers still need to pay up for the right to traverse Russian (to be more accurate, Siberian) airspace as a holdover of Cold War-era dealmaking. An older WSJ article points out that this source of revenue is lucrative. What's more, proceeds go to the not-so-profitable national carrier Aeroflot. In effect, Lufthansa, KLM, etc. subsidize their erstwhile competitor. Strange but true:
Europe is trying to use Russia's bid to join the World Trade Organization to put a stop to the payments. Until now, Aeroflot has been able to play divide and conquer with foreign carriers. That's because when it comes to aviation, each of their governments deals separately with Moscow. But in WTO talks, all 15 European Union countries speak with one voice [this is a 2002 article, remember]. Their negotiators see the overflight charges as far more than just an aviation issue. For them it violates basic free-trade principles, and they say the practice has no place in the world trade club...

For years the full scope of the overflight system remained obscure. Aeroflot, which is 51% state owned, makes only oblique references to the payments in its annual financial disclosures, referring to them as "commercial agreements."
Returning to the present, Russia is also keen on wangling concessions from its interlocutors. The EU is its largest trading partner, and it is keen to hear more about the EU's plans to wean itself off Russian energy. (Maybe Russia's willingness to shut pipelines to Ukraine over political squabbles also feeds Western European fears.) We've also got continued EU insistence on discussing human rights, with Russia hitting back on the welfare of those of Russian descent living on EU soil:
But Russia has some demands, as well, and Putin comes to Brussels with 12 of his cabinet ministers — including those in charge of foreign affairs, investment and energy — who will push their points of view in meetings with their counterparts in the EU's executive Commission. "This will not be a meeting of the mutual admiration society," said Vladimir Chizov, Russia's ambassador to the EU. "I wouldn't exclude that on some issues, some discussions will not be very smooth."

EU Commission President Jose Manuel Barroso will bring up the bloc's concerns about human rights, the rule of law and democracy in Russia when he meets with Putin, a Commission spokesman said Wednesday. At the heart of those concerns is Russia's reluctance to investigate the killings of several journalists and lawyers who had been critical of the government as well as its support for Belarus, which the EU sees as the last authoritarian state on the continent.

The Russian government, meanwhile, complains the EU is not protecting the rights of ethnic Russians in the Baltic states. "The expectation of the EU is that as soon as a country joins it is immediately exempt from criticism. Unfortunately, double standards and biased approaches are quite often visible," Chizov said...

Russia wants better access to the EU for its companies. In the agricultural sector, for instance, only 14 Russian companies are certified to do business in the EU, while about 4,000 European firms work in Russia's agricultural sector, Chizov said.

Central to Russian fears about being squeezed out of the European market is its gas monopoly OAO Gazprom. Earlier this week, Gazprom's CEO, Alexei Miller, asked the EU to clarify rules in its new energy strategy, also known as the Third Energy Package, which aims to separate gas production from pipeline management to prevent one company from controlling the entire supply chain in a country.

Europe is Russia's most important market for gas, but Russia has been concerned about the European Union's plans to diversify its sources of supplies. Many EU countries, including all Baltic states, Slovakia and Finland, get all their gas from Russia, which in the past has cut off supplies amid disputes over pricing.
There is still much to discuss, obviously, before Russian WTO membership is even contemplated. In the meantime, Moscow's road to WTO headquarters in Geneva passes through Brussels via the European Commission.