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U.S. Gives Green Light to WTO Bid

The United States and Russia announced Friday that they had agreed in principle on Russia's accession to the World Trade Organization, a breakthrough that appears to end 13 years of politically charged and sometimes bitter wrangling.

The two sides said they were hammering out the details in time to sign the landmark deal on Nov. 18, when U.S. President George W. Bush and President Vladimir Putin meet in Hanoi, Vietnam, at an Asia-Pacific Economic Cooperation forum.

The U.S. Trade Representative's office hailed the agreement as a major step toward locking its former Cold War rival into a global set of trading rules, but said negotiations were still ongoing with Congress, where the deal is expected to face a rough ride.

"We have an agreement in principle and are finalizing the details," U.S. Trade Representative Susan Schwab said in a statement. "We are also holding consultations with the Congress."

The bilateral agreement would lift the biggest remaining obstacle to Russia's entry to the global trading bloc, a long-stated goal of Putin's presidency. Failure to to reach agreement with the United States has nettled Russia, the last major trading nation outside the bloc, as other former Soviet republics won quick deals.

But fast accession is far from assured. Russia still needs to reach bilateral agreements with three other WTO members: Costa Rica, Georgia and Moldova. Georgia and Moldova are chafing at Russian trade embargos and could use WTO membership as leverage in negotiations.

After those agreements, Russia must hold a final stage of talks with all 149 WTO members, a process during which any country -- including the United States -- could demand additional concessions. Economic Development and Trade Minister German Gref said Friday that this stage could take six months.

The U.S. Congress, which is being taken over by Democrats for the first time in 12 years, looks likely to put up a fight of its own. While lawmakers cannot block the deal, they are required under WTO rules to normalize trading ties with Russia by lifting a Soviet-era trade sanction, the Jackson-Vanik amendment, and granting Russia the status of Permanent Normal Trading Partner.

Senator Max Baucus, a Democrat who is expected to head the Finance Committee, which has jurisdiction over all trade issues, cautioned Friday that Russia still had to address problems with piracy and U.S. meat imports before Congress could endorse its WTO membership.

U.S. lawmakers could also call into question Russian support of Iran's nuclear program, democracy under Putin, and accusations that Putin is using Russia's energy wealth to reassert its might in other former Soviet republics, politicians and analysts say.

Bush will need to make a convincing case that he has negotiated the strongest possible agreement, said Andrew Somers, president of the American Chamber of Commerce in Moscow, who played a key role in lobbying for the agreement. "It's not going to be that easy because there's a lot of ignorance and hostility in Congress about Russia," he said. "This is still a political issue."

The timing of the WTO announcement prompted speculation that the United States could be seeking concessions from Russia over Iran. Putin on Saturday hosted Iran's top nuclear negotiator, Ali Larijani, and other Iranian officials for talks.

"There is no explicit linkage. But it's also clear that for the [Bush] administration to go to the House, they need to make the argument that Russia is a responsible partner," said Dmitri Simes, president of the Nixon Center in Washington. "They need to have something to show to justify the agreement."

Washington and Moscow had been widely expected to reach agreement when Putin hosted the Group of Eight summit in St. Petersburg in July. But despite a major push, the deal foundered on what seemed to be minor details: a last-minute Russian request for major veterinary inspections of U.S. meat and poultry farms and continued U.S. concerns over intellectual property rights. The failure was a disappointment amid Putin's otherwise successful attempts to use the summit to boost Russia's prestige.

The Bush administration may have been distracted over the summer by its preparations for last week's congressional elections, Somers said. "In any country, controversial issues are usually fudged if elections are coming up. It may have been considered safer to do it after the elections," he said. Still, Russia has moved fast to clear up remaining concerns in recent months, he said.

Russian veterinary inspectors completed their checks of U.S. farms, while Putin's government moved to clamp down on intellectual property rights. For the first time, it began a serious legal attack on pharmaceuticals baron Vladimir Bryntsalov, who is accused of counterfeiting medicine. "Russia took Bryntsalov out of action," Somers said. "He had been a major block."

Last week, the State Duma passed in a second reading a bill safeguarding intellectual property rights, part four of the Civil Code. And Microsoft chairman Bill Gates gave his blessing to Russia's fight against piracy when he visited Moscow last week.

According to the terms of the bilateral agreement posted on the U.S. Trade Representative's web site, Russia appears to have made some key concessions in the financial services sector. It has passed a law allowing overall foreign ownership in the banking sector to climb from 25 percent to 50 percent. While Russia still appears to oppose the opening of branches of foreign banks, it has made a concession in the insurance industry, allowing foreign insurance companies to open up branches after an unspecified "transition period."

The immediate impact of WTO entry on Russia's petro-driven economy is likely to be minimal.

Most importantly, it will tie Russia closer to global standards on trade and force it to abide by global rules, said Roland Nash, chief strategist at Renaissance Capital. "Anything that brings Russia into international organizations has to be good for Russia and good for the rest of the world," he said.

"Not letting them in is counter-productive for the West," said Al Breach, chief strategist at UBS in Moscow. "The argument is a good one: By getting more involved in these things, you are more likely to be working according to best practice."

Putin's chief economic aide, Igor Shuvalov, has warned that foot-dragging over the WTO was strengthening the hand of the siloviki, a group of hard liners in the Kremlin.

Some investors expressed hope Friday that the WTO agreement would prompt Russia to rethink its decision last month to exclude foreign investors from the development of the Shtokman gas field. Before the G8 summit, Shuvalov had linked the WTO agreement with the chances of a U.S. company participating in a joint venture with Gazprom to develop the vast Arctic field.

Chevron, one of five foreign bidders for the project, applauded the news of the WTO agreement in a statement Friday. Chevron was among 14 U.S. organizations that sent an appeal to Bush and Putin on Oct. 24 to reach an agreement. The other signatories were Alcoa, Boeing, Cargill, Citigroup, ConocoPhillips, Dow Chemical, Ford Motors, General Electric, General Motors, International Paper, Procter & Gamble, Wrigley and the American Chamber of Commerce.

WTO Highlights

The U.S. Trade Representative's office provided the following details of an agreement in principle on Russia's accession to the World Trade Organization.

Agriculture

Resolves long-standing issues that have impeded U.S. agricultural exports of beef, pork, poultry, and products of biotechnology. These commitments take effect upon signature of the bilateral market access agreement.

Ensures a 2003 meat pact covering beef, pork and poultry trade will remain in force through 2009 and provides a WTO framework for post-2009 treatment of those products.

Contains Russian tariff reductions that will benefit U.S. farmers, ranchers, and food processors of wheat, corn, barley, apples, pears, grapes, raisins, almonds, walnuts, pistachio nuts, dairy, soybeans, soybean meal, soybean oil, pet food, pork, beef and poultry, among others, once Russia joins the WTO and the agreement goes into force.

Industrial Goods

Russia will cut tariffs on manufactured goods to an average of 8 percent. Industrial goods important to the U.S.-Russian commercial relationship will realize even larger tariff cuts. Sectors that will benefit from substantial tariff cuts include civil aircraft and parts, medical and scientific equipment, agriculture, power generation and construction equipment, information technology, and chemicals.

Russia will establish a much more transparent system for the import of electronic goods with encryption, a major U.S. export, which permits a simple one-time notification of many products and sets specific ground rules for granting licenses for products that require an import license. We will be working with the Russian side on the details of this system.

Services

Russia will provide improved market access for U.S. service suppliers in a broad range of important sectors, including audiovisual, construction, distribution, express delivery, engineering, environmental, financial, telecommunications, fixed satellite, and business services.

On banking and securities, Russia agreed to allow up to 100 percent foreign ownership of banks, broker dealers, and investment companies upon accession.

On insurance, Russia will allow foreign insurance companies to operate through subsidiaries, including 100 percent foreign-owned nonlife insurance companies, and branching after a transition period.

Russia retains the discretion to impose limits on new foreign direct investment in the banking and insurance sectors, if the ratio of foreign investment (excluding many investments) to total investment in the sector exceeds 50 percent.

Intellectual Property Rights

Russia agreed to a binding blueprint for actions to address piracy and counterfeiting and improve protection and enforcement of intellectual property rights before Russia completes its accession to the WTO.

Russia agreed to take specific actions, and to enact laws by specific dates, to fight optical disk piracy and Internet piracy, and work to enact laws by specific dates to protect pharmaceutical test data, establish tougher criminal penalties for IP crimes, strengthen border enforcement, and bring its IPR legislation into line with international norms. There are specific deadlines built into the agreement.


(The Moscow Times 13.xi.06)

 
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