On 22 August 2012, the World Trade Organization welcomed the Russian Federation as its 156th member. Almost two decades of negotiation have resulted in the Russian federation gaining the benefits of trading by well-known and enforceable global rules, but also the obligations to trade fairly. Business without Borders correspondent Paul Gallant spoke with Greg Tereposky, a partner in the international trade and investment practice in the law firm Borden Ladner Gervais in Ottawa, on what Russian’s accession to the WTO means for Canadian business.
Photo: AFP/Getty Images
Why did negotiations take so long?
There were many problems within the [Russian] economy that really prevented it from making the fundamental changes that were necessary to become a member of the WTO. It was converting from a non-market into a market economy. In 2000, when Putin began his presidency, he made a major commitment to integrating Russia into the world economy, and that included a commitment to the WTO. Around 2008, there were a lot of things that were happening in the economy [which] slowed things down, and so again there was an ebb in priorities.
What did Russia have to do to gain membership?
It’s a funny process because the WTO is a multilateral organization where all decision-making is by consensus, and most things are done in the context of a multilateral negotiation. But in an accession negotiation, around 60 countries were actively involved in the process, and any of those countries can request bilateral negotiations, so there were a number of bilateral negotiations between Russia and other countries, of course the European Union and the United States.
How will Russia’s accession change the way Canadians do business there?
You have to view the WTO in the context of a number of other initiatives Russia is undertaking. Joining the WTO gives it a credibility boost in the sense that it is now playing by the global trade rules, and if it doesn’t play by those rules it’s subject to dispute settlement. Not only does Russia benefit from this credibility, it’s now obliged to comply with very detailed international rules. Some important aspects of those rules are transparency, due process, non-discrimination and fairness—all the things that international business values quite highly.
Russia has signed onto these obligations. They bind the government to act in a certain manner. The WTO is part of a much broader economic policy that Russia is well on its way to. Another very important step was the actions that Russia’s taking in the OECD. The OECD has a number of agreements and regulatory regimes. One of them deals with issues related to corruption. Russia has ascribed to [corruption] rules under the OECD and other areas, and is on its way to becoming a full member of the OECD. In addition, Russia’s made a commitment to a very important regional trade group that is in a state of development. This a customs union and a common economic space with Belarus and Kazakhstan. Customs administration is a very complex area in any country, and in Russia there were many bureaucratic challenges. It has made great strides in improving that, and the goal I believe is to have a what’s referred to as the Eurasian Economic Union.
How does membership reshape the trade and investment relationship Russia has with Canada?
If you look at pork, beef and poultry, products that Canada exports around the world are subject to very strict border restrictions in Russia. Duties basically block (prior to WTO) those goods from coming in. With the WTO they’ve created these market access windows, which are called tariff-rate quotas. They apply a lower tariff for a certain amount of product coming in, and Canada’s pork, beef and poultry exports will definitely benefit from that. [Also benefitting will be] agricultural machinery, aircraft and aircraft components.
Keep in mind when you look at the Canadian aerospace sector that we’ve got the big-picture items like Bombardier that actually assembles aircraft, but the broader part of the sector is in components manufactured here. We have world-class competitive component industries, and these are seen as a sector that will really benefit from lower tariffs on products and more open access and less bureaucratic hurdles in Russia. Other areas that have been discussed as benefitting are IT goods, mining, oil and gas equipment, pre-fabricated buildings and building products. Canada has this incredible industry sector for pre-fab buildings and building products, and there’s a huge amount of development of homes and premises in Russia in many different regions—another area that will benefit.
What sectors are not going to be affected by Russia’s entry?
I don’t see anything leaving out a Canadian sector.
How would a Canadian business think differently about, say, investing in Russia now that it’s in the WTO? Is there more security?
That would be the No. 1 thing. It’s more secure and more predictable. It’s not an instant cure, it’s a direction and a commitment, and there’s going to be some hiccups as Russia implements go along. And there’s a commitment to maintain that predictability and transparency.
Has the legal process changed for business civil disputes?
The practical reality is under trade agreements, the rules give you an objective framework to determine whether something’s being done that shouldn’t be, and which direction to make changes to improve. So if a Canadian exporter has problems in Russia, they bring it to the attention of Canadian trade officials. Because Russia’s now a part of the WTO, there’s all this infrastructure in Canada to deal with these issues, and very often it’s at the administrative level that they’ll be resolved. I’ve worked for Mexico for 20 years and got to live through developments in NAFTA and the WTO. The vast majority of issues are dealt with at an administrative level. They don’t find their way into court, they don’t find their way into dispute settlement.
Do the benefits of WTO membership outweigh Russia’s political risks?
That’s a very common question about Russia, and there’s always a concern about government management at all levels in any country. The Putin government is giving a signal they’re going to abide by the international rules.
Is there a matter of timing?
Everybody recognizes it’s going to take time, everyone who’s done work in Russia realizes that you’ve got to be patient and develop the relationships. It’s a foregone conclusion that opportunities are there, they’re going to happen, and all the problems that have been encountered in the past are going to get resolved. Do you wait until everything’s perfect before jumping in, or do you get in now knowing that all these issues are going to get resolved. That’s where the opportunity is, and that, in my view, now is the time to get into Russia. Yes there have been challenges and disappointments in the past, but we now have a commitment, and you can’t have any stronger signal than WTO, OECD, APEC and these other initiatives. Canada-Russia economic issues are already on the upswing.