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Russia poised to join world trade body

By John Heilprin
Associated Press / November 10, 2011

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GENEVA—Russia cleared a major hurdle toward opening up its huge oil-driven economy Thursday, with negotiators agreeing to final terms that would allow it to join the World Trade Organization after an 18-year effort.

The deal is expected to quickly inject 4 billion euros ($5.45 billion) a year into the ailing European economy by boosting European Union exports.

The 27-nation bloc is Russia's biggest trading partner for its agriculture, fuels, mining and manufacturing. EU nations imported euro158.6 billion ($216 billion) worth of goods -- mostly oil and gas -- from Russia last year, while exporting some euro86.1 billion ($117 billion) worth of machinery, automobiles and farm products.

Under the deal, Russians would be able to buy European-made cars and trucks, furniture, clothes and all sorts of consumers goods and industrial machinery at far lower prices than before.

For their part, Russia would be able to sell its oil and gas more efficiently -- and its steel industry would no longer be subject to Europe's quotas imposed on some non-WTO members.

The EU buys 52 percent of Russia's exports, including the fossil fuels that power the continent. And the third-biggest customer for EU exports is Russia, after the U.S. and China. Nearly two-fifths of goods imported by Russia come from the EU.

"That means, by definition, all aspects of market access. It's about a 5 percent increase in European exports, just because of WTO accession," Peter Balas, the European Commission's deputy director-general for trade, told The Associated Press. "In these difficult economic times, it's a substantive, positive effort."

Until now, Russia has been the only member of the Group of 20 leading economies still outside the WTO. A panel of WTO negotiators put their stamp of approval Thursday on a package of terms for Russian membership that is expected to be signed by trade ministers at a WTO high-level meeting in mid-December.

Once that is approved, Russia would become a WTO member 30 days after it notifies WTO that it has ratified membership -- presumably early next year.

Maxim Medvedkov, Russia's chief WTO negotiator, said joining the world trade body is important because his nation -- as the world's 7th largest exporter -- already does 92 percent of its trade with WTO members.

"Our nation has plans for modernization of its economy based on foreign investment," he told reporters. "We do not feel any aggressive 'no' to (joining WTO) in the business community."

He predicted the Russian Duma -- which will have until June 15, 2012 to ratify WTO membership -- will approve the deal early next year. Russia, whose high-end consumers enjoy Europe's fashionable clothing and other luxury products, has pledged no tariffs on cotton and information technology products.

"Russia's membership in the WTO will generate more exports for American manufacturers and farmers, which in turn will support well-paying jobs in the United States," President Barack Obama said from Washington. "Russia's WTO accession would be yet another important step forward in our reset of relations with Russia, which has been based upon the belief that the United States and Russia share many common interests, even as we disagree on some issues."

American goods make up 4.5 percent of what Russia imports, fewer than a third of what China sells Russia.

The deal could provide a lift for Russia, where experts say the heavy state involvement in the economy and unpredictable rules for business often outweigh advantages that come from high oil prices.

Investors' concerns about political and economic uncertainty in Russia are expected to cause a capital outflow this year equivalent to nearly 5 percent of Russia's GDP, which was 44.9 trillion rubles ($1.5 trillion) last year.

Its central bank said this month that capital flight from Russia is expected to double to $70 billion this year. In 2010, about $34 billion was pulled out.

Moscow has agreed to provide annual reports to WTO's 153 members on its continuing privatization. The government has promised to sell stakes in some of its most lucrative assets, but has been dragging its feet on the plan.

Market watchers say that a big privatization could help reverse the capital outflow. But some of the companies listed for privatization have publicly opposed the sale.

And as part of the WTO deal, Russia agreed to gradually lower its average tariff ceiling to 7.8 percent from its current 10 percent.

Tariffs on cars would fall to 12 percent from 15 percent now, while those on electrical machinery would fall to 6.2 percent from 8.4 percent.

Tariffs on agriculture products will drop to 10.8 percent from 13.2 percent, and tariffs on manufactured goods will be lowered to 7.3 percent from an average this year of 9.5 percent.

Foreign banks could set up subsidiaries, there would be no cap on foreign equity in individual banking institutions, and foreign insurers could establish Russian branches nine years after it gains WTO membership.

But the overall foreign capital participation in the Russian banking system would be limited to 50 percent, not including foreign capital invested in potentially privatized banks.

Russia, too, would allow 100 percent foreign-owned companies to engage in wholesale, retail and franchise operations.

"It is good news for the gloomy economy," said Icelandic diplomat Stefan Johannesson, who headed the WTO panel that oversaw the talks with Russia and approved the terms. "It will make doing business in Russia more attractive for foreign businesses and producers."

Johannesson said the deal would mean lower prices and a greater selection of goods for Russia's 150 million consumers.

Foreign manufacturers had been closely watching what tariffs Moscow would accept, and whether it would cave to outside demands for tighter enforcement of intellectual property rights.

WTO's director general, Pascal Lamy, told reporters the deal creates new opportunities for members of WTO which, after the Russian deal, will cover 98 percent of global trade.

He said Russia is "about to cross the door" of WTO and take a big step by joining the Geneva-based international organization where nations agree to abide by trade rules, and hammer out their disputes in binding agreements.

"In acceding to the WTO, Russia embraces a series of rules and commitments that are the foundation of an open, transparent and nondiscriminatory global trading system," he said.

A day earlier at WTO headquarters in Geneva, Russia signed a deal with Georgia, its neighbor and one-time foe, that removed the last major obstacle to Moscow's membership.

The deal would essentially involve a neutral company monitoring all trade between the two nations, including the breakaway Georgian provinces of Abkhazia and South Ossetia. top stories on Twitter

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