Russia in WTO: Expectations and Reality

Russia's accession to the World Trade Organization (WTO) has been widely and comprehensively discussed in the national media. Experts and journalists expressed a number of doubts on the wisdom of Russia's decision to join the organisation, claiming that the move might have a negative impact on the country’s development.

Well, now that the accession has become a reality and the Russian WTO membership is already three months old, it is possible to analyze the first results of this partnership, which Moscow had been seeking for 18 years in a row.

First results of WTO membership

The greatest concern expressed by a number of Russian economists applied to the mandatory condition of the WTO membership, a significant decrease in import duties on many imported goods. Experts fear that it could damage a number of national industries and agriculture. Although statistics service claims that there is no sharp rise in imports to Russia after its WTO accession, such fears still prevail.

Certain forecasts claimed that imports of cars, machinery, footwear and textiles would sufficiently grow. Meanwhile, such imports in the last two months (after the WTO accession) remain the same as it was in the previous periods of time. There is an explanation to the fact: import tariffs on these product categories were not so high in Russia, and dropped insufficiently after the country joined the WTO.

The Eurasian Economic Commission’s recent analytic report was specially devoted to the first results of Russia's WTO accession. The document states that the most pessimistic forecasts have not yet been fulfilled. However, there are some indicators that prove to a certain extent negative outlooks on the process. Imports of some foodstuffs, including meat, vegetable oils and dairy products, went up almost 20%. That happened because importers held back food deliveries to Russia in anticipation of the entry into force of low import duties after the country’s WTO accession, and after that  immediately started to actively implement the food products import licenses, saving on low duties.

Nevertheless, Russian agriculture may have hard times in the near future, as the European Union faces an overproduction of agricultural goods. The weakening of import duties on these products in Russia will boost imports.

At the same time, common people will benefit from the process as imported goods are to become cheaper. It is also expected that foreign companies will be more active on the Russian market, which will lead to increased competition within the country. In this scenario, the cost of the Russian-made goods and foodstuffs should also become cheaper.

But here lies the insidious danger: Russian farmers may fail to withstand such a shock from the outside, and this vital industry sector will plummet. Such a prospect does not serve the national interests and one should firmly remember a simple truth that the security of any nation is ensured only if it is able to feed itself.

Another problem is whether the Russian automotive, household appliances and many other industries are able to withstand the onslaught of foreign competitors under the lower import tariffs. After all, such Russian-made goods are, unfortunately, not competitive on the world markets.

Russian exports still face discrimination

Nevertheless, there are certain hopes for the national exports growth after Russia's WTO accession and these hopes are not associated with such traditional export products as crude and natural gas. First of all, Russia is waiting for a ’’green light’’ for its steelmakers.

Russian steel products are still exposed to serious limitations on the foreign markets, particularly those of the EU states. However, the steel industry is not the only one in the Russian economy, which is fenced with customs and quota barriers. Similar barriers have also been established for the production of Russia’s chemical plants, including fertilisers, metal goods and some other products. So that Russian exporters still have to fight to restore justice and to eliminate undue obstacles prevailing on the foreign markets.

It should be recognized, that today’s atmosphere on the global foreign trade space remains discriminatory for Russia. Facts say that on October 1, 2012, 18 countries openly and unnecessarily used restrictive measures against Russian goods. This was stated by the federal Economic Development Ministry after assessing the first two months of Russia’s WTO membership. The maximum number of discriminatory barriers exists in the European Union, the United States and Ukraine. In the U.S., for example, the restrictive Jackson-Vanik Amendment, aimed against the development of trade relations with Russia, is still in force

These obstacles should, of course, be eliminated within the negotiation process, and the first shift in this direction has been already noticed. However, the process is slow. If before the WTO accession Russian-made goods faced about 100 various prohibitions and restrictions, now they run into 73 of them.

Nevertheless, there is still hope that Russian exporters will get the expected benefits in the near future. After all, one of the WTO main legal basis is a ban (concerning all its members) on introduction of protective measures against commodities export in general, now including Russian exports as well. So, nowadays a lot of Russian official agencies involved in the development of foreign economic relations will have a lot of to do, to discuss and to resolve.

However, it must be noted that Russia's WTO membership will badly affect the federal budget. According to the terms of membership, export taxes are to go down, and this will lead to even greater budget deficit. In such circumstances, the country will continue to rely on increasing foreign trade with primary commodities, thus increasing the state budget dependence on such exports.

Russia's foreign trade: what to expect tomorrow?

Russia's accession to the WTO certainly did not have the only prestigious goal to become a full participant in the international trade process. Joining the WTO is targeted on the national exports growth and, as a result, on the country’s economic growth as a whole. This action should spur sluggish competitiveness of national enterprises, enabling them to quickly adapt to the market economy.

Such expectations associated with the country’s WTO membership are fully justified and arise from forecasts that, as Russia will be more and more integrated into the international trade cooperation and master the WTO rules, its foreign trade will flourish. In short, the country’s foreign trade after the WTO accession must be better than in previous years, when Russia was outside this international body. Otherwise, Russia’s WTO membership will simply have no sense.

In this context, let me just state a number of facts and figures. Russia’s last year outside the WTO became its history high in foreign trade operations. The national foreign trade in 2011 reached $821.3bn, including record high $516bn exports and $211bn trade surplus.

Well, one can not run away from facts. The coming years will show in what direction Russia’s foreign trade will develop after it became the full WTO member. And I think its results must be calculated and assessed in comparison with the facts and figures of the record high 2011.