If Russia leaves the WTO, there will be no winners, only losers. Yet, some Russian lawmakers propose to leave the WTO and find other ways of going it alone without its Western partners. This is not a good sign.
Director-General of the WTO Roberto Azevedo, listening during a press conference at the World Economic Forum in Davos. Photo: AP
The trade war between Russia and the Western countries that imposed sanctions as a result of the Ukrainian crisis shows no signs of letting up. One unfortunate consequence is that Russia’s food counter-sanctions on these Western countries might put at stake the very principles of the WTO as well as Russia’s membership in it.
Yet, this doesn’t mean that Russia would be excluded from the WTO. This is impossible under the organization’s norms, there are simply no such procedures. It does mean, however, that Russia itself might leave this organization.
And there are some signs of that happening. Last week, Sergey Lisovsky, one of the Russian Federation Council’s senators responsible for agro-food policy and natural resources, proposed to suspend the country’s membership in the WTO. According to him, WTO membership had not given any benefits to the country since its accession two years ago.
“The WTO mechanisms don’t work,” he argues. “If some WTO members have imposed sanctions against Russia, it means that we have left the WTO de facto.”
In reality, Russia might face some problems in suspending its membership, because there is no such procedure under the WTO legislation.
The WTO legal base provides the possibility to withdraw from the 1994 Marrakesh Agreement that established the WTO. According to it (Article XV, Part 1), any Member may withdraw from the Agreement and the withdrawal applies both to the Agreement itself and any Multilateral Trade Agreements.
In order to use such a possibility, the government should forward a written notice to the Director General of the WTO. Thus, we could say that there is a legal provision for Russia to withdraw from the WTO; however, again, there is not any provision about the suspension of obligations.
In any case, this measure doesn´t comply with Russian long-term interests and the proposal of Mr. Lisovsky is one of the measures aimed at obtaining immediate effects.
Who will gain from Russian withdrawal from the WTO? Both Russia and its partners put forth a great effort in the negotiations. In addition, the conditions of Russian accession were negotiated correctly and with a clear understanding and consideration of Russian interests.
If Russia would undertake such action, nobody would win, but a lot of Russian producers - including the agricultural lobby represented by Mr. Lisovsky - would certainly lose. Much has been said and written about the advantages of Russia’s participation in a multilateral trading system and it would be a pity not to use them. Not using them, in fact, would undo the great effort and professional work of many people.
In addition, the WTO can help Russia to better coordinate with its BRICS partners, which is crucial to fostering trade and multi-polarity.
Is it possible that Russia’s withdrawal could be a precedent for other countries? It is difficult to say. Yet, having the legal provision, they could use it. But the history of the General Agreement on Tariffs and Trade (GATT) and the WTO that replaced it in 1995 provides no evidence of efforts to withdraw from membership. That means that no country equates the long-term advantages of being a part of the world trade system with short-term political interest.
It would be a mistake to say that WTO principles are not a guarantee against the protectionist policy of partners. Yes, the set trade policy instruments are becoming more and more diversified and there are a lot of measures that are very difficult to determine and dispute.
We should admit that the WTO couldn´t be effective in the situation of the Ukrainian crisis, as some politicians say, since the WTO was established and worked in the condition of peace and in order to restore world trade after World War II.
The Ukrainian conflict is a military conflict inside one country, but supported by a lot of speculation about the potential involvement of others. Such a development has nothing to do with WTO rules and rulemaking.
However, we could admit that the current situation is a kind of a test for the WTO and its members including Russia, since the U.S. and European sanctions are obviously politically motivated.
At the same time, these Western sanctions are designed with a consideration of WTO articles and provisions. Russian counter-sanctions, unfortunately, are not so well designed and could be easily disputed by its partners. Besides, Russian measures significantly impact Russian consumers and the economic situation in the country (inflation, level of foreign direct investment, etc.)
Meanwhile, the Western-led sanctions are subtler and more accurate because - in reality - it would be difficult to prove that they violate the WTO principles. After all, since they target Russia's finance, military and energy sectors and some officials close to the Kremlin, they could be justified as an exemption because they deal with the two peculiar fields: national energy security and financial services.
Yet Russia's counter-sanctions also might be justified as food security measures, but for Moscow, it will be much more challenging to prove it. That's why Russia should have elaborated them thoroughly and carefully.
Is it possible to minimize (or even better, to avoid) the implications of the mutual sanctions for the WTO and global governance in general?
It’s difficult to avoid, a lot of things have been done and trade has been already severely hampered. To minimize and try to eliminate the conflict, we need to start bilateral negotiations and find a compromise with each partner, mainly the European countries.
One step that Russia has undertaken is a diversification of trade flows and a search for new markets. Import substitution would hardly be an effective measure overall, since it is costly, sometimes ineffective and again has a strong influence on the population and welfare.
The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.