Russia and WTO membership: challenges and opportunities for Russia and the EU

By Massimiliano Gobbato

The decision of Russia to engage in negotiations for the World Trade Organisation membership highlighted the fact that the country was undertaking several important steps towards its modernisation and line up with the development pace of the rest of the world. Even though not in the media's spotlight, Russia has eventually reached the stage which should allow Moscow to join the WTO after being an outsider for eighteen years. Despite remaining technical and political issues to sort out, nonetheless Russia was declared a full member at the WTO ministerial meeting which was scheduled from the15th to the 18th of December. The final juridical step was constituted by the Russian Parliament ratification of the agreements in order to formalise the membership. The ratification process would lead to put into force the norms embodied in the accession treaties presumably at the beginning of next year.

An act of detention?

This set of events has been prepared by several acts of detention which have changed the focus of Russia's foreign policy over the past years. Moscow's involvement both in the energy crisis with Ukraine and the war against Georgia, along with the tensions with the US on the missile shield project in Europe as well as several diplomatic crises with Poland have undergone an important qualitative shift which is culminating into the WTO membership. The more smoothed nature of Russian foreign policy with regards to its neighbors could be attributed to the achievements of a new internal and external strategy which have been sustained by EU and US efforts in order to involve Moscow on renewed political and economic streamlines. In addition, the losses that the country has suffered as a consequences of the financial crisis and the fact that a pro-Russian has become President of Ukraine in February 2010 have surely contributed to this evolution.

Apart from the international context, it is of utmost importance to evidence the debate on the foreseen consequences of the WTO membership which would offer Russia the opportunity to rebalance its economy as notably the country's shape relies excessively upon natural resources exports and prices. In fact, the membership promises increased market access for Russian exports under Moscow's agreement on a greater opening of Russia to foreign investors. The global public debate on Russia's advantages and disadvantages of joining the WTO seems to be oriented towards the opinion that Russia will benefit in the medium and long term from this new trade and economic pattern.

Persistent concerns

Some concerns have been raised both upon both the capacity of the Russian economy to offset the disadvantages of firms which would struggle to survive market pressures and, more generally, to what extent a win-win game could be forecasted from the new trade model. Worries have been also pointed out on Russia's capacity to develop rule of law improvements to create a better investing climate and to implement market-oriented reforms, especially on public procurement and property rights. Over the past 5 years, the Russian government has adopted several laws with the rationale of facilitating companies in obtaining registrations, licenses and certificates, as well as to reduce the number bureaucratic ties. According to different authoritative sources, although these reforms have achieved some results in improving business-oriented practices, hurdles have remained heavy and, coupled with persisting corruption, they are actually preventing enterprises establishment and growth both for foreign and Russians investors .

The challenges of WTO membership are nonetheless not limited to economic policy. They also put into question the political model which has shaped Russia in the last ten years. Under the present rule, Russia's 'social contract' has been based on the deal that Russian could have accepted de facto limited-right citizenship over the assurance of political stability, security and an elite-driven wealthiness redistribution. On the contrary, within the WTO deal, Moscow would have a more circumstantiated influence on economic dynamics and progressively fewer controls on the top-down convoy of the country's richness distribution. This model has notably been internally and externally controversial for its consequences on the quality of the democracy. Transitional economics theories and the example of the Central Eastern European transitions have showed the direct link between economic growth and the rule of law, as well as the quality of the institutions. As a result, the challenges ahead for Russia have a solid base within the concerns which this case embodies.

Furthermore, the opponents to the WTO membership and the political elites which are not inclined towards economic liberalism are convinced that, during the recent economic crisis, the coercion of foreign investors in favour of national champions, together with protectionist practices, have demonstrated their effectiveness. In addition, WTO accession talks have been considered a premature political move rather than technical means to improve Russia's welfare. Tariff reductions are in fact perceived as concessions to trade partners instead of tools to increase the quality of trade and enhance competitiveness, while the opening of the economy is considered dangerous to Russian producers, especially in the domains unprepared to open competition, such as agriculture. The debates in Russia seems thus to be clung to the classical dichotomy between liberalism and protectionism and its natural ties with the democratic rule.

Will trade and democracy enforcement go along?

The incontrovertible fact is that a great amount of trade should allow Russia to gain an immediate advantage in terms of capital inflows, especially from the EU. The WTO membership is expected to swiftly boost about 4 billion euros of trade-creation per year coming from the European economy. In addition, the new establishment is forecasted to be immediately mutually beneficial as, on the one hand, the WTO accession should also assure higher accessibility for one of the Russia's main trading partner, namely the European Union, and, on the other, it should facilitate the setting up of a functioning market economy while granting imports' cost reductions. Non contested figures have shown that last year the EU as a whole imported nearly 60 billion euros of goods from Russia, including oil and gas, and it has exported roughly 86 billion worth of manufactured products.

On the Russian side, it results quite clearly that, apart from trade creation inflows, the tariffs lowering could benefit Russian citizens and firms by assuring lower costs to the already present amount of trade. Furthermore, Russia should be able be secure its and import its oil and gas commodities more efficiently and benefiting from tariffs exclusion in all the sectors which have suffered the non-WTO members restrictions. Finally, as reported by the Commission website, ''Russia is the only major international economy which is not yet a member of WTO. Once Russia becomes a member, it will benefit from the rights and obligations set by the multilateral trading system of the WTO, including the possibility of recourse to the intergovernmental trade dispute settlement''.

Both Moscow and Brussels have thus a lot at stake also in consideration both that, in absolute terms, Russia is the third largest export market after the US and China and that the country's internal economic structure and foreign policy have undeniably tangible repercussions not only in the European economy, but also in Europe's neighbourhood stability and democracy enforcement. Russia after Putin re-election seems at a turning point whose outcomes are still unknow. At first glance, the opening of its economic instituions and the emerging of a visible political opposition seems parallel fenomena, nonetheless Russia still gives the impression of remaining monolitical.