#6 - JRL 2006-145 - JRL Home
Moscow Times
June 26, 2006
WTO Agreement Expected in Weeks
By Valeria Korchagina and Stephen Boykewich
Staff Writers

After a protracted, highly politicized struggle between Russia and the United States over Russia's bid to join the World Trade Organization, Russian negotiators and two people familiar with the U.S. position said a bilateral agreement could be just weeks away.

"I am willing to bet that the agreement will be signed right before, or during, the Group of Eight summit," said a source familiar with the U.S. negotiating stance. "It would be a victory for both presidents. It will be signed."

Over the weekend of July 15-17, President Vladimir Putin will host U.S. President George W. Bush and other world leaders at the G8 summit in St. Petersburg. From all indications, the Kremlin would like to mark the event by announcing that another major international organization had opened the door to Russian membership.

Bush has also indicated he wants Russia in the WTO sooner rather than later -- a position reiterated by outgoing U.S. Treasury Secretary John Snow at a G8 finance ministers' meeting in St. Petersburg earlier this month. Bush still faces stiff resistance, however, from an increasingly rebellious U.S. Congress at a time when his approval ratings are at an all-time low.

A U.S. diplomat, speaking on condition of anonymity, said a deal could happen sometime in July.

Russian officials expressed similar optimism.

"The negotiations are progressing and we are very optimistic at this point," an Economic Development and Trade Ministry spokeswoman said Thursday.

Sources in the ministry also said the talks had been very intense, with Economic Development and Trade Minister German Gref and some of his staff regularly traveling abroad for talks with U.S. officials.

Russia appears, at least partially, to be responding without much fuss to key U.S. demands .

Signing a bilateral agreement with the United States remains the last obstacle for Russia before it can begin the formal part of joining the WTO by signing a multilateral agreement with the WTO's 149 member countries.

Russia has been seeking to join the WTO for the last decade.

The United States has long insisted Russia strengthen protection of intellectual property rights, as well as make concessions in the agricultural and financial sectors.

Some results appear to be visible in the first sphere. The government recently adopted a new strict licensing procedure for businesses involved in publishing audio and video products. Further legal changes to the copyright laws are also due to be submitted to the State Duma soon.

"There has certainly been some progress on the IPR front," the U.S. diplomat said.

Progress may also have been made on agriculture, where the dispute between the two sides was revived a few months ago after apparently being resolved.

In a March 29 speech to the Russian Union of Industrialists and Entrepreneurs, Putin said the United States was "artificially pushing back the negotiating process" by submitting a list of areas for "additional negotiations."

U.S. officials, meanwhile, said the dispute was over agriculture import rules that the United States considered unduly harsh. Over the years, a particularly sensitive issue has been the importation of chickens into Russia, which is the United States' biggest poultry export market.

In an apparent concession, Prime Minister Mikhail Fradkov recently ruled that Russian food safety officials had the option of applying international standards to agricultural imports rather than use the stricter domestic standards.

"That was something the Americans had been pressing the Russians to do for months, and they finally did it three or four weeks ago," said Andrew Somers, the president of the American Chamber of Commerce in Russia.

Though it remains unclear which standards Russian inspectors will ultimately use, "the fact is it shows movement by the government" toward addressing U.S. concerns, Somers said.

The financial sector, however, appears to be an area in which Russia has no desire to back down. The United States is demanding Russia drop protective measures that bar foreign banks and insurance companies from operating wholly owned branches. Russia maintains its still young and fragile financial sector would be devastated if foreign competitors were allowed into the country without barriers.

"There are certainly some concrete issues that are yet to be resolved," Arkady Dvorkovich, an economic adviser to Putin, said on the sidelines of an investors conference in Moscow last week. "The American side is insisting on direct access to the Russian market for banks and insurance companies through [wholly owned] branches. We are against it, strictly against it."

"At least the overwhelming majority of American banks say they don't need it either," Dvorkovich added.

Sources familiar with the mood of American financial institutions confirmed this.

Dvorkovich dismissed media speculation that bilateral negotiations had been soured by a scandal involving Russian customs officials' confiscation of a large shipment of Motorola cell phones, which later turned up on the black market.

The scandal "is not connected to the WTO," Dvorkovich said. "In general we try to separate the routine issues from the strategic ones that are related to the WTO agenda."

It may be that both sides have now managed to put behind them some of the flashpoints that soured the atmosphere in recent months in the interests of concluding the WTO deal.

Two such notable incidents were when a senior Russian official drew a link between the WTO deal and U.S. companies' participation in the Shtokman gas project, and when U.S. Vice President Dick Cheney strongly criticized Russia over democracy at a summit in Lithuania.

U.S. domestic politics, however, remain a significant stumbling block -- regardless of Bush's attitude toward Russia joining the WTO.

Though Congress has no direct legal control over the U.S. government's decision to sign a bilateral agreement with Russia, its vote will become crucial following Bush's signing, when it would have to vote on the removal of the Jackson-Vannik amendment, a key irritant in Russian-U.S. relations.

The amendment was enacted in 1975 as a tool to soften the Soviet Union's tough emigration policies, particularly toward Jewish dissidents, with the threat of trade sanctions. Since 1992, the amendment has been suspended annually after a review conducted at the request of the U.S. president. The existence of the amendment, however, is incompatible with WTO rules, which oblige member nations to extend permanent normal trade relations, or PNTR, to all other members.

The problem is that Russia "has no friends in the Congress or Senate," said Viktor Kremenyuk, assistant director of the USA and Canada Institute, a Moscow think tank.

"There are those who at best don't care, and then there are enemies," Kremenyuk said. "We don't have any lobbying power there."

Anti-Russian sentiments in the U.S. Congress have left Bush -- whose previously unshakable Republican base is softening in the run-up to Congressional elections in November -- with a dilemma.

"If Jackson-Vannik stays, the United States itself would be in violation of the WTO rules" if it signed off on Russia's WTO bid, then refused it PNTR status, one source familiar with the situation said.

"The position of the U.S. government depends on the position of the Congress," Dvorkovich said. "As [mid-term] elections approach, [Russia's WTO bid] is being brought into play. It may be that it's not exactly popular to display too much sympathy toward Russia right now."

The reasons for the anti-Russian sentiment in Congress go well beyond trade, said Wilson Center scholar and former U.S. Associate Deputy Treasury Secretary Kent Hughes.

When Congress next considers lifting Jackson-Vannik, "you can expect that there will be discussion of freedom of the press, religious rights and movement toward democracy in Russia," as well as the ongoing dispute between Russia and Ukraine over gas prices, Hughes said. "All that's bound to come up."

Still, AmCham's Somers said he thought Bush had a strong incentive to forge ahead.

"I think Bush will take some risk with Congress, and it's motivated in part because at these summit meetings, presidents want to be able to deliver something," Somers said.

"From a presidential point of view," signing off on the bilateral agreement may also help speed up a major Russian deal with Boeing and clear the way for Chevron and ConocoPhillips to participate in Shtokman, Somers said.

"WTO could be a double win for Bush by releasing some of these mega-deals that have been on hold," he said. "The Russians are basically saying, 'Before we go ahead with these deals, are we part of the club?'"