Russia, EU agree on WTO-membership terms

Moscow hosted the thirteenth Russia-EU summit late last week, which saw the sides sign a protocol on completing their talks on Russia's accession to the World Trade Organisation (WTO). Only six months ago this seemed almost impossible because Moscow and Brussels had huge differences, while the energy problem seemed insurmountable.

At that time, the EU was demanding that Russia abolish Gazprom's export monopoly and that it stipulate equal gas-transit rates for domestic and foreign producers via Russian territory. EU Trade Commissioner Pascal Lamy and Russia's Economic Development and Trade Minister German Gref exchanged tough statements. Russian President Vladimir Putin also exchanged pleasantries with Brussels, saying the EU position amounted to "arm-twisting" and let it be understood that Russia intended to retain control over Gazprom and the gas pipeline network.

Putin's demarche set the ball rolling, a senior official in the Russian government believes. The EU modified its negotiating position, after Putin called our partners "Euro-bureaucrats", who were preventing Russia from developing its market economy.

Experts also proved instrumental in facilitating Russia-EU talks on WTO-membership terms. When the talks all but became deadlocked last autumn, leading Russian and EU experts were called in to rectify the situation. They found a common language. The government source says that the Russian experts enabled their European colleagues to gain a better understanding of the situation, explaining the essence of Gazprom and Russia's fuel and energy network. They also explained why the state was so far reluctant to strip Gazprom of its export monopoly.

The aforementioned protocol merely formalises Russia's legally binding fuel and energy commitment. The government undertakes to create a favourable gas market, enabling producers to cover their expenses and make profits. However, this commitment does not deal with gas sales to the population and social-infrastructure facilities.

The Russian government also voiced some intentions in the gas sphere; for instance, domestic gas prices will reach $37-42 per every 1,000 cubic metres by 2006 and hit $49-52 by 2010. The government said that it had no intention of creating unnecessary obstacles impeding the construction of new gas transport facilities. Russia is ready to abide by its WTO commitments as regards the freedom of gas transits. Still Moscow believes this principle does not apply to gas pipelines, and that all pipeline issues should be settled in line with a special agreement. Talks on this issue are already being planned.

Moscow also managed to defend its positions on other important issues. The protocol stipulates the stage-by-stage liberalisation of Russia's export duties over a transitional period of two to three and up to seven years depending on the commodity categories. Export duties will then decline by a small margin - from 10.3% to about 8%. Moscow also defended its interests in such areas as the aircraft industry and the automotive industry; sectoral tariffs are to be just under their current level. Quotas will be introduced in the agro-industrial sector and during the admission of foreign financial institutions to the Russian market, but no direct subsidiaries of foreign loan agencies will operate in Russia.

The signing of the latest Russia-EU protocol is a tremendous success for Russia, which will facilitate Moscow's talks with the United States, Japan and China, members of the Russian government claim. Any country's negotiating positions are directly proportional to its commercial interests. Russia saw the EU as a heavyweight because it accounts for 55% of the country's foreign-trade turnover.

Russian-Japanese talks are also nearing completion, the senior source noted. The automotive industry is seen as the main issue by both countries. For its own part, the United States is concerned over the Russian aircraft industry's duties and free access to the Russian intellectual-property market, while China is fighting for textiles, footwear, furniture and some feedstock categories. But, most importantly, it wants to gain free access to the Russian labour market.

WTO regulations state expressly that any new country can only be admitted by consensus. This means that two-thirds of all WTO members should vote in Moscow's favour. In reality, though, the most important thing is to secure the agreement of the world's trade leaders. Therefore, one can say that the Russia-EU agreement is a giant step toward attaining this goal. So, as the government source predicted, one can expect that Russia will join the WTO in either 2005 or 2006.