Russian Bid for WTO Membership Still on Rocky RoadRussian Bid for WTO Membership Still on Rocky Road

Russian auto makers could face tougher competition from abroad by the end of this year, if the country joins the World Trade Organization.

WTO negotiators announced a timetable this summer in which trade ministers would approve Russian membership in the organization in mid-December. The country’s worried auto makers, however, say they’re not especially interested in seeing the deadline met.

Analyst predicts continued sales growth by foreign auto makers, even if Russia joins WTO.

“For us, as producers, there is no rush,” says Igor Korovkin, executive director of the Association of Russian Carmakers. “It won't have a good effect on us. We could stand to still wait awhile.”

A diplomatic source within the WTO tells WardsAuto that Stefan Johannesson, Iceland’s ambassador to the European Union and chair of a WTO working group considering Russian membership, wants a final deal in place by the third week of November.

“No one was against that” in discussions, one source says. “Everyone was on the same track.”

But even though Russian membership in the WTO has been debated since 1993, Moscow still is being asked to reform its trade and investment barriers.

Russia will have to reduce tariffs restricting auto and component imports, which currently run at 30% for completed cars; tariffs likely will have to fall to 25% in the short term and possibly 15% in the long term. In turn, the country will receive freer access to export markets for its own cars and other products.

But Russian auto makers contend tariffs of 25% are the lowest they can live with and, even then, they would struggle to maintain production. Foreign companies, meanwhile, are expected to import more cars under lowered tariffs.

“Tariffs of 20% to 25% would already be very difficult for us,” Korovkin says. “Anything less and you're talking about a huge influx of imported cars taking over the Russian market.”

Prime Minister Vladimir Putin reiterated in July that as a WTO member Russia would remove import duties on components if foreign auto makers built up to 350,000 cars there annually. “This is a red line which we cannot cross,” he said at the time.

Russian officials have not responded to requests by WardsAuto for elaboration. But David Thomas, chairman of the Association of European Businesses’ automotive committee and president of Volvo Cars Russia, says scrapping the rule would help smaller auto makers enter the market.

Korovkin doubts increased imports would benefit Russian consumers, predicting foreign auto makers simply would retain savings from lower tariffs rather than reduce prices for their products.

Lower tariffs also would impact Russian auto workers, Korovkin says. Current industry-wide employment of about 4 million could fall 20% if foreign auto makers already operating in Russia move production to lower-cost countries.

Industry analyst Stanley Root of PricewaterhouseCoopers predicts sales of foreign car brands will grow in Russia, regardless of whether it enters the WTO. Foreign-owned companies have built 530,000 cars in Russia in the past six months, PricewaterhouseCoopers statistics show.

The Russian government’s vocal support of its domestic auto industry has raised concerns from the U.S. and EU that it will bend the WTO’s rules once it joins.

Indeed, Putin has been reported by Russian press agency RIA Novosti as saying, “If we see that the car industry operates in inequitable competitive conditions, we will find non-tariff instruments to protect it, for example, technical regulations.”

That would violate WTO rules on “technical barriers to trade,” explicitly designed to prevent backhanded trade restrictions. But the WTO could authorize retaliatory tariffs by member states as punishment.