????Some of the big companies behind the push include General Electric (GE), Deere (DE) and Boeing (BA). GE has been especially vocal, saying that tariffs on its jet engines would fall from 20% to 5% if trade was normalized between the two nations. That would deliver a sizable boost to its profit margin and increase the availability of top-notch products to the Russian market.
????Companies in the agricultural space and the automotive space will also benefit as Russia will no longer be able to bar the importation of certain food stuffs and automobiles. This could be a great boost for major US factory farm companies like ConAgra (CAG) and ADM (ADM) as well as car manufacturers like Ford (F), GM (GM) and Chrysler.
????Wall Street stands to benefit from all this new investment in Russia too. If Russia is seen as a solid place to invest capital, institutional investors will demand greater access to it. This could lead to a large influx of equity and debt capital into Russia's domestic market, all of which would yield juicy fees for Wall Street bankers.
????On the flip side, the large Russian companies that currently see London as a base of operation could be lured into moving some of their operations to New York. Currently, most large Russian companies, even the quasi-state owned ones, choose to list their stock in London and even Hong Kong over Moscow given their investor bases. As more of their investor base moves to the western hemisphere it will make more sense to list in the liquid New York markets. The NYSE has been courting Russian companies -- full trade normalization will most likely accelerate this nascent process.
????And while some Russian companies might move operations to Wall Street, U.S. banks may see new opportunities in Moscow. The WTO rules allow for 100% foreign-owned banks to open in Russia for the first time. The only limit is that 50% of the entire banking sector must remain in Russian hands.
????But while the benefits of full trade normalization are real, it will be many years before all the changes are implemented. Fearing a shock to some of its industries, Russia will be decreasing its tariffs over a 7-year period and will not be phasing them out. On average, Russian tariffs on imported goods are expected to decrease from 10% to 7.8% when all is said and done. Russia agreed to lower 33% of its tariffs from the date at which they enter the WTO. It will drop them another 25% after three years.
????Some industries will have much longer lead times than others. Tariffs in the automotive and airline industries will drop in seven years, with the tariff on autos going from 9.5% to 7.3%. Meanwhile some agricultural products have an eight year time lag, with the average agricultural tariff falling from 13.2% to 10.8%. And while the new agreement will allow foreign investment in Russia's insurance industry for the first time ever, it will be nine years before that market is open to investors.
????The Senate is expected to continue debating Russian trade for a few more weeks, with passage expected in the next few months, according to Senate Democrats. Both U.S. and Russian politicians are cautiously optimistic about this new level of openness and what it might produce. But the net benefits for both countries seem to be solid. The only wild card is whether or not Russia will truly play by the WTO rules. Only time will tell.
