Russia Admitted to WTO--Energy Issues Fudged?

Gas supply and market access disagreements seem to be swept under the carpet

2 min read

Russia was admitted last week to the World Trade Organization after some 18 years of agonizing negotiations--the longest such talks, according to a French newspaper, that have ever attended an application by a country for membership in an international organization.

The WTO decision is expected to bring Russia significant economic benefits--estimated by some at an additional percentage point of GDP growth in the years to come. At such, the move represents a significant victory for the Putin government at a time it's under unprecedented domestic political pressure.

What is curious about the outcome--or so it seems to me--is that the main issues that had held up Russian membership seem to have been swept under the carpet. Europe has been acutely concerned about the security of vitally needed natural gas supplies from Russia, on the on hand, while Russia has sought access to European downstream energy markets, on the other. European exclusion from Russia's highly monopolized and state-controlled energy markets has equally been at issue.

Michael Stuermer, author of an insightful book about Putin,  captured the basic conflicts of interest admirably some years back: “The EU, particularly EU President Barroso and German chancellor Angela Merkel, want an agreed legal framework to facilitate two-way investment, while the Kremlin wants assets swaps. Europe wants openness, Russia wants control…The Europeans negotiate on rules, the Russians on deals.” Thus, “Brussels cannot accept the Russian approach to reciprocity without compromising its free-market principles and its norms of industrial governance.” As for Russia, WTO chief Pascal Lamy once concluded that the gas monopoly issue was a “red line” that Putin would never cross. As maintenance of Russia’s Eurasian gas monopoly has been a fundamental operating principle of the Putin-Medvedev regime, it seemed inconceivable that the regime would ever agree to give up that principle.

According to WTO's summary of the agreement with Russia, language concerning energy is confined to the principle that the Russian state may continue to regulate its domestic oil and gas markets as it sees fit: "Producers and distributors of natural gas in the Russian Federation would operate on the basis of normal commercial considerations, based on recovery of costs and profit. The Russian Federation would continue to regulate price supplies to households and other non-commercial users, based on domestic social policy considerations."

That would seem to say that Russia can do pretty much what many other countries do: operate its home energy markets along competitive lines in principle, while seeing to it that consumers get oil and gas at affordable prices. As for the intractable issues that were holding up membership--security of European energy supplies, mutual access of investors to markets--nothing!

Or have I missed something in the fine print?


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