Interview with M.Yu. Medvedkov, Director of the Department of Trade Negotiations, Russian Federation Ministry for Economic Development and Trade - Interfax, 28.12.2006  

Maxim Yurievich, in November all bilateral negotiations relating to Russia's admission to the WTO were completed. What does the completion of these bilateral entry talks, in particular, those with the USA, mean in the context of the overall process of admission to the above organization?  

M.M.: - It is the most significant component of the negotiations, not only because the USA is a first-string WTO member country from the viewpoint of both influence and share in the world commerce. The main thing is that our agreement with the USA was the last one in the long list of similar arrangements on access to markets we have entered into since 2003. We may affirm with high confidence that the long way we have left behind as part of the "obligatory program" to join the WTO opens for us the "home straight" stage of WTO admission negotiations. From this standpoint also, the agreement with the USA is very significant.  

What, in your opinion, is the most important achievement at the stage of bilateral talks?

M.M. - In general, market access negotiations were successful for us, for from the very beginning we adhered to a principled negotiation approach in regard to all our commercial partners and we have managed to stick to it in its entirety. For instance, in tariff related talks this approach consisted in our protection of the most sensitive economy sectors by means of high duties. Such duties will not be lowered on the day of our admission to the WTO and the transitional periods are tailored to available predictions concerning the development of respective economy sectors.     

It is also of importance that we were able to defend the position pursuant to which we do not assume the obligation to join tariff liberalization programs within the framework of the so-called "WTO tariff initiatives" the number of which amounts to approximately 15. Actually, we have joined only one of them, namely, that dealing with information technologies. For some of such initiatives, our positions are very similar, for instance, for chemical and textile industries. Our positions regarding duties for commodities in the afore-said sectors are relatively close to the "tariff initiatives", yet higher than those, whereas for other commodities we have retained the figures rather distant from parameters suggested under the ?initiatives?. Moreover, we have managed to defend combined duties for a large group of merchandise.  

In general, our final tariff offer, that is, WTO admission conditions, stimulates the development of the economy sectors that need modernization, among other factors, due to that we have lowered to minimum or cancelled duties for high-tech equipment which is not manufactured in Russia and at the same time we have kept a certain margin for sectors capable of self-developing, yet requiring some transitional period or tougher conditions for imported commodities.  

In the domain of services, we have managed to achieve well balanced results encouraging investments in sectors that will benefit from free competition or sectors where we need foreign experience and technologies, and providing opportunities for regulatory reforms or introduction of protective measures (in other sectors).

By now, the tariff-based protection level has been agreed upon. Can you specify which economy branches may be impaired significantly as a result of joining the WTO on the conditions arrived at?

M.M. - The calculations have not been completed yet, and it is not quite clear what exactly our scientists think on the matter. According to preliminary estimates, there are no branches that will face hard times because of the tariff reduction precisely. For the greater part, the future of various Russian economy branches will depend in a more pronounced fashion on quite different factors.

Despite the completion of all the bilateral negotiations, Russia has not signed formal agreements with five countries. When do you suppose to sign them?

M.M. - The agreement with Moldavia was signed yesterday. Negotiations with Costa Rica, Guatemala and Salvador are actually through and we suppose to sign the final agreements early next year. As to Georgia, we signed a protocol on completion of bilateral talks in 2004. Now, we are waiting from our Georgian colleagues a detailed list of issues that, in their opinion, do not allow our joining the WTO.

If possible, a few questions to specify conditions of Russia's admission to the WTO. In accordance with the results of the negotiations, Russia will keep the possibility of securing control over Svyazinvest's interregional communication companies in the case of their privatization. In what way can it be achieved?

M.M. - Svyazinvest has a large number of subsidiaries. In case they are privatized, we are allowed to keep foreign investors out of the process of privatization of the interregional communication companies. It was stipulated in our offer referring to the domain of services.

We have also a general proviso that allows us to keep foreigners out of privatization processes.  

Then, what was the reason for including the special reservation clause for Svyazinvest?

M.M. - To make our obligations clearer. The structure of investments in the telecommunications sector is rather sophisticated. The Svyazinvest structure is a separate sophisticated matter. It is unclear also what exactly will be privatized, Svyazinvest proper or its subsidiaries. Here, the WTO-employed terminology allows different interpretations. Therefore, we just included a more definite provision for the specific sector.       

Is there any stipulated period of time during which the possibility of banning foreigners from participation in privatization processes will survive?  

M.M. - No.

Recently, the Russian Federation Government decisions on exchanging letters with the USA on pork and beef trade, as well as on inspection of involved farms and agricultural biotechnologies, were signed. Could you explain, what's the point?

M.M. ? These letters were signed in Hanoi as part of the overall package of WTO-related documents arrived at as a result of negotiations with the USA. The veterinary arrangements define the conditions and procedure of veterinary control over imports of beef and pork in Russia. In principle, the scheme is as follows: the US Government furnishes guarantees for compliance of the products supplied to Russia with applicable international standards and veterinary requirements. Russia, as a country acknowledging these international standards, in particular, standards of the International Epizootic Bureau, allows imports of these products in the Russian territory subject to inspection of the involved farms for compliance of the product quality and veterinary safety control management system with the above veterinary standards. It is a purely veterinary agreement containing no figures relating to quotas. The agreement on agricultural biotechnologies stipulates that we will allow trading products of agricultural biotechnologies in conformity with the WTO adopted rules.  

What must the Russian Federation do within the 9-year transitional period to prepare for full liberalization of the insurance business market and admission of branches of foreign companies?

M.M. - The obligations assumed leave a wide range of possibilities to regulate operations of such branches, starting from licensing, which can be made very similar to the licensing procedure currently applied to legal entities operating as insurance companies. In addition, we may apply the ?financial stability? requirement, as well as the guarantee deposit requirement, being complementary to our current practice. When doing so, in conformity with our arrangements, the requirement for independent capital of a branch of a foreign insurance company is allowed.  

Will any requirements to parent insurance companies be applied?

M.M. - Requirements to parent companies refer to their record of work on foreign markets as branches and in the insurance spheres in which they are going to operate on the Russian market. Additionally, the minimal volume of a parent company's own assets may not be less than $5 billion. Such a company shall also have at least a 5-year experience of operations on foreign markets via branches. In case the requirement to minimal capital of a branch is introduced, the capital amount will be taken into account in the respective quota, and if the quota of the aggregate foreign participation in the insurance business sector is set equal to 50 percent, small branches will, accordingly, not be allowed to the market.  

Will be there any restrictions concerning a minimal volume of annual proceeds?

M.M. - No such requirements are envisaged.  

One of the results of WTO admission negotiations is the possibility of imposing the limit upon foreign participation at the level of 25 percent of equity capital for certain types of securities market players, in particular, companies involved in maintenance of securities register. At present, there already exist a number of registrar companies on the market, more than 25 percent of which belong to non-residents. In case such a limit is imposed at any time in the future, will it refer to the companies also that are already under non-residents' control?

M.M. - Indeed, the possibility of introduction of such limits has been provided for. It refers solely to settlement depositories, registrars, and specialized depositories. This list was compiled by the Federal Service for Financial Markets. The basic principle is as follows: these companies are in charge of registration of rights.  

In case as of the date of introducing the 25-percent limit the foreign share in a certain company exceeds this level, this share may be held intact.

It should be noted that our obligations relating to both commodities and services establish the upper allowable limit. It does not mean that we must invariably stick to it. If it meets our interests, interests of the sector, consumers, we may lower protection levels for markets of commodities and services at any time.

Now Russia has to complete the multilateral stage of negotiations. Can you say a few words about the schedule of the talks?

M.M. - There are still approximately 10 to 15 major issues to discuss at the multilateral negotiations. One of the most difficult is the issue relating to protection of intellectual property rights. Also, we will have to discuss a number of issues associated with tax administration, of which two are worth noting.

Firstly, it is the necessity to bring the system of customs fees into compliance with WTO standards. More precisely, the amount of customs fees must be based on the cost of services rendered by customs bodies.  We are in the process of consultations within the Government, and the Ministry of Finance will submit proposals for consideration. Hopefully, a respective decision will be issued by the Government in the first half of 2007. The second customs related issue is organization of work aimed at customs valuation of goods and application of a system of risks as part of the struggle against customs value understatement. One way or another, we will have to hold negotiations on this subject as well.

What pretensions relating to customs valuation are voiced?

M.M. - Our colleagues think that, through the so-called "risk profiles", we force customs officers to biased decisions regarding customs valuation of goods. In reality, the system we employ is not very much different from the risk assessment system employed by customs offices of the European Union and other countries and it features an informational character.

In other words, we are not going to change anything in this aspect?  

M.M. - So far, I am not ready to say whether we are going to change something or not. We have not reached the decision-making stage yet. To make changes, we need to see quite clearly in what aspects our system is inconsistent with WTO standards or similar systems employed by WTO member countries. These issues precisely are currently under discussion with our partners.

What other issues may arise in the course of multilateral negotiations?  

M.M. - There is one more subject associated with alcohol and pharmaceuticals. Hopefully, it will be settled within a few weeks.  

And what is the problem?  

M.M. - It deals with everything not meant for drinking, yet subject to alcohol products regulations, in particular, perfumery. The point is to withdraw perfumery and products with a low alcohol content, not intended for drinking, from accounting under the EGAIS system (Unified State Automated Information System to account for the volume of production and turnover of ethyl alcohol, alcoholic products and products with a spirit content). 

In our partners' opinion, our regulations hamper normal trade. On the other hand, in many countries, in the first place in those with alcohol monopoly, there exist neither criteria for ?normality of regulation? nor a definite regulatory system. Here the issue lies closer to the sphere of explanations. We are sticking to strict regulation of the alcohol market to defend the health of the population and state budget interests rather than interests of domestic producers. No developed country allows free alcohol trade, and for the same reasons. Methods may differ, yet the purpose and results are very much alike.

What other issues are there?

M.M. - There is one more issue relating to the system of operations used by state enterprises, first and foremost, OAO Gazprom. This company was grouped with the category of state trading enterprises after it was granted monopolistic rights for gas exports and the state share in Gazprom increased. We are ready to confirm once again that Russian state-owned trading enterprises will operate in compliance with WTO requirements.  

But it is not extended to gas tariffs?  

M.M. - No. The issue of gas tariffs is resolved and we assume no obligations to the WTO in the field of formation of prices for gas or other types of energy on the domestic market. We may regulate these prices, but such regulation should not impede making money by our gas companies from gas sales to industrial consumers on the home market. Another situation is with gas supplies for social oriented needs, including to private households. In this case, prices may be lower.

One more large-scale subject for the multilateral negotiations is agriculture, which will require a lot of efforts to arrive at valid solutions beneficial to us.  

When is the next round of the multilateral talks to take place?  

M.M. - In accordance with the schedule agreed upon, we will start the season of spring/summer negotiations in early February in Geneva where the group for agriculture and veterinary/sanitary measures is to meet. Also, in February we will embark on discussing intellectual property issues. In March-April, multilateral talks on other subjects will be continued.  

In your opinion, what is an optimistic scenario for completion of the multilateral negotiations and joining the WTO?  

M.M. - According to our optimistic scenario, the multilateral negotiations may be finished in summer 2007, more precisely, by July 31, since August is the traditional month of vacations for the WTO. At first, the approval shall be given by the Working Group, members of the Group should authorize the joining. Then, we will have to pass through the procedure of approving Russia's admission to the WTO by the General Council of the Organization. As a rule, the General Council holds several meetings a year and one of these meetings is normally scheduled for late July.  

What procedure is to be adhered to after that?  

M.M. - Then, we must submit a package of documents with WTO-joining conditions to the State Duma and the Council of Federation and, once the package is ratified, it will take 30 days for Russia to become, now legally, a WTO member country.  

In other words, our obligations to the WTO may enter into force before January 1, 2008?  

M.M. - Under this scenario, the procedure is likely to be arranged so that the obligations will become effective on January 1, 2008. This date is quite natural from all viewpoints, including the budgetary one. Yet, I would like to repeat that pursuant to our agreements not a single duty will be lowered during the first year after Russia joins the WTO.  

Could you estimate the likelihood of this scenario?

М.М. - It is rather high. However, not solely Russia, but many other countries will take part in the negotiations in question. The experience evidences that some countries may have different views concerning both the time parameters of Russia's joining the WTO and the matter of issues to be negotiated. As far as the Russian party is concerned, we will do our best to prepare our portion of the homework.