Russia’s admission to the WTO turned out to be a relatively unnoticed event, though it deserved much more attention. What does this mean for Russia? What problems will the accession to the WTO allow to resolve and what sacrifices will have to be made?
Russian Economic Development Minister Elvira Nabiullina signed the Protocol of Accession of the Russian Federation to the World Trade Organization (WTO) during the Eighth WTO Ministerial Conference on December 17, 2011. According to eyewitnesses, Geneva’s conference-centre hosted more than 4,000 officials and journalists
Russia’s admission to the WTO turned out to be a relatively unnoticed event, though it deserved much more attention. What does this mean for Russia? What problems will the accession to the WTO allow to resolve and what sacrifices will have to be made?
Russian Economic Development Minister Elvira Nabiullina signed the Protocol of Accession of the Russian Federation to the World Trade Organization (WTO) during the Eighth WTO Ministerial Conference on December 17, 2011. According to eyewitnesses, Geneva’s conference-centre hosted more than 4,000 officials and journalists.
Russia’s leading newspapers and TV-channels covered the event which, nevertheless, failed to become a top news story. Russia had been holding negotiations on joining the WTO for 18 years, more than any other country, but during the talks and the accession process (which has yet to be completed) Russia seemed to be unsure of whether this step was worth making.
It will be wrong to say that the accession to the World Trade Organisation was held behind closed doors or was not followed by a discussion. There was a discussion but mostly Economic Development Ministry’s economists and officials were involved in it. Politicians, except for heads of states, did not actively participate in the discussions; heads of companies tried to shy away from expressing their opinions and arguments.
The country was living its own life while the accession to the WTO, an event comparable to the admission to the United Nations, was in progress. The only question which seemed to worry the public at large was whether imported cars would get cheaper. And now the answer is clear – yes they will, but not at once and not much. Other terms, under which Russia joined the organisation, have also been made public. But, anyway, why does Russia need the WTO and did the Russian negotiators manage to uphold the most favourable terms for the country?
The answer has several dimensions and will require an insight to the past and the present of the global policy and economy.
Political implications of WTO membership for Russia
The General Agreement on Tariffs and Trade (GATT), the WTO’s predecessor, was drafted in late 1940s as part of the global governance system (and the UN became the basis of it) for two purposes.
One of them was the development of world trade to ensure growth of general welfare (of course not equal for everyone); the other was to prevent new wars arising from trade conflicts.
The world had just emerged from the Second World War and the main task of both the world policy and trade policy was to build a world where nothing similar would happen again.
Most western politicians who proposed the idea of GATT were sure, and they had their rationale for it, that increased protectionism, the closure of national markets for the import of competitive products from abroad and the manipulation of exchange rates for the benefit of individual countries (the IMF was assigned to deal with these issues) were major factors that had sparked off both the First and the Second World Wars.
There was a proposal to implement rules, under which national states would not be able to close their borders for imported goods and provoke the “when goods don't cross border, armies will” situation.
The idea of GATT was conceived on this premise. In a broad sense, it is a global governance institution similar to the UN in terms of authority and functionality.
In a narrow sense this is a tool for resolving trade disputes and the only place on Earth where one can complain about trade discrimination and protect their rights. The only alternative to it is to use force.
Russia remained the only member state of such global governance institutions as the UNSC, G8, G20, which was not the WTO member. World trade rules were written without Russia, and when trade (and politics)-related issues were raised in G20 Russia had to abstain from taking part in the discussion. Of course, the situation needed to be changed. But was Russia’s aspiration to join the WTO grounded on global issues only?
Russia’s practical interests
Russia’s changing export pattern was the main reason behind its accession to the WTO. Today’s pattern is hugely different from that in the early 1990s. And it is set to change further through various programmes of the industrialisation, modernisation and diversification of the economy. We do not know yet how successful these plans will be and what they will result in, but they might work! And it is necessary to prepare for this in advance otherwise these plans are doomed to failure.
The thing is that the WTO is not needed for the export of some commodities such as gas, oil, timber which were predominant in Russian external trade in the 1990s. Foreign countries are not closing their markets for these strategic commodities and there have been no disputes (apart from those concerning prices) around these goods.
The WTO does not regulate world arms or, for instance, nuclear markets: such issues are resolved within the framework of intergovernmental agreements; there are no special “markets” for such goods (or almost no).
This is why Russian leadership saw no substantial reasons for joining the WTO until late 1990s when commodity production in Russia revived and became more competitive due to the national currency devaluation. Prestige and desire to be the member of all influential global governance centres was Russia’s number one concern.
Metals, chemical products, food, cars and equipment gradually started playing a bigger role in the Russian export.
For instance, total export of cars and equipment from Russia grew by 130% from 1999 to 2009. Russia became one of three largest grain exporters.
The joint stake of Ukraine, Russia and Kazakhstan amounts to about 30% of the world’s grain export market, but this is another story though. These markets are highly competitive, there are many other manufacturers in the world and Russian exporters were stopped from entering the international market, as a result it was closed for Russian metals, chemicals and grain. The WTO was the only organisation where Russian exporters could protect their rights, but Russia was not its member.
Russia seeks to move towards increasing non-commodity export further. The Customs Union, where Russian goods are subject to zero customs duties, was established for this purpose. This is why Russia joined the WTO. No prohibitive customs duties or similar barriers will be stopping Russian goods any more. Is it a victory for the country? Joining the WTO is not a victory but an opportunity to win it. If Russian goods are incompetitive, the WTO will not be able to help to sell them.
What price has Russia paid for the accession? Will Russia kill its national production by importing cheap goods from abroad? It is impossible to speak about it without any specifics, and the terms on which Russia agreed can be found on the Economic Development Ministry’s website.
Russian producers can stay calm since the overwhelming majority of goods will not be affected anyhow and new customs duties will not change significantly. Some may face difficulties, which can and must be sorted out.
The Agriculture Ministry has recently criticised Russia’s promise to reduce duties for the import of pigs to zero (now it stands at 5%) threatening that, eventually, the market will be “flooded with pigs from the Baltic states and Poland”, and proposed to allocate 20 billion roubles to Russian pig breeders and 17 billion roubles to beef producers annually.
It is strange that the duty’s five-percent change threatens Russian pig breeding with such a catastrophe (farmers do not seem to be strongly supported by governments in the Baltic States, while fuels and lubricants are more expensive there than in Russia), but this is quite in the spirit of the WTO. However, Russia is able to support its producers since Russian negotiators have dickered for such right.
Part of a plan to modernise economy and society
And, finally, there is another important moment to mention. Russia’s accession to the WTO is a sort of a quality mark for foreign investors, a signal that one can do business with the country and set up enterprises there rather than only trade with it.
All the more, investors are also offered not only the Russian market but Kazakh and Belarusian markets with the Customs Union established. Russia’s decision will not significantly change its trade and economic relations with the United States, European Union and China, but it will be easier to resolve some disputable issues both for us and for them. Of course the competition will grow too since foreign enterprises can be set up in Kazakhstan as well, where the conditions are even better in some respect. Well, it only means that Russia needs to create even more favourable conditions, and its business will also benefit from it.
The WTO only provides opportunities to resolve many problems, but no one is going to resolve them for Russia.
