Opinion Editorials & Interviews

Bringing the WTO Into the Relationship

William J. Burns, U.S. Ambassador to Russia

The Moscow Times, December 04, 2006

Last month's U.S.-Russia bilateral agreement on Russia's entry into the World Trade Organization is the single biggest achievement in economic relations between our two countries in over a decade. The negotiators, led by Economic Development and Trade Minister German Gref and U.S. Trade Representative Susan Schwab, deserve enormous credit, as do the business leaders in both countries, whose achievements in Russia have helped underscore what's possible as the Russian economy modernizes and diversifies.

The last few years have been a period of considerable frustration and disappointment about our relationship in both Moscow and Washington. There is a growing risk that in the current fashion of mutual dissatisfaction the two sides may lose sight of what they have to gain by working together. This is a moment for both to take a step back and take a careful and honest look at what's at stake. In two meetings over the past three weeks, Presidents Vladimir Putin and George W. Bush have demonstrated a clear appreciation of the fact that the United States and Russia matter to one another and that a healthy relationship between them matters to the rest of the world.

Economic cooperation is a powerful example of common ground between Russia and the United States. That's where Russia's accession to the WTO takes on enormous significance and helps create enormous opportunities. The bilateral WTO agreement comes at a moment of remarkable vitality in the Russian economy and in U.S. business growth here. Fueled by soaring energy prices, economic growth has averaged nearly 7 percent over the last seven years. Foreign direct investment has tripled in the last three years and Russia has transformed itself from debtor nation to creditor. With one of the fastest growing retail markets in the world, the economy will reach the $1 trillion mark this year, and some think it could hit $2 trillion by 2010.

While the gap between rich and poor is still much too big, the number of people beneath the poverty line has been halved since the end of the 1990s. A middle class of consumers is emerging — perhaps as much as one-quarter of the population. It's the beginning of the core constituency for modem economic and political institutions, a growing group of people with clear economic interests and a real stake in how decisions are made, how their money is used and how the rule of law can protect their equities and those of their children.

U.S. business is expanding rapidly in Russia, helping to create jobs and opportunities for both countries. U.S. investment in Russia rose by nearly 50 percent last year, much of it outside Moscow. I've seen first hand the success of Alcoa in Samara; of International Paper in Svetogorsk, Leningrad region; of Coca-Cola in its expanded plant in Krasnoyarsk; and of General Motors as it builds a new plant in St: Petersburg. Proctor and Gamble employs more than 20,000 Russians, and its business is now four-fifths the size of its China operations. Boeing employs 1,300 high-end Russian engineers at its impressive Moscow design center, has just concluded a long-term, $18 billion deal for purchases of Russian titanium and is competing hard for a major aircraft sale to Aeroflot. Intel has its own research centers in Nizhny Novgorod and Novosibirsk. Much more is possible in the years ahead.

With all the inevitable and sometimes frustrating ups and downs, there remains a solid, practical basis for energy sector partnership. ConocoPhillips and LUKoil have a thriving relationship. Despite recent controversy over Sakhalin, the ExxonMobil partnership with Rosneft in Sakhalin-1 saw its first tanker of oil depart Russia in October, and expects soon to be producing 250,000 barrels a day. Chevron has a significant stake in the Caspian Pipeline, the early expansion of which will bring substantial benefits to Russia. More broadly, Russia's integration into the global energy market through everything from IPOs to downstream acquisitions will help drive home the reality that the market, over time, rewards transparency and punishes opacity.

WTO membership will bring its own benefits. Studies of recent WTO accessions show that foreign direct investment jumps an average of $4 billion in the first year of membership. The World Bank estimates that WTO accession could give more than a 3 percent boost to the Russian economy in the short term. These advantages come on top of already impressive growth and FDI figures. WTO membership will provide a strong impulse toward diversification of the economy beyond oil and gas. It will help the modernization of the aviation industry, making state of the art aircraft and plane parts more affordable and airlines better able to service Russia's 11 time zones. WTO membership will help exporters and employers to expand in the ferrous and nonferrous metals, chemicals and telecommunications sectors.

Consumers will see a broader range of goods at cheaper prices in stores and groceries. Food processors will have better access to import ingredients due to lower tariffs and fewer import restrictions. WTO membership will also allow agricultural producers to better defend and promote their export interests. The bilateral agreement struck a mutually-beneficial compromise on financial services. On protection of intellectual property rights, as Microsoft Chairman Bill Gates said in Moscow last month, Russia's sustained anti-piracy efforts would open up new opportunities for both sides. Fighting piracy is not a favor to the United States or the WTO or anyone else. It is deeply in the self-interest of Russia, its reemerging music and film industries and its own technology sector.

The WTO agreement, and Russia's WTO accession, reinforce and expand opportunities that are already clearly emerging in Russia. But realization of those opportunities does not come automatically. It requires hard work and tough choices. There is obviously the multilateral part of the accession process still to be completed. It will be very important for Russia, with the help of the United States, to keep up the momentum of the bilateral deal and solve the remaining multilateral issues as quickly as possible. It's important too for Russians to plan ahead for accession and to anticipate both the immediate business and consumer opportunities it will create, as well as the short-term challenges that greater competition will bring for some sectors. In addition, there looms ahead the challenge of repealing the Jackson-Vanik amendment, about which the debate in the U.S. Congress will be serious and intense.

There are also deeper structural challenges ahead that Russians themselves must face. These are troubling problems for which Americans don't have all the answers, but which Russians ignore at the risk of squandering this moment of opportunity. I say this fully aware that Americans have a habit of preachiness on these questions that doesn't always endear us to others, and that a little humility is not a bad thing for Americans offering judgments about a place as complicated as Russia.

That said, it does little good to gloss over the danger that Russia's excesses could eat up its successes. Corruption remains among the worst of these dilemmas. It is, in effect, an extra tax, weighing most heavily on small businesses. It has a corrosive effect on the rule of law, crippling law enforcement and breeding violence. How do you fight corruption effectively without a more or less independent media and a more or less independent judiciary? How do you expect to see that kind of responsible media emerge if investigative journalists like Paul Klebnikov and Anna Politkovskaya are murdered and if their murders go unpunished? And how do you protect Russia's greatest resource — its remarkably creative and well-educated people — without investing aggressively in education and health care, dealing systematically with demographic decline and combating intolerance?

None of these steps is easy. None of them is going to be accomplished overnight. But WTO membership will highlight the advantages of fighting these difficult problems and strengthen the incentives and tools that Russians have for overcoming them. It is not a magic cure for all the challenges before us, but the bilateral WTO agreement between Russia and the United States is deeply in the interests of both countries and a strong reminder of what there is to gain by working together.

William Bums is U.S. ambassador to Russia. A longer version of this comment was delivered as an address to the American Chamber of Commerce in Moscow on Nov. 28.