U.S. Needs To Establish Normal Trade With Russia As WTO Member

U.S. Needs To Establish Normal Trade With Russia As WTO Member
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Russian finally joined the World Trade Organization (WTO), which is responsible for regulating and maintaining a fair playing field for global trade. Russia became WTO’s 156th member after 18 years of uneasy negotiations. According to the WTO, Russia is “committed to apply all the WTO provisions, with recourse to very few transitional periods.”

U.S. Needs To Establish Normal Trade With Russia As WTO Member

Its membership to the organization will lead to the removal of trade barriers, increase opportunities for Russian corporations to expand their business operations internationally, attract foreign investment, and lower the prices of imported goods in the country.

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WTO Director General Pascal Lamy said, “Russia has taken a big step towards its destination of membership in the WTO. In acceding to the WTO, Russia embraces a series of rules and commitments that are the foundation of an open, transparent and non-discriminatory global trading system…This win-win result will bring Russia more firmly into the global economy and make it a more attractive place to do business.”

Russia agreed to accept a string of rules and commitments as a guarantee for an open and transparent environment for international trade and investment and to speed up its integration in the world economy. Russia signed 57 bilateral agreements on market access for goods and 30 bilateral agreements on market access for services.

Based on the study conducted by the World Bank, Russia membership to the WTO will provide 3.3 percent, or $49 billion annual GDP gain in the medium term, and more than 99 percent of Russian households will gain income.  For the long-term, Russia will gain an additional 11 percent or $162 billion annually, due to increased trade.

Majority of sectors will increase in competitiveness and profitability, due to lowered input costs and increased prices for exports. Appropriate government policy focused on providing assistance and resources to retrain and relocate displaced workers to higher wage jobs, instead of subsidizing declining sectors, or delaying the adjustment to a more productive economy, is necessary.

Analysts believe Russia’s automotive industry is vulnerable due to the implementation of lower tariffs. Ovanes Oganisyan, analyst at Troika Dialog, said the automotive industry will not collapse immediately. The country’s largest automaker, AvtoVaz will continue to manufacture 700,000 cars per year. There will be more competition, and “if AvtoVaz doesn’t change in seven years, it will have to go out of business,” according to him.

The World Bank suggested for Russia to complement its WTO accession with improvements in the business climate for all entities doing business in the country (Russian and foreign), to ensure a stronger diversification, modernization, and growth.

According to Bloomberg, a study conducted by Anders Aslund, senior fellow at the Peterson Institute for International Economics, showed that Russia has an increasing demand for American products, such as meat and advanced machinery. In 2011, the United States shipped $8.3 billion worth of goods, and entered $11 billion worth of business transactions in health care, finance, and tourism services in Russia. Aslund said the amount of America’s business with Russia will double within the next five years.  Russia will definitely provide revenue growth for American companies like Tyson Foods, Inc. (NYSE:TSN) and General Electric Company (NYSE:GE).

Charles Kupchan, a senior fellow at the Council on Foreign Relations, said the corporations in the United States would pay higher tariff rates than companies from other member countries of the WTO, because of the existing Janok-Vanik Amendment, a Cold War Law prohibiting normal trade relations with Russia.

USA Today quoted a statement from Andrew Somers, President and CEO of the American Chamber of Commerce, regarding the cold war legislation. He said, “The last thing that America needs right now is for foreign companies to have lower tariff rates than American companies. Business hates uncertainty, if the Jackson-Vanik Amendment remains on the books and the U.S. continues not to have normal trade relations with Russia, who knows what will happen.”

Acting U.S. Commerce Secretary, Rebecca Blank, commended Russia’s accession to the WTO.  According to her, its membership will bring “140 million consumers and $1.8-trillion economy into the global rules-based trading system.” In addition, Blank encouraged the United States Congress   to terminate the application of the Jackson-Vanik Amendment with Russia and authorize the establishment of permanent normal trade relations with Russia.”

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