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Opinion / Comment

Wednesday, August 30, 2006 (Issue 3486) at Page 7 …….

U.S. WTO Stance a Thing of the Past

By Stuart S. Malawer

One important issue from July's G8 summit in St. Petersburg has significant implications for the United States and the global trading system, but received little play in the Western media: Russia's accession to the World Trade Organization. The United States has glaringly politicized this issue for domestic purposes, while its actions in St. Petersburg provided many important lessons for U.S. trade and foreign policy.

The Russian government approached the summit as a major milestone. President Vladimir Putin highlighted his great domestic popularity and Russia's economic revitalization as a result of its oil and gas exports and booming commodity markets. The summit also cast a spotlight on St. Petersburg -- Putin's hometown -- itself.

Putin wanted the summit to focus on energy security, but in the lead up to the event the U.S. side looked more interested in raising questions involving Russian domestic politics. Ultimately the outbreak of hostilities in Lebanon and Israel hijacked the conference. While this may have obscured the issue of Russia and the WTO, it is still an issue that deserves examination.

Russia is the world's largest economy not within the WTO. Its application for membership has been pending for more than a decade. During this period, countries such as Saudi Arabia, China, Armenia and Croatia have become members and Vietnam is expected to join this year. Russia possesses the second largest oil reserves in the world and many of its corporations (state-owned natural gas monopoly Gazprom, for example) are now involved in global transactions, mergers and acquisitions. Some of the largest IPO's in the world this year have involved Russian companies, such as Rosneft.

Russia is clearly in a state of economic and diplomatic ascendancy after the disastrous 1990s. The RTS stock index has been reaching new heights, foreign currency reserves are the third-highest in the world and the economy is growing at an annual clip of 6 percent. Announcements of plans for new foreign direct investment have accelerated.

WTO accession agreements have been concluded between Russia and all of the WTO member states except the United States. This agreement is required before Russia can join the WTO.

On the eve of the summit, the Russian delegation announced a trade breakthrough with the United States. Finance Minister Alexei Kudrin was quoted by Russian media as saying the accession protocol would be signed at the beginning of the summit. But what seemed like a sure thing quickly dissolved.

The United States immediately declared that some unresolved issues remained, primarily involving market access and lingering concerns over intellectual property rights. At this point the Russians belatedly raised the minor issue of meat imports from the United States. The Russian delegation demanded the right to inspect U.S. farms in order to protect against mad cow disease (there have been two cases reported in the United States). It was clearly a face-saving measure.

The G8 states then mumbled something about resuscitating the moribund Doha Round and the United States and Russia said they hoped to move forward on Russian accession in the fall. (WTO chief Pascal Lamy subsequently declared a suspension of the Doha Round negotiations.)

President George W. Bush indicated at the summit that more concessions would be required to get congressional approval. Just prior to the summit, Senate Democrats had urged Bush not to enter into an agreement. They had doubts about Russia's reliability as a trading partner and its willingness to comply with WTO obligations. The U.S. Chamber of Commerce also raised its long-standing concerns over corruption and the defense of intellectual property rights in Russia.

Partly as a result of this stalemate, several major transactions involving U.S. and Russian firms remain stalled, including Boeing's effort to sell aircraft to Aeroflot and Chevron and ConocoPhillips' proposal to partner with Gazprom partners in the Barents Sea gas project.

The situation clearly demonstrates that trade has become a secondary policy objective for the United States. Susan Schwab, the newly installed U.S. trade representative, and her leadership team are simply not senior or experienced enough to create new political realities. The default inclination of anti-Russian and protectionist forces within Congress and the Bush administration are surfacing, as they often do, at exactly the worst moment. The United States needs a strong global economy, a viable multilateral trade organization and a partner on a host of diplomatic and national security issues, including Iraq, Iran, North Korea, Afghanistan, global terrorism, secure energy supplies and global economic development.

The breakdown of the Russia-U.S. accession discussions speaks volumes. Russia thought it had an agreement, so much so that it made the announcement. The agreement would have been the crowning achievement of the G8 summit for all of the members. But the United States refused to allow this to happen, for the same old reasons: congressional pressure, business lobbying and, most importantly, presidential administration officials who still just don't get it.

By standing in the way, administration officials demonstrated that they did not understand the folly of pressuring a country that spans 11 time zones into adopting domestic policies stemming from U.S. political and cultural perspectives developed during the United States' own unique political history. Russia has its own political and cultural history spanning 1,000 years. Yes, corruption is a problem. But that is true in many other countries. There is significant pressure in Russia already to sign the UN Convention Against Corruption. Is corruption in Russia any more of a problem than in a large number of other countries? Clearly, many in Congress and the Bush administration still view Russia through a latent Cold War prism.

The integration of Russia into the global economy is essential. The WTO is the only major multilateral organization that really works. Its goal is the creation of a rule-based trading system and its dispute-resolution system is extraordinarily effective. Global trade has expanded exponentially since the organization's founding in 1995. The underlying premise of the WTO is that, as a rule-based system developed to govern global trade, it will help foster rules and institutions within the civil society of member states, making them more democratic and wed to the free market. This system is the critical link between global trade, economic prosperity and political development -- as envisioned by the United States as the principal architect of the WTO.

The goal of Russian accession should not be sacrificed on the altar of atavistic perceptions. The United States should modify its trade and foreign policy. It must develop a comprehensive national security policy, integrating global trade and foreign policy concerns without domestic political intrusions, to enhance trade relations and to give political development a boost -- both in Russia and around the globe.

Stuart S. Malawer is a professor of law and international trade at the George Mason University School of Public Policy.

[Editors Note –The United States signed a Bilateral Accession Agreement on November 11, 2006.]