Russia enters WTO

Russia enters WTO

Wednesday, August 22, Russia becomes the 156th member of the World Trade Organisation (WTO). This completes a process of 19 years of negotiations. The effects of the membership, however, are easily overstated, both from Russia’s and from the WTO side.

Russia’s transition from a planned economy to a market economy has been (and is) a complex process in which the entire economic governance structure, and a lot of the physical economic structure had to be built from nothing. This includes the integration into the world trading system. Even if Russia’s share in merchandise trade is modest (2.6 % of exports, 1.6 % of imports), its membership of the WTO has been deemed important by both Russia and the other member of the WTO. As a large country Russia should take part in moulding the world trade regime, and trade between Russia and the rest of the world could increase to the mutual benefit of all participants. That, however, is questionable. Russia’s trade barriers never were excessive, even if customs procedures were somewhat erratic. Furthermore, Russia was granted most favoured nation status by most WTO member states long before its official entrance in the WTO, allowing its exports access to the world market on the same conditions as exports from other countries. WTO membership will not change much in the trade patterns. This will also limit the indirect effect that has been put forward, i.e. that increased trade forces Russian companies to become more efficient and to produce better products, benefiting consumers.

In a 2002 study, Russia’s National Investment Council calculated the benefit of Russia’s membership to be 0.5 per cent of national income, subject to an entry under favourable conditions. A more optimistic figure of 3.4 per cent is derived in a number of World Bank Studies, but these are the result mainly of the eliminating of investment barriers (in services), inducing more investments, rather than an elimination of trade barriers. Foreign investments in Russia are problematic. In all years of transition there has been a net capital export. World Bank surveys indicate that entrepreneurs face bureaucratic and corruption problems. And there continue to be doubts about the protection of property rights. Even if WTO membership increasingly comes with obligations regarding the investment regime, the Russian investment climate primarily is a domestic issue, rather than one for the WTO.

Finally, the role of the WTO in the world trade regime is changing. The EU and the USA increasingly find WTO rules too intrusive into their trade regimes and circumvent the WTO by concluding bilateral free trade agreements with other countries. This reduces the role of the WTO in the world trade regime directly, but also indirectly as the EU/US threat of leaving the WTO behind limits the agenda of the WTO. Russia may have become a member of an international organisation that sees its influence declining, thus limiting Russia’s possible influence on creating a world trade regime.

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I agree 100%. Corruption is the core problem. One of two core pmleobrs - the other is the slow pace of evolution of the democratic institutions. Both pmleobrs are institutional (as in lack of concerted drive for reforms from above) and generational (as in engrained cultures of corruption and state-centrism among many citizens, especially of age 45+). These are lasting legacies of Communism. Soviet Union, in the 1970s and 80s was so deeply corrupt, even buying daily food was a matter of who you know and how much you can pay in hidden bribes or favors. In some sense, Russia today is less corrupt than in the USSR days, it is only that today's corruption is more visible and more monetized, as opposed to Soviet corruption was more barter-like.So you are correct - the main and most immediate obstacle to Russian modernisation and growth, as well as social recovery, is corruption. But the longer-term and correlated barrier is the need to develop real (not just populist) democratic institutions. Interestingly, at the very least, Medvedev put both of these into his agenda. The lack of success on both is disheartening, but at least there's a start.

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