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Russia-WTO: EU-Russia deal brings Russia a step closer to WTO membership

European Commission

Russia-WTO: EU-Russia deal brings Russia a step closer to WTO membership

Brussels, 21 May 2004

EU Trade Commissioner Pascal Lamy and the Russian Economy Development and Trade Minister German Gref have signed today the agreement concluding the bilateral market access negotiations for the accession of the Russian Federation to the WTO, in the presence of the European Commission President Romano Prodi, the President of the Russian Federation Vladimir Putin and the President of the European Council Irish Prime Minister Bertie Ahern.

Romano Prodi, President of the European Commission said: "Today the EU and Russia cement further their trade and economic relations. This deal brings Russia a step closer to the international trade family, the World Trade Organisation, where it belongs."

Key elements of the bilateral deal

The deal concluded today covers the commitments that the Russian Federation will undertake in goods and services once it accedes to the WTO. The average tariff level that Russia will not exceed is 7.6% for industrial goods, 11% for fishery products and 13% for agricultural goods, in addition to tariff rate quotas for fresh and frozen meat and poultry representing around 600 million euro per year (15% of total EU agricultural exports to Russia).

In services, Russia will be taking commitments in a large range of sectors including telecommunication, transport, financial services, postal and courier, construction, distribution, environmental, news agency, and tourism. Commitments include cross border provision of services and commercial establishment.

In addition, the agreement has solved a range of trade related energy questions, in particular on the question of the domestic price for industrial users of gas. This includes a commitment that the price of gas for industrial users covers costs, profits and investment needed for exploitation of new fields. Russian gas prices to industrial users would be gradually increased from the current $ 27-28 to between $37-42 by 2006 and $49-57 by 2010, which is in line with Russia’s own energy strategy. Increasing domestic energy prices will encourage a more efficient use of energy resources in Russia and it is thus mutually supportive of the Kyoto goals.

Finally, agreement was reached to revamp the system of charges currently applied to EU airlines overflying Siberia to make it cost based, transparent and non-discriminatory by 2013 at the latest phase.

WTO accession is likely to anchor Russia into an international rules-based trading system. It will enhance openness, transparency and predictability, which are key to attracting foreign investment and provides a foundation for improved economic governance.

WTO accession process

Following Russia’s application for WTO membership in 1993, the Working Party on the accession of the Russian Federation to the WTO was established on 16 June 1993. An accelerated programme of work of the Working Party was launched in 2003, focussing on a broad range of systemic issues related to Russia’s trade regime, including customs procedures, technical regulations, and intellectual property rights. This work is carried out at the multilateral level involving all WTO partners. The next meeting of the Working Party will take place in July 2004.

As part of the WTO accession process, Russia is negotiating bilateral market access deals with all interested WTO members. The EU being Russia’s largest trading partner, the EU-Russia bilateral agreement is a major step in the process of Russia’s WTO membership. Russia is currently conducting negotiations with the US, Japan, China, Canada, and Australia among others.

Once these bilateral negotiations have been concluded and the Working Party has completed its work on Russia’s trade regime, the Working Party will determine the terms of accession. These will appear in a report with a protocol of accession containing the specific market access commitments (in tariff and services schedules) of the Russian Federation.

Background: EU-Russia trade relations

The EU and Russia have a solid trade relationship , which has become stronger following EU enlargement . On the one hand, the EU is Russia’s main trading partner, accounting for above 50% of its overall trade. On the other hand, Russia is the EU’s fifth trading partner of the EU behind the US, Switzerland, China and Japan and accounting for around 5% of the EU’s overall trade.

Total trade in goods between the enlarged EU and Russia amounted to around euro 92 Billion in 2003. The pattern of bilateral trade reflects comparative advantages of the two economies, with fuel and primary products representing the bulk of Russian exports as opposed to capital and finished industrial and consumer goods imported from the EU. Russia now provides over 20% of the EU’s needs in imported fuel. A significant proportion of Russian goods entering the Community market benefits from the EU’s General System of Preferences (GSP), which lowers import duties below the most favoured nation rate.

The EU is also the main source of technology, know-how and investment for Russia. Trade in services , which represented around €10 billion in 2002, i.e. below 2% of the EU’s overall trade in services, retains great potential for growth and the dynamic services sector will undoubtedly be increasingly important to the trade relationship in the future. As regards foreign direct investment , companies from EU Member States are the major foreign investors in Russia. However, the EU outflows to Russia are still low, i.e. €2.2 billion in 2002, and remain far below its potential.

The Partnership and Co-operation Agreement (PCA) governs political, economic and cultural relations between the EU and Russia. It was signed in 1994 and entered into force on 1st December 1997. Under the terms of the PCA, Russia receives Most-Favoured-Nation (MFN) status, whereby no quantitative limitations are applied except on exports of certain steel products (which represent only 4% of bilateral trade). On 27 April, Russia agreed to extend the PCA to the ten new EU Member States from 1 May 2004. At the same time, the EU and Russia agreed on a Joint Statement addressing Russia’s concerns related to EU enlargement, in particular on tariffs, steel, trade defence, agriculture and veterinary issues, energy and transit of goods to/from Kaliningrad.

EU enlargement has simplified and enhanced access for Russian operators to the markets of the ten new EU Member States. Russia is well positioned to take advantage of the opportunities offered by EU enlargement.

This is also part of the rationale behind the Common Economic Space, which should contribute to anchor Russia in the European and to fully benefit from the recent EU enlargement. At the EU-Russia Summit of May 2001, the EU and Russia launched discussions on the establishment of a Common Economic Space. The main objective of this initiative, which covers essentially all trade and economic issues, is the elimination of trade barriers between the EU and Russia mostly through regulatory convergence. Indeed, regulatory convergence would allow economic agents to operate subject to common rules in a number of fields throughout the enlarged EU and Russia which represent a market of around 600 Million consumers.

The EU-Russia Summit on 21 May 2004 has discussed the next steps to develop the four Spaces launched at the EU-Russia Summit in St. Petersburg in May 2003, and notably the need to agree on an action plan on the Common Economic Space in the coming months.

 Fuente: DG Trade