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The Wall Street Journal: Moscow’s Move

November 17, 2006

Vladimir Putin’s dream of reclaiming what he considers to be Russia’s rightful place in the world just got closer, thanks to a bilateral deal with the U.S. that boosts Moscow’s hopes of joining the World Trade Organization. Now it’s up to Moscow to show that it intends to adhere to global trading norms.

To date, Mr. Putin has failed on that count, using trade policy to punish irksome neighbors and showing little regard for commitments to foreign investors. The U.S. deal, which American and Russian officials are expected to sign this weekend in Hanoi, is a reminder of both how far Russia has come and how far it has to go.

It’s a step forward that Russia will allow fuller U.S. access to its markets. It is lowering tariffs and other barriers to American farm goods, particularly meat and biotech products. It will also cut its average tariff on industrial goods to 8.2% from 11.1% — bringing it more in line with levies in the U.S., the European Union and Japan, and below those in Brazil and India.

Still, Washington punted to the broader WTO membership on one of the most crucial issues when it comes to Russia and trade: protection of intellectual property rights. U.S. officials say it’s routine in these talks to handle IP matters in the multilateral phase, and that Russia will need to prove that it has stepped up enforcement of its current IP laws besides adopting new ones. The EU is being counted on to stand firm on this issue, but that’s a questionable proposition given the bloc’s very public divisions on how to deal with Moscow and Europe’s dependence on Russian energy.

All in all, the U.S. deal represents progress — if Russia lives up to its commitments. That’s a big if these days. Just ask Royal Dutch Shell, which is being strong-armed by Moscow into renegotiating the terms of its $20 billion Sakhalin-2 oil and gas project over trumped-up environmental worries.

That’s par for the course in Mr. Putin’s Kremlin. Beginning with the highway robbery of Yukos shareholders when that company was forcibly bankrupted, this Kremlin has shown no respect for the rule of law or international business standards in reasserting its control over lucrative sectors, energy being only the most glaring example. Moscow has reneged on deals with U.S. companies from energy to aerospace.

The Kremlin has also punished West-leaning regimes in Georgia, Moldova and Ukraine by raising the price of natural gas sold by state-owned giant Gazprom — which enjoys virtual monopoly price-setting powers — and by prohibiting the importation of their wine, mineral water and other goods. (Georgia and Moldova might have the last laugh here, since they must sign bilaterals with Russia before it can join the WTO.)

Letting Russia into the WTO could alleviate some of these problems by providing a forum for foreign parties to seek redress. But it will depend on how tough the group’s 150 members get with Moscow in the multilateral talks. For example, while energy isn’t specifically covered in the WTO, the members could insist on contract safeguards under the broader services area.

Because Moscow hasn’t been playing nice on other geopolitical issues — Iran’s nuclear program being the No. 1 example — there was a feeling in some quarters that Washington ought to hold out for better cooperation — or as a reprimand to Mr. Putin for his backsliding on democracy. But linking trade with politics is just the sort of thing that Russia is criticized for, and the U.S. is right not to play that game.

Better to bring Russia into the world’s rules-based trading system and keep trade disputes separate from politics. To do otherwise demeans trade, which is our best tool for reducing poverty and sustaining peace. The real mistake was allowing Russia into the G-8 club of advanced nations. Mr. Putin has been able to hobnob with true democrats and use his leadership of the group this year as a bully pulpit, while cracking down on political rivals and minorities at home. Keeping Russia out of the WTO wouldn’t right that wrong.

It’s the other way around: WTO membership — when Russia proves it’s ready — could help resolve some broader issues. Though high oil prices have filled Russian state coffers, and gone to Mr. Putin’s head, the economy remains fairly backward as a whole, with per-capita income at just $4,460. Liberalizing trade is one good way to help fix this, as former Soviet republics Estonia ($9,100 per-capita income in 2005) or Lithuania ($7,050) have done.

Keeping politics out of Russia’s accession to the WTO doesn’t mean that the world is giving Mr. Putin a gift. Even after the U.S. deal, Russia has plenty of work left to get into the WTO. If it meets the challenge, it should be welcomed in.

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