Russia agreement with U.S. -- Closer to joining WTO

November 21, 2006

Russia and the U.S. signed a landmark trade agreement that paves the way for Russia WTO (World Trade Organization) membership. The agreement is wide-ranging, including reduction of tariffs on cars, increased foreign ownership of financial businesses, and protection of intellectual property rights.

The next steps for Russian WTO membership are for Russia to finalize bilateral deals with Costa Rica, Georgia and Moldova. Georgia announced this week that it will only approve Russia's bid to join the WTO if it is allowed to regain control of two customs posts in two Georgian regions administered by Russian-backed separatists.

Congress must also approve Permanent Normal Trade Relations (PNTR) with Russia before it can join the WTO. That means removing a Cold War-era trade restriction known as the Jackson-Vanik amendment that linked U.S. trade benefits to the emigration policies of communist countries.

Congress has already approved PNTR for Ukraine, which is hoping to join the WTO this year. If Ukraine becomes a WTO member before Russia, it will have leverage to insist on trade restrictions against Russia. Russia and Ukraine were in a dispute this year over the price of Russia's exports of natural gas, whose pipeline flows through Ukraine to Europe.

What the Russia WTO deal means:

Russia is a $4 billion export market for the U.S. in areas such as agriculture, aircraft, and information technology. The bilateral trade agreement, which is necessary for Russia WTO membership, will lower costs for Russian consumers for these products, and expand markets for the U.S. producers, thus lowering inflation for Russia and increasing GDP for the U.S.

Russia has relaxed their prior insistence on inspection of all meat products. Russia also allowed 100% U.S. ownership of financial services and insurance, through subsidiaries, which will allow the sophisticated U.S. financial services into Russia, and provide an additional market for U.S. banks.

Part of the benefit to Russia of its WTO membership is psychological, which is important to the Russian people and hence Putin's power. The Russia WTO membership sends a message to the world that Russia adheres to international trade rules, has eradicated socialism and is a legitimate global world power.

Action Steps :

Over time, the Russia WTO deal will help to lower prices in both the U.S. and Russia, and increase GDP. To make sure you benefit, maintain a good asset allocation in U.S. multinationals, especially agriculture and aviation sectors.

Source: VOA web site “U.S., Russia Sign Historic Trade Deals”, November 19, 2006; U.S. Trade Representative’s Office, “Factsheet on U.S. Russia WTO Bilateral Market Access Agreement”