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Opening Up
7 December 2001
Russia's drive to join the WTO is part of President Vladimir Putin's policy of becoming an equal partner with the West.
by Kevin Krogmann
Kevin Krogmann is TOL's grant manager and a freelance correspondent based in Moscow.

MOSCOW, Russia--Russia has been making moves on several fronts to draw itself closer to the West over the past few months. Whether it is talk of creating a common economic space with the European Union, striking up a strategic partnership with NATO, or helping out in the U.S.-led war on terrorism, Moscow has made dramatic strides toward integration with the Western world.

A key element in this strategy has been the country's efforts to join the World Trade Organization. While Russia has been involved in talks to join the WTO, which regulates global trade, since the mid-1990s, the talks have recently received a fresh impetus. In early December, European Union Foreign Affairs Commissioner Chris Patten provided the latest in a string of statements by Western officials emphasizing the importance of getting Russia into the WTO. Patten said the EU was prepared to help Russia in its efforts to join the organization, adding that the issue was a priority for the discussions on including the country in a common European economic area, according to Russia's Ekho Moskvy radio.

Russia's progress in its talks on joining the trading body was on display at the recent WTO summit in the Persian Gulf state of Qatar. Under a special agreement with officials from the United States and other WTO member states, Russia was allowed to make its voice heard on just about anything that was discussed at the five-day session.

But the concession served to highlight what the nonmember still could not do: submit its own proposals or vote on any decisions. The point was further brought home at the summit when delegates approved a motion to grant membership status to China. At the same time, the WTO decided to launch a new round of multilateral trade negotiations. With the acceptance of China and the launch of the new talks, Russia will be the only nation of such size and geopolitical importance to remain outside of the WTO.

Aware of this, Russian negotiators have been trying to push forward talks on membership in the WTO. But despite the government’s official “as soon as possible” stance on WTO membership, it is unclear what Russia--either as a vocal nonmember or a fully empowered WTO member--would have to say to the global trading community.

As an article in the weekly political and economic magazine Profil noted on 19 November: “In actual fact, neither the government much less those in business has a united viewpoint on the question” of joining the WTO or the equally difficult and important question of what comes after accession--“first and foremost because the majority of businesses, especially small and medium-sized businesses, have no clear idea what exactly the WTO is.”

THE WTO AND RUSSIA

Under Stalin, the Soviet Union exempted itself from the General Agreement on Tariffs and Trade (GATT), which established the current global trading system in 1949. In 1995, the GATT system was transformed into the current WTO. By then, the Soviet Union had collapsed and the new Russia, under then-President Boris Yeltsin, expressed interest in joining the world trade system. The first meeting of the WTO working group on Russia met in 1995 and membership negotiations have continued ever since.

Under President Vladimir Putin, who took over in January 2000, Russia increased the pace and urgency of entry talks. The Russian government’s economic program, published in June 2000, explicitly called for the “intensification” of the accession talks.

In order to join the WTO, a country must meet all the rules of the organization and close bilateral deals with each of the WTO's 144 member states. The discussions involve much haggling over export and import tariffs, and each country must agree to what it views as acceptable.

In recent months, Russian officials have complained that Western negotiators were making unusually severe demands on Russia in the negotiations. Nikolai Ryzhkov, a member of Russia's parliament, made such complaints at the July World Economic Forum meeting in Salzburg, and Putin himself grumbled about unfair conditions in the WTO talks at a meeting with EU officials in early October.

"We don't agree with demands that have never been made of others," the Russian president was quoted as saying by The Moscow Times. But he did not provide any concrete examples of bias against Russia in the process. Some Western analysts dismissed Putin's comments as a bargaining tactic or a misunderstanding of the procedures for membership in the WTO.

In any case, regardless of who is right, recent months have seen an intensification of efforts to wrap up the talks on Russian membership. Some analysts have linked Putin’s outspoken support for the U.S. war in Afghanistan to an increase in the flurry of accession activities and verbal support from the United States for Russian membership in the WTO.

The Russian delegation’s verbal inclusion at the Qatar meeting was certainly a step forward for the country as it works toward full-fledged membership in the WTO. But even prior to the 11 September attack on the World Trade Center, WTO-oriented activities had been gaining steam, witnessed for example by the creation of a Russian-language WTO information website in August 2000.

According to a 5 November article in The Moscow Times, Russia’s lead negotiator, Maksim Medvedev, and his team expect to begin drafting the country’s final accession petition no later than February 2002. Speaking at a lunch dedicated to the issue at the World Economic Forum’s special Russian meeting on 31 October, Russian Finance Minister and former lead negotiator Alexei Kudrin said the membership talks could be wrapped up as early as summer 2002.

The completion of negotiations will set the terms for Russia’s accession but will not guarantee a speedy accession. Prior to its entry, Russia will have to make numerous legal changes, bringing the legal code up to WTO standards--all of which will take time. Medvedev does not believe that Russia will be a full member before 2003 under the best of circumstances, and most of the participants at the World Economic Forum’s Russia meeting’s discussion of WTO accession agreed, expecting entry in either 2003 or 2004.

THE RUSSIAN DEBATE

Despite the importance that the government has placed on WTO accession, there is anything but a consensus on the issue. Politically, positions on WTO entry are pretty clear: the pro-presidential and liberal parties are for entry and the communists and other leftist parties are opposed. With about two-thirds of Russia's State Duma, the lower house of the legislature, in pro-WTO or pro-presidential control, the passage of necessary legislation seems assured.

Nonetheless, in October Prime Minister Mikhail Kasyanov directed the Economic Growth and Development Ministry to prepare a special report on the pros and cons of WTO membership, indicating that a clear understanding of what is at stake is still difficult to come by.

Citing Russia’s WTO entry as a means to an end, pro-accession advocates often stress the benefits that WTO membership and the concomitant changes in Russian law and practices will have for the country’s development. In a chicken-and-egg type argument, those wary of WTO membership question Russia’s ability to effectively cope with and implement all the changes necessary.

A report by the Centre for Economic and Financial Research, a Russian economic think tank, turned the pro-WTO stance on its head: “Resolving core economic issues will help Russia to realize the benefits of WTO membership.”

In an interview with TOL, Sergei Guriev, a senior researcher at CEFIR and professor at the New Economic School who presented the CEFIR paper at the World Economic Forum meeting, summarized the main benefits of entry. “There are a few dimensions. One is gaining access to foreign markets and also to lower prices for imported inputs and consumer goods--including services, namely financial services. It’s about transparency; since the rules will be standardized, the investment climate will be improved. Foreign investors will be treated as well as domestic investors. That’s the main story, as well as the fact that [entry] increases competition, and therefore provides incentives to restructure.”

WINNERS AND LOSERS

In an issue where specific sectors of the economy stand to gain and others to lose in the immediate aftermath of acceptance, any debate on WTO membership is caught up in strife. The clear winners will be Russian exporters, who will gain better access to Western markets. At the moment, Western countries tend to impose tough anti-dumping regulations on Russia because the former communist country is still viewed as a nonmarket economy.

Such labeling makes it easier for the European Union and the United States to impose trade restrictions on Russia, according to the American Chamber of Commerce in Moscow. Joining the WTO would help Russia to achieve so-called market status in the eyes of the West. Former Russian Finance Minister Aleksandr Livshits said on Russian Public Television recently that he hoped the country would be able to join the WTO and achieve market economy status at the same time.

Large Russian companies in various sectors with export potential, such as the steel-making industries, also stand to benefit from such a change. Indeed, the Russian Union of Industrialists and Entrepreneurs, an association of Russia’s biggest businesses, has been at the forefront of the pro-WTO forces since the beginning. The fact that Alexei Mordashkov, who heads the Severstal steel company, is also in charge of the union’s working group on Russia’s WTO entry is indicative of one of the main gains that Russia hopes to obtain from entry. “The whole idea actually came from the fact that [Russian] steelmakers were badly discriminated against in the American market,” commented Guriev. “The idea is that it will be much easier to be protected from anti-dumping and to get the access to American markets, although it provides a [mechanism] and is not automatic.”

The clear losers are likely to be Russian car manufacturers and banks and other financial services, and perhaps some machine-building firms. Those sectors are closely protected from the vagaries and pressures of the global economy. Russia's carmakers benefit from tariffs of more than 25 percent on the import of new foreign cars. Earlier this year, Russia even increased tariffs on the import of used foreign cars, which were starting to make inroads on the domestic market. Opening up this market would leave the domestic manufacturers exposed to competition from their more efficient counterparts in the West.

According to estimates aired at the World Economic Forum this fall, increased competition from established foreign banks could drive between 50 and 90 percent of Russian banks out of business. But such a development need not be a negative one for the Russian economy, since it could improve the country's banking sector and the services it provides to other parts of the economy, Guriev suggested.

Meanwhile, some industries--such as agriculture and telecommunications--aren’t sure how to feel about WTO entry. The Russian Telecommunications Ministry, for example, frightened investors just before the Doha summit by proposing to the WTO that the long-distance monopoly of the Russian telecom company Rostelekom be extended until 2010 and that restrictions be imposed on foreign ownership of Russian telecom companies. Yet at the same time, the Russian telecom industry is hoping that WTO entry will attract large amounts of foreign investment, which will be needed to upgrade the system.

Much depends on the entry conditions negotiated between Russia and WTO member states. Putin's complaints about "unfair" treatment suggest that there is a lot of jockeying going on behind the scenes, and many analysts, including Guriev, still expect clauses to be built into the final agreement that will provide certain Russian industries--such as the auto industry--some breathing room.

A STEPPING STONE

Russia's drive to join the WTO can be viewed as part of the president's broader approach to foreign policy of tying more closely to the West as an equal partner. Putin’s insistence on WTO accession under standard conditions may be part and parcel of a strategy to open speculation on the country’s possible EU and NATO membership. So far, though, most analysts agree that Russia is far from attaining anything other than working partnerships with those organizations.

While the decision to move closer to NATO is linked to strategic considerations, the move toward the EU is much more an economic decision. The EU is Russia's chief trading partner and the destination for 35 percent of the country's exports, according to figures cited by the Financial Times.

And aside from the WTO, the country has ambitions to join other economic clubs as well. During a speech at the recent World Economic Forum in Moscow, Putin’s economic adviser Andrei Illiarnov suggested his country was setting its sights rather high in this regard. Declaring Russia’s transition from a command economy to a developing market to be over and the transition from an emerging market to a mature market now under way, he invited the forum’s participants to return to Russia in 10 years, at which point he hoped the country would be a member not only of the WTO but also of the Organization for Economic Cooperation and Development (OECD).

Guriev was amused, though not hopeless. "You can join NATO, it’s political. You can join the EU. But the OECD is a strictly economic organization and you can’t join unless you have the development. And I think to join in 10 years, Russia will need to grow 8 to 10 percent every year. That is possible, but it will take a lot of work."

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