WTO admission could be a casualty of Georgia invasion


Gas guzzlers rule the road, and General Motors is making huge profit. Sales of Coca-Cola, Pepsi, Campbell Soup and other consumer products are growing rapidly.

Heavy equipment manufacturers such as Caterpillar are enjoying booming business.

American Airlines just launched a new flight.

The U.S. in the good old days before oil prices shot up? No, Russia during today’s oil and gas boom.

With so much attention focused on the erosion of democracy under Russian presidents Vladimir Putin and, now, Dmitry Medvedev, some U.S. pundits are warning that a “new cold war” could be brewing between the U.S. and newly resurgent Russia, whose economy has been fortified by sky-high prices for its oil and gas.

But U.S. companies that do business in Russia see growing opportunities in the Russian market, especially if Russia can join the World Trade Organization. Prior to Russia’s invasion of Georgia on Aug. 7, it was considered likely that Russia would become a member, perhaps by the end of 2008.

Now, however, all bets are off. In remarks prepared for delivery on Sept. 16, Secretary of State Condoleezza Rice said, “Russia’s bid to join the World Trade Organization is now in question.”

Two days later, however, the WTO working group on Russia’s accession decided to resume talks on Nov. 3, according to a report by the Russian News and Information Agency Novosti. Russia started WTO accession talks in 1995.

Russia’s top negotiator in the WTO talks, Maxim Medvedkov, said Russia should press ahead with negotiations and not postpone its accession to the world trade club.

“A financial crisis is now developing worldwide. It may spread to commodity markets. As is frequently the case, countries sharply step up protectionist measures in such situations. If we don’t join the WTO, other countries will not play by the rules against us,” Medvedkov said. “That is why I don’t believe we should postpone this issue.”

But Medvedkov also was quoted as saying, “In the short term, without the WTO, we will not die and might even gain something.”

U.S. exports to Russia grew 56 percent last year, reaching $7.4 billion, and are expected to grow nearly 60 percent this year, according to the U.S.-Russia Business Council. U.S. imports from Russia were far higher, registering $19.4 billion last year, but the gap is narrowing, as U.S. imports from Russia declined 2 percent last year. Russia is the 20th-largest export market for U.S. goods, but it could easily move up the charts.

Russia’s economy is now the world’s eighth-largest, with a gross domestic product of more than $1.3 trillion. Despite the huge gap between the very rich and the very poor, nearly 25 percent of Russia’s population is in the middle class, according to Randi Levinas, executive vice president of the U.S.-Russia Business Council.

“For many U.S. companies, Russia is the fastest-growing market; the whole place is buzzing. All of our companies are bullish on the Russia market,” Levinas said. Investment bank Goldman Sachs projected recently that Russia will double its GDP to about $3 trillion by 2020.

Even without the benefits of WTO membership, Russia has become Europe’s largest automotive market, with 1.65 million cars sold in the first half of this year, compared with 1.63 million cars in Germany, according to PriceWaterhouseCoopers. During the same period, Russian car imports jumped 54 percent year-over-year to 785,000 vehicles. Nearly every major foreign automaker now has a factory or joint venture in Russia, including Mitsubishi Motors and Peugeot Citroen, which recently began work on a $732 million plant near Moscow, and Toyota, which assembles the Camry in Russia. The PriceWaterhouse report estimates that Russia alone will account for 20 percent of all global growth in automotive sales through 2015.

GM, which recently reported a $15.5 billion worldwide loss for the second quarter, expects to sell 400,000 cars in Russia this year, up from its previous forecasts of 300,000. GM invested $300 million in its plant outside St. Petersburg last year, and plans to raise the level of local production to 30 percent by 2010.

Coca-Cola has invested $1.8 billion in Russia, and expects that total to reach $3 billion within the next three to five years. Then there’s the fresh fruit: Last spring, the New York Apple Association sent 10,000 cartons of apples to Russia, a major importer of that commodity.

U.S. companies also are taking advantage of the strong demand for equipment used in Russia’s booming oil and gas, mining, power generation and infrastructure sectors.

Caterpillar, which has had an office in Russia for 35 years, recently expanded its work force to about 1,000 in Russia, where it manufactures components at a facility near St. Petersburg. Caterpillar recently announced plans to begin assembling hydraulic excavators in the country for the Russian market.

“Caterpillar regards Russia and the CIS states (of the former Soviet Union) as a significant growth opportunity,” said Rachel Potts, a Caterpillar spokeswoman.

Levinas said Russian accession to the WTO is important for several reasons. First, Russia will finally have a seat at the WTO negotiating table, and that should enhance its willingness to make its regulatory regime more transparent and compliant with international norms, such as TRIPS, the WTO’s intellectual-property agreement.

WTO accession “is not a silver bullet,” Levinas said, but it will help because “the WTO is about transparency in rule-making,” and it will gradually become easier for foreign companies in Russia to understand the subtleties of new rules, and participate in public commentary periods before they are enacted.

“Accession to the World Trade Organization requires a commitment to managing economic and trade relations with other WTO members according to a rules-based system of regulations and procedures designed to promote fairness, openness and transparency,” Potts added. “Despite disagreements between the U.S. and some other WTO members, in virtually all instances, accession to the WTO has resulted in changes in domestic policy and procedures that have created more investment and trade opportunities for companies like Caterpillar.”

What kinds of barriers remain? According to the Office of the U.S. Trade Representative, Russia continues to maintain significant import barriers, including tariffs and tariff-rate quotas; discriminatory and prohibitive charges and fees; and discriminatory licensing, registration, and certification regimes. Non-tariff barriers are frequently used to restrict foreign access to the Russian market. Many of these barriers have been addressed in the talks about Russia’s membership in the WTO.

Short-term, WTO accession also will mean a range of specific tariff reductions that have already been negotiated between the U.S. and Russia, but cannot take effect until Russia formally joins the WTO. In November 2006, the U.S. and Russia completed a bilateral agreement that will cut Russian tariffs on U.S. automobiles from 25 percent today to 15 percent, on some U.S. paper products from 15 percent to about  5 percent, and on medicines from 15 percent to about 5 percent. Russian tariffs also will drop below single digits for imports of U.S.-made aircraft parts and civil aircraft. Russia will reduce its import duties on scrap steel to one-third their current levels over five years. The Russians also will open their markets for frozen pork and U.S. beef.

Once Russia completes all of its multilateral negotiations for WTO accession, it will be eligible to join the WTO, whether or not the U.S. Congress extends Permanent Normal Trade Relations with Russia. However, congressional support for PNTR is important, Levinas said, because PNTR will determine whether U.S. companies and farmers will be able to take advantage of the terms of Russia’s WTO accession.

If Congress does not approve Permanent Normal Trade Relations, Russia still could get into the WTO, but “our commercial competitors gain, and U.S. firms and farmers are disadvantaged in a key emerging market,” Levinas said.

Still, gaining that approval will be immensely more difficult than it was before the invasion of Georgia. 

More information is available at
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