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Historical and Current Barriers to Russia's WTO Membership

JURIST Guest Columnist Anna Heatherington, an LL.M. Candidate at the University of Pittsburgh School of Law, is the author of the fourth entry in a 14-part series from the LL.M. students of the University of Pittsburgh School of Law. Heatherington analyzes the barriers to Russia's membership in the World Trade Organization...

After nearly 18 years of negotiation, the Ministerial Conference of the World Trade Organization (WTO) in Geneva, confirmed the Accession Package for Russia's WTO membership. All that remains is for the Russian State Duma, the lower chamber of the legislative body, to ratify the protocol within 220 days, and Russia will become a full WTO member. It is expected that the internal legislative approval will be completed during the summer of 2012, and the ratification will come into effect as of January 1, 2013.

The Russian Federation is the largest industrialized economy not in the WTO. In basic economic terms, its USD 1.6 trillion economy is the 11th largest in the world. Speaking strictly of BRIC countries (Brazil, Russia, India and China), Russia's middle class, as represented by per capita GDP, is the wealthiest.

From a US perspective, demand for US goods in Russia includes goods in the agricultural, services, capital equipment and information technology (IT) sectors. Though the amount of US direct investment is low, it has more than doubled in the last ten years and major US companies including Boeing, Pepsi and GM have made significant investments in the Russian market, one of the most profitable in terms of emerging market economies. Boeing alone has invested USD 6 billion in Russia, and plans to invest another USD 20 billion. Boeing's investments will produce almost a thousand new aircrafts over the next 20 years to replace its aging fleet.

Both the Russian Federation and the US stand to benefit from the lowering of trade barriers and, in the case of IT and high-tech products, a complete elimination of duties. The US stands to gain more because Russia will have to reduce major subsidies on agricultural products and reduce import duties on consumer, healthcare and manufacturing products.

Within the Russian Federation, opposition to WTO membership exists primarily from the non-energy sectors, and especially from the agricultural sector, as it is unprepared to compete in a global market. The Russian economy is still one primarily driven by oil and gas, where inefficiencies and dated practices are less significant when compared to the technology and medical sectors. Russia has demonstrated a willingness to take protective actions in favor of local industries, specifically in the agricultural and meat sectors. WTO membership will make these actions more difficult and place stress on Russian market participants that are unprepared for global competition.

The most significant argument supporting Russia's entry into the WTO revolves around transparency. Russia's actions taken at the border to protect its industry have been unpredictable with no real mechanism to deal with disputes. Integrating Russia into a rule of law based system will provide more predictable access to foreign firms investing in Russia, leading to long-term investments. It also provides a means to enforce Russia's commitments to international markets.

A significant barrier to Russia's accession to the WTO has been its inability to fully protect intellectual property (IP) rights. While the enforcement of IP laws continues to be a challenge, Russia has recently harmonized most existing IP legislation in Part Four of the Russian Federation Civil Code to be consistent with WTO requirements. The specific steps that Russia has taken to address IP issues include:

  1. The Court for Intellectual Property Rights: Russia has created a special court for IP rights, which will start functioning in February 2013. The court will consider IP cases as the court of first and cassation instances.

  2. Pharmaceutical Test Data: Russia's federal law now prohibits the use of data on clinical trials for commercial or state registration purposes without consent within six years from the date of a medicine's state registration. Illegal use of test data has been an ongoing point of concern for foreign pharmaceutical players in the Russian market.

  3. Patent Fee Equalization: WTO accession will eliminate the patent fee regime that exists today, which prescribes an elevated fee for non-residents.

A major concern that arises with regard to IP protection is the capability of the Russian courts to handle IP claims. Most legislation for IP protection is relatively new and Russian courts lack the experience, and competence in many cases, to handle them. While Russia has made progress in legislation, it has also not lived up to prior commitments relative to the protection and enforcement of IP rights.

A study conducted in 2006 by the Coalition for Intellectual Property Rights found that a major problem still exists with regard to the lack of proactive enforcement of IP protection. Russia's counterfeiting problems remain a serious issue because of the failure of the highest levels of government to effectively transmit protective standards to the law enforcement community. Without a more organized system of enforcement, pursuing IP claims will remain ineffective.

While legislation and the general infrastructure for protecting IP are almost up to global standards, enforcement of laws continues to be a problem. Russia's lack of IP protection has been of particular concern in optical disk and Internet piracy. With more than 66 million Russians online, IP protection in Russia is a legitimate concern.

Leaving the realm of the domestic, on the other hand, while Russia is ready to enter the WTO, the US Congress must graduate Russia from Title IV of the Trade Act of 1974, the Jackson-Vanik Amendment. In brief, the Jackson-Vanik Amendment bars normal trade relations with Russia as a country that restricted the emigration of Jews. Although this issue is no longer current, the US Congress never lifted the Jackson-Vanik Amendment with respect to Russia, using the measure as a tool to support democracy and human rights in Russia.

The Jackson-Vanik Amendment does not prohibit normal trade relations between the two countries, but it remains a conditional relationship. It involves an annual review of Russia's compliance with the trade act. Every year, compliance reviews occur and Russia has been found to be in compliance. By definition, then, the Jackson-Vanik Amendment makes the application of "permanent normal trade relations" with Russia impossible.

If the Russian State Duma approves the protocol, Russia will enter the WTO. All the WTO members will benefit from normal trade relations with Russia, with the exception of the US, due to the existence of the Jackson-Vanik Amendment. The dated political tool will allow Russia - even under WTO rules - to deny the US preferential access to its markets, placing the US at a competitive disadvantage compared to its European and other global competitors in the Russian marketplace. The disadvantage could cost American firms market share which would be very difficult to regain.

Most believe that the US Congress will lift the Jackson-Vanik Amendment and grant Russia the most-favored-nation trade status. From an economic perspective, it is the only viable competitive solution for the US. From a political perspective, engaging economically with Russia in a rule based forum will further encourage a more transparent, integrated and perhaps more democratic society.

Anna Heatherington received her bachelor's degree in law and a certificate of Foreign Relations Expertise with knowledge of foreign languages from the Moscow State Institute of International Relations in 2000. She joined KPMG in Moscow as a legal advisor in 2000, and in 2004, Heatherington moved to Milan, Italy, to work for Pavia e Ansaldo as an associate. In 2006, she returned to Moscow to work as an in-house lawyer at Media-Market-Saturn.

Suggested citation: Anna Heatherington, Historical and Current Barriers to Russia's WTO Membership, JURIST - Dateline, Apr. 24, 2012, http://jurist.org/dateline/2012/03/anna-heatherington-russia-wto.php.

This article was prepared for publication by Emily Osgood, an assistant editor for JURIST's student commentary service. Please direct any questions or comments to her at studentcommentary@jurist.org

Opinions expressed in JURIST Commentary are the sole responsibility of the author and do not necessarily reflect the views of JURIST's editors, staff, donors or the University of Pittsburgh.

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