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. Last Updated: 07/27/2016

Steel Firms Keen for Spot at WTO Table

Editor's note: This is the first of two stories about Russia's bid to join the World Trade Organization.

Russia's largest steelmaker Severstal has a bone to pick with its potentially most lucrative customers, Europe and the United States.

The company is eager — and able — to produce hundreds of millions of dollars worth of steel each year for the two markets but has found its access forcefully capped.

And there is nothing Severstal can do about it.

The steel giant's hands are tied because more than 20 years after Russia took its first steps to join what is now the world's main regulator and arbitrator of trade — the World Trade Organization — it still isn't a member.

"It would be easier to carry out trade talks if we were a member of WTO," said Yury Chernikov, head of research at Severstal.

Chernikov's longing for Russia to be accepted into the fold of WTO nations is echoed these days by a growing number of companies. They want to boost their competitiveness in the global economy by operating on par with other countries under WTO's clearly defined rules of the game.

The largest exporters — oil and aluminum giants — couldn't care less about WTO membership because their commodities are easily tradable on international exchanges.

But the cost of being excluded from WTO's playing field for many other industries — like steel — is estimated to run into the billions of dollars each year.

The steel makers are fiercely lobbying the government after seeing their sales to the United States and Europe shrivel up over the past year.

Government officials agreed in 1999 to limit exports to the United States in a preemptive strike against seeing anti-dumping sanctions slapped on domestic steel producers. The European Union followed suit in early 2000 by lowering Russia's steel quota to 12 percent amid anti-dumping concerns.

Steel makers find the rulings hard to swallow but they have little recourse.

"WTO membership would facilitate legislative disputes in the area of foreign trade," Novolipetsk Steel Mill board chairman Vladimir Lisin told Vash Bank magazine in November.

However, with every advantage that WTO would offer comes a downside. The flip side on gaining access to other markets is that Russia would be forced to lower its protectionist trade barriers. Such a prospect strikes fear into the heart of some industries and has compelled Russia to take baby steps in its membership bid for the past five years.

Take, for example, the makers of Moskviches and Zhigulis. They have seen sales flourish in the current customs regime under which tariffs of more than 25 percent are levied on imported Fords, Mercedes and Toyotas.

Even steel makers are concerned when it comes to cars. About half of their output is snapped up by domestic consumers, the largest of which are the automobile and pipe industry.

"A drop in demand on the part of carmakers could outweigh all other potential benefits [of WTO membership]," said Chernikov at Severstal.

"We need some protective measures to defend the domestic market," he said.

The Economics Ministry says Russia will certainly pay a price by joining the WTO, but no one knows for sure what the cost might be.

"None of the countries [that have joined] are able to make an exact count of what the WTO membership cost," said Alexander Orlov, a departmental head at the Economics Ministry who is involved in WTO negotiations.

"It is usual that domestic businesses benefit less than international companies immediately after membership is granted," he said. "We must therefore negotiate the best possible entry conditions."

Two of Russia's close neighbors — Kyrgyzstan and Georgia — brought their import tariffs down to zero and immediately saw their WTO applications get the green light. But both countries subsequently saw their economies slow down.

So Russia has instead opted for a tedious bargaining path.

Even the Soviet leadership back in 1978 was forced to recognize the advantages of being a member of WTO's predecessor the General Agreement on Tariffs and Trade, or GATT. A committee was set up that year to look into the Soviet Union's application into the organization. But attempts to join over the next decade were blocked by GATT members who objected to the lack of a free market economy.

A newly democratic Russia filed an application with GATT in 1994 and entry talks began. GATT was transformed into the WTO the following year, and negotiations have stretched on ever since.

Russia's interest in entering the WTO gained momentum last year under the administration of President Vladimir Putin. The president courted world leaders at a summit in Brunei last November over Russia's entry.

The government is scrambling to draw up laws bringing Russian legislation in line with that of WTO members.

In the meantime, the Economics Ministry is carrying out bilateral talks with 50 WTO members over obtaining the highest possible levels of import duties possible on a wide range of products.

In a bid to show its goodwill, the government cut tariffs at the start of 2001 on 3,500 items.

"The move to lower tariffs this year was aimed to demonstrate that we are eager to open our markets up," said Alexander Vodyanov, deputy director of the Economics Ministry's Institute of Macroeconomic Research.