On December 16, 2011, more than 18 years after Russia applied for World Trade Organization (WTO) membership, the WTO Ministerial Conference formally approved Russia’s terms of accession and extended the invitation to join the WTO. Although Russia’s accession saga is far from complete, it is expected that Russia will join the WTO in mid-2012. (To join, Russia’s legislature needs to ratify the WTO Accession Agreement, which the Russian government indicated will happen after the presidential election in May 2012).

What will Russia’s accession to the WTO mean for you and your business? There is no doubt that it will be a momentous event that could significantly change the trade relationships between Russia and other WTO members as well as cause significant change in Russia. The impact, extent and quality of changes will depend on the thousands of pages of commitments in different sectors of trade that current WTO Members extracted from Russia as the price of admission, and on their implementation. It also depends on your perspective.

If you are in a WTO Member Country

Residents of most WTO Member countries can look forward to enjoying significant concessions and liberalization of trade in goods and services that WTO Members negotiated during the accession process. All of Russia’s commitments are too lengthy to list and many require a careful analysis, A relatively short summary of these commitments can be found on the WTO accession website. Here we provide only the briefest summary of some of the most important commitments available to WTO Members (drawing on the WTO summary):

• Market access for goods: On average, the final legally binding tariff level (or “bound duty”) for importing goods into Russia will be 7.8 percent compared with a 2011 average of 10 percent for all products.
• The average bound duty for agriculture products will be 10.8 percent lower than the current average of 13.2 percent.
• The average bound duty for manufactured goods will be 7.3 percent vs. the 9.5 percent average today on manufactured imports.
• The average bound duty for chemicals will be 5.2 percent instead of the current applied tariff of 6.5 percent.
• The average bound duty for cars will be 12 percent compared to the current applied tariff of 15.5 percent.
• Final tariffs will be bound at zero for cotton and information technology (ITA) products (current applied tariff on ITA products is 5.4 percent).
• Tariff rate quotas (TRQs) would be applied to beef, pork, poultry and some whey products. Imports entering the market within the quota will face lower tariffs while higher duties will be applied to products imported outside the quota. Otherwise, quantitative restrictions on imports will be eliminated.

Further detail on Russia’s tariff concessions and tariff rate quotas is provided in a 1,000-plus page schedule of concessions.

• Non-tariff barriers to trade: Russia’s concessions on non-tariff trade barriers are perhaps the most significant commitments because these measures can often be applied in an arbitrary and bureaucratic way. They include the following commitments:
• From the date of accession, importers of alcohol, pharmaceuticals and some products with encryption technology would not need import licenses.
• All Sanitary and Phytosanitary (SPS) measures (which until now Russia frequently employed to restrict the access of poultry, pork, beef, and other food) will be developed and applied in accordance with the WTO Agreement.
• The Russian Federation will ensure that all legislation related to technical regulations, standards and conformity assessment procedures complies with the WTO Technical Barriers to Trade (TBT) Agreement.
• Mandatory requirements for telecommunication equipment used in public networks would be limited to the requirements contained in technical regulations adopted consistently with the Eurasian Economic Community and Custom Union agreements.
• The Russian Federation will regularly review its lists of products subject to obligatory certification or declaration of conformity, as well as all the technical regulations applied on its territory to ensure that they remained necessary to achieve the Federation’s objective, in accordance with the WTO TBT Agreement.
• Certified accreditation bodies would be replaced by a single national accreditation body no later than  June 30, 2012.

• Market access for services: The Russian Federation has made specific commitments on 11 services sectors and on 116 sub-sectors. These include commitments to eliminate foreign equity limits on telecommunications service providers, permit the establishment of foreign insurance company branches, allow foreign banks to open subsidiaries in Russia, allow transportation services on nondiscriminatory basis, permit distribution services by foreign-owned companies, and many other commitments. However, many commitments are subject to various limitations and phase-in periods detailed in a 73-page schedule of concessions.
• Protection of trade-related intellectual property:  Russia will fully apply the provisions of the WTO Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) including provisions for enforcement, without delay after its accession. The Russian government will continue to take actions against the operation of websites (with servers located in the Russian Federation) that promote illegal distribution of content protected by copyright or related rights.
• Export duties: Russia agreed to fix export duties for over 700 tariff lines, including certain products in the sectors of fish and crustaceans, mineral fuels and oils, raw hides and skins, wood, pulp and paper, and base metals.
• Subsidies: Russia will eliminate all export-contingent subsidies. The total trade-distorting agricultural support will not exceed USD 9 billion in 2012 and will be gradually reduced to USD 4.4 billion by 2018. The VAT exemption applied to certain domestic agricultural products would be eliminated upon accession.
• Trade-related investment measures: The Russian Federation will ensure that all laws, regulations and other measures related to the Agreement on Trade-Related Investment Measures would be consistent with the WTO provisions.
• Transparency: All legislation affecting trade in goods, services and intellectual property rights will be published promptly, consistent with WTO requirements. The Russian Federation will regularly update its official publications including websites and make these laws readily available to WTO members, individuals and enterprises.  No legislation affecting trade in goods, services or intellectual property rights will become effective prior to publication.

Perhaps most importantly, governments of WTO Member countries will be able to hold the government of Russia accountable for compliance with its WTO commitments through consultations and legal actions within the WTO’s Dispute Settlement Body. While DSB dispute settlement is not perfect and can take a long time, it has achieved remarkable successes in forcing even the world’s most powerful countries to modify their WTO-inconsistent policies.

If you are in the United States

At this time, it is not yet certain that American companies and individuals will be able to fully enjoy the benefits of Russia’s accession commitments and other bound duties in the near future. At issue is the Jackson-Vanik Amendment, a 1975 law enacted to encourage the Soviet Union to lift restrictions on the emigration of Jews. Although US presidents routinely grant annual waivers of the application of the Jackson-Vanik Amendment, it needs to be repealed with respect to Russia in order for Congress to grant Most Favored Nation (MFN) status to Russia. The MFN treatment is such an essential cornerstone of the WTO that a country that fails to grant it to a Member country is unable to enjoy the concessions of that Member country. Accordingly, upon WTO announcement of the completion of Russia’s accession talks, both Russia and the United States issued statements of non-application of concessions toward each other.

Although the Obama Administration has signaled commitment to graduating Russia from the Jackson-Vanik Amendment before Russia formally joins the WTO, currently it is highly uncertain whether an unconditional repeal of the law will be possible. Many members of Congress on both sides of the aisle have strong reservations about granting permanent normal trade relations to Russia. Some object to it on human rights grounds; others feel that Russia has not shown sufficient commitment to implementing its promises on protection of intellectual property and market access for agricultural goods; still others reflect the anti-trade mood of Americans who blame much of the country’s economic turmoil on China’s accession to the WTO in 2001. Thus, a political fight over grant of MFN status to Russia seems unavoidable. A possible permanent bilateral review mechanism to which  US Trade Representative Ron Kirk recently hinted could make the repeal of the Jackson-Vanik amendment more likely, but the politics will be further complicated by US presidential election later this year.

Until the issue of Russian’s MFN status is resolved, US companies and individuals will enjoy only Russia’s tariff concessions.

If you are in Russia

Russian companies and individuals could see many frightening and exciting changes as a result of Russia’s accession to the WTO. On one hand, the reduction in the levels of import duties and the elimination of certain non-tariff barriers to trade may result in increased competition from other WTO Member’s companies in the domestic market. The gradual reduction of agricultural subsidies and elimination of export subsidies will also affect the competitiveness of the agricultural sector and some industries. On the other hand, Russia’s consumers will benefit greatly from access to more competitive products and services. Russia’s exporters and service providers will benefit from liberalized access to the markets of 153 current WTO Members. Moreover, Russia, like every other WTO Member, will be able to take advantage of the DSB legal process to enforce other countries’ commitments. The overall effect of WTO accession will be that Russia will become more integrated into the global markets and world trade. History and economic research confirm that on balance the benefits of being a member of the main global trade club outweigh the problems associated with it.

Should you have any questions regarding this Alert, please contact members of Arent Fox’s International Trade Group, or the Arent Fox attorney who handles your matters.