On July 18th Russia’s upper house of Parliament, the Russian Federation Council, voted to ratify Russia’s accession to the World Trade Organization (“WTO”). Of the 166 members of the Federation Council, 144 members voted in favor of accession and only three opposed accession. This follows the close vote on July 10th in the Duma, Russia’s lower house of Parliament, where 238 out of 450 members voted for accession, only 12 votes above the necessary 226 votes.

Once President Putin signs the law, the ratification process will be complete. Following President Putin’s signature, Russia has until July 23rd to notify the WTO that Russia’s accession package has been ratified. Thirty days following Russia’s notification to the WTO, and 19 years since Russia first applied for WTO membership, Russia will become the organization’s156th member.

While other WTO members will likely benefit from the concessions made by Russia during the accession process from the first day of Russia’s membership in the WTO, it seems increasingly likely that the United States will not. [1] At the WTO’s 8th Ministerial Conference in December 2011, when Russia’s terms of accession were approved and Russia was formally invited to join the WTO, the United States notified the WTO that it was invoking the non-application provision under Article XIII of the Marrakesh Agreement, which allows WTO members to choose not to apply WTO rules, procedures and commitments to acceding countries.[2] Russia responded by also invoking Article XIII with respect to its trade with the United States.[3] While the United States welcomed Russia’s membership to the WTO, the United States invoked Article XIII to remain compliant with its domestic legislation.

The most favored nation (“MFN”) provision of GATT Article I provides that WTO members must “immediately and unconditionally” accord to imports of goods and services from a WTO member no less favorable treatment than that accorded to any other. However, under Section 402 of the Trade Act of 1974 (the “Jackson-Vanik” amendment), the United States accords only conditional normal trade relations (“NTR”) to Russia. Specifically, Jackson-Vanik precludes the U.S. President from extending NTR, also known as MFN, to Communist countries that restrict freedom of emigration. However, the application of Jackson-Vanik can be waived on an annual basis if a country is found to be in full compliance with the freedom of emigration requirements under Jackson-Vanik.

The United States first granted NTR treatment to Russia under presidential waiver authority in 1992. Since September 1994, the U.S. has granted annual NTR treatment under the full compliance provision of the law. Although Presidential extension of NTR status each year has met virtually no congressional opposition, because Russia’s NTR status remains conditional, the U.S. treatment of Russia would likely be inconsistent with GATT Article I until the United States repeals Jackson-Vanik and accords permanent normal trade relations (“PNTR”) to Russia.

The absence of PNTR for countries acceding to the WTO has resulted in the United States invoking Article XIII for seven countries: Romania[4]; Mongolia; Kyrgyz Republic; Georgia; Moldova; Armenia; and Vietnam. In the case of Vietnam, PNTR was passed just before Vietnam became a member of the WTO. The other six countries became WTO members prior to Congress extending them PNTR status. With the exception of Moldova, the United States subsequently extended PNTR and withdrew the invocation of Article XIII. If Russia does become a WTO Member before Congress passes a PNTR bill, Russia will be by far the largest economy to accede to the WTO prior to the United States extending PNTR. Following the vote by the Russian Duma last week, USTR Kirk issued a press release stating that “If the United States cannot apply the WTO Agreement to Russia by the time Russia becomes a WTO Member, U.S. businesses, farmers, ranchers, manufacturers, creators, and workers will be at a distinct disadvantage with our global competitors.” [5]

While it is true that U.S. businesses will be at a disadvantage vis-à-vis other WTO members that will be able to take advantage of the commitments Russia made in its accession package, U.S. companies will still be covered by the 1992 Bilateral Commercial Agreement (“BCA”) between Russia and the United States. Under the BCA Russia must accord MFN treatment to U.S. exports to Russia and thus the United States should benefit from any immediate tariff reductions that Russia undertakes. [6] The BCA also contains many general commitments by Russia regarding IPR protection, “non-discriminatory treatment” with respect to quantitative restrictions and granting licenses, and with respect to technical regulations and standards, including conformity testing and certification.[7] However, unlike the WTO agreement, the BCA provides only limited means for the U.S. to address trade issues that might arise. WTO commitments by Russia that the U.S. will not enjoy include: more liberal treatment for services exports and service providers; stronger IPR protection and enforcement; the ability to enforce rules-based treatment of agricultural exports; market access under country-specific tariff-rate quotas; improved transparency in trade-related rule-making; and the WTO’s dispute resolution.[8]

Since Russia’s formal invitation to join the WTO last December, the Obama Administration and U.S. business community have pushed Congress to repeal Jackson-Vanik with respect to Russia and extend PNTR to Russia. While the process has been slow, it is still possible for Congress to pass PNTR prior to Russia becoming a WTO member in mid to late August.

On the Senate side a bill passed through the Senate Finance Committee on July 18th that contains many enforcement provisions aimed at ensuring Russia complies with its WTO commitments. The enforcement provisions require USTR to report on the implementation and enforcement of Russia’s WTO commitments and to take action when Russia is not fulfilling its commitments. The markup bill also includes the Magintsky bill, a human rights bill named after the Russian anti-corruption lawyer Sergei Magnitsky who died in 2009 while being detained by Russian authorities. For those that support inclusion of the Magnitsky bill, the bill is viewed as partially replacing the human rights aspects of Jackson-Vanik that would be repealed.

The House Ways and Means Committee announced yesterday that a bipartisan deal was reached and that a markup on a measure very similar to the Senate PNTR bill will occur next week. Yesterday Congressman Levin and Congressman Camp agreed to move a bill through Ways and Means that does not include the Magnitsky bill, but that a separate Magnitsky bill will be added during the Rules Committee process. If PNTR is not passed by the Congress by August 3rd, the start of the Congressional recess, and signed by the President, Russia will become a member of the WTO before the U.S. extends PNTR. Efforts to pass PNTR will have to resume during a narrow window between, September 3rd and October 5th, when Congress leaves town to campaign for the 2012 election.