In the future, one can expect cooperation between Russia and the WTO in regulating world trade to become effective and mutually beneficial. But it will take time.
Only Russian retailers reported a positive effect from the country's WTO membership one year ago. Optimism among foreign businesspeople has faded. Photo: AP
On August 22, it will be exactly one year since Russia joined the WTO. Because the negotiating process lasted almost 18 years, many direct and indirect consequences of membership manifested themselves before accession, as they were taken into account by business and government bodies in Russia and its partner countries. For example, membership in the WTO caused Russia to lift customs duties on information technology goods. The decision, which was made in 2011, boosted development of the IT sector.
The history of the accession of other countries to the WTO shows that the process of reaping benefits from that move is non-linear. In the initial stages, the state has to fulfill the obligations it has assumed, which is why foreign partners are the first to benefit from the lowering of trade barriers for goods and services. Later, the new WTO member begins to realize the opportunities opened up by membership for accessing the markets of other countries.
The capabilities of domestic business leaders and government officials determine whether the potential advantages translate themselves into real ones: increased production, higher exports, lower prices for imported goods, etc. By joining the WTO, Russia agreed to formal restrictions for current and future governments in how they manage the national economy. The past year has shown that the benefits from WTO accession are there; however, so far, they have made little real difference to the Russian economy.
From the political point of view, Russia’s aims in joining the WTO can be formulated in two ways:
1. Transformation of the Russian economy into a normal, middle-class economy attractive for partners and protected against discriminatory measures by its status;
2. Modernization of the Russian economy through mass-scale renewal of fixed assets, which is easier and cheaper to accomplish within the framework of the WTO.
The country’s political leadership and its business leaders have reached consensus regarding both of these goals. During the past year, the consensus has remained in spite of the dramatically increased activities of the agrarian lobby, which has been the hardest hit by the WTO accession.
The expectations the Russian government declared ahead of accession are still relevant and are gradually materializing:
1. WTO membership will result in Russia gaining up to 0.4 percent in annual GDP growth over a ten-year period;
2. Opportunities for exporting Russian industrial and agrarian products to foreign markets will increase;
3. Access to the international dispute resolution mechanism within the WTO framework will put Russian business on an equal footing in dealings with foreign partners;
4. A more favorable investment climate will be formed for investment into and out of Russia;
5. The Russian government gains the right to take part in working out the rules of international trade, taking into full account its national interests.
Accession to the WTO has given a powerful impetus for transforming the Russian diplomatic corps, especially in the sphere of economic diplomacy. It has triggered a reform of Russian trade missions abroad: this is now in full swing and should be completed by the end of 2016.
Let us face it: Russia has never been a sincere adherent of trade liberalization. Today, the Kremlin is prepared to go along with what Bismarck said almost a century and a half ago: “Free trade is the weapon of the strongest nation.”
A growing domestic market capable of absorbing hundreds of billions worth of goods and services is the main element of Russia’s emerging “soft power” in its dialogue with the Transatlantic Free Trade Area, the Pacific Basin and other world economic centers. When acceding to the WTO in 2012, Russia advocated not so much global liberalization of trade as priority development of regional integration blocs (the Customs Union and EurAsEC), within which the goals of free trade are achieved faster and more easily.
The ideal of modern Russian diplomacy is thus negotiation on world trade matters, not among the more than 150 WTO members, but in the narrow circle of great powers to which Russia belongs. Having allies and enjoying the status of leader in an integration alliance play an important part in building a multi-polar world. That is why Russian leaders are doing all they can to make the Customs Union a player within the WTO system. Yet Russia’s accession has not really brought this goal any nearer, because Kazakhstan and Belarus are still outside the organization.
During its year as a WTO member, Russia’s economic achievements have not been impressive. Trade in 2012 increased insignificantly (from $842 billion in 2011 to $864 billion in 2012), and the rise in foreign trade was achieved primarily through the growth of imports.
There are several reasons for this. First, in 2012-2013, the prices of Russia’s main exports (commodities) hit a plateau, while those of services and industrial goods continued to edge upward. Second, the crisis in the euro zone and the slowdown in Russian economic growth prevented the potentially positive consequences of WTO membership from fully manifesting themselves.
Even so, the influx of foreign investment into the Russian economy increased by 32.1 percent in 2012 compared with the same period of the previous year ($98.8 billion), while direct investment increased by 59.8 percent ($12.1 billion). Growing competition with foreign producers has made Russian businessmen cut their costs and, consequently, their prices.
In short, the barriers that formerly separated the Russian and global economic models are shrinking. This creates favorable conditions for Russia’s economic development in the long run. Being a member of the WTO, Russia is gradually gaining an opportunity to influence the WTO and its members. In the future, one can expect cooperation between Russia and the WTO in regulating world trade to become more effective and mutually beneficial.