One year after Russia’s long-anticipated accession to the WTO, Russia Direct interviewed policy experts and foreign business leaders to evaluate whether WTO membership has been a boon or burden.
The WTO for Russia: A burden or a boon? Photo: AFP
While Russia's consumers and business leaders may feel no immediate benefits from WTO membership, experts remain hopeful that the best is yet to come. For now, the problem seems to be one of expectations since many of the steps needed for WTO accession had already been taken over the past two decades.
According to a survey by Strategy Partners Group last year, over half of businesses expected positive benefits from Russia joining the WTO. One year later, over half of these businesses report seeing no changes while a full 32 percent have seen changes for the worse.
Russia Direct interviewed a number of experts to figure out what WTO membership has been for Russia – a benefit or another burden.
Bernard Sucher, a member of the board of directors at Aton Group. Previously, he worked in the operations of many financial institutions such as Bank of American-Merrill Lynch, Troika Dialog, Alfa Capital and Goldman Sachs
The WTO represents a much deeper integration of Russia into global economy; one should consider the anomalous situation that prevailed up until accession when Russia was the only major economy in the world remaining outside of the WTO. Russia has now formally normalized much of its trading relationship with the rest of the planet. From my point of view, Russia has gained significant benefits in that it has accepted a considerable body of law, practice, experience and enforcement which have collectively been developed by all the other major players in the global trading system.
There are two reasons why Russians don’t perceive benefits yet from WTO. First, despite nearly two decades spent negotiating WTO accession, most Russian industry leaders remained disengaged from the process. When accession was finally agreed, the details were a surprise to business. Second, and to me, more importantly, the competitiveness of the Russia economy continues to degrade. Oligopolies, monopolies and increasing State influence over commercial activity weaken the competitiveness of the domestic economy and make it less capable of keeping up with its external competitors.
Russian policy makers should leverage WTO mechanisms to boost the flexibility and adaptability of the domestic economy. The State, for instance, should focus on being a more effective regulator, not an owner of a bigger part of the economic pie. Until that message gets through in the form of changed policy, the impact of WTO will be marginal.
Stanislav Tkachenko, Associate Professor of the International Relations Department of St. Petersburg State University and a visiting professor at Bologna University in Italy
Many positive economic steps, such as lowering tariffs on high tech and IT products, were already taken by Russia during its long accession process, so there haven’t been any major breakthroughs over the last year. One thing that Russia has not done is reduce the state’s role in the economy. On the contrary, it has increased.
Russia diplomacy has not yet learned to lobby through a tough economic agenda to help local producers, especially in agriculture, take advantage of export opportunities to new markets. This will happen over the next seven years as the country’s various economic industries complete their transition phases.
Jon Hellevig, founding partner of Moscow-based Awara Group. Before entering the Russian market Hellevig gained experience at the Central Bank of Finland
The point of joining the WTO was never to make any dramatic change overnight, but rather, to make another input into the process of modernizing Russia. The negotiation process went on for a record 18 years and over that time Russia’s legislation and business environment had already changed a lot to adapt to the WTO. Right now, we are in the transition period following accession for most of Russia’s industries.
What Russia’s leaders really did with joining the WTO was make a wake up call to Russian corporations that they have to modernize in the face of foreign competition. As the Russian economy opens up to the rest of the world, companies have to start improving their own performance or face losses.
The most important statistic is unemployment – it’s at a historical low, which means there haven’t been any significant adverse effects from WTO membership. It’s also hard to pinpoint how membership is affecting Russia’s economy as the poor situation in the EU is having a much greater effect.
WTO accession will not lead to a rapid increase in the number of Russian goods in new markets because the country doesn’t produce many products that are internationally competitive yet, but it is one condition for that to start developing. So the WTO is a good input into the long-term improvement of the business climate, but nothing dramatic has happened or will happen (and Russia’s leaders understand this).
Ed Verona, former President of the U.S.-Russia Business Council (USRBC). Before taking the helm of the Washington, DC-based organization in 2008, he spent many years in Moscow working for several of the world’s leading energy giants.
The direct trade benefits of joining the WTO are evident, but the psychological component of membership shouldn’t be overlooked. The message it sends to investors is: “Russia is prepared to live by a set of rules established by an international organization and, potentially, submit to decisions made by its independent arbitration panels.”
Nowadays, with the globalization of manufacturing, when a company establishes a facility abroad it’s often looking at markets beyond any single country. That means its products will cross borders, often even during the manufacturing phase, perhaps multiple times. WTO rules provide an assurance that if a trading partner unilaterally imposes restrictions against the exports of another member in violation of those rules then there is recourse to an arbitration panel. This makes it feasible for Russia to become part of the growing network of global supply chains.