4 October 2013

Russia in the WTO: A One-Year Assessment

Since Russia joined the World Trade Organization (WTO) in late August 2012, the past year has witnessed varying levels of compliance with the country’s WTO agreement. Immediately following the one-year mark in September 2013, Russia demonstrated additional forward movement by joining the Information Technology Agreement (ITA) and reducing a large number of tariffs on other goods.
Areas of Progress


On September 13, 2013, Russia joined the Committee of Participants in the Expansion of Trade in Information Technology Products, otherwise known as the Information Technology Agreement (ITA). The ITA is a WTO agreement that strives to eliminate tariffs on a broad range of IT products including duties on computers, telecommunications products, manufacturing equipment, and data storage media and software. Before joining the agreement, Russia agreed to decrease its tariffs on IT products from 5.4% to zero in a series of equal rate reductions. This reduction in tariffs has the potential to open up Russia’s growing IT market, which stands to double in size from $6.3 billion in 2012 to $12.8 billion by 2016. 


In order to accommodate Russia’s WTO commitments, on September 1 the Customs Union (comprised of Russia, Belarus and Kazakhstan) also reduced tariffs on roughly 5,100 products (almost half of the total product lines). The average import tariff decreased from 9.6% to 7.5%-7.8%, while most products witnessed tariff reductions of 1-3%. The tariff reductions apply to a wide range of products such as fish, pastries, exotic fruits, raw materials for juice production, washing machines, tractors, tropical oils, and some types of fabrics and garments. The Eurasian Economic Commission also announced that the compound tariff rate (a combination of a fixed amount and an amount based on the value of the goods) will be replaced by an ad valorem rate (a percentage of the customs value of goods).


Government procurement is another area where Russia has made progress in the past year.  In May 2013, Russia became an observer to the WTO Government Procurement Agreement (GPA), which regulates the government procurement of goods and services based on the principles of openness, transparency and non-discrimination.  Prior to joining the WTO, Russia had agreed to begin GPA accession negotiations within four years of its accession. In April 2013, President Vladimir Putin signed the federal law “On the Contract System in State and Municipal Procurement of Goods, Works and Services” in order to signal Russia’s intention to join the GPA.


Areas for Improvement 


Despite this progress on WTO compliance, Russia has also raised international concern over its preferential treatment of domestic industries. For example, in July 2013 the United States joined the European Union in filing an official WTO complaint regarding Russia’s recycling fee on automobile imports (introduced in 2012 partly to offset negotiated tariff reductions). This fee still does not apply to domestic cars (despite the introduction of legislative amendments in May that would apply the fee equally regardless of origin), and is viewed as a hidden subsidy to stimulate domestic car manufacturing and sales.


International pharmaceutical companies have also accused the Russian government of domestic favoritism, as the foreign drug companies are not permitted to make annual adjustments to the price of drugs included in Russia’s Essential Drugs List, a restriction not faced by domestic firms.  President Putin noted on October 2 that the Russian government is planning additional protectionist measures in order to boost local manufacturers. Putin added, however, that the measures would be consistent with WTO rules.


The agricultural sector has also remained an area of contention throughout Russia’s WTO accession process. In February 2013, Russian Prime Minister Dmitry Medvedev said that, notwithstanding Russia’s WTO membership, the Russian government would continue to support the domestic agricultural industry. More specific was a promise by Nikolai Fyodorov, Russia’s Minister of Agriculture, to increase farm subsidies to 250 billion rubles ($7.6 billion) annually in the next few years. In addition to subsidies, the issue of food inspection equivalency, as well as the February ban on the import of U.S. meat containing traces of ractopamine, remains a major issue of concern among foreign agricultural companies.
 
IP Industry


The protection of intellectual property is an area in which Russia’s record on fulfilling accession obligations is mixed. Despite the recent enactment of an anti-piracy law and its pending amendments, Russia still lacks a designated framework for the protection of intellectual property as well as a means to enforce the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  The February 2013 opening of a specialized intellectual property court was seen as a positive step toward enforcing the TRIPS agreement, which creates international (WTO) standards for intellectual property protection.


On September 17, 2013, amendments were proposed to expand the scope of Russia’s anti-piracy bill. This draft legislation goes beyond the blacklisting of websites that allegedly contain pirated television shows and movies to block websites that contain any copyright-infringing material (e.g., books, music, software, etc.).
           
The Year Ahead


Now in its second year of WTO membership, Russian officials are clearly indicating that they plan to use WTO mechanisms to their trade and economic advantage. In September, Russian Minister of Economic Development Alexei Ulyukaev said that Russia will use its membership “as an instrument to protect the interests of our producers and exporters,” and he went on to note that Russia is prepared to work actively to “lift the restrictions that are currently in force against Russia and Russian companies.”