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Russia´s March to the WTO Coincides with Trade Restrictions and Russian Investments Abroad

Russia’s signing of a Bilateral WTO Accession Agreement with the United States at the Asia-Pacific Economic Cooperation (APEC) forum in Hanoi largely paves the way for Russia’s entry into the WTO. The deal’s signing marks the end of nearly twelve years of negotiations and a six year whirlwind process of signing bilateral agreements with 57 WTO member countries. Under WTO rules, any member country may request a bilateral trade deal as a precondition to multilateral WTO negotiations. Russia still must ink deals with Costa Rica, Guatemala, El Salvador and Moldova and the country is betting that its former Soviet Republic neighbors, Georgia and Moldova, will be convinced by the United States and Europe not to use their WTO veto to block Russia’s continuation onto the multilateral accord phase. The primary sticking point is that Georgia and Moldova want Russia to stop using customs checkpoints in each country’s respective breakaway separatist enclaves where legal and illegal trade flows freely. They further believe that Russia is using natural gas prices and trade sanctions to punish the Countries for their pro-western policies. In 2003, Brazil officially recognized Russia as a market economy and in October 2005, Brazil cemented its support for Russia’s WTO entry upon signing a bilateral agreement setting forth new rules for Brazilian sugar and meat exports to Russia. Under this agreement, Russia will have until 2010 to either increase Brazil’s quota share in Russia’s imports or disband the quota system altogether. Although traditionally considered a potential competitor and part of the club of so-called BRICS countries (Brazil, Russia, India, China and South Africa), Russia is a significant trading partner of Brazil and is a major importer of Brazilian meat products. In fact, it is estimated that from January to July 2005, Russia accounted for 53% of Brazilian meat exports. It is Russia’s recent remaining restrictions placed on Brazilian fresh swine and beef imports that are creating the greatest strain on otherwise friendly and prosperous relations between the two emerging economic powers. The recent restrictions result from the discovery of foot and mouth disease in the western State of Mato Grosso do Sul, which has had severe implications for exports far to the south in the State of Santa Catarina, Brazil’s largest swine exporter, which has not experienced any foot and mouth disease cases. The tension revolving around the subject was significantly attenuated when the Brazilian Ministry of Agriculture recently announced that Russian Authorities had lifted the embargo against industrialized beef and milk products subject to thermal treatment and originating from registered export facilities in Brazil. However, as mentioned earlier, restrictions remain on live animals and fresh swine meat and beef from the states of Mato Grosso do Sul, Minas Gerais, Paraná and Santa Catarina. Meanwhile, due in large part to the steep upswing in the price of gas and petroleum, Russia is experiencing unprecedented GDP growth, gauged to be nearly 6.6% for the year 2006. It is hoped by many that this influx of wealth and capital will have a watershed effect resulting in greater foreign direct investment by Russian companies in countries such as Brazil. Glimpses of investment opportunities are caught mainly by the energy, commodities and transportation sectors. In this regard, it is with great pleasure that Felsberg e Associados announces the hosting of a Russian Delegation organized by the World Bank and the Chamber of Commerce Brazil-Russia, composed of political and business leaders. The event is scheduled to occur in early December and will be a memorable opportunity for both Brazilians and Russians to jointly explore bilateral trade and investment opportunities, as well as seek greater understanding and collaboration.

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