June
25, 2003
The
Honorable Robert Zoellick
United
States Trade Representative
Office
of the U.S. Trade Representative
600
17th St., NW
Washington,
DC 20506
Re:
Russian WTO Accession Negotiations
Dear
Mr. Zoellick:
The
U.S. Council for International Business (USCIB) is pleased to transmit its
updated recommendations on the negotiations regarding Russia’s accession to the
World Trade Organization. USCIB
represents over 300 U.S. corporations, professional firms and business
associations with an interest in overseas trade and investment.
USCIB
strongly supports Russia’s accession to the WTO under commercially acceptable
terms that require Russia, like all new WTO members, to adhere to WTO rules and
commit to substantial trade liberalization for goods and services. Russia’s accession to the WTO must also
proceed in the context of the Doha Development Round negotiations as Russia
will have to accommodate itself to requirements agreed to during this round as
well. Recognizing that the
negotiations, on both multilateral and bilateral market access are reaching an
advanced stage, USCIB offered its members a final opportunity to assess the
outstanding issues and remaining trade barriers they continue to encounter in
Russia.
For
several years now, a fundamental concern raised by USCIB members operating in
Russia is the absence of an effective, enforceable legal system with
transparent and uniform laws. USCIB
members are aware that major changes require time and that much has already
been achieved in Russia since it first applied to join the WTO in 1995. However, we continue to believe that WTO
accession negotiations offer an important opportunity to encourage improvements
in Russia’s legal and regulatory procedures relating to trade and to set the
direction for future progress that will bring Russia more into line with
international practices.
Among
the areas of concern cited by members, we would like to direct your attention
to the following:
·
Effective,
Transparent and Uniform Laws
Russia should continue to strive to
establish an effective legal system with clear and uniform laws, rules, and
regulations protecting investors’ rights, the sanctity of contracts and private
property. Russia should also further
improve its judicial system in order to provide an impartial and reliable forum
for settling disputes and enforcing rights on a non-discriminatory basis.
Russia’s existing federal, regional,
and local laws are often vague or confusing.
At the same time, Government agency requirements and guidelines are
unclear and vary by agency. This state
of affairs often leads to misunderstandings in application and
interpretation. Members have also noted
the lack of clarity in legal regulation of such areas of law as environmental
liability, confidentiality, and force majeure.
Uncertainty about the ownership of assets in Russia prevents their use
as collateral for export financing credits.
·
Tariffs/Duties/Taxes
Russia should bind its tariffs at low
levels comparable to other industrialized countries and apply national
treatment to its tax policies. USCIB
members encounter unreasonably high import tariffs and taxes of up to fifty
percent on certain products. Our
members have indicated that high tariffs have severely limited trade in certain
product lines (ranging from chicken products to toys to high-tech materials and
products), resulting in lost sales.
U.S. negotiators should request further tariff reductions whenever
Russian offers remain prohibitively high.
Despite high tariff rates, the Russian
Government has refused to impose a standstill on duty rates in advance of WTO
accession. Export and import
restrictions should also be abolished without delay. Russia’s recent decision to apply import quotas on beef, pork and
poultry is a major cause of concern for all U.S. business when assessing
Russia’s future as a WTO member. Other
Russian industries are exerting pressures on the government for tariff
protection as well. We urge U.S.
negotiators to commit Russia to a standstill agreement for the duration of the
accession process and to resist efforts by Russia to get the U.S. to “pay” for
the removal of these new barriers within the context of the negotiations.
Russia should also eliminate duties on
all IT products in line with the goals of full realization of the objectives of
the Information Technology Agreement (ITA), including commitments at the
broadest possible level for categories 84, 85 and 90.
Finally, Russia should subscribe to a
permanent moratorium on imposing customs duties or other border measures on
electronic transmissions.
·
Exceptions to
Russia’s Market Economy Status in the United States
Russia, as part of its WTO accession
package, should explicitly agree not to challenge the U.S. Department of
Commerce’s substitution of market values for certain Russian cost and price
data in anti-dumping proceedings. While
Commerce granted Russia market economy status it 2002, both Russia and Commerce
acknowledged at the time that many regulated prices in Russia remain far below
world market prices, particularly in the energy and transportation
sectors. Given this uneven distribution
of market forces in the Russian economy, we are of the view that WTO accession
negotiations represent an important opportunity to enshrine an acknowledged
concern about the appropriateness of using certain data in trade remedy
cases. We therefore recommend that U.S.
negotiators obtain Russia’s agreement to accept, without legal challenge,
limited substitution of reliable market values for certain inappropriate
Russian data for a period of at least 15 years.
·
Technical
Barriers to Trade
Russia should apply the WTO disciplines
on Technical Barriers to Trade to ensure that its certification,
standardization and labeling requirements are not unnecessary barriers to trade
and do not discriminate against foreign suppliers.
Russia’s requirement that many
imported products be officially certified to conform
with Russian technical, safety and quality standards is both burdensome and costly. USCIB member companies have complained of
the lack of consistency or
transparency in the application of these requirements and indicated
the unclear,
redundant, and constantly changing nature of regulations. The certification
process increases the cost and time required for clearing customs, especially
for telecommunications equipment (which must comply with two sets of standards
to satisfy two different government agencies), pharmaceuticals, construction
material and equipment for the energy sector.
Despite the long processing time (12-18 months), certificates expire
every three years.
Requirements for
certificates are altered arbitrarily with no clearly stated guidelines. In
particular, our companies have complained of trade-limiting railroad packaging
regulations and obligatory certification for already registered medicines.
Similar issues exist around Crop
Protection Product registration, which are unacceptable in today’s environment
in the Russian Federation. Consequently
not all institutions involved in the registration process of Crop Protection
Products have accepted the new legal situation initiated by the Ministry of
Agriculture of the Russian Federation.
Although there are new legislation procedures, the deadlock in the
registration process continues to this day.
The end result is a standstill in the
registration process particularly for R&D-based companies. In the meantime, fast registration of
generics and products of dubious quality and origin, which might pose
unacceptable risks to human health and the environment, continues. These risks could spoil the reputation of
Russian agriculture in the domestic and world markets.
·
Intellectual
Property Protection
Russia
must implement and comply fully with the WTO TRIPS agreement, which sets forth
minimum standards of protection and enforcement of intellectual property
rights. While the legal framework to
meet TRIPS standards has been established, implementation and enforcement of
intellectual property laws remains totally inadequate. Widespread piracy of
videos, DVDs, music, books, pharmaceuticals and computer software continues,
including for export, and many U.S. companies have had difficulty registering
“well-known” trademarks. Member
companies noted the arbitrary nature of administrative relief and the very high
cost of obtaining patents and trademarks, partially due to the “two-tier”
registration system that discriminates against foreign holders of intellectual
property.
Also
cited were the lack of guarantees that proprietary technology would be
protected in a joint venture with a Russian company and the need to enact and
implement the new bill before the Duma on the protection of trade secrets
(preferably, without the provision requiring firms to list the commercial value
of trade secrets on their balance sheets).
Moreover, the enforcement of laws regarding trade secrets and data
exclusivity has been inadequate.
Specifically, it was also suggested that Russia’s law on the
registration of research-based pharmaceutical products should incorporate a
five to ten year data exclusivity period.
Additional member recommendations
include improved border control on pirated goods and increased Criminal Code
penalties and sanctions for infringements of
industrial property rights and
copyrights, in a manner that strikes a balance among the interests of all
stakeholders. It is in this context
that USCIB welcomes the creation of a new Chamber of Patent Disputes as a
positive development in the enforcement area.
USCIB members hope these reforms demonstrate a new commitment to
enforcing intellectual property rights in Russia, but will continue to monitor
the situation closely.
·
Russian Energy
Prices
U.S. negotiators should encourage
Russia to take steps to unify its domestic and export energy rates at world
market prices. Through its control of
the so-called natural monopolies in the generation of electricity by UES and
production of natural gas by Gazprom, the Russian government is able to boost
the competitiveness of many Russian products, especially in sectors such as
steel and fertilizer, vis-à-vis their foreign competitors on the world
markets. Although other WTO members are
also pressing for change, U.S. negotiators should be on guard against any deal
whereby a third party, in lieu of receiving commitments from Russia to unify
its domestic and export rates, strikes a deal to secure low cost energy for its
producers. Instead Russia should commit
itself to a reasonable timetable for phasing out its dual energy pricing system
as soon as possible.
·
Services
Russian accession to
the WTO should be conditioned on an agreement to schedule meaningful market
access and national treatment commitments for a broad range of services
industries. It is important that
Russian standards for services should conform to international standards
wherever possible; for example, International Accounting Standards should be
the norm for Russian accounting practices.
U.S. negotiators should therefore encourage Russia to reaffirm its
commitment to the universal adoption of International Accounting Standards in 2004.
Telecommunications and Computer and Related Services – Give
the importance of these sectors in and of themselves and as drivers of economic
growth and development, USCIB urges Russia to ensure meaningful market opening
commitments. At a minimum, these
commitments should include a date certain for full market liberalization,
removal of foreign ownership restrictions, and for basic telecommunications
only, adoption of the WTO reference paper in its entirety. In addition, to reap the full benefits of
electronic commerce, we encourage Russia to schedule full market access and
national treatment commitments for the sectors that are associated with the
infrastructure needed for business-to-business and business-to-consumer
e-commerce.
Banking - Attracting foreign investment should remain
a top priority for Russian officials interested in further developing Russia’s
financial system. In this regard, USCIB
welcomes the decision by the Russian Central Bank last November to lift the 10
year-old de facto quota of 12% on
foreign bank capital as a percentage of total bank capital in Russia, but calls
for further steps to improve the business environment for foreign banks wishing
to operate branches and subsidiaries in the country. Specifically, regulatory and legislative reforms in the areas of
bankruptcy law, credit risk protection, deposit insurance as well as reforms
designed to create more even banking supervision should be undertaken. Opening the Russian banking sector will spur
the growth of corporate and retail banking services to the great benefit and
long-term health of the Russian economy.
Insurance - Russia
should also agree to raise the overall share of foreign capital in Russian
insurance companies well above the present 15% limit. Other restrictions on the activities of foreign insurance
companies operating in Russia, such as the prohibition against the sale of life
insurance and from underwriting and reinsuring state-mandated forms of
insurance (ie. motor vehicle insurance) should be scaled back as well.
Subnational
regulations and practices also discriminate against foreign providers of
non-financial services. In particular,
license and certification costs are much higher for foreign providers. Russia should end its “two-tier”
protectionist system of license and registration fees for service industries
and bring its practices into conformity with GATS requirements.
·
Procurement
Russia’s adherence to the WTO Government
Procurement Agreement should be a vehicle for standardizing and reforming the
procurement system. An organized system
of government procurement with standardized regulations, procedure, and
supervision and regularly publicly announced competitive tenders does not yet
exist.
·
Trade-Related
Investment Measures
At a minimum, Russia should be required
to adhere to the WTO rules on TRIMS, i.e., to refrain from TRIMS that are
inconsistent with GATT Articles III (national treatment) and XI (prohibition on
the use of quantitative restrictions).
Additionally, Russia should be encouraged to finally ratify our 1992
Bilateral Investment Treaty this year.
·
Other Barriers
to Trade
Customs
USCIB welcomes Russia’s recent progress
in passing a revised State Customs Code and steps toward implementing the
Revised Kyoto Convention on Simplification and Harmonization of Customs
Procedures. The Russian customs system is sorely in need of modernization. In keeping with the practices of
industrialized countries, the primary objective of Russian Customs authorities
should not be to generate revenue.
Russia should comply with GATT rules relating to movement of goods
across borders, especially, Article X requirements for transparency and with
WTO agreements on customs valuation, rules of origin, and pre-shipment
inspection. The arbitrary, inefficient
and often corrupt practice of customs authorities in interpreting, changing,
and enforcing customs laws and regulations has been a major problem for our
member companies. Customs entry
processing procedures are complicated and inconsistently applied, resulting in
the most routine of entries requiring several days to be processed. Russian customs should apply measurement of
release times and strive to reduce them over time.
Sanitary and Phytosanitary Measures
Russia should conform to the WTO
Agreement on the Application of Sanitary and Phytosanitary Measures to insure
that such measures are based on scientific principles and risk assessment. Obtaining certification for food products is
exceedingly complex for reasons that appear to have little to do with health or
safety. Dairy and meat products require
several veterinary certificates and imports have been banned even if no
scientific rationale exists.
Civil Aviation
As one of the largest manufacturers of
civil aircraft, Russia should adhere to the WTO Agreement on Trade in Civil
Aircraft as soon as possible, or at least eliminate its tariffs on civil
aircraft equipment. Limits on foreign
investment and access to Russia’s civil aircraft market should be lifted, as
envisioned in the Joint Memorandum of Understanding signed by Russia and the
U.S. in 1996.
We
appreciate the opportunity to express these concerns and trust they will be
useful during negotiations with the Russians to assure that clear commitments
are obtained prior to WTO accession.
USCIB stands ready to assist you in any way we can in this important
effort, including meeting with U.S. agencies to discuss our recommendations and
concerns at greater length.
Yours
truly,
U.S.
Council for International Business
