In December 2011, the protocol on Russia’s accession to the World Trade Organization (WTO) was signed at the Eighth Ministerial Conference in Geneva, ending 18 years of negotiations. Ratification by the Russian parliament and the signature of President Vladimir Putin followed in July 2012, which means Russia will become a full member of the WTO as of August 23, 2012.

Reduced Tariffs. WTO membership may require substantial adjustments in the Russian domestic economy, as local producers will face increasing competition from abroad. According to the Russian Ministry of Economic Development, import tariffs will be reduced on average by 3% for most goods and services and 4.4% for agricultural goods. Implementation periods ranging from two to eight years will be applied to import tariffs on certain groups of goods and services. Russia has also committed to eliminating a broad range of subsidies for domestic producers. However, annual state subsidies in the agricultural sector will be allowed — up to US$9 billion upon accession and up to US$4.4 billion by 2018.

Foreign Investment. As part of its WTO commitments, Russia has negotiated a number of special provisions relating to foreign investment in the banking, insurance, and telecommunications sectors. Russia has reserved the right to limit foreign investment to no more than 50% of the aggregate charter capital of all banks, although at present no such quota has been imposed. No restrictions will be allowed on foreign equity investment in individual banks. Foreign banks will still not be allowed to establish their own branches in Russia, although the Russian authorities have proposed to review this position in the future.

Different rules will apply for the insurance sector. The quota on foreign investment in Russian insurance companies will be increased from 25% to 50% of the aggregate charter capital of all insurers. A separate 49% cap on foreign ownership of Russian companies that provide life insurance and mandatory insurance (such as vehicle liability insurance) will be raised to 51% upon accession and eliminated after five years; but in any case, the cap does not apply to investors from the European Union. In an even more dramatic step, foreign insurance companies will be allowed to establish their own branches in Russia nine years after accession.

As for the telecommunications sector, Russia has reserved the right to limit aggregate foreign investment in the charter capital of certain domestic operators to 49% until four years after accession. However, no such limit has been imposed so far. This rule does not apply to television or radio broadcasters (although they remain subject to other restrictions under the existing Law on Mass Media).

Many other sectors will be affected by the accession to the WTO, and further developments are expected as the Russian government and local businesses implement and adapt to the new changes. Look for future articles about this subject as Russia continues its transition.