With Russia’s WTO Bid at Hand, Lithuania Counts on MFN Status

By Linas Jegelevicius (November 24, 2011)

While Lithuania was cozying itself up to Russia’s pending membership in the World Trade Organization (WTO), Russia’s apparent other pursuit – establishing the Eurasian Union, which is said to be the brainchild of incumbent PM Vladimir Putin – has taken it aback, making high echelon politicians newly speculative about Russia’s true goals.

“The post-Soviet Eurasian Union is an alternative and contra-argument to the European Union. Furthermore, it is a hurdle for EU expansion to the East. If Russia succeeds, the Eurasian Union will be just another variety of the Soviet Union. I see Russia’s drive for WTO membership and establishment of the Eurasian Union as deliberately entwined. As far as the pro-Russia Eurasian’s possibilities to use WTO membership as a political weapon are concerned, I would rather withhold from expressing my opinion. Let the boss [it remains unclear whether Landsbergis referred here to Lithuanian President Grybauskaite] figure it out,” the patriarch of Lithuania’s modern history, Vytautas Landsbergis, said to The Baltic Times.

If Russia’s WTO bid is approved unanimously by WTO’s 153 member states, Russia will secure the 154th slot in the member list, an ordinary spot for an extraordinary country, one which is known for bending international rules.
If Russia proceeds with establishing the Eurasian Union, Russia will play, no doubt, the first fiddle in it, orchestrating the whole band, a more comfortable role for Russia. How the two – Russian WTO membership and Russia’s leading role in establishing the pro-Soviet Eurasian Union – interlace still remains a question for most political analysts, puzzled about the simultaneity of both Russian efforts.

“Whatever Russia does and whatever organization it joins, it will not be satisfied with an observer’s passive role. It is very possible it will try to bend the rules for its own sake; however, speaking of the WTO, rule-bending might be too difficult, as WTO decisions are passed by a unanimous consensus. Just three years ago, no one believed in Russia’s imminent WTO membership. Particularly after the 2008 Russian-Georgian war over South Ossetia, as it seemed that Georgia, a WTO member, would never give in to any arguments for Russian membership. Nevertheless, we see that the hurdle has been cleared, paving for Russia an obstacle-free way to the WTO,” Virginijus Mikalkenas, a political science graduate, said to The Baltic Times.

Membership seems so inevitable today that no one even tries to challenge it. “Russia and Georgia reached an agreement on Russia’s entry into the WTO,” Russian chief negotiator Maxim Medvedkov said on Nov. 3. “Now we have only some little technical details to approve our bid; the most important things are behind [us].”
With 2 percent of global gross domestic product, Russia is the biggest economy and the only country of the G-20 group outside the WTO, whose members carry 97 percent of world trade. The world’s biggest energy producer is counting on WTO entry to help lure foreign investment and reduce its reliance on energy exports, which account for 40 percent of budget revenue.

Besides the Georgian hurdle, Russia, apparently, has also cleared another major obstacle when the WTO Working Party on its accession approved, on Nov. 10, the package spelling out Russia’s terms of entry. The Working Party is to send its accession recommendation to the Dec. 15-17 Ministerial Conference, where ministers are expected to approve the documents and grant Russia membership.

“It has been a long journey, but today 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 system provides important guarantees for Russia and for the 153 other members of our organization. This win-win result will bring Russia more firmly into the global economy and make it a more attractive place to do business,” said WTO Director-General Pascal Lamy.

“It is gratifying to see that after 18 years of sometimes uneasy negotiations, the process of WTO accession is completed today. The agreement as negotiated brings us into the system of multilateral trading rules, creating new opportunities for our traders and investors and enabling us to protect their commercial interests even more effectively than before,” said Maxim Medvedkov, chief negotiator for the Russian Federation.

As part of the accession, Russia has concluded 30 bilateral agreements on market access for services and 57 on market access for goods. The Russian Federation has committed to fully apply all WTO provisions, including on telecommunications; the foreign equity limitation (now 49 percent) would be eliminated four years after accession; on average, the final legally binding tariff ceiling for the Russian Federation will be 7.8 percent compared with the 2011 average of 10 percent for all products, and others.

Upon the WTO and Russian agreements, quantitative restrictions on imports, such as quotas, bans, permits, prior authorization requirements, licensing requirements or other requirements or restrictions that could not be justified under the WTO provisions, would be eliminated and not re-introduced.
Putting the dry language of diplomatic statements and statistics away, many in Lithuania wonder how, with Russia in the WTO, Lithuanian economic interests will be affected? Or will they be affected at all?
Landsbergis seems to be relentless when it comes to Russia: “Only those who do not know Russia well can believe that it will comply with all the rules of international trade. Not only with those which are beneficial to it. Now all questions about Lithuania’s possible vulnerabilities are well overdue; however, let me remind you that Lithuania, supporting Russia’s WTO bid, had not even raised the demand for it to return all our citizens’ stolen savings,” the euro parliamentarian said.

To the question on whether Lithuania will be able to influence WTO’s future decisions, those which might be in the interests only of Russia, the Lithuanian political patriarch did not give a definite answer: “It is necessary to thoroughly study the pro-Russian decision-influencing and vetoing leverages. I have no doubt that Russia will try to impact WTO decisions once it is granted membership. The current Russia, I reckon, will behave only according to its own rules and principles, not to the principles of the international trade benefit. Whether Russia, given a slot in the WTO, does not start marauding by imposing its own tariffs for air flights over its space and the use of international pipelines running through its territory, we will all see soon,” Landsbergis asserted.

Povilas Gylys, a prominent Lithuanian economist and former minister of Foreign Affairs, has a less edgy stance on the Russian WTO accession. “Russian membership will not impose any threats to any other country, Lithuania included, if the [WTO] will stick to its main principle it has been famous for – non-discriminatory policies arising from the WTO-cherished status of most favored nation [MFN]. MFN is a status or level of treatment accorded by one state to another in international trade. The term means the country which is the recipient of this kind of treatment must, nominally, receive equal trade advantages as the ‘most favored nation’ by the country granting such treatment. Trade advantages, among other things, include low tariffs or high import quotas. In effect, a country that has been accorded MFN status may not be treated less advantageously than any other country with MFN status. The WTO member states agree to accord MFN status on each other,” Gylys said.

However, some exceptions allow for preferential treatment of developing countries, regional free trade areas and customs unions. In addition, MFN status allows smaller countries, in particular, to participate in the advantages that larger countries often grant to each other, whereas on their own, smaller countries would often not be powerful enough to negotiate such advantages by themselves.

Granting MFN status has domestic benefits: having one set of tariffs for all countries simplifies the rules and makes them more transparent. MFN restrains domestic special interests from obtaining protectionist measures.
Will they suffice not to impair the Baltics’ interests against the Russian agenda? “The MFN principle is one of the cornerstones of WTO trade law. If Russia violates this basic principle in regards to treatment of Lithuania, our country will be entitled to apply to the WTO Appellate Body and settle the dispute there,” Gylys said to The Baltic Times.

Speaking of possible disputes among WTO members, the professor brought up the example of the EU and the U.S. 2004 dispute over alleged EU illegal subsidizing of the aviation giant Airbus, an allegation by the United States brought to the WTO Appellate Body. The Appellate Body ruled that certain subsidies provided by the European Union and certain member state governments to Airbus are incompatible with some WTO agreements, and that they have caused serious prejudice to the interests of the United States.

“I do not see why a similar appeal could not be brought against Russia by Lithuania if there turns up a bilateral dispute,” Gylys said. He added: “I would rather downplay the concerns about possible threats to Lithuania stemming from Russian WTO accession than exaggerate them. Lithuania can always rely not only on the WTO’s non-discriminatory MFN principle and the organization itself, but also on EU membership, which both are huge levers even against Russia,” Gylys inferred.

Political analyst Ceslavas Iskauskas points out that Russia, having agreed on the WTO terms regarding participation in other trade organizations while getting ready for the WTO, has not yet solved the issue of its membership in the Customs Union of the Commonwealth of Independent States (CIS), founded as a replacement to the Soviet Union. “WTO rules do not allow its member states to participate in other trade and customs organizations. Will the Russian membership be overlooked by the WTO? It also remains unclear how Russia has solved another issue – its participation in CIS’ Free Trade Zones which, essentially, encompass the framework of a possible Eurasian Union, the idea of which Russia has been nurturing with a passionate zest lately,” Iskauskas notes.

Lithuanian Foreign Minister Audronius Azubalis has described the Russian WTO bid as “a long-awaited step.”
“Russia’s WTO accession value will truly reveal itself only if Russia meets its WTO obligations, and if, amid negotiations with the EU over the new Partnership and Cooperation agreement, [it] will assume wider commitments in regards to trade and energy,” Azubalis said recently in Brussels. He added, certainly referring to Russia’s Eurasian Union bid: “If Russia devoted as much time and effort for its domestic democratization and modernization as it dedicates now for its power strengthening and the Eurasian Union, this Russian-EU partnership might be more cohesive.”

Meanwhile, Lithuanian policy makers, giving the green light for the Russian WTO bid, are certainly much more concerned about the Russian, Belarusian and Kazakh Nov. 18 agreement launching the framework for the would-be Eurasian Union. “It is necessary to review our policies. The three post-Soviet countries’ agreement does strengthen Russian power and diminishes our importance, in the sense of economics, at least. Obviously, new money donors and new sources appear in the East. This urges us to come up with new landmarks for our policies,” Justinas Karosas, a parliamentarian and a member of Seimas Foreign Affairs Committee, warned.