Russia’s WTO Accession, What does it mean?

           Tomorrow, leaders throughout Asia and the Pacific Rim, including the United States, will congregate in Vladivostok to take part the Asia-Pacific Economic Cooperation summit. In an article President Putin wrote for The Wall Street Journal Asian Edition he states, “Membership in the WTO gives us the ability to participate more broadly in setting the global trade rules—an issue that has been a focus of attention for APEC in the past. I am confident that Russia's fresh outlook on the objective difficulties and internal contradictions of the WTO will be useful.” Induction to the WTO is certainly a major milestone for free trade globally but questions remain as to what it means for the world’s ninth largest economy and the global community. I will begin to examine this issue by laying out a brief history, structure and legal framework of the organization.

            The World Trade Organization stems from economic multilateral agreements set forth in the General Agreement on Trade and Tariffs (GATT). The agreement drafted in Geneva in 1947 to provide rules for world trade and to create a third institution from the “Bretton Woods” institution. Its role was to handle trade aspects of international economic cooperation. The agreement is designed to provide, as much as possible, a systemic flow of international commerce. By the 1980’s the world economy had outgrown the agreement and the Uruguay rounds begin the formulation of what is now the WTO. The organization launched in 1995.

            The preamble of the WTO states that its purpose is to raise the world standard of living and expand the production of trade in goods and services. Simultaneously the agreement recognizes the need to use the world’s resources in an optimal manner with the objective of sustainable development as well as protection of the environment. Article II of the agreement writes that the WTO will provide an institutional framework for conducting trade between its members in subjects related to agreements. Upon ratification or accession, each government will be bound to the 18 agreements and legal instruments entitled the Multilateral Trade Agreements (MTA). Of these agreements, the one that perhaps most exciting to prospective foreign investors to Russia is the Trade Policy Review Mechanism (TPRM). This provides enhanced transparency involving the trade practices of member governments.   

            The process of accession, which took Russia 18years, involves a two-step process. First, a perspective member must negotiate bilaterally and make concessions with each WTO member that seeks to do so. The bilateral agreements do not have to be identical as different nations have various interests. Second, the prospective member must negotiate with all the WTO members in their joint capacity. This process evaluates the applicants’ current trade regime and the current minimum requirements of the WTO and GATT. At this point, the nation may want to request a developing or least developed economy status, as China did.

            The WTO performs various functions, among them is overseeing, implementing as well as the operation of the agreement. It also provides a forum for dispute resolution. One crucial element that is currently stalling the potential benefits of US-Russia trade is the Most Favored Nation (MNF) rule. This requires WTO members to treat one another equally. Currently, US. legislation entitled the Jackson-Vanik amendment places restrictions on Russia due to cold war human rights violations. This means that the Russian government is free to discriminate against American suppliers. This puts US companies at a disadvantage to its European and Asian counterparts. Repeal of the amendment is required for Russia’s WTO membership to be of any benefit to US businesses and its economy.

            Russia WTO membership will undoubtedly reap prosperity for itself and the global economy but its potential externalities are yet to be determined. This weekend’s summit in Vladivostok will provide Putin and other member a forum to discuss and consider the realities of this major and complex international development. Only time will tell how this will shift the world’s political and economic landscape.    

Sources referred to in this post:

International Trade Law: Interdisciplinary Theory and Practice, 3^rd edition. Raj Bahala

International Law, 6^th edition. Mark Weston Janis.

Vladimir Putin: “An Asia-Pacific Growth Agenda” http://online.wsj.com/article/SB10000872396390443847404577629312716242648.html

“Understanding the WTO”

http://www.wto.org/english/thewto_e/whatis_e/tif_e/tif_e.htm

Dina Gusovsky: “Russia joins the WTO: Now what for U.S.-Russia trade relations?”

http://www.examiner.com/article/russia-joins-the-wto-now-what-for-u-s-russia-trade-relations