By signing an MoU on economic issues with the European Union, Russia has moved all the more closer to joining the WTO. Despite the usual norm of 5-7 years required for a country's accession into WTO, in Russia's case the negotiations have lasted for over 17 years and it appears that Russia would join the WTO in 2011.

Presently, Russia happens to be the largest economy outside the WTO and the seventh largest in the world. Russia applied for membership in the GATT (General Agreement on Tariffs and Trade) in 1993 but the negotiations remained half-hearted until Putin took the reins in 2000. The three years that followed saw energetic attempts to bring Russia inside the WTO.

There were several factors behind Russia's inching towards the WTO. The most important of them was the intellectual maturity in Russia regarding the benefits of joining the WTO among the internationally oriented Russian economists and politicians after they witnessed the importance given to China after it joined the WTO.

Secondly, there have been structural changes in the composition of Russian exports. The share of raw materials such as oil and natural gas has come down (In percentage terms) as compared to that of intermediary goods such as metals and chemicals.

The chemical exports face dumping penalties in EU. Lobbying by these newly affluent groups is the main factor behind Russia's increased efforts to join WTO. At this juncture, it would be wise to look into the benefits for both Russia and the rest of the world out of Russia's entry into the WTO.

Russia is already a market economy and so WTO membership does not signify sweeping systemic changes as was the case with China. In spite of this, Russian entry into WTO would, as mentioned earlier, lead to increased demand for exports of metals and chemicals, thus expanding these sectors. At the same time, manufacturers would have to compete on a level playing field with the rest of the world. This would dramatically improve quality and efficiency in these sectors. Russia has maintained its stand on having a huge gap between the price of oil and natural gas in its domestic market and for exports.

Russian total WTO-way trade in manufactures could double from $187 billion (in 2005) to $352 billion (based on the Rose Gravity Model calculations). In addition to this, Russia will benefit from the security that comes from trading with other members on the basis of an established legal framework, and on the market access commitments of the existing members of WTO. Russia will also be able to use the WTO's binding dispute settlement mechanism to resolve any disputes that might arise out of its engagement with WTO.

As the European Union is by far Russia's biggest trade partner accounting for more than a third of all Russian imports and exports of goods, the European Union stands to gain greatly from Russia's accession to the WTO.

Eventually, Russia underwent a paradigm shift in its trade relations as the US followed by the EU declared Russia a market economy, a distinction even existing WTO member China is yet to achieve. As of now, Western complaints about Russia are few as Russia is already a free economy with average tariffs of a mere 11%.



The weak sectors in Russia such as food processing and light industries would serve as a huge market for US imports into Russia. This also stands to foster better relations between the erstwhile Cold War enemies. The US however, would need to amend the Jackson-Vanik amendment of 1974 to reap the benefits of opening up of the Russian market.

As stated by European Council President Herman Van Rompuy, Russia's accession to the WTO "is a paramount step forward and a step the world is closely watching." It is a big win-win for both Russia as a trillion dollar economy that is literally next door to the vibrant economies of the EU, and the WTO, which controls around 93% of the global trade.

December 11, 2010

By Jeysundhar D

Source: newsblaze.com