Opinion Editorials & Interviews

WTO and U.S.-Russian Relations

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

Kommersant, December 07, 2006

U.S. Ambassador Burns on benefits and challenges of Russia's WTO accession

Fashion of dissatisfaction

The U.S. — Russia bilateral agreement on Russia's entry into the World Trade Organization that the U.S. signed last month is the single biggest achievement in economic relations between our two countries in over a decade.

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 our current fashion of mutual dissatisfaction we may lose sight of what we have to gain by working together. This is a moment for both of us to take a step back, and take a careful and honest look at what's at stake. In two meetings that took place last month, our two Presidents have demonstrated a clear appreciation of this fact. Both President Bush and President Putin made clear in their recent meetings that the United States and Russia matter to one another, and that a healthy relationship between us matters to the rest of the world.

Economic cooperation is a powerful example of common ground between us. Our bilateral WTO agreement comes at a moment of remarkable vitality in the Russian economy, and in American business growth in Russia.

American business is expanding rapidly across Russia, helping to create jobs. American investment in Russia rose by nearly 50% last year, much of it outside Moscow. I've seen first hand the success of Alcoa in Samara; of International Paper in Svetegorsk; of Coca Cola in Krasnoyarsk; and of General Motors as it builds a new plant in St. Petersburg. Proctor and Gamble already employs more than 20,000 Russians, and its Russian business is now four-fifths the size of its China operations. Boeing employs 1300 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.

With all the inevitable and sometimes frustrating ups and downs, there remains a solid, practical basis for partnership in the energy sector. ConocoPhillips and Lukoil have a thriving relationship. Despite recent controversy over Sakhalin, the ExxonMobil partnership with Rosneft in Sakhalin-I saw its first tanker full of oil depart Russia last month, and expects soon to be producing 250,000 barrels a day. Chevron has a significant stake in the Caspian Pipeline, whose early expansion 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.

What Russia can gain

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% boost to the Russian economy in the short term. These advantages come on top of Russia's already impressive growth and FDI figures.

WTO membership will provide a strong impulse toward diversification of the Russian economy beyond oil and gas. It will help the modernization of Russia's aviation industry, and will help Russian exporters and employers to expand in the ferrous and non-ferrous metals, chemicals, and telecommunications sectors. Russian consumers will see a broader range of goods at cheaper prices and Russian agricultural producers will be able to better defend and promote their export interests.

Our bilateral agreement struck a mutually-beneficial compromise on financial services. On protection of intellectual property rights, as Microsoft Chairman Bill Gates said in Moscow earlier this month, Russia's sustained anti-piracy efforts will open up new opportunities for both of us. Fighting piracy is not a favor to the U.S.. It is deeply in the self-interest of Russia, its reemerging music and film industries, and its own technology sector.

Obstacles and challenges

Our WTO agreement, and Russia's WTO accession, reinforce and expand opportunities which 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's important too for Russians to plan ahead for accession, and 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 repeal of 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. There are troubling problems for which Americans don't have all the answers, but which Russians ignore at the risk of squandering the moment of opportunity before them. I say that fully aware that Americans have a habit of preachiness on these questions that doesn't always endear us to others, and fully aware that a little humility is not a big thing for Americans offering judgements about a place as complicated as Russia.

That said, it does little good to gloss over the danger that Russia's excesses 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 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 are easy. None of them are going to be accomplished overnight. But Russia's 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 our bilateral agreement is deeply in the interest of both our countries, and a strong reminder of what we have to gain by working together.