In June 1993, a little over a year after the fall of communist rule in Russia, President Boris Yeltsin submitted an application for Russia to join the General Agreement on Tariffs and Trade (GATT), the precursor to the World Trade Organization (WTO). Eighteen years later, in November 2011, Russia finally was voted into the WTO, which administers international trade rules among its members. This past August, the nation officially became a member of the organization.
Observers generally agree that WTO membership should have a beneficial impact on Russia and the economies that do business with it. So why did the negotiations take so long? The saga of Russia’s WTO talks mirrors the advances and retreats of the Russian economy over the course of two decades, writes William H. Cooper in a recent Congressional Research Service report, as well as internal conflict between the nation’s top leaders.
After receiving Russia’s application, the WTO formed a working group comprising 60 member countries to determine what steps Russia would need to take to bring its trading regime into compliance with WTO rules on goods, services, and investments, explains Cooper. During talks with working-party subgroups and individual WTO members, nations applying to the WTO negotiate market-opening concessions and tariff commitments. WTO members must reach a consensus on whether to accept a final agreement and admit a new member, and each member has veto power.
The instability of the Yeltsin era and Russia’s rocky transition from communism to democracy caused its WTO negotiations to stagnate through the 1990s. During his first term as Russian president, from 2000 to 2004, Vladimir Putin promoted Russia’s accession to the WTO as part of a broader goal of integrating the nation into the global economy. The Russian government adopted numerous reform-oriented laws required by the WTO and began confirming its trade regime to WTO rules, according to Cooper.
But in 2009, Putin made the stunning announcement that he was calling off Russia’s individual application altogether. He proclaimed that Russia instead would apply to the WTO as a customs union with Belarus and Kazakhstan – a plan that had no precedent and that fell apart in the face of WTO opposition.
Putin’s ambivalence reflected concerns within Russia about whether the country even needed the WTO. Russia’s primary exports are oil and gas, which are not subject to tariffs and do not fall under the WTO’s purview. But new Russian President Dmitry Medvedev wanted to diversify Russia’s economy and increase its exports. For Medvedev, joining the WTO was a crucial goal, one he appears to have pushed forward despite Putin’s opposition.
In a June 2010 meeting, President Obama and Medvedev pledged to jointly support Russia’s WTO bid. Within a few months, Russia had finalized bilateral agreements with all the WTO’s 153 members except Georgia. With the help of Swiss mediators, Russia and Georgia agreed to allow international officials to monitor trade between Russia and two breakaway provinces of Georgia.
The WTO formally approved the accession package on December 16, 2011, and Putin (now the Russian president again) signed the paperwork in July 2012. As part of the package, Russia promised to reduce its tariff ceiling on all products. It can no longer subsidize agriculture or exports, or impose prohibitive import restrictions such as quotas. Russia also agreed to abide by WTO rules aimed at protecting intellectual property.
Russia’s WTO negotiations can be viewed as a cautionary tale about the difficulties of multiparty negotiations, or, conversely, as a story of how persistence can prevail in the most unstable environments.
Economist crises, quixotic leaders, armed conflict, and other interruptions slowed talks that, because of the sheer number of parties and issues involved, were already destined to be long and arduous. In such situations, we risk irrationally escalating our commitment to a negotiation simply because we feel we have invested too much to quit. To avoid throwing good money after bad, keep on the lookout for signs that a deal is breaking down, and reassess whether it is rational to continue. The fact that an agreement satisfactory to all emerged from Russia’s WTO talks shows that some difficult negotiations are worth the effort.