Russia WTO Entry Terms Agreed

The following is taken with permission from a research note issued by Chris Weafer, Chief Strategist of Troika Dialog. 

WTO: Entry Terms Agreed 

As expected, the Russia-WTO working group yesterday cleared all remaining issues and set out the terms for Russia to join the trade body in mid December. Assuming Russia’s membership is approved at the WTO Council meeting (Dec 15-17), the Duma will have to ratify the entry terms early in 2012 and Russia would then officially become a member 30 days after it notifies the WTO that ratification is completed. 

There are no major surprises in the agreed terms. Russia has secured a lengthy compliance period in respect of tariff changes affecting the most sensitive areas, such as auto manufacturing and parts of agriculture. So, as we stated previously, WTO entry will not have any immediate direct impact on the economy or industrial sectors but it does provide a framework and timeline for the government and Russian enterprises to accelerate efforts to improve competitiveness. It is hoped that the government will now use the obligations of membership as the backdrop to its pursuit of a more active reform program. Otherwise, it would not have accelerated efforts to join before the start of the next presidential term. 

Main terms 

The average import tariff will be cut from 10% to 7.8%. Russia has agreed to lower one-third of the tariffs from the date of accession. A quarter will take affect after a 3 year lead time while other tariff changes, e.g. affecting autos and aircraft, will come in effect after 7 years. Some agriculture tariff changes will have an 8 year concession period. 

Agriculture:         For agriculture imports the average import tariff will be cut from 13.2% to 10.8%. Dairy import tariffs will fall from 19.8% to 14.9% and for cereals from 15.15 to 10.0%. Import tariffs for poultry products will have a concession period of 8 years. Total agriculture subsidies will be capped at $9 bln in 2012 and cut to $4.4 bln by 2018. 

Manufacturing:         For manufactured goods the average import tariff will be cut from 9.5% to 7.3% 

Autos:         The import tariff will be cut from 15.5% to 12.0%. But the concession period is 7 years. Russia will also eliminate preferential tariffs for automakers making large investments in Russian-based production by July 1 2018. 

Chemicals:                 The import tariff will fall from 6.5% to 5.2% 

Gas:         Russia agreed to develop market-based pricing for the domestic market but will keep regulating prices for households and non-commercial users. 

Telecoms:         The current limit for foreign equity ownership of 49% will be scrapped after 4 years 

Banks:         100% foreign owned banks will be allowed operate in Russia but with an overall limit of foreign bank control of the banking market set at 50% 

Insurance:         Foreign insurance companies will be able to open fully owned branches but only 9 years after Russia joins the WTO 

Services:         100% foreign owned companies will be able to operate in the wholesale, retail and franchise sectors with immediate effect after membership. 

Aviation:         Foreign made aircraft will qualify for the same leasing benefits as Russia made aircraft 

Customs:        The maximum custom clearance fee will be cut by two-thirds to 30,000 rubles ($970) 

Railways:         Transport costs for Russian and foreign made goods will be equalized by July 1 2013         

Privatizations:        Russia agreed to fully privatize United Grain Company in 2012 and to sell 50%+1 share in Rosagrolizing by 2013. Both of these companies are on the previously published list of state companies to be privatized. As part of the entry terms, Russia has also agreed to report regularly to the WTO on progress concerning the larger privatization programme. It is hoped that this too will provide a greater incentive for faster progress than seen to date. 

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