THE CUSTOMS UNION AND A UNIFIED WTO ACCESSION

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 003084

SIPDIS

COMMERCE FOR BROUGHER/EDWARDS
WHITE HOUSE ALSO FOR USTR HAFNER AND KLEIN
GENEVA FOR WTO REPS

E.O. 12958: DECL: 12/24/2019
TAGS: ETRD EAGR ECON PREL RS WTO KZ BO
SUBJECT: THE CUSTOMS UNION AND A UNIFIED WTO ACCESSION
PROCESS - CHALLENGES AND OPPORTUNITIES? (PART 3 OF 3)

REF: A. MOSCOW 3083

B. MOSCOW 3082

C. MOSCOW 3053

D. MOSCOW 3050

E. ASTANA 2131

F. GENEVA 1001

G. MOSCOW 2381 AND PREVIOUS

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Classified By: Ambassador John Beyrle, Reasons 1.4 b&d.


1. (U) Summary: This cable is the third in a three-part
series presenting major features of the Russia, Belarus,
Kazakhstan Customs Union (RBKCU),which was finalized on
November 27 with the signing of most binding agreements. The
first cable covered the major structure and decision-making
process of the RBKCU (ref A). The second cable discussed the
principal points regarding tariffs and non-tariff regulations
(ref B). This cable addresses the RBKCU and its effect on
the WTO accession of member countries. Post believes that
the RBKCU likely will create stumbling blocks for the WTO
accession process, but may present may present opportunities
to advance U.S. trade objectives in the three countries. End
Summary.

So What Comes Next for WTO?
--------------

2. (U) On December 7, Russia's Lead Trade Negotiator Maxim
Medvedkov briefed foreign embassy representatives on the
newly approved RBKCU and next steps for WTO accession.
Medvedkov reiterated the position heard for the last few
months, that all three RBKCU countries want to continue their
WTO accession as individual countries. That said, the three
want to coordinate the contents of the accession agreements
and accede to the WTO simultaneously. The view from Moscow
indicates that in negotiations with the WTO (as with much
else in the RBKCU),Russia continues to take the lead in any
planning on negotiations.


3. (U) Medvedkov confirmed that the current plan for the
RBKCU members is to present to the WTO Secretariat a document
explaining the RBKCU and how its members see it affecting
their respective accessions. This was supposed to happen
before the end of the year (reportedly the week of December
14, but we have received no confirmation it was submitted.)
According to Michael Cherekaev, Head of the WTO Unit at the
Ministry of Economic Development (MED),Russia wants the WTO
Working Party members to have a chance to review the material
and be ready to set up negotiating schedules early in January

2010. Cherekaev assured econoff that the Russian WTO team is
ready to re-start negotiations as soon as the holidays are
over. The MED negotiations office has handed over all RBKCU
negotiation responsibilities to a newly formed unit so that
the Russian WTO team will no longer be "distracted."
Cherekaev could not comment on the preparedness of the
Belarussian and Kazakh negotiating teams.

Let's Go Back to Where We Left Off
--------------

4. (U) According to Medvedkov none of the existing RBKCU
agreements contradicts any of Russia's WTO Working Party
Agreements signed so far. As most of the RBKCU's standards,
tariffs and regulations are based on Russia's, which are
close to meeting the terms for WTO accession, Medvedkov
believes there should be few problems. If there are any
issues, the RBKCU can adjust its regulations "as needed upon
accession." This possibility of revision of the RBKCU
agreements is "why the three RBKCU members want to negotiate
similar accession agreements" and have simultaneous
accession. But, according to Medvedkov, this should not
really be an issue, as RBKCU is "generally in compliance."


5. (U) According to Medvedkov, the RBKCU harmonized tariff
table contains over 11,000 lines, 80% of them ad-valorem
tariffs. He insisted that the harmonization process has only
resulted in a small number of Russia's tariffs increasing,
most in the area of meat and food products. All other
tariffs will be lower as of January 1, 2010, and, according
to Medvedkov, the table represents a 1% decrease in Russia's
real effective tariff rate in comparison to 2009. (See ref B
for a more detailed discussion.) For this reason Russia's

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trade negotiators believe that it will be easy for Russia's
accession process to pick-up where it left off in June 2009,
and few, if any, Market Access Agreements will need to be
re-opened.


6. (C) This was a position echoed by Russia's leading private
sector representatives during a December 2 meeting with U/S
for Economic, Energy, Business and Agricultural Affairs
Robert Hormats. Leading Russian businessmen told Hormats
that the RBKCU will not be a stumbling block for WTO
accession because the other countries will just conform to
Russia's standards, and therefore, automatically, be in the
same stage of accession as Russia. Russia will then quickly
solve the "four old problems from last June" and all three
RBKCU countries will be able to enter together. (Refs C and
D)


7. (C) The only contradictory voice post has heard was Senior
Presidential Advisor Dvorkovich, who told U/S Hormats, "Well,
maybe when the time comes for Russia to enter, if the other
countries aren't ready we'll just go in without them." (Ref
C)

For Belarus and Kazakhstan ) Different Stories
-------------- -

8. (SBU) The tri-country negotiating team will be formally
requesting to the WTO a re-start of Belarus' accession
process. According to Medvedkov, Russian trade specialists
are currently working with the Belarussian team to identify
legislative changes Belarus will have to make in order to be
"WTO ready," and will propose Russian legislation as models.
As Belarus' tariff schedule "was always close to Russia's,
and therefore has not changed much with the RBKCU table,"
Medvedkov believes the RBKCU will actually help significantly
Belarus' accession. Belarus should have easy market access
negotiations, as long as members are willing to complete
agreements close to Russia's existing agreements.


9. (SBU) According to the National Trade Estimate for
Kazakhstan (Ref E),Kazakhstan has completed market access
agreements with 21 of 40 members of its Working Party,
including Canada, Malaysia, Brazil, and Israel. It is still
negotiating its agreements with the U.S., and the EU, among
others (Ref E). According to Medvedkov, the RBKCU WTO
negotiators hope that Working Party members will accept
wholesale the Kazakh tariff table which resulted from the
RBKCU negotiations. He stated that "it is a wash, as 3,000
lines went up and 3,000 lines went down." If the Working
Party does not accept these changes and requires new market
access negotiations, Medvedkov admitted that the Kazakh
accession process would be set back quite far. As noted in
Ref E, Kazakhstan's real effective tariff rate will go up,
already 13% in 2009, as a result of the RBKCU harmonized
tariff table. (See Ref B for more details on the Kazakh
tariff changes.)

EU Mission Thoughts on the RBKCU and WTO
--------------

10. (C) During a November 30 meeting with the Ambassador,
newly arrived EU Head of Delegation Fernando Valenzuela
stated that the further deferral of Russia's entry into the
WTO "would delay the EU Partnership and Cooperation Agreement
(PCA)," but in his view there was not much left to negotiate
on WTO. This was a view echoed by Timo Hammaren, the EU
Mission's Senior Trade Officer during a December 18 meeting.
Hammaren pressed econoffs for details on what the U.S. felt
was still missing for Russia's accession, and asked how many
of these were "technical issues or political ones?" He asked
if there was "a U.S. determination for Russia to join the
WTO?" He added that the PCA negotiations were being held up
by the slowed down WTO accession. This did not mean,
however, that the EU is pleased with the RBKCU. Hammaren
noted that by their calculations the RBKCU tariff table
contains over 850 million Euros in new tariffs in comparison
to 2009, which the EU considers "a serious set back" for
trade liberalization. Valenzuela stated that Russian WTO
membership is important to counter such increases.

Comment
--------------

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10. (C) Despite the claims of many of our Russian
interlocutors that the Customs Union should not really affect
the WTO accession processes of any RBKCU members, we believe
that just the changes to the tariff tables are sufficiently
large enough to present complications for Russia and
Kazakhstan. These will probably require the renegotiation of
completed bilateral agreements with members of the respective
Working Parties, as well as re-starting on-going
negotiations. And this is before the RBKCU's harmonized
position on other non-tariff regulations is clear.


11. (C) As stated in refs A & B, the Customs Union still has
no harmonized position on SPS or IPR and other major WTO
trade issues. The form these regulations take in the next
few months, will then allow everyone to make a more realistic
assessment of a time frame for eventual accession.
Complicating the matter further is the insistence, at least
from the Russian position, that "all of Russia's WTO
commitments will only be implemented from the date of
accession."


12. (C) Maxim Medvedkov has also noted that the RBKCU is an
evolving project that will continue to change. This could
provide WTO members an opportunity to try to influence the
content of RBKCU harmonized regulations on SPS, IPR,
investment policies, valuation, and many others. In fact,
the RBKCU secretariat has requested technical assistance from
the EU on issues such as standards and customs procedures.
This moment could actually be an opportunity to help all
three countries, simultaneously, to take on international
regulations, laws, and standards that could facilitate WTO
accession.
Rubin