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Breaking The Impasse On Russia's WTO Bid

Direct agricultural subsidies in Russia are at the heart of one of the problems.

Direct agricultural subsidies in Russia are at the heart of one of the problems.

Russia's on-again, off-again plan to pursue World Trade Organization (WTO) membership bid jointly with Kazakhstan and Belarus (first announced in June 2009) remains up in the air. Russian Deputy Prime Minister Igor Shuvalov was recently quoted as saying that Russia had decided to move forward on WTO membership on its own. However, the Kremlin quickly issued a clarification, saying Moscow's position will only be determined after a summit of the three countries' Customs Union on July 5. At this point, there is no telling what the result of that meeting will be.

But it's a safe bet that the course selected at the July summit will have been chosen because Moscow feels that is its fastest track into the WTO. Some Western media have emphasized Prime Minister Vladimir Putin's supposed opposition to the WTO -- which is simply a manifestation of the "good cop, bad cop" modus operandi Russia's ruling tandem has adopted for foreign-policy purposes. They seem to forget that Putin started Russia's accession process practically from nothing in 2000 and fought to bring it nearly to completion over his two terms as president.

Putin has emphasized repeatedly since the beginning of his presidency that opening up Russian markets to competition and adopting WTO rules are the only path to stimulating innovation and attracting investment to Russia's decaying industry. "The key thing now," Putin famously said in 2000, "is not to sleep through WTO entry."

Farm Fuss

Many in the West are also awaiting the opening of Russian markets as a balm for their struggling economies. However, few have been able to follow the twists and turns of Russia's seemingly never-ending accession story.

The single most daunting barrier to Russian WTO membership is rather technical, but it has so far proven irresolvable: WTO rules prohibit an acceding country from increasing its direct agricultural subsidies above the average level it paid during the three years prior to joining. The problem is that Russian state aid to this sector has been very low -- so low, in fact, that its agricultural sector was on the verge of bankruptcy even before the global economic crisis struck. Withdrawing the sector's current bailout package would wipe out Russian farmers as a class. In fact, Moscow's argument that it should have an exceptional right to increase agricultural allowances has considerable merit, as even the planned increases would leave Russia's subsidy level well below that of the European Union.

Nonetheless, the West is standing on principle. Western governments feel that the violation of a core WTO rule, even as an extreme exception, would create a precedent that could wipe out all the U.S.-sponsored achievements to date in liberalizing the international food trade. The decade-long Doha round of WTO reform talks, which has focused particularly on the further reduction of "market-distorting" farming policies, could be completely undone.

Moscow's answer to this stalemate was the "customs union trick." By entering as a single bloc with Belarus and Kazakhstan, Russia would in theory be able to share their subsidy quotas and bypass this obstacle. Belarus in recent years has subsidized its farmers at a level nearly twice as high as its giant eastern neighbor. Moreover, Belarusian President Alyaksandr Lukashenka seems to have essentially abandoned his claim to Belarus's quota, having pledged repeatedly to end all direct transfers to farmers by the end of this year. If he followed through on that pledge, it would clear enough room for both Russia and Kazakhstan to make their planned subsidies and still remain within the limits.

But this "elegant solution" faces great difficulty in its practical implementation. Accession as a bloc would be unprecedented and, consequently, would cause myriad bureaucratic problems.

Increasingly Complicated

Perhaps more importantly, though, the project has run into difficulties within the customs union as well. Lukashenka, the region's enfant terrible, is actively using his leverage to blackmail the Kremlin for even more energy and trade concessions. It is a frightening prospect to think that something as important as this phase in the WTO's development may well be in large part in the hands of Lukashenka, one of the world's most notoriously unpredictable players. In addition, the project of bringing Belarus's largely Soviet-style economy into line with WTO requirements will likely bring delay after delay.

In short, judging by events since Moscow first announced the customs union trick last June, it may well turn out that this tactic is just as hard to execute as it would be for the Kremlin to bargain for an individual exemption from the WTO agricultural-subsidies rule.

Over the past two years, Moscow has spent enormous efforts to push through either of these two possible accession schemes. The Kremlin has made concession after concession on practically all other remaining issues -- including beginning the painful process of liberalizing domestic energy tariffs and agreeing to a schedule for ending subsidies to its main industrial giants.

In addition, Moscow has signed deals worth billions on long-standing disputes with or has offered lucrative concession to many major agricultural powers including Ukraine, Malaysia, Argentina, and Canada in order (among other things) to forestall objections to the desired WTO exemption. The Kremlin has secured the support of the European Union and dozens of individual countries for its position.

Ball In Washington's Court

The global economic crisis has made the matter of WTO entry all the more urgent for Russia. The Kremlin's various stimulus packages – including some $2 billion for the giant automaker AvtoVAZ – have generally been ineffective because of a lack of domestic innovation and expertise. The threat of further bankruptcies and layoffs present considerable economic and political dangers to Russia's rulers. At the same time, the West is also increasingly interested in opening up Russia's markets to stimulate its own recovery.

In fact, for all intents and purposes, the United States is the last man standing -- the sole serious defender of strict agricultural-subsidy reform. In a statement just days ago, Washington again welcomed Moscow's determination to join the WTO but repeated its position that Russia would have to comply with all WTO rules in order to take a seat at the table.

Russia has worked steadily in recent months to boost its relations and leverage with the U.S. leadership. Washington has finally gained access to Russian airspace for the transit of lethal military cargo to Afghanistan, and the Kremlin has hinted that is could back the U.S. call for additional international sanctions against Iran, Russia's closest ally in the Middle East. Moscow periodically floats indications that the current détente between the two countries could well evolve into a powerful partnership.

Moscow insists the ball is now in Washington's court and is pushing U.S. President Barack Obama to accept one of the two accession plans the Kremlin is offering. If he refuses to do so, there is almost no prospect that Russia will join the WTO in less than two years. Although Russia will certainly continue its effort to join the trade group, the opportunities currently available to build the U.S.-Russia relationship will be significantly compromised.

So what will Obama do?

Stas Ivashkevich is a broadcaster with RFE/RL's Belarusian Service. The views expressed in this commentary are the author's own and do not necessarily reflect those of RFE/RL

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