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Russia to enjoy benefits of WTO accession

Update: August, 03/2012 - 10:28

by Mai Hien – Cuong Dung

 

After a prolonged negotiation that stretched into decades, Russia will finally become the 156th member of the World Trade Organisation on August 22.

Russian President Vladimir Putin signed the law on July 21 that brings Russia's trade laws into compliance with WTO agreements. This final step of official approval follows passage of accession legislation by the Russian parliament.

"It has been a long road to reach this destination, but today Russia has cleared the final hurdle and on 22 August will take its rightful place at the table with the family of trading nations," said WTO director-general Pascal Lamy, hailing Russia's ratification of the accession agreements and the end of a negotiation process that dated all the way back to 1993.

To complete the process of WTO accession, Russian signed 57 bilateral agreements on market access for goods and 30 on market access for services.

During negotiations, Russia faced objections from the US, EU and Georgia, but it managed to reach terms with them last December. WTO ministers adopted Russia's WTO terms of entry shortly thereafter at a conference in Geneva.

Economists have long argued that Russia's WTO membership was inevitable. The country accounts for one quarter of the world's oil and gas resources and was the only major economy outside of the trade organisation once China joined in 2001. The world's ninth largest exporter, Russia shipped $522 billion in goods and sold $554 billion in services to its trading partners in 2011. During last year, it also imported $323 billion in goods and bought $90 billion in services.

According to the World Bank, WTO entry was expect to boot Russian gross domestic product (GDP) by 3.3 per cent within the first three years, a figure that was projected to rise to 11 per cent over ten years.

As a WTO member, Russia will have to open its markets, remove trade barriers and reduce tariffs, as well as open some economic sectors to foreign investment.

"Joining WTO means that Russia is entering an economic war and we need to be ready for this war," Russian Senator Seigei Lisovsky told RIA Novosti, adding that Russia was wholly unprepared to compete against countries used to competing without trade protections.

Tariff reduction, the key condition for Russia's WTO entry – will see tariffs fall from the current average of 9.5 per cent to an average of 7.4 per cent in 2013, 6.9 per cent in 2014, and 6.0 per cent in 2015.

During the transition period, many small- and medium-sized enterprises in such sectors as food processing, manufacturing and automaking will face the challenges of competing with imported goods which enjoy lower tariffs.

Nevertheless, experts say the benefits for Russia will outweigh the losses.

"We can't modernise our economy without accession to the WTO," said Putin, in a report to the Duma. "Until [Russian producers] feel real competition, they will not invest in modernisation."

Becoming a WTO member will prompt the country to adopt stricter legal regimes that support a more transparent business environment. It will also help Russia attract more foreign investment into the country but also heal a structural weakness – an economy that depends too much on oil and gas exports.

According to Russian Minister of Economic Development Andrei Belousov, the advantages of WTO accession include clear foreign trade rules and a stable trade regime that supports more active exports.

More jobs will be created, bringing improved living standards for Russians, and Russian consumers will also enjoy greater opportunities to buy higher quality products at lower costs.

On the downside, economists predict that a number of Russian small- and medium-sized enterprises in manufacturing, services and agriculture will not be unable to compete with foreign producers and some may face bankruptcy. The Russian government will need to provide support to some industries which face losses after WTO accession, with subsidises in some sectors allowed to continue under WTO accession terms until 2017.

The newspaper Vedomosti wrote that Russia's WTO accession would make its agricultural businesses uncompetitive. The newspaper cited a Ministry of Agriculture report saying cuts in duties on imported pork from 15 per cent to zero would push live weight prices down and make hog farms unprofitable. Russia would need to boost state subsidies to agribusiness by $3 billion annually and slash taxes to fully offset the effects of WTO accession, the paper said.

To cope with foreign competition in the long term, however, Russian companies will ultimately have no choice but to outline long-term strategies that focus on improved product quality and investments in new technologies that reduce prices. — VNS

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