It is been a long, hard road for Russia. After 18 years, the biggest ex-Soviet country becomes a member of the World Trade Organization. In Russia, the entry is controversial because it brings not only opportunities for the country but risks as well. A report by Matteo Preabianca and Stefan Bernhardt
WTO’s Ministerial Conference accepted Russia’s entry to the World Trade Organization on December 16, 2011. It took the Kremlin 18 exhausting years to join. Russia is now becoming an active and official player in the international economy after an endless ‘internship’ that began in 1993, when WTO was still called GATT. The last big national economy joined the World Trade Organization nearly without any media attention because the protests in Moscow dominated the media at that time. Why did the negotiations take so long and what are the benefits of the membership for Russia and the world?
One stumbling block after another
One main problem was the permanently flux of negotiation delegations in addition to the governmental changes on all sides which made negotiating a compromise difficult. Vladimir Putin himself is said to have frozen the negotiations during this period because of new conditions that WTO members kept surfacing. On the Russian side, the negotiation delegations and even the government did not seem to have a recognizable common strategy. There is also the fact that neither the Russian population nor its economy put pressure on the government to join, nor did it show any interest in the subject in general.
The last step to join the WTO was extreme because Georgia represented a strict opponent of Russia. After the war in 2008, Tbilisi canceled all negotiations and threatened Russia with a Georgian veto of its entrance to the WTO – a serious blow for the entry negotiations because a request to join requires bilateral negotiations with each member. It is enough for just one country to oppose membership to freeze the procedure. Georgia made the WTO negotiations conditional on the clarification of the international status of two separatist Republics, Abkhazia and South Ossetia. Later, Georgia insisted that its own border patrol will control the border between Russia and the separatist Republics. Moscow has recognized the independence of these Republics since 2008 and vehemently refused the stipulation. An agreement seemed to be out of reach because of the politicization of the negotiations.
But the situation became soon unbearable, prompting Western countries to pressure Georgia to take a softer position. In March 2011, Switzerland started mediating between Russian president Dmitry Medvedev and Georgian president Mikheil Saakashvili. Finally, the Swiss president Micheline Calmy-Rey reached a compromise between both countries. The solution was an international border control for Abkhazia and South Ossetia’s borders with Russia. A Swiss company, sponsored by the Swiss government, would be in control.
Russia’s economic sanctions on Georgian wine and mineral water might end soon. Russia was the largest market for Georgian wine companies and the famous mineral water Borjomi. The Kremlin blocked imports of Georgian products as a reaction to the growing tensions between them in 2006. The sanctions affected the weak Georgian economy strongly during the first years. More details have not been published yet, but even before the agreement Russia showed the willingness to negotiate on this subject. After these hurdles were overcome between the two neighbors the WTO formally accepted Russian membership on December 16, 2011. The country now has six months to ratify the agreement.
Chances and Risks
The membership in the organization is a great opportunity for the Russian economy as well as for the West. After the uncertainty of the ‘90s and the economic crisis in 1998, joining the WTO is seen as the best opportunity for the economic modernization of Russia. Accession critics foresee big problems for Russian companies because they are not prepared for the opening of the Russian market to international competitors. This might be its best chance for modernization because the Russian economy will be unable to survive in the future without change. The economy has a precise time frame to prepare though, as import duties will only be adapted in the next seven years.
A number of trade barriers towards Russia could be dropped because of WTO regulations, which opens new opportunities for its economy. In the future, Russia will be able to use the WTO settlement mechanism and could actively participate in the development of rules for international trade. Additionally, foreign investments in Russia will probably increase, offering foreign companies new opportunities as well. For Russian state revenue it is most important that export duties remain in place. The revenues from resource exports are still substantial for the state revenue.
The change will be slow for the Russian industries because national protections and tariffs will remain for some time, and they are not likely to rush into the world market. The new member, however, is a great opportunity for the global community.