Russia's Accession to the WTO

Prepared for Members and Committees of Congress

In 1993, Russia formally applied for accession to the General Agreement on Tariffs and Trade
(GATT). Its application was taken up by the World Trade Organization (WTO), the successor
organization of the GATT, in 1995. Russia’s application has entered into its most significant
phase as Russia negotiates with WTO members on the conditions for accession.
Accession to the WTO had been critical to Russia and its political leadership. President, now
Prime Minister, Vladimir Putin had made it a top priority. However, that position appears in
doubt. The Russian leadership has indicated that it is reviewing commitments it made as part of
the accession process, and Prime Minister Putin has voiced that WTO access may not be
beneficial to Russia. For the United States, the European Union (EU) and other trading partners,
Russia’s accession to the WTO could increase stability and predictability in Russia’s foreign trade
and investment regime.
Differences over some critical issues remain, making the time for Russian accession to the WTO
uncertain. The European Union and the United States have raised concerns about Russian energy
pricing policies which allow natural gas, oil, and electricity to be sold domestically far below
world prices providing, they argue, a subsidy to domestic producers of fertilizers, steel, and other
energy-intensive goods. Russia counters that the subsidies are not illegal under the WTO. Perhaps
more significantly, Russia’s WTO accession had been put on hold as a result of the early August

2008 Russian-Georgian armed conflict over South Ossetia and Abkhazia.

Congressional interest in Russia’s accession to the WTO is multifaceted. Members of Congress
are concerned that Russia enters the WTO under terms and conditions in line with U.S. economic
interests, especially gaining access to Russian markets as well as safeguards to protect U.S.
import-sensitive industries. Some Members also assert that Congress should have a formal role in
approving the conditions under which Russia accedes to the WTO, a role it does not have at this
time. A number of Members of Congress and members of the U.S. business community have
advised the Bush Administration not to agree too quickly to Russia’s accession to the WTO and to
ensure that U.S. concerns are met. The Congress has a direct role in determining whether Russia
receives permanent normal trade relations (NTR) status which has implications for Russia’s
membership in the WTO and U.S.-Russian trade relations. Without granting permanent NTR
(PNTR) to Russia, the United States might not benefit from the concessions that Russia makes
upon accession. Issues regarding Russia’s accession to the WTO may arise during the second th
session of the 110 Congress. Some Members have expressed opposition to Russia’s accession
because of its invasion of Georgia in August 2008. This report will be updated as events warrant.

Introduc tion ..................................................................................................................................... 1
The WTO and the Accession Process..............................................................................................2
The Soviet Union and the GATT/WTO...........................................................................................4
Russian Economic Conditions and Reform: An Impetus for Joining the WTO..............................5
Domestic Economic Conditions................................................................................................5
Russian Foreign Trade, Investment, and Debt..........................................................................5
Russian Economic Policy and Restructuring............................................................................6
Russia’s Foreign Trade and Investment Regimes and Policies.................................................7
The Status of the Accession Process and Outstanding Issues..........................................................8
Energy Pricing...........................................................................................................................9
Intellectual Property Rights Protection...................................................................................10
Agriculture .................................................................................................................... ........... 11
Sanitary and Phytosanitary Regulations..................................................................................12
Services ................................................................................................................................... 13
Civil Aircraft...........................................................................................................................14
Other Issues.............................................................................................................................15
The Bilateral Agreement and Other Developments................................................................16
Agriculture .................................................................................................................... .... 16
Market Access for Non-Agricultural Goods.....................................................................17
Services ............................................................................................................................. 17
IPR .................................................................................................................................... 17
Other Developments.........................................................................................................17
U.S.-Russian Economic Ties and WTO Accession.......................................................................18
Implications of Russia’s Accession to the WTO...........................................................................21
Implications for Russia...........................................................................................................21
Implications for the United States...........................................................................................23
Implications for Other Countries and the WTO......................................................................24
Table 1. U.S. Merchandise Trade with Russia, 1992-2007...........................................................19
Author Contact Information..........................................................................................................24

In 1993, Russia formally applied for accession to the General Agreement on Tariffs and Trade
(GATT). Its application was taken up by the World Trade Organization (WTO) in 1995, the 1
successor organization of the GATT. Russia’s application has entered into its most significant
phase as Russia negotiates with WTO members on the conditions for accession. The process is
moving forward, but differences over some critical issues remain, making the time for Russian
accession to the WTO uncertain.
Accession to the WTO had been critical to Russia and its political leadership. President, now
Prime Minister, Vladimir Putin had made it a top priority. However, that position appears in
doubt. The Russian leadership has indicated that it is reviewing commitments it made as part of
the accession process, and Prime Minister Putin has voiced that WTO access may not be
beneficial to Russia. The United States, the European Union (EU) and other trading partners,
supported Russia’s accession to the WTO to increase stability and predictability in Russia’s
foreign trade and investment regime.
Russian leaders have asserted that Russia is being forced to adhere to higher standards than
current WTO members. At times they have publicly expressed reservations about the WTO and
the accession process. On June 10, 2007, at a forum on the Russian economy in St. Petersburg, 2
then-President called for the formation of new economic organizations. On August 25, 2008, 3
now-Prime Minister Putin stated that Russia is no longer interested in WTO membership.
On November 19, 2006, U.S. and Russian officials signed a bilateral agreement on Russia’s
accession to the WTO, thus completing a major step in the accession process. Russia still needs to
complete “multilateral” negotiations with the WTO working party, that consists of representatives
from about 60 WTO member countries, including the United States. That process has been on
hold; the working group has been conducting only “informal meetings” because Georgia, a WTO
member, has blocked formal meetings.
Congressional interest in Russia’s accession to the WTO is multifaceted. Members of Congress
are concerned that Russia enters the WTO under terms and conditions in line with U.S. economic
interests, especially gaining access to Russian markets as well as safeguards to protect U.S.
import-sensitive industries. Some Members also assert that Congress should have a formal role in
approving the conditions under which Russia accedes to the WTO, a role it does not have at this
time. The Congress has a direct role in determining whether Russia receives permanent normal
trade relations (NTR) status which has implications for Russia’s membership in the WTO and
U.S.-Russian trade relations. Without granting PNTR to Russia, the United States might not
benefit from the concessions that Russia makes upon accession. Some Members have expressed
opposition to Russia getting PNTR and to its accession because of its invasion of Georgia in
August 2008. This report will be updated as events warrant.

1 These agreements include the General Agreement on Trade in Services (GATS) and the agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS), among others.
2 Financial Times. June 11, 2007. p.1.
3 Financial TimesInternational Trade Daily. June 11September 3, 2007. p.12008.

This report examines the issue of Russia’s accession to the WTO, focusing on the implications for
Russia, the United States, and the WTO. It begins with a short overview of the WTO accession
process and reviews the history of the Soviet Union’s relationship with the GATT/WTO. It
provides a brief discussion of Russian economic conditions and the status of economic reforms as
they are a major impetus for Russia’s application to join the WTO. The focus of the report is the
status of Russia’s accession application and the outstanding issues. The report concludes with an
analysis of the implications of Russia’s accession to the WTO for Russia, the United States, the
other WTO members and for the WTO itself and with an analysis of the outlook for the Russia’s
application. This report will be updated as events warrant.

The WTO’s membership of 151 countries and customs areas spans all levels of economic
development, from the least developed to the most highly developed economies. The WTO came
into existence in January 1995 as a part of the agreements reached by the signatories to the
General Agreement on Tariffs and Trade (GATT) at the end of the Uruguay Round negotiations.
The WTO’s primary purpose is to administer the roughly 60 agreements and separate
commitments made by its members as part of the GATT (for trade in goods), the General
Agreement on Trade in Services (GATS—for trade in services), and the agreement on trade-
related aspects of intellectual property rights (TRIPS).
The membership in the GATT/WTO has grown exponentially. The GATT was originally founded
in 1947 by 23 countries, and the WTO now has 151 members. Vietnam and Tonga are the newest
two members, having joined on January 11, 2007, and July 27, 2007, respectively. Membership in
the WTO commits its members to fundamental principles in trade with other members, including:
• Most-favored nation treatment (MFN): The imports of goods and services
originating from one member country will be treated no less favorably than
imports of goods and services from any other member country. MFN is to be
unconditional. In practical terms, this means that in most cases a country cannot
apply a higher import tariff to a good from one member country than it applies to
like goods from any other member country.
• National treatment: Imports of goods and services are treated no less favorably
than like goods and services produced domestically. In practical terms this means
that governments cannot discriminate against imports in the application of laws
and regulations, such as regulations to protect consumer safety or the
• Transparency: Government laws and regulations that affect foreign trade and
investment are to be published and available for anyone to see. Procedures to
implement the laws and regulations are to be open.
• Lowering Trade Barriers Through Negotiations: Since the GATT’s creation,
its members have conducted eights rounds of negotiations to lower trade barriers.
At first these negotiations focused on lowering tariffs. But over time, the rounds
have broadened GATT/WTO coverage to include nontariff barriers, such as
discriminatory government procurement practices, discriminatory standards, and
trade-distorting government subsidies. The last completed round, the Uruguay
Round (1986-94), resulted in the most ambitious expansion of rules to cover, for

the first time, trade in agricultural products and services and government policies
and practices pertaining to intellectual property rights protection and foreign
investment regulations that affect trade.
• Reliance on tariffs: In order to promote predictability and openness in
commerce, the WTO requires member countries to use tariffs and avoid using
quotas or other nontariff measures when restricting imports for legitimate
purposes, such as on injurious imports.
As part of its function to administer the rules established under the agreements, the WTO
provides a mechanism for the settlement of disputes between members where the dispute involves
alleged violations of WTO agreements. Moreover, each member’s trade regime is reviewed by the
WTO Secretariat from time-to-time to ensure that it conforms to WTO rules. Trade among WTO 4
members accounts for about 90% of total world trade.
The collapse of the Soviet Union and its East European Bloc and the movement of many
developing countries toward liberal trade policies have spurred interest in joining the WTO.
Article XII of the agreement that established the WTO sets out the requirements and procedures
for countries to “accede.” “Any state or customs territory having full autonomy in the conduct of
its trade policies is eligible to accede to the WTO on terms agreed between it and WTO
The accession process begins with a letter from the applicant to the WTO requesting membership.
The WTO General Council, the governing body of the WTO when the Ministerial Conference is
not meeting, forms a Working Party (WP) to consider the application. Membership in the WP is
open to any interested member-country. More than sixty member countries, including the United
States, are part of the WP. The U.S. delegation is led by the Assistant U.S. Trade Representative
for WTO and Multilateral Affairs and includes representatives from the U.S. Departments of
Commerce and Agriculture.
The applicant submits a memorandum to the WP that describes in detail its current trade regime.
The applicant and the WP then negotiate to determine what legislative and structural changes the
applicant must make to meet WTO requirements and to establish the terms and conditions for
entry of the applicant into the WTO. The WP’s findings are then included in a “Report of the
Working Party” and are the basis for drawing up the “Protocol of Accession.”
While it negotiates with the WP, the applicant must also conduct bilateral negotiations with each
interested WTO member. During these negotiations the WTO member indicates what concessions
and commitments on trade in goods and services it expects the applicant to make in order to gain
entry, and the applicant indicates what concessions and commitments it is willing to make until
the two agree and set down the terms. The terms of the bilateral agreements are combined into
one document which will apply on an MFN basis to all WTO members once the applicant has
joined the WTO. The accession package is conveyed to the General Council or Ministerial
Conference for approval.
Article XII does not establish a deadline for the process. The length of the process depends on a
number of factors: how many legislative and structural changes an applicant must make in its
trade regime in order to meet the demands of the WP, how quickly its national and sub-national

4 Based on WTO background information located at

legislatures can make those changes, and the demands on the applicant made by members in
bilateral negotiations and the willingness of the applicant to accept those demands. Because WTO
accession is a political process as well as a legal process, its success depends on the political will
of all sides—the WTO member countries and the applicant country. A formal vote is taken in the
WTO that requires a 2/3 majority for accession, although in practice the WTO has sought to gain
a consensus on each application. The process can take a long time: China’s application took over

15 years.

The Soviet Union was not invited to become a contracting-party of the GATT in 1947 after it
declined to join the International Monetary Fund (IMF) and the World Bank—the other two
multilateral organizations that resulted from the Bretton Woods conference immediately
following the end of World War II. In fact, Soviet trade and economic policy conflicted with the
principles of the GATT. The GATT was based on removing barriers to trade and on developing
economic interdependence among countries. Soviet foreign economic policy was largely based on
the concept of self-sufficiency—the domestic economy would produce as much as possible for
itself and import only those products which it could not produce. Exports were used merely to
buy necessary imports, not to build markets. These economic policies helped to bring about the
collapse of the Soviet Union. The Soviet Union modified the concept of self-sufficiency to
include members of the Soviet Bloc-the East European countries, some Asian communist
countries and Cuba, confining most of its trade with these countries in a system of limited
international division of labor. Only a small amount of trade was conducted outside the Bloc. The
Soviet Union spearheaded the formation of the Council for Mutual Economic Assistance
(CMEA), what could be loosely described as the Soviet Bloc’s version of the GATT.
In August 1986, the Soviet Union applied to take part in the Uruguay Round negotiations of the
GATT as an observer with the intention of becoming a full member. The United States and other
Western industrialized countries opposed the request because of the Soviet Union’s central 5
planning economic system. In 1990, however, the Soviet Union received observer status to the
Uruguay Round negotiations after GATT signatories, including the United States, concluded that
the Soviet Union was moving toward becoming an open economy under President Mikhail 6
After the collapse of the Soviet Union in 1991, Russia retained the observer status held by the
Soviet Union and, in June 1993, it formally applied to accede to the GATT. On June 16, 1993, the
GATT established a working party on Russia’s accession and, in January 1995, the application
was converted to an application to become a member of the WTO.

5 It should be noted that other nonmarket economies had acceded to the GATT, albeit under special conditions: Poland
(1967); Hungary (1973); and Romania (1971). The United States was also concerned that the Soviet Union intended to
use GATT membership for political purposes. The Soviet Union sought observer status once before in 1982. Kennedy,
Kevin C, The Accession of the Soviet Union to the GATT, Journal of World Trade Law, April 1987, p. 23-39.
6 Naray, Peter. Russia and the World Trade Organization. Palgrave. New York. 2001. p. 20.

Russia’s motivation for and progress toward accession to the WTO are directly related to efforts
to dismantle the Soviet economic system of central planning and replace it with a more market-
based economy. President Putin has made entry into the WTO a top priority, because he sees it as
a mechanism for overcoming the political hurdles that have impeded economic restructuring. The
possibility of accession to the WTO has been an opportunity for him to get some significant
economic reform legislation through the Russian parliament. Many Russian and foreign experts
have argued that these reforms and more are necessary if Russia is to achieve long-term economic
growth and development. At the same time, a number of economic interest groups that favor the
status-quo, such as agriculture, the auto industry, and raw material producers, have fought against
economic reforms and oppose Russian accession to the WTO.
Russia has enjoyed economic growth (measured in annual changes in GDP) since 1999. Russian
GDP increased 5.4%in 1999, 9.1% in 2000, and 5.1% in 2001, 4.7% in 2002, 7.3% in 2003, 7.2% 7
in 2004, 6.4% in 2005, 6.7% in 2006 and 8.1% in 2007. But the growth occurred after a long
period of economic stagnation during the final years of the Soviet Union and a deep
recession/depression during the 1990s. Many specialists have attributed the economic growth to
the depreciation of the ruble at the end of the 1990s and to the rise in world energy prices since


However, Russia has been plagued by economic problems including a high poverty rate and poor
health conditions. In addition, economic growth has taken place unevenly throughout the country
with the major cities of Moscow and St. Petersburg and regions well-endowed with marketable
natural resources accounting for most of the economic growth, while less fortunate regions
remained stagnant or have become poorer. Moreover, income distribution among the Russian
population has become increasingly unequal as a small portion of the population acquires larger
shares of wealth.
Since the collapse of the Soviet Union, the Russian economy has become more open to the rest of
the world. The role of foreign trade in the Russian economy has grown. By 2006, Russian exports
of goods and services were equivalent to 34.0% GDP and imports were equivalent to 21.3% of 8
GDP. Russian foreign trade has become more geographically diverse. In 2006, most of Russian
foreign trade took place outside the former Soviet Union—only 14.3% of Russian exports and 9

15.4% of Russian imports were with former Soviet states.

7 The World Bank. Russian Economic Report. November 2007. p. 2.For more information on the Russian economy, see
CRS Report RL34512, Russia's Economic Performance and Policies and Their Implications for the United States, by
William H. Cooper.
8 Calculations based on data found in Economist Intelligence Unit, Country Profile: Russia, 2007.
9 Customs Committee of Russia.

Russia has been experiencing increasing current account surpluses largely due to the rapid growth
in the value of Russian exports of crude oil, natural gas, other fuels, and other natural resources.
In 2006, Russia’s current account surplus was $95.6 billion, an increase from $29.1 billion in 10

2002. It declined to $78.3 billion in 2007. However, the surpluses could prove ephemeral.

Russia exports primarily raw materials for which market prices tend to be highly volatile. In

2006, oil, natural, and fuel (such as coal) accounted for 65% of total Russian exports of goods. 11

Metal and chemicals accounted for another 20%. While Russia has clearly benefitted from
current high prices for fuels, a more diversified trade structure could stabilize its trade situation.
Russian imports, especially of machinery and equipment and of processed foods, have increased 12
sharply recently.
Foreign direct investment in Russia has surged in the last few years indicating some investor
confidence in Russian economic prospects despite Putin government measures to re-nationalize
the energy sector. In 2002, $3.5 billion in foreign direct investment (FDI) flowed into Russia; in 13
contrast $55.0 billion in FDI flowed into Russia in 2007. The level of foreign direct investment
is still considered low given the size and needs of the Russian economy.
Russia’s transition from central planning was bound to be more difficult and longer than that of
the Central and East European states. The communist system was much more entrenched in the
Soviet Union than it was in the rest of the Soviet Bloc. Furthermore, Russia does not have a
legacy of a market economy to draw on as is the case with some of the Central and East European
countries. Russia has had to deal with the legacy of a Soviet economy that was administered to
meet the needs of the military while civilian production and investment were given low priority.
However, Russia’s economic problems also were the result of policy failures during the transition.
These failures included loose monetary and fiscal policies early in the transition period. They
have also included structural problems such as poorly developed and executed privatization
programs that have left many potentially productive assets in the control of enterprise mangers
from the Soviet period or in the hands of a few politically-connected individuals (“oligarchs”)
who extracted the value from many of these assets rather than making them commercially viable
for the long run. In addition, an inefficient banking system, the lack of private land ownership
protection, the absence of adequate commercial laws, and an inefficient and corrupt government
bureaucracy have inhibited economic growth and development.
Despite the setbacks, Russia has made some important strides:
• The government has eliminated price controls on most goods and services. This
reform has been important because it allows the market forces of supply and
demand to guide producers and consumers on purchasing, production and
investment. Controls have remained on some important items, such as energy,
housing, and transportation, but these, too, are to be removed eventually.

10 Economist Intelligence Unit. Country Profile—Russia. 2007. p. 66.
11 Ibid.
12 Ibid., p. 52.
13 Economist Intelligence UnitOfficial Russian economic data base..

• The structure of Russian production more closely resembles that of an open
economy than of a militarized economy. For example, the services sector, once a
minor part of Soviet economy, has emerged in the post-Soviet Russian economy
and now accounts for more than half of national output.
• The private sector has grown and accounts for roughly 3/4 of national output.
Since taking the reins of power, President Putin has forced Russia into a new phase of economic
reform. Putin has enjoyed a high degree of popularity among the Russian people that has
translated into overwhelming political clout in the Russian parliament. In addition, the continuing
period of economic growth has provided a window of opportunity for Putin and his government
to tackle economic restructuring. He has been able to push important economic legislation
through the Russian parliament: tax reform; land reform; reform of government bureaucracy to
make it more responsive to the needs of the economy rather than an impediment to development
and growth; judicial reform; and improvement in corporate governance, especially the protection
of minority shareholders’ rights.
The fragile basis of Russia’s economic growth strongly suggests that Russia has far to go in
economic reform. Analysts point to Russia’s weak and underdeveloped financial sector, poorly
developed system of commercial laws, and confusion over federal vs. regional and local
responsibilities in important economic policy areas. Furthermore, even though Russian laws have
been passed to restructure the economy, the success of their implementation remains to be seen.
Furthermore, since 2004, the Putin government has shown signs of braking, if not halting,
reforms and has re-established state control over critical sectors, particularly energy, generating
some skepticism regarding Putin’s commitment to Russian economic reform.
In determining the terms and conditions for Russia’s accession to the WTO, WP members
scrutinize Russia’s foreign trade and investment regimes and policies to ascertain to what degree
they conform to WTO rules and where Russia needs to change. Russia has made significant
strides in that regard. It eliminated two important pillars of Soviet central planning in November
1991, the state monopoly on foreign trade and the ban on foreign investment in the Russian
In October 1992, another legacy of central planning was eliminated when the Russian ruble was
made convertible into foreign currencies and multiple exchange rates were eliminated. A dual
exchange rate was briefly introduced in January 1999 as a result of the August 1998 financial
crisis but was eliminated in June 1999. In the early to mid-1990s, the Central Bank imposed fixed
or pegged exchange rates in an attempt to control ruble depreciation. Since the August 1998
crisis, the ruble has been allowed to float but the Central Bank of Russia intervenes by buying or
selling rubles. The ruble has remained relatively stable since 1999.
In 1992, the Russian government adopted the Harmonized Tariff System that is used by WTO
members, and it maintains a system of two-column tariff rates—MFN and non-MFN tariff rates.
Tariff rates on non-agricultural products range from 0 to 30%. Some countries receive tariff
advantages under Russia’s Generalized System of Preferences(GSP) program in the form of tariff
rates that are 25% below the MFN rate. A tariff-rate quota is applied to imports of sugar from

countries receiving Russian GSP treatment.14 Of the more than 11,000 commodity categories in
the Russian tariff tables, only fifty have tariff rates above 30%.
Over time, the Russian government has lowered tariff rates. In 1995, the trade-weighted average 15
tariff rate was 16.0%; by 2001 it was 11.1%. Most products can be traded without restrictions,
but the government requires exports and imports of some products, for example, pharmaceuticals, 16
alcoholic beverages, precious metals and stones, to be licensed. Russia also applies export
tariffs on oil to ensure that domestic oil supplies are adequate and to compensate for the large
differential between domestic and export oil prices. In 1998, the Russian government passed laws
to provide for antidumping, countervailing, and safeguards measures against imports.

In early 1995, Russia submitted to the working party(WP) the “Memorandum on the Foreign
Trade Regime” which describes the structure of its foreign trade regime and also the structure, 17
policies, and practices of its economy that would likely affect its conduct of trade. Subsequently,
the WP members submitted questions based on the memorandum, to which the Russian
delegation replied. The process of submitting the original description of the trade regime,
followed by a series of questions and replies established a benchmark on which the negotiations
to determine the terms and conditions of Russia’s accession would be based. The initial series of
questions, replies and follow-up responses indicated strong concerns by the WP members in a
broad range of areas including privatization, property rights, price controls, government financial 18
support for business, and the structure and implementation of the tax regime.
The Russian accession process is now at a critical stage. As with most negotiations, however, the 19
last stages are the most difficult because negotiators now face the most contentious issues. The
United States, the European Union, and other participants have had strong reservations about
Russian policies and practices on intellectual property rights, energy pricing, agriculture, sanitary
and phytosanitary regulations, trade in services, civil aircraft, and other issues. Russia’s accession
to the WTO will likely hinge on the resolution of these issues, which are examined below in more

14 GSP is a program under which a country gives preferential tariff treatment to imports from developing countries.
Many industrialized countries have GSP programs to encourage economic growth and development in developing
WTO, Draft Report of the Working Party, WT/ACC/SPEC/RUS/25/Rev.1 p. 124.
16 Some working party members wanted to be assured that Russian traders were not favored over foreigner traders in
license approval process. Ibid. p. 19-23.
17 WTO L/7410.
18 World Trade Organization, Accession of the Russian Federation: Questions and Replies to the Memorandum on the
Foreign Trade Regime, Geneva, June 2, 1995. WT/ACC/RUS/2
19 World Trade Organization, Draft Report of the Working Party on the Accession of the Russian Federation to the
World Trade Organization, WT/ACC/SPEC/RUS/25/Rev.1.

The energy sector dominates the Russian economy. Not only do oil, natural gas, and electricity
drive industry and provide heat to residents, but energy is also the largest Russian export and hard
currency earner. The current structure of Russia’s energy sector is largely a legacy of the Soviet
Union. The oil industry has been broken up into several privatized companies. Natural gas and
electricity are largely monopolies run by Gazprom and United Energy Systems (UES),
respectively, which are joint-stock companies with significant government ownership. The
structures of these companies are now the subject of reform, but that process has proved
politically controversial and therefore slow.
Domestic prices for Russian energy are regulated by the government while exports of energy
products command world prices. Domestic prices are lower than world prices, in some cases
significantly, although the Russian government has been raising domestic energy prices and
reducing the subsidies. The EU and the United States have pointed out that the gap between the
world price for natural gas and the Russian domestic price has been as large as six to one, for 20
electricity—five to one, and for oil—four to one. The “dual pricing” is partially a result of a
policy of providing affordable heating and electricity to residential customers regardless of ability
to pay and providing favorable fuels rates to enterprises and to government agencies, such as the 21
Some WP members, particularly the EU, and to a lesser extent the United States, have raised
concern that dual energy pricing gives Russian manufacturers an unfair competitive advantage 22
and would be illegal under the WTO subsidy agreement.
WTO disciplines regarding subsidies are contained in the “Agreement on Subsidies and
Countervailing Measures.” Under the agreement, a subsidy is actionable only if it is a “specific
subsidy,” that is, it is a subsidy that is available only to an enterprise, an industry, a group of
enterprises or industries in the country that gives the subsidy. The agreement defines three kinds
of subsidies:
• Prohibited subsidies are ones that distort international trade, for example,
subsidies that require recipients to meet exports targets or to use domestic
products. These subsidies must be eliminated; otherwise, the country that
complains about them can take countermeasures.
• Actionable subsidies are not prohibited unless it is determined that the subsidy
causes injury. If such a determination is made, then the complaining country can
impose a countervailing duty.
• Non-actionable subsidies are non-specific, or are specific subsidies for industrial
research or development activity, for assistance to disadvantaged regions, or for
adapting existing facilities to new environmental laws or regulations. They 23
cannot be challenged in the WTO.

20 Ibid. p. 16.
21 OECD, OECD Economic Surveys 2001-2002: Russian Federation, p. 125.
22 Ibid. p. 17.
23 The description of the agreement is taken fromWhat is the WTO? located on the WTO website:

• European and U.S. fertilizer producers have been strong opponents of Russia’s
energy pricing policies because natural gas is a significant input in fertilizer 24
production, accounting for 3/4 of the final price, according to one estimate. The
Russian government and Russian delegates to the WTO negotiations have
strongly argued that Russian energy prices are not an actionable subsidy under
WTO rules because they are available to all industries. They assert furthermore,
that Russia’s domestic energy prices reflect its comparative advantage in energy
production. The EU and Russia came to an agreement on the dual energy pricing
issue where Russia agreed to gradually increase domestic energy prices. The
agreement was a part of the EU’s bilateral agreement on Russia’s accession to the
WTO members are calling on Russia to be in full compliance with the WTO agreement on trade-
related aspects of intellectual property rights (TRIPS) at the time of its accession, in terms of laws
in place and enforcement. All WTO members are bound by the provisions of the TRIPS
agreement, which was designed and ratified to introduce predictability and order to intellectual
property rights (IPR) protection in all WTO members, because it has become an important factor
in international trade. The TRIPS agreement requires WTO members to apply the fundamental
principles of national treatment and most-favored-nation treatment in intellectual property rights
protection. The agreement also requires WTO members to ensure protection of copyrights,
trademarks, geographical indicators of products, and patents by imposing and enforcing 25
appropriate laws.
Russia has passed a number of laws to protect the holders of copyrights, patents, and trademarks
and is a a member of the major multilateral intellectual property rights conventions. While
acknowledging that Russia has taken steps to improve IPR protection, U.S. industry has
complained that the Russian government does not adequately enforce its laws, allowing
intellectual property piracy to continue and grow with impunity—culprits are either not caught, or 26
if caught they are not adequately punished. One concern of the United States and some other
WTO members has been that in 2006 the Russian parliament (the Duma) passed a revision of Part
IV of the Russian Federation Civil Code. This revision replaced Russia’s IPR laws with one law.
The United States and the EU want Russia’s assurance that the revision does not signify a
weakening of legal protection of intellectual property rights.
For the past 11 years, the United States Trade Representative (USTR) has placed Russia on the 27
Special 301 Priority Watch List. U.S. producers of copyrighted material have cited unauthorized
Russian reproduction of American-made films, videos, sound recordings, books, and computer

24 International Trade Reporter, November 7, 2002, p. 1904.
25 The description of the agreement is taken fromWhat is the WTO? located on the WTO website:
26 Office of the U.S. Trade Representative, National Trade Estimate Report on Foreign Trade Barriers, April 2007, p.
27 Special 301 refers to a statutory requirement under Section 182 of the Trade Act of 1974, as amended, that the USTR
annually identify those countries that are the egregious offenders of denying IPR protection and against which the
United States could take action. In practice, the USTR has also identified countries which do not fit the category of
most egregious offenders but bare serious monitoring on its annual priority watch list.”

software as a source of lost revenues. Russian production of pirated DVDs has increased and has
been a special source of concern. U.S. industry and government officials have complained about
Russia-based websites that distribute unauthorized music recordings, films, and books. Losses 28
due to copyright piracy of U.S. products in Russia in 2006 are estimated at $2.1 billion dollars.
The production of counterfeit American products has become so large that they now make up the 29
vast majority of Russian purchases of these products. Russia has argued that its enforcement of
intellectual property rights is improving, and that it should not be singled out since intellectual
piracy continues to take place in WTO member countries. IPR protection is of serious concern to
the U.S. Congress.
Agriculture has been a sensitive part of the economy throughout Russian/Soviet history. Its
political importance far outweighs its share of the Russian economy (7.2% of Russian GDP in 30

2001). Agriculture has been severely affected by the transition to a market economy as much as,

or more than, any other sector of the economy. According to one estimate, agricultural production
declined around 40% in volume terms since 1991, much of the decline occurring in livestock 31
Several factors have contributed to the downturn. One factor is Soviet agriculture policy. The
Soviet government determined what and how much the economy should produce and directed
resources accordingly. In the 1960s, the government decided that the Soviet people should eat
more meat, and it subsidized animal feed production and imports of animal feed to fulfill this
objective. The government set meat prices at a low level to make it affordable to consumers.
However, after the collapse of the Soviet Union, market prices were instituted and state subsidies 32
were dramatically cut, increasing the cost of meat production. Furthermore, when the Russian
government liberalized trade, Russian producers of poultry and other meats could not compete
with foreign producers who could sell them more cheaply. While the Russian federal government
has cut support, local and regional governments have continued to provide assistance in the form
of equipment, favorable credits, and export subsidies. They are concerned about food security and
unemployment and about maintaining the supply of housing, education, and other services that
state farms provided to the rural communities during the Soviet period and continue to provide.
A second factor contributing to the decline in agricultural production has been the slow pace of
restructuring of Russian farms. Despite the introduction of privatization, the vast majority of
former state and collective farms remain intact as joint stock operations or cooperatives and
operate in virtually the same inefficient manner as they did under the Soviet government.

The estimates are according to the International Intellectual Property Rights Alliance (IIPA), a non-profit group
representing copyright-based industries, oOffice of the United States Trade Representative. 2007
Special 301 Report.
29 Office of the U.S. Trade Representative, p. 335.
30 Economist Intelligence Unit, Country Profile 2002: Russia, p. 58.
31 Liefert, William, Agricultural Reform: Major Commodity Restructuring but Little Institutional Change, in Joint
Economic Committee, p. 278.
32 Ibid.

The Russian federal government is under pressure from regional and local governments and from
factions within the Russian parliament to protect agriculture from further erosion and to provide
time and resources to permit it to become competitive. This pressure has translated into a
difference in positions in the accession negotiations between Russia and agricultural exporting
countries including the United States, Canada, and Australia over the level and longevity of
government support to agriculture. The Russian government has argued for higher levels and
longer phase-out periods for supports than its negotiating partners are willing to accept. Russian
negotiators have also asserted that it should not be required to bind itself to dramatically lower
support levels during the accession process while other WTO members are currently in the
process of negotiating the agriculture subsidies in the current round of WTO negotiations, Doha
Development Agenda (DDA). The WTO members have argued that the subsidies that Russia
wants to maintain distort trade and are concerned that they give Russian agriculture producers an
unfair advantage. The Russian side has argued that without government support, Russian
agriculture could not compete with EU and U.S. agriculture, both of which receive sizeable 33
government subsidies.
Another controversy in agriculture has emerged over Russia’s decision to restrict meat imports.
On January 23, 2003, the Russian government announced it would impose a three-year quota on
poultry imports effective May 1, 2003. At the same time the government announced tariff-rate
quotas (TRQs) on imports of beef and pork effective April 1, 2003, and to remain in effect until 34

2010. Meat exporting WTO member-countries, including the United States, Canada, Argentina,

Australia, and New Zealand, have expressed stiff opposition, claiming that the restrictions may
retard the process of Russia’s accession to the WTO. They specifically argued that Russia has
violated the “standstill” principle under which countries applying for WTO membership are to
refrain from imposing new trade restrictions during the accession process. Russia counters that it
is imposing the restrictions to protect its domestic meat producers from import surges, a right that 35
is enjoyed by WTO members.
During the Uruguay Round, WTO members agreed to expand disciplines over trade in
agricultural products, and agricultural trade is on the agenda of the current round, the DDA.
Under the Agricultural Agreement all WTO members, except least developed countries, are 36
committed to reduce tariffs and subsidies on the production and export of agricultural goods.
Some WP members have raised concerns over Russia’s sanitary and phytosanitary (SPS)
standards, that is standards and certification procedures that determine the safety of meats and
other animal products, plants, and plant products. They argue that these procedures are not
scientifically based and discriminate against imports thus violating WTO rules. Under the
Agreement on Sanitary and Phytosanitary Measures (SPM), WTO members are permitted to
apply controls on products in order to protect public health and safety, but those controls must be

33 Bush, Keith, Russian Economic Survey, April 2003, p. 25.
34 USDA, Foreign Agricultural Service, Russian Federation Livestocks and Products, Gain Report # RS3006, February
20, 2003, p. 7; and USDA, Foreign Agricultural Service, Russian Federation Poultry and Products, Gain Report,
#RS3001, February 10, 2003, p. 1. TRQs are restrictions in which a limited volume of a product can be imported at one
tariff rate but imports above that limit can be imported only at another, usually much higher tariff rate.
35 Inside U.S. Trade, March 14, 2003.
36 WTO, op. cit.

scientifically based and must not discriminate against imports.37 Russia has argued that its SPS
controls meet the requirements of the SPM agreement.
The United States has expressed particular concern about this issue. In March 2002, the Russian
government imposed a ban on imports of U.S. poultry because of the possible presence of avian
influenza. Russia had become the largest market for U.S. exports of chicken. After months of
negotiations, the United States and Russia agreed in August 2002 on a new veterinary certificate
for U.S. poultry that would include inspections by Russian veterinarians of U.S. processing and
storage facilities, but technical issues remained that prevented the process from being
implemented. On April 3, 2003, the two sides announced the resolution of the problems, allowing 38
the inspection of the facilities to go forward and U.S. poultry exports to resume. Nevertheless,
the United States is concerned that Russia would impose similar restrictions in the future and has
pressed Russia to adhere to the WTO requirements as part of the conditions of its accession.
Services, especially financial services (banking, insurance, and securities), are a relatively new
phenomenon in the Russian economy. Under the Soviet Union, services were government-owned
and operated and were confined to personal services (for example, lodging, hair salons,
restaurants). They were not well developed because they were not a government priority.
Financial services were virtually non-existent in the Soviet Union because their function as
intermediaries between savers and borrowers of capital had no role in the Soviet planned
The services sector has grown rapidly during Russia’s transition to a market economy but has not
matured in most cases. The United States, the EU, and other advanced developed WTO members
have argued that Russia needs an efficient financial services industry to promote economic
growth and development and that opening the industry to foreign investment would introduce
expertise and new capital.
Russian officials and business representatives claim that their service industries must have
government protection as “infant industries,” because they are too immature and would be wiped
out if they had to face foreign competition too soon. An example is the fledgling Russian
insurance industry. Private insurance companies have been developing since the government
monopoly was removed after the collapse of the Soviet Union, but not sufficiently to meet
demand. Foreign insurance companies that could help fill the gap and bring expertise and a wide
range of products are restricted. For example, the government: limits total foreign capitalization
to 15% of the domestic insurance industry; requires the general director and the chief accountant
to be Russian citizens; restricts participation to foreign companies that have been in business no
less than 15 years in their home country; and requires that foreign insurance companies operate as
a minority shareholder in a Russian insurance company before they can be granted their own
license. In addition, foreign providers are prohibited from underwriting and reinsuring mandatory
insurance—auto and health insurance and insurance taken out by government entities—the fastest

37 Ibid.
38 Ibid., p. 332. Washington Trade Daily, April 7, 2003, p. 1.

growing insurance market in Russia.39 Russian negotiators assert that those restrictions should
remain while U.S., EU, and other working party participants want them loosened or removed.
The Russian banking sector is similarly underdeveloped. About 30% of the volume of Russian
banking activity is conducted by two banks—Sberbank and Vneshtorgbank, both of which are
owned by the Central Bank of Russia. Sberbank holds roughly 70% of the Russian savings
deposits. Foreign participation in the banking sector is restricted by government laws and
regulations. Foreign banks may operate in Russia only as subsidiaries and not as branches of the
parent bank. Foreign banks have cited the lack of an effective deposit insurance program as a
disincentive for new, private banks to develop. The government in effect backs deposits of 40
Sberbank 100%. Russian negotiators claim that the government will establish a deposit
insurance program for deposits in all banks but argues that the limit on foreign participation in 41
Russian banking must be maintained to allow domestic banks to become competitive. U.S.
negotiators and negotiators from some of the other working party countries are requesting that
Russia liberalize its banking sector to increase foreign participation, arguing that the foreign
influence would increase, not undermine, the competitiveness of Russian banks by promoting
stability and popular confidence. Furthermore, a liberalized banking sector would likely boost
other sectors of the economy.
In telecommunications, Russia permits 100% foreign ownership of telecommunication services
providers, but it has requested to be bound by a commitment of only 49% foreign ownership. U.S.
and EU negotiators oppose such a ceiling because they view the Russian telecommunications
market as potentially lucrative for its firms. The Russian government has also indicated it wants
long distance and international telephone communications to remain in the control of a monopoly, 42
Rostelcom, until 2010.
WTO rules on trade in services, including financial services, are contained in the General
Agreement on Trade in Services (GATS) which was agreed to during the Uruguay Round. In
general, the GATS is designed to apply internationally accepted rules, such as most-favored-
nation treatment, to trade in services that are similar to those applied to trade in goods. In
important respects, however, the GATS is less comprehensive than the GATT. For example, WTO
rules on goods trade contained in the GATT apply to all goods, but many of the rules, contained
in the GATS, including, “national treatment,” apply only to those services and the modes of
delivery of those services on which that the member country has identified in its schedule of
Russian aircraft manufacturers, as the case with the Russian defense-related industries in general,
have seen demand for their production plummet after the government dramatically cut defense
expenditures and after airlines from former Communist countries in Central and Eastern Europe

39 Vastine, Bob and Vladimir Gololobov, Moscow and the WTO: A Unique Chance to Modernize Russia, European
Affairs, Winter 2003; and The Russian Ministry of Finance has proposed that the ban on foreign company issuance of
compulsory insurance be lifted, EIU, Country Report: Russia, March 2003, p. 28.
40 Coalition of Service Industries, CSI Background Paper on Russian Banking Services, May 22, 2002.
41 Legislation to establish deposit insurance for other Russian banks is pending in the lower house of the Russian
parliament, the Duma, but has not received action, Reuters, June 3, 2003.
42 Washington Trade Daily, January 23, 2002.

and the former Soviet Union shifted to European and U.S. manufacturers for their aircraft. The
Russian government wants to protect domestic aircraft manufacturers from further erosion of
business. It imposes a 20% ad valorem tariff on imported aircraft. Russia argues that its aircraft
industry is operating at only 0-15% of capacity and is in great need of modernization. For it to
become competitive, it needs to be protected from foreign competition and therefore must apply
high tariffs to imported aircraft. The United States and EU are pressing Russia to sign on to the
plurilateral WTO Civil Aircraft Agreement (CAA) (only 26 members are currently signatories)
which commits the signatories to eliminate tariffs on trade in civil aircraft and some related
equipment. In an 1996 bilateral Memorandum of Understanding with the United States, Russia
stated that it would sign the CAA but has backed off that commitment during the accession
negotiations. Because its is a plurilateral agreement, a WTO member is not required to sign the
CAA as part of its obligations.
Russia does grant some tariff waivers to allow domestic airlines to fulfill needs that cannot be
accommodated by domestically manufactured aircraft. It has recently favored the European firm,
Airbus Industries in granting those waivers. The United States has demanded that the waivers 43
should be granted without favoring any particular company.
In addition to the above issues, the United States, the EU, and other working party members have
raised other issues about Russia’s trade and foreign investment regime and want Russia to make
changes as part of the conditions for its accession to the WTO. They include:
• Tariffs: The Russian government has lowered tariffs on most categories of
products in the tariff schedule. Nevertheless, it maintains high tariffs on some
items to protect fledgling industries from foreign competition. High tariffs on
autos, for example, have been a concern of U.S. manufacturers. Tariffs and excise
taxes (that vary depending on the engine displacement) can add over 70% to the
delivery cost of an imported new car. The Russian government also recently
increased tariffs on used vehicles that are 3-7 years of age because they compete 44
with Russian domestically produced new cars. U.S., Japanese, and Korean 45
delegations want Russia to lower tariffs on autos. The Russian government
asserts that the fledgling domestic auto industry requires some temporary
protection from more developed foreign producers in order to become
• Customs regulations: Some WP members have argued that the implementation
of federal customs regulations is inconsistent, leading to confusion and inhibiting
trade. Some also raised problems with the policy of restricting trade of certain
goods to specific ports, making it difficult for imported products to be delivered
to customers. Legislation establishing a new customs code is pending in the

43 USTR, p. 340.
44 USTR, p. 333.
45 Moscow Times, March 4, 2002, p. 12.

• Import licensing: The Russian government requires import licenses on certain
products: pharmaceuticals, sugar (to implement a tariff-rate quota on sugar
imported under Russia’s Generalized System of Preferences program), precious
metals and stones, and alcoholic beverages. Some WP members have expressed
concern that Russia might impose additional licensing requirements that would
further impede imports and are asking Russia to commit to removing import
restrictions and not impose new ones that are not consistent with WTO
requirements. Legislation to simplify the import licensing procedures is pending
in the parliament.
• Government procurement: WP members have requested that Russia join the
plurilateral Government Procurement Agreement which commits signatories to
open contracts for government purchases to bids from other signatory countries.
On November 19, 2006, USTR Susan Schwab and Russian Minister of Economic Development
and Trade German Gref, signed the bilateral agreement on Russia’s accession to the WTO and
accompanying sideletters while attending the APEC summit in Hanoi, Vietnam. The agreement
symbolized Russia’s reaching critical milestone in its WTO accession process, although other
milestones remain The agreement allowed the United States to address sensitive issues in its
economic relations with Russia, although the United States did not accomplish all of its original
objectives. Any debate in Congress on PNTR for Russia will likely include an evaluation of the
bilateral agreement. The agreement and the sideletters cover a broad range of issues.
The bilateral agreement addresses some sensitive issues regarding Russian imports of U.S.-origin
beef, some of which arose well after Russia’s WTO accession process began. Russia had banned
imports of beef and beef by-products since a case of bovine spongiform encephalopathy (BSE),
or “mad cow disease,” was discovered on a farm in Washington State in 2003. Under the bilateral
agreement, Russia agreed to permit the immediate resumption of imports of de-boned beef, bone-
in beef, and beef by-products from cattle younger than 30 months and to allow imports of beef
and beef by-products from cattle of all ages after the United States receives a positive evaluation
as a beef producer from the World Organization for Animal Health.
Under the agreement, Russia accepts U.S. Department of Agriculture’s Food and Safety and
Safety Inspection Service (FSIS) certifications of pork and poultry producing facilities for
producing products that can be exported to Russia and procedures to expedite the certification
process. Russia also agreed to accept U.S. freezing as a adequate measure to prevent trichinae
infestation in pork to be sold for further processing or for retail sale. Russia previously had only
allowed frozen pork to be imported for further processing.
The bilateral agreement also covers various Russian government tariff-related measures. It
commits Russia to continue to apply until 2009 the provisions of a U.S.-Russia bilateral
agreement on meat that established tariff-rate quotas including in-and over-quota tariff rates and
to conduct bilateral negotiations on the treatment of meat imports after the agreement expires.
The agreement also commits Russia to bind its tariffs on some agricultural products at current
levels and to lower tariffs on other agricultural products.

Russia has agreed to accede to the WTO Information Technology and Telecommunications
Agreement (ITA), which means that it will eliminate tariffs on information technology products.
It has agreed to comply with 95% of the ITA commitments within its first three years of WTO
membership. On the other hand, Russia did not agree to U.S. demands to accede to the WTO
Civil Aircraft Agreement but did agree to reduce tariffs on wide-body aircraft, parts for civil
aircraft, and on leased aircraft. It will also reduce tariffs on narrow-body aircraft. Russia has
agreed to establish procedures to expedite imports of products of encryption technology and
reduce duties on exports of scrap metal.
Regarding insurance, Russia acceded to U.S. demands that foreign insurance companies be
permitted to own 100% of insurance operations and to establish branches in Russia, but Russia
retains the right to impose limits on foreign direct investment in banking and insurance if the
share of foreign direct investment of total investments in those sectors exceeds 50%. After five
years, Russia will consider whether to lift the discretionary restriction on foreign investment in
banking and insurance. Russia still will not allow foreign bank branches to operate. Russia also
agreed to increase market access of foreign providers to other service areas including
telecommunications, audio-visual services, energy services, express delivery services, distribution
services, business services, and environmental services.
The bilateral agreement and sideletters commit Russia to strengthen enforcement of intellectual
property rights, including the elimination of plants that produce optical disks, closing down
websites that distribute pirated products, and strengthening enforcement at its borders to ensure
that pirated goods are not imported. Russia also made a commitment to accede to the provisions
of the WTO agreement on trade-related aspects of intellectual property rights (TRIPs) and to
protect proprietary information provided by pharmaceutical companies to obtain marketing
Russia still needs to complete negotiations with the working party. The working party members,
including the United States, have argued that Russia still needs to resolve issues regarding
government support of the agriculture sector and that its fulfillment of its commitments on IPR
protection and industrial goods trade will be closely watched by them before finalizing the 46
accession process.
The working party process has been placed on a formal hold, and the WP has been conducting
only informal meetings. Georgia has prevented formal meetings because of Russian restrictions
on Georgian exports and, more recently, over Russia’s recognition of South Ossetia and
Abkhazia. Furthermore, the Russian government said it is reconsidering (unspecific)

46 Much Work Remains Before Russia Will be Able to Join the WTO, U.S. Official Says. International Trade Daily.
November 24, 2006.

commitments its has made as part of the accession process, and Prime Minister Putin has
expressed doubts about the benefits of WTO accession to Russia.

The United States has supported Russia’s accession to the WTO since Russia first applied to join
the GATT in 1993. The U.S. government has provided advice to the Russian government on how
to make its trade and investment regime WTO compatible and to educate Russian firms on the
implications of WTO accession. Because the United States is the world’s largest economy, its
support is critical to the success of Russia’s application. However, the United States has also
insisted that Russia enter the WTO on “commercial terms,” that is, on terms that do not distort
trade, and that Russia immediately adhere to WTO agreements upon accession.
U.S. support for Russian accession is just one part of post-Cold War U.S. trade and economic
policy that has encouraged Russian endeavors to establish a market economy. And the trade and
economic policy is itself part of a larger U.S. foreign policy strategy to anchor Russia in the
world community and to reshape the U.S.-Russian relationship into one of cooperation.
U.S. support to Russia in the trade and investment areas has come in the form of technical
assistance, trade preferences (including tariff preferences under the U.S. GSP program), and
financial assistance to U.S. exporters to and investors in Russia through the U.S. Export-Import
Bank and the Overseas Private Investment Corporation (OPIC). Since 1992, the United States has
granted Russia conditional normal trade relations (NTR), or most-favored-nation (MFN), status,
which means that lower tariffs are applied to imports from Russia than was the case when Russia
did not have NTR status.
Recently, the Bush Administration has indicated that Russia’s accession to the WTO could be
jeopardized because of Russia’s August 2008 military incursion into Georgia and its recognition 47
the independence of South Ossetia and Abkhazia.
U.S.-Russian trade and investment flows have increased in the post-Cold War reflecting the
changed U.S.-Russian relationship, although they remain lower than what many observers
consider their potential. U.S. imports from Russia have increased substantially since the end of
the Cold War from $0.5 billion in 1992 peaking at $19.3 billion in 2007. U.S. exports have
increased but not as significantly, from $2.1 billion in 1992 peaking at $7.4 billion in 2007. Since
1994, the United States has incurred growing trade deficits with Russia, peaking at $15.1 billion
in 2006 but declining to $11.9 billion in 2007. The large increase in U.S. imports may reflect not
so much an increase in the volume of trade but the rise in world prices of raw materials,
particularly oil, that comprise the bulk of those imports.

47 International Trade Reporter. August 27, 2008.

Table 1. U.S. Merchandise Trade with Russia, 1992-2007
(in billions of dollars)
U.S. U.S. U.S. Trade U.S. U.S. U.S. Trade
Year Exports Imports Balances Year Exports Imports Balances
1992 2.1 0.5 1.6 2000 2.1 7.7 -5.6
1993 3.0 1.7 1.3 2001 2.7 6.3 -3.5
1994 2.6 3.2 -0.6 2002 2.4 6.8 -4.4
1995 2.8 4.0 -1.2 2003 2.4 8.6 -6.2
1996 3.3 3.6 -0.3 2004 3.0 11.9 -8.9
1997 3.4 4.3 -0.9 2005 3.9 15.3 -11.3
1998 3.6 5.7 -2.1 2006 4.7 19.8 -15.1
1999 2.1 5.9 -3.8 2007 7.4 19.3 -11.9
Source: Compiled by CRS from U.S. Department of Commerce Data. Bureau of the Census. FT900.
Despite the increase in bilateral trade, the United States and Russia still account for small shares
of each others exports and imports. In 2007, Russia accounted for about 0.6% of U.S. exports and
1.0% of U.S. imports. The United States accounted for 2.5% of Russian exports and 4.9% of
Russian imports. Major U.S. exports to Russia in 2006 consisted of machinery, vehicles, and meat 48
(mostly chicken), and major U.S. imports from Russia consisted of oil, steel, and aluminum. On
June 10, 2007, the Russian airline, Aeroflot, signed a contract to purchase 22 long-range Boeing 49

787 aircraft, a deal worth an estimated $3.5 billion.

The United States accounted for $4.6 billion in foreign direct investment in Russia in 2006. The
United States was technically the third largest source of foreign direct investment; however, the
first two, Cyprus and Luxembourg, are considered to be largely sources of repatriated Russian 50
capital rather than of original foreign capital.
U.S. exporters and investors claim that a number of factors make them cautious about entering
the Russian market: the lack of adherence to international standards of accounting; weak
enforcement of intellectual property rights; the lack of protection of share-holders rights;
burdensome taxation; and poor legal protection of contract sanctity. These concerns are largely
mirrored in the demands the United States has made on Russia during its negotiations in the
For their part, Russian policymakers have asserted that U.S. trade policy has also been slow to
adjust to the post-Cold War era. For example, they point out that the United States only recently
removed the “nonmarket economy status” that was applied in antidumping duty cases against 51
Russian imports. Under U.S. antidumping laws, “fair value” for imports from nonmarket
economies is calculated differently than for imports from other economies. That methodology
leads to higher dumping margins and antidumping duties and, therefore, placed imports from

48 CRS calculations based on data from the Department of Commerce, Bureau of the Census. Global Trade Information
49 Financial Times. June 11, 2007. p. 16.
50 The World BankTendentsii I perspectiva (Trends and Outlook). Russian Economic Report. April 2006. p. 242007.
51 Washington Trade Daily, June 7, 2002.

Russia at a competitive disadvantage vis-a-vis other imports or U.S. domestic production. In
response to requests from Russian steel producers, the U.S. Department of Commerce examined
the possibility of no longer treating Russia as a nonmarket economy and removed the designation 52
on June 7, 2002.
More critical for Russia has been the U.S. government’s continued application of the Jackson-
Vanik amendment to trade relations with Russia. Russia’s current conditional NTR status from the
United States is governed by Title IV of the Trade Act of 1974, as amended. Section 401 of Title
IV requires the President to continue to deny NTR status to any country that was not receiving
such treatment at the time of the law’s enactment on January 3, 1975. In effect, this meant all
communist countries, except Poland and Yugoslavia. Section 402 of Title IV, the Jackson-Vanik
amendment, denies the countries eligibility for NTR status as well as access to U.S. government
credit facilities, such as the Export-Import Bank, as long as the country denies its citizens the
right of freedom-of-emigration. These restrictions can be removed if the President determines that
the country is in full compliance with the freedom-of-emigration conditions set out under the
Jackson-Vanik amendment. For a country to retain that status, the President must reconfirm his
determination of full compliance in a semiannual report (by June 30 and December 31) to
Congress. His determination can be overturned by Congress via the enactment of a joint
resolution of disapproval at the time of the December 31 report.
The Jackson-Vanik amendment also permits the President to waive full compliance with the free
emigration requirement, if he determines that such a waiver would promote the objectives of the
amendment, that is, encourage freedom of emigration. This waiver authority is subject to an
annual renewal by the President and to congressional disapproval via a joint resolution. Before a
country can receive NTR treatment under either the presidential determination of full compliance
or the presidential waiver, both the United States and the country in question must have
concluded and enacted a bilateral agreement that provides for, among other things, reciprocal
extension of NTR (or MFN) status. The agreement and a presidential proclamation extending
NTR status cannot go into effect until a joint resolution approving the agreement is enacted. In
1990, the United States and the Soviet Union signed a bilateral trade agreement. The agreement
was subsequently applied to each of the former Soviet states. The United States first granted NTR
treatment to Russia under the presidential waiver authority beginning in June 1992 and, since
September 1994, under the full compliance provision. Presidential extensions of NTR status to
Russia have met with virtually no congressional opposition.
Russian political leaders have continually pressed the United States to “graduate” Russia from
Jackson-Vanik coverage entirely. They see the amendment as a Cold War relic that does not
reflect Russia’s new stature as a fledgling democracy and market economy. Moreover, Russian
leaders argue that Russia has implemented freedom-of-emigration policies since the fall of the
communist government, making the Jackson-Vanik conditions inappropriate and unnecessary.
While Russia remains subject to the Jackson-Vanik amendment, some of the other former Soviet
republics have been granted permanent and unconditional NTR-Kyrgyzstan on June 29, 2000,
and Georgia on December 29, 2000. Perhaps, what has particularly irked Russian leaders is that
on January 1, 2002, the United States granted permanent and unconditional NTR status to China,
which is ostensibly still a communist country.

52 Ibid.

Granting Russia permanent and unconditional NTR status will have little direct impact on U.S.-
Russian trade, since Russian imports have entered the United States on a NTR basis since 1992.
The initiative would be a political symbol of Russia’s treatment as a “normal” country in U.S.
trade, further distancing U.S.-Russian relations from the Cold War. For investors and other
business people, PNTR may mean a more stable climate for doing business. But many observers
have concluded that U.S.-Russian economic ties will grow only when Russia has undertaken
sufficient economic reforms to improve the climate for trade and investment.
It has a direct bearing on the WTO accession issue since the WTO requires its members to extend
mutual unconditional MFN status to one another’s exports. If the United States does not extend
permanent NTR to Russia, the United States would not benefit from the concessions, except tariff
reductions, that Russia makes upon acceding to the WTO.

Because the major trade powers—the United States, the EU, and Japan—strongly support
Russia’s entry into the WTO, the pending question is not whether Russia will accede but when.
The answer to that question depends on when Russia and the more than sixty members of the
working party can finish hammering out the conditions of accession. Negotiators have reportedly
reached agreement on most issues, but disagreements on difficult issues of energy pricing,
agriculture, services, civil aircraft, and intellectual property rights, have slowed down the process
and the original goal of accession by the September 2003 WTO Ministerial Meeting in Cancun,
Mexico unattainable. Several other desired deadlines have passed.
The stakes for Russia in joining the WTO are high. Russia’s political leadership, led by Putin, has
made a commitment to join the WTO. In his April 18, 2002 address to the Federal Assembly, the
bicameral Russian legislature, Putin underscored his administration’s priority to get Russia into
the WTO. In the speech, Putin emphasized the need for the Russian government to establish the
conditions to improve the economic well-being of the Russian people and linked that effort with
joining the WTO:
Tight competition is a norm in the international community and in the modern world,
competition for markets, investments, economic and political influence. Russia must be
strong and competitive in this fight.
The world market is already here and our market has become part of the system...
The WTO is an instrument. He who knows how to use it grows stronger; he who prefers to
sit behind a fence of protectionist quotas, and dutieshe is doomed, absolutely doomed
Our country is still excluded from the process of making world trade rules. We are already in
the world trade but we have no say in shaping the rules of trade. This tends to stunt the 53
Russian economy and make it less competitive.

53 Annual Address by President of the Russian Federation Vladimir Putin to the Federal Assembly of the Russian

In acceding to the WTO, Russia is making a legally binding commitment to conform to WTO
rules. In so doing, it agrees to make its foreign trade and investment regimes open to the scrutiny
of the WTO and its members. At the same time, the WTO provides a multilateral forum for
Russia to settle trade disputes with other WTO members. As a WTO member, Russia will have a
voice in how those rules are made and implemented. It would be a major step in integrating
Russia within the international trade system.
But before it can accede to the WTO, Russia must satisfy WTO members that it is ready to meet
its obligations. The working party negotiations and the bilateral negotiations to date suggest that
those countries are not satisfied and require that Russia make major adjustments in policies and
The adjustments include reviewing and possibly changing more than 100 Russian laws and 54
reviewing more than 1,000 international agreements that Russia has with various countries.
However, the overall impact of WTO accession on Russia will depend on the terms and
conditions of accession that Russian and its trading partners in the WTO finally agree on. In
general, Russia will likely have to reduce tariffs and other protective measures for import-
sensitive industries such as autos and aircraft and will have to open up key financial service
industries—banking and insurance—to foreign competition. In the short run, such adjustments
could lead to the loss of jobs in those areas and the need for the Russian government to provide
unemployment insurance and other adjustment assistance.
However, globally competitive industries, such as the raw material producers, could see markets
abroad opening up and an increase in foreign investment as accession forces Russia to restructure
its economy. In the long run, mainstream economic theory and the record of economies that have
gone through similar transitions suggest that trade liberalization will lead to a more efficient 55
Russian economy and to raising the living standard of the average Russian citizen. New
industries will probably emerge over time helping to diversify the Russian economy.
The Russian business community is divided on the issue of accession. Some have expressed
skepticism if not out right opposition to accession. Among this group is Oleg Deripaska, an
influential and powerful aluminum and auto business magnate. He is concerned that WTO
accession will force Russia to eliminate protection and that the domestic auto industry will face
competition from U.S., European, and Japanese manufacturers. He is also concerned that Russia
would have to charge higher prices for energy, a major input in aluminum production. Similarly,
representatives of aviation, furniture, financial services, telecommunications, and agriculture have
asserted that Russia stands to lose more than it will gain from accession because Russia has not 56
matured sufficiently to meet the competition.

Federation Moscow, April 18, 2002,
54 Likhachev, Aleksei Evgenievich (State Duma Committee on Economic Policy and Enterprise), Presentation at Adam
Smith Institute International Congress on Russias Accession to the WTO, October 16-17, 2002, Moscow.
55 For an examination of the possible economic impact of accession see, Stern, Robert M., An Economic Perspective on
Russias Accession to the WTO, William Davidson Working Paper Number 472, June 2002, The William Davidson
Institute at the University of Michigan Business School.
56 Financial Times, April 15, 2002.

Views on accession cut across regions with support coming from regional political leaders in the
major business centers of Moscow and St. Petersburg and in regions where raw material
production is located. Political leaders in regions where fledgling import-sensitive manufacturers
are located have been skeptical or opposed to accession. For most Russians, accession has not 57
attracted much interest.
Putin and the current Russian political leadership have made economic growth and development
their highest priority and they view Russia’s admission into the WTO as an essential part of the
strategy to fulfill those goals. Putin appears to view the accession process as a way of forcing the
government bureaucracy, the Duma, and Russian industry to confront the changes that are
required if Russia is to attain long-term sustainable economic growth and development. While
Putin’s political future probably does not depend directly on whether Russia gets into the WTO, it
will likely be evaluated on the basis to what degree economic life in Russia has improved.
WTO accession would be a further sign of Russia’s acceptance and participation in the major
multilateral economic institutions: the World Bank, the International Monetary Fund; and the G-

8. In so doing, Russia would distance itself further from its Soviet past.

For U.S. exporters and investors, Russia’s accession to the WTO may improve the business
climate in Russia which has been unpredictable. The U.S. business community often cites poor
intellectual property rights protection, inconsistent and opaque customs regulations, inconsistent
enforcement of the regulations, and irrational SPS and technical trade barriers as among the
impediments to trade and investment. Accession could bring more stability and openness in the
business climate since Russia would have to adhere to WTO rules that promote these conditions.
The volume of U.S. imports from Russia has been low primarily because Russia’s limited export-
base. Nevertheless, some U.S. import-sensitive industries, for example steel, may face increased
competition from Russian producers. These industries may press U.S. negotiators to include as
part of the terms and conditions for Russia’s accession, a special safeguard provision, beyond that
provided in the WTO agreements, that would cushion the potentially adverse impact of a large
increase in Russian imports upon accession. Such a provision was included in the conditions for
China’s accession to the WTO and was codified in U.S. law as Section 421 of the Trade Act of


Similar to Section 201 (escape clause) provision of the Trade Act of 1974, Section 421 allows the
United States to temporarily restrict fairly traded imports that cause or threaten to cause injury to
the domestic injury. Unlike Section 201, however, Section 421 permits the restrictions to be
applied solely to imports of like products from China, rather than requiring them to be applied on
an MFN basis on imports of like products from all countries. In addition, the required thresholds
of cause and level of injury to the domestic industry for relief under Section 421 is lower than
under Section 201. Section 201 requires that imports be a “substantial” cause of “serious injury,”
whereas Section 421 requires only that the imports be a “significant cause” of “material injury.”
For many in the U.S. business and agricultural community, the issue is not whether Russia should

57 EastWest Institute, Regional Report, vol 7, no. 22, July 10, 2002.

be allowed to join the WTO but one of assurance that Russia will enter under conditions that are
commercially sound and will have minimal negative impact on U.S. industries.
Russia is the largest and most populous country that is not a member of the WTO. If Russia
accedes, it would significantly expand the geographical coverage of WTO rules to all major
economies leading to a larger degree of stability and transparency to the international trading
At the same time, Russia’s entry into the WTO would continue a trend in which as the
membership of the WTO becomes larger and more diverse, it becomes more difficult for that
membership to reach a consensus on important issues. In addition, trade disputes between Russia
and its trading partners will be brought to the WTO for resolution rather than addressed
bilaterally, adding to the ever growing caseload of the WTO.
As an economy still in transition, Russia would bring its own perspective to WTO negotiations.
For example, Russia could be expected to challenge the positions the United States and other
countries have taken in the WTO on the role of subsidies in trade and the degree to which trade in
services should be liberalized.
William H. Cooper
Specialist in International Trade and Finance, 7-7749