Russia readies for World Trade Organisation

Updated: Jan 26 2002, 05:30am hrs
With the accession of China and Taiwan to the World Trade Organisation completed during the Doha Ministerial last November, the Russian Federation remains the only major country outside the WTO. This isnt because Russian policymakers are indifferent to the idea. Far from it. In fact, joining the WTO is one of the major topics on the economic policy agenda of the Putin administration. Several important members of the government have, from time to time, expressed the determination of the government to join this prime international trade organisation.

At the Russia 2001 meeting organised by the World Economic Forum in Moscow last October, President Putin made it very clear that it was his intention to work towards Russian accession. However, he stressed the need for pragmatism in Russias approach and made it apparent that his country would never join the organisation on non-standard terms. Finance minister Kudrin suggested that Russias bargaining position had been enhanced by a favourable political situation existing today as a result of Russias cooperation with the US war in Afghanistan.

At the meet, a full session was devoted to this issue, underlining the importance the international community and Russian leadership attach to it. It was significant that in addition to top Russian policymakers, the business community attended the meeting too. The implications of joining the WTO were hotly debated and the fears expressed by some industrial and financial sectoral interests were not much different from what was heard in the course of our own internal debates. Despite that, I came away with the feeling that there was a large opinion in favour of accession. It was also felt that accession would have to be accompanied by several necessary structural reforms, if the accession dividend was to be maximised.

Since President Putin has been at the helm of affairs, the country has made great strides in pushing forward reforms that are improving the investment climate as well as conditions for sustainable growth in Russia. The economy has enjoyed three consecutive years of healthy growth; 5.4 per cent in 1999, 8.3 per cent in 2000, and 5.5 per cent in 2001 despite a world recessionary environment. Russia is one of the 20 best performing economies in the world today, according to Putins economic advisor Andrei Illarionov. The structure of the economy has undergone a dramatic transformation with private consumption and private sector investment showing encouraging dynamism. President Putin revealed that the impetus behind domestic structural reforms was the desire to see Russia fully integrated into the world economy.

It is in this context that Russias future membership of the WTO is considered as a logical step forward in its globalisation process. Quite clearly, the Russians believe that greater access to international markets and improved climate for foreign direct investment will be the main benefits of WTO membership. The Russians are particularly concerned about the more than 100 anti-dumping cases pending against their exporters and believe that protection to their exporters in external markets will be a major gain. Russia will also gain through transparency and protection of intellectual property rights, which they think will stimulate investment in IT and telecom.

The Russians seem to have studied the experience of other countries, including Indias, in the approach to WTO membership. There was clear concern that accession would lead to swamping of the domestic market with cheaper imported goods, since tariff protection for domestic producers would no longer be available. But this argument was countered by interesting statistical information. In Russia, import tariffs are currently quite low, providing little protection to domestic producers. Average tariff rates range between 7 per cent and 15 per cent on most commodities. One participant pointed out that even these low rates were not uniformly applied to imports. According to one estimate, up to 50 per cent of all imports evaded import duties. Of course, with structural reforms it was rather embarrassingly pointed out that customs realisation would be higher and implementation of import duties more stringent. Concern was also expressed that agriculture would suffer a grievous blow and food would be more expensive as subsidies get phased out, the financial sector would wither and foreign exchange would move out of the country.

These are not unfamiliar arguments against joining the WTO. Other countries in similar stages of economic development have dealt with these apprehensions. Those who favour accession argue that Russias financial and banking sector is, in any case, weak and unviable, with an overwhelming majority of Russian banks being uncompetitive. Financial reforms in Russia are highly overdue, with or without membership of the WTO. Reforms of the banking sector already approved by the government will lead to many bank closures. Preparations for future WTO membership will actually assist and accelerate the overdue reforms. Similarly, there will be short term costs in agriculture and telecom sectors where prices are currently low due to subsidies. The social consequences of higher prices in the short run cannot be ignored but these will have to be managed in the interests of long term gains.

The reality is that, to maximise the accession dividend, Russian authorities will have to work hard to raise domestic awareness of short term problems and long term benefits. The large majority of the Russian population, particularly in non-urban areas, is unaware of the implications of entering the WTO. Yet, this will be the silent majority which will immediately be affected because of its dependence on agriculture and the impact upon food prices. Accession negotiations will be crucial, and Russian negotiators will need to be very clear that they can only gain by demanding market economy status for themselves and access to markets in OECD countries.

For the Putin government, WTO accession remains a matter of important economic priority. For a nation that is trying to Europeanise and globalise its economy, the pressure from potential investors in OECD countries for Russia to accede to the WTO is an important consideration. That is why the finance minister asked Russian and foreign business leaders present at the meeting to extend their support and lobby their governments for Russias membership. The government hopes to complete accession negotiations before the end of the current year. If President Putin stays at the helm of affairs, we may see Russia joining the WTO by the end of 2003.

Prakash Shah is a former member of the Indian Foreign Service and Indias Permanent Representative at the United Nations