Moscow Times | Wednesday, July 14, 2004
WTO Bid Timed to American Election
By Greg Walters
WASHINGTON — Moscow is pushing hard to hammer out a deal with Washington on WTO membership before the U.S. presidential election in November, Russian negotiators said.
"It may be possible to complete bilateral negotiations with our American partners in two or three months’ time," said Yury Afanasyev, the chief trade officer at Russia’s permanent mission to the United Nations in Switzerland.
"The understanding of both parties is that the sooner we finish it, the better," Afanasyev said by telephone from Geneva. "We are intensifying the whole process," he said.
Russia, the largest economy outside the World Trade Organization, has been seeking to join the WTO for more than a decade, but a renewed drive by President Vladimir Putin’s administration has brought the country to the verge of membership. Russia cleared its biggest hurdle in May, when the European Union, its top trading partner, agreed to terms, paving the way for bilateral deals with remaining holdouts, the most important of which is the United States.
The United States, however, is still concerned about several issues, including agricultural policy, tariffs on agricultural products and aircraft, and access to the insurance market.
Maxim Medvedkov, Russia’s top negotiator in WTO talks with the United States, said reaching an agreement before the U.S. presidential election would be preferable, since changes in power tend to slow down all international negotiations.
"Elections in a state lead to — I will avoid the word ’freeze,’ but something like that — in the government," Medvedkov said by telephone earlier this month, also from Geneva. "They need time to reorganize. Which is understandable. It’s nobody’s fault," he said.
Striking a deal with Washington within two months, however, might be too optimistic a goal, Medvedkov said.
"The fact that we have signed an agreement with the EU pleases our partners — now they think they can put forward tougher demands," he told a conference in Moscow last week.
Richard Mills, a spokesman for U.S. Trade Representative Robert Zoellick, agreed that talks have accelerated in recent weeks but he declined to predict how long they would take, saying the time frame is up to Russian negotiators.
"They are determining the pace," Mills said. "These talks have been on-again, off-again from the Russian side. We’re pleased that they appear to be on again," Mills said.
Andrew Somers, president of the American Chamber of Commerce in Russia, said the Kremlin might be looking to parlay Putin’s personal relationship with U.S. President George W. Bush into an advantageous WTO deal.
"Both administrations have stated that their relationship on key issues, such as terrorism, is very, very strong," Somers said. "I think that gives a positive glow to other aspects of their relationship, including WTO negotiations."
Afanasyev said that despite a few unresolved issues, the two sides are closer to agreements in areas widely believed to be major stumbling blocks, such as protecting intellectual property rights.
The prevalence of piracy in Russia — where American movies can be bought on DVD for as little as $4, often before they are officially released — has been a major bone of contention. The International Intellectual Property Alliance, a group of trade associations and companies representing U.S. copyright industries, said piracy in Russia cost its members $1.13 billion in revenues last year.
According to The Associated Press, Washington has given Moscow a few more months to get tough with music and video pirates or face possible trade sanctions of nearly $500 million.
Afanasyev said that since Russia has all the necessary anti-piracy legislation in place, "now we are talking only about implementation." He added that at last month’s G8 summit, Putin gave Bush his personal assurance that property rights would be enforced.
"[Intellectual property rights] are not something that is preventing the progress of our negotiations," Afanasyev said.
Somers said that agreeing to enforce laws that already exist can be tricky to quantify in negotiations. But Russia could win points on piracy by shifting its focus to the producers, rather than the vendors or distributors, and shutting down factories known to produce illicit CDs, DVDs and CD-ROMs, he said.
Another major debate is over granting foreign companies better access to Russia’s banking and insurance sectors, Afanasyev said.
In particular, he said, U.S. negotiators have expressed displeasure at a law that limits the amount of foreign capital in Russia’s insurance sector to 25 percent.
Regarding the banking industry, Afanasyev said, "Progress is quite good," although neither he nor Medvedkov would give details.
Analysts said that the United States has been lobbying for an agreement to allow foreign banks to open branches in Russia, instead of subsidiaries, as is currently required by Russian law.
"The Central Bank does not want to have foreign branches in Russia, full stop," said Richard Hainsworth, a banking analyst at Renaissance Capital. "They are much more difficult to regulate. What it wants is 100 percent-owned subsidiaries that can be regulated as Russian entities."
Hainsworth said Russia probably would not budge on the branch issue. "As soon as you have branches accepted, then what is to prevent there being banks registered in Gibraltar or the Cayman Islands ?" he said. "I don’t think that branches will be allowed."
Afanasyev said tariffs were also an issue, although he declined to name which ones specifically. Boeing, the U.S. aerospace giant, which has an engineering center in Moscow, has lobbied Russia for years to reduce the prohibitive tariffs and taxes it imposes on imported airplanes. Russia has a 20 percent tariff on imported aircraft, compounded by an 18 percent value-added tax.
"Boeing has great difficulty trying to sell aircraft here because of the government tariffs, which are, we think, protectionist," Somers said.
Technically, the aircraft issue is not part of the accession talks, so any agreement would be optional. Even so, Medvedkov said Russia would not compromise its protectionist policies for its aircraft industry. "We are saying no way for zero duty," he said, "and no way to dropping all support."
But it is agriculture, Afanasyev said, that is the biggest sticking point with the United States, although discussions have been postponed until the WTO settles its own internal agricultural policy disputes.
The WTO has been gridlocked over common agriculture policy details.
"We prefer to wait and see how it will be resolved, and then correct our position," Afanasyev said. "I think that our American partners understand that."
The United States has led an effort to eliminate agricultural subsidies.
"The Russians have, I think, a pretty good argument that they should not be required to reduce their subsidies," Somers said. "But they have, in negotiations, insisted on [allowances for] huge subsidies, which the U.S. is opposing because it would hurt the overall strategy of eliminating agricultural subsidies."
Staff Writer Lyuba Pronina contributed to this report.