Even though it is still too early to talk about the results of Russia’s accession to the WTO, it is quite clear that in order to enjoy the potential benefits over the long term, Russia should address a range of important domestic factors today.
Experts are hopefull that membership in the WTO will become one of the main drivers of Russian economic growth. Photo: WTO / Studio Casagrande
Trade disputes within the World Trade Organization (WTO) are nothing new, something that Russia is quickly finding out after finally joining the WTO in 2012. China is taking steps to counter EU tariff policies on its poultry and meat products, while the European Union is taking more active action in its dispute with Russia and its tariff reatment of paper products, palm oil and refrigerators.
Following an unfruitful round of consultations and an initial request to establish a panel that was blocked by Russia (a step allowed by WTO rules), the EU decided to take the case into the Dispute Settlement Body of the organization once again, stating that measures “are still in place and continue to severely hamper trade.” It was only on March 25 when the WTO finally established a panel to investigate this – currently the fifth case overall against Russia.
To those unfamiliar with WTO practices, the establishment of the Dispute Settlement Body does not necessarily mean that one country has started an economic trade war with the other. This is just the usual way the organization operates: The member states challenge each other’s trade policies and negotiate a better way that could benefit all sides the most.
Russia itself, while being in the organization for only two and one-half years, has already taken upon itself the role of a third party in 20 disputes and is a complainant in two cases against the EU (countering the EU’s anti-dumping measures on imports from Russia and measures related to the energy sector).
These developments show that Russia is taking steps to start using available instruments more actively and support its stand on major trade policy issues. For instance, one of the questions actively posed by Russia in the WTO concerns EU financial sanctions. Keith Rockwell, director of the information and external relations division of the WTO, explained this to Russian journalists at a WTO workshop in Geneva:
“This issue has come up in the General Council, in the Council of Trading Goods, in the Services Council, because the Russians are concerned that their rights under the services agreement are being violated as part of these sanctions. We’d have to wait and see how this process will work itself out,” said Rockwell.
Russia’s lack of experience and trade policy specialists
Raising concerns and being able to defend one’s interests in current and future disputes is key to ensure that Russia reaps maximum benefits from being a member of the organization. According to Alexey Portanskiy, professor in the faculty of World Economy and International Affairs at the Higher School of Economics, this is only possible when Russians have enough experience with the WTO.
“One of the points sometimes overlooked by our policymakers and average citizens is that being a member of the WTO is a more complex thing than acceding to it [a process that took 18 years – Editor’s note]. It requires the country to be able to effectively use the trade policy instruments, which is not possible without having extensive experience in the WTO’s negotiation process and dispute settlement system. Learning from the experience of other member states is key in this respect,” he points out.
Unfortunately, Russia lacks such experience. In this regard Russia’s participation in dispute settlement processes, both as a complainant and a respondent, is key “because it allows the country, on the one hand, to protect its interests, and on the other, to accumulate experience in the WTO,” explains Tatiana Isachenko, an expert on the WTO with a Ph.D. from Moscow State Institute of International Relations (MGIMO-University).
Another problem is that Russia does not have enough highly qualified lawyers and specialists in the field of trade policy. “Let’s admit that the time for training such professionals has been lost and now we have to make up for that,” Portanskiy points out.
Indeed, notwithstanding significant changes and the emergence of specialized structures (such as the Center of Expertise on WTO issues, the Information and Analytical Center for Foreign Trade, the Center for the Study of the Tariff and Non-Tariff Regulation, and the Russian Mission to the WTO), the situation is still difficult and demand for qualified specialists continues to persist, notes Isachenko.
“The lack of qualified experts and personnel often leads to an erroneous interpretation of the rules and regulations and, as a result, the wrong policy decisions,” warns Isachenko. “Professionals with knowledge of the WTO rules and possibilities of their application to protect the interests of domestic producers should be represented in all major companies involved in foreign trade activities, as well as domestic producers associations.”
Roberto Azevedo, director general of the World Trade Organization (WTO) at a press conference on the sidelines of the Asia-Pacific Economic Cooperation (APEC) Summit in China, in November, 2014. Photo: AP
Russia’s domestic companies are not interested in foreign markets?
Apart from the lack of Russian specialists in international trade disputes, the country’s economic interests also suffer from state officials’ unfamiliarity with potential export opportunities, and domestic producers’ disinterest in entering foreign markets, thinks Ivan Rubanov, head of the analytical group of the expert council of the Agricultural Committee of the Russian State Duma.
“Russia hardly uses the WTO mechanisms when it comes to promoting domestic agricultural products. Our agricultural exports are still rather low and represented, to a large extent, by liquid and inexpensive primary products, namely grains and oilseeds. The main problems are provoked by administrative and infrastructure barriers at home, not abroad,” he told Russia Direct.
In addition, the expert says, the majority of Russian companies are not competitive enough for developed markets, plus they seem more enthusiastic about new import-substitution opportunities.
“At the moment, we can rather see the reverse trend – the mechanisms of the WTO may be used either for advancing imported goods to Russia or to dispute the food embargo not long ago introduced by Russia. This way in August last year Poland turned to the European Commission and called to file a complaint against the Russian food embargo in the WTO. It’s worth noting though, that thanks to the devaluation of the ruble, there are new opportunities opening for Russian products on foreign markets,” Rubanov says.
Vladimir Salamatov, director general of the World Trade Center Moscow, also acknowledges the positive incentive that the devaluation of Russian national currency gave to Russian enterprises.
“At the moment, the devaluation of the ruble creates an additional protection from imports; however, it does not give domestic producers a reason to relax, but, on the contrary, to increase their competitiveness and produce goods that will be in demand not only on the territory of the Customs Union, but on other global markets as well,” he says.
Salamatov shares the official position of the government in saying that the current economic goal should be not import-substitution in itself, but rather the creation of products that are competitive not only at home, but also abroad. Substitution with outdated and unprofitable products does not make any sense.
“Nothing can promote growth better than competition,” he points out.
Encouraging domestic producers to enter foreign markets, eradicating administrative barriers and helping local producers get cheaper loans and create sufficient infrastructure will allow small and medium enterprises to increase their share of the GDP from the current 20 percent to the worldwide average share of 50-60 percent, Salamatov believes.
Improving the dialogue between government and business
Another urgent question in the context of Russia’s membership in the WTO concerns the effectiveness of government-business dialogue, which should consist of an open discussion of state economic policy and business participation in the future policymaking processes. What is important here is that the government should be able to quickly address the concerns and feedback coming from the business community, points out Portanskiy.
“Unfortunately, we have not achieved this ideal yet: Government officials do not always react to what business representatives are saying, and those speaking for the business are often big business alliances, such as The Russian Union of Industrialists and Entrepreneurs [RSPP], and do not always represent the interests of the whole business community,“ the expert believes. “The business community should be able to debate with the authorities the major political and economic issues that might potentially have a long-term impact on the business environment.”
According to Isachenko, in order to address this issue it is necessary to organize the work in a systematic way interacting with industry associations of domestic producers. The main goal should be to convince Russian firms that the WTO agenda is directly related to their business activities.
“During the negotiations on Russia's accession to the WTO and during the last two years, RSPP and the Russian Business Council held a significant number of roundtables and seminars on these issues, but in practice, it was not enough,” she says.
What are Russia’s achievements so far?
According to the data provided by the World Trade Center Moscow, as a result of two years in the WTO, Russian exports grew by 1.8 percent. This seems to be a relatively small gain, but if looking at specific industries, this number will grow significantly. Although exports of metals and chemical products fell, by 3 and 10 percent respectively, other areas enjoyed an increase in their exports: Machinery and equipment exports grew by 16 percent, mineral resources – by 2 percent, food products – 5 percent, clothing and shoes – by 26 percent.
“These signs make us hopeful that membership in the WTO, as planned, will become one of the main drivers of Russian economic growth,” says Salamatov.