Anti-WTO sentiment in Russia - How serious?

Russia formally acceded to the WTO in December. I have blogged about it here, here and here.The accession needs to be ratified by Russia domestically. While there is general consensus about a large trading partner such as Russia being part of the multilateral system, murmurs of protect internally against the accession have cropped up. This piece about an Action Group against WTO formed in Russia makes interesting reading.

However, some experts say that joining the organization will lead to a partial loss of the country’s sovereignty and a weakening of its economy.

[Maxim Kalashnikov, Russian Blogger]: 

"Joining the WTO is a deep political issue. It will compromise the sovereignty of our country. This is a rejection of freedom in times of acute international crisis, when in need of national revival and re-industrialization."

In order to fulfil the basic requirements of the WTO, Russia will be reducing taxes on imported and exported goods, which will lead to an increase of foreign goods in the market. 

Experts say it could lead to a drop in domestic production and in the country’s number of manufactures.

[Konstantin Babkin, Event Organizer]:

"The opening of the market is simply uncalled for. Other countries do nothing for us; not a single thing is changing in their laws. But we have to open our market to the hundreds, nothing in return. Losses are estimated to be trillions of rubles a year. "

The Russian economy could lose up to 1.5 trillion rubles a year after joining the WTO, according to experts’ preliminary calculations. 

Budget revenues will fall by about 500 billion rubles a year, due to a decrease in the collection of duties and taxes. 

The country could also lose more than 2 million jobs.

The Action Group against the WTO - consisting of representatives from public, political and business organizations - are intending to hold a referendum, inviting Russians to express their stance on this issue. 

The Action Group must gather two million signatures from citizens across Russia in order to hold the referendum."

How serious is this opposition? Would a referendum result in Russia deciding not to accede to the WTO? Increasingly, compulsions of domestic realities clash with the idea of the benefits of international trade without barriers. Political representatives are unable to comprehend and thereafter convince their constituents of the potential benefits. Russia's integration into the WTO, along with many benefits, will have a negative impact on various sectors of the domestic economy. Will the establishment be able to tide over this opposition with a "cost-benefit" analysis of Russia's proposed entry? Communicating that to the people will be a much tougher task!

World Bank on Russia and WTO

The World Bank in a Report in 2012 titled "The World Bank in Russia" has a separate chapter on the WTO and Russia wherein the opportunities for Russia after joining the WTO are discussed. 


The Report paints a rosy picture for Russia and projects gains in GDP, incomes, wages and productivity as a result of its WTO accession. Outlining the benefits Russia would experience on acceding to the WTO and impacts it would have sector-wise the Report concluded:

"WTO accession is a unique and important opportunity to move the country forward toward an outward-looking model of economic development. As Russia seeks to diversify and modernize its economy, how will it achieve its objectives?  The studies cited above indicate that Russia will reap substantial gains from WTO accession and that the benefits are widespread and will reduce poverty. The examples of fast growth or ― "development miracles" in the past half century, such as South Korea, Singapore, Hong Kong, Taiwan (China), Chile, China and Mauritius, were all countries whose rapid growth was led by export growth. Import tariffs, however, act as a tax on exports and impede the movement toward and open economy or export led model of economic development.  In a business as usual scenario, concentrated forces who want protection in their sectors will lobby to defeat liberalization, while there are many who gain from liberalization, the gains are not concentrated and typically they do not lobby for liberalization. The uneven lobbying often leads to excessive protection compared to what is beneficial for the country.  WTO accession involves foreign business interests and foreign governments in the negotiations on the level of home protection. Then policy-makers at the highest levels of government must engage in the process, and the result is usually a broader and deeper set of reforms than could be achieved without the accession process. Ratification by Russia for the Protocol on its Accession to the WTO would thus be an important step in reform of the Russian economy.  It would be important to leverage the benefits that will be achieved from reforms as part of the WTO accession package with further steps to improve the investment and business climate. Diversification, modernization and growth will be all the stronger if WTO accession is complemented with improvements in the business climate for all firms doing business in Russia, Russian and foreign."

The FT blog has commented on this report here. An interesting point made in the conclusion is that "globalisation" has no lobbyists unlike "'concentrated" protectionism. Is this true? While domestic interests and impacts are more visible, is it correct to say that opening up one's economies is not guided by interests and pressures? Russia will have to deal with its accession to the WTO strategically. Apart from the commitments in the WTO Agreements, Russia would also have to abide by the commitments in its Accession protocol, which is specific to Russia. China, in the context of a challenge to its export restrictions, is facing a similar issue of commitments in it Accession protocol. Russia would have to balance domestic interests, play by international rules as well as gain from the benefits international trade has to offer. Domestic business interests will be both positively and negatively impacted.It would be a tight rope walk as sectors open up and the economy faces international competition. One would not be surprised to see Russia knocking the doors of the dispute settlement mechanism as well as being taken to the adjudication forum in the coming years. Membership in the WTO would bring with it benefits as well as serious challenges. Would Russia be able to seize the opportunity to uniquely benefit?

Russia and the WTO

A piece by Abdur Chowdhury in the EastAsiaForum highlights the impact joining the WTO would have on the Russian economy.

"In the short run, reducing tariffs and other protective measures for import-sensitive industries, such as cars and aircraft, and opening up key financial service industries — banking and insurance — to foreign competition could lead to the loss of jobs in those areas. As such, the Russian government may need to provide unemployment insurance and other adjustment assistance. But globally competitive industries, such as the raw-material producers, could see international markets opening up and an increase in foreign investment as accession forces Russia to restructure its economy.

In the long run, evidence from economies that have gone through similar transitions suggests that trade liberalisation will lead to a more efficient Russian economy and better living standards for the average Russian citizen. New industries will probably emerge over time, helping to diversify the Russian economy.

Until now, Russia has been the largest and most populous country not party to the WTO. Russia’s accession will significantly expand the geographical coverage of WTO rules to all major economies, bringing a larger degree of stability and transparency to the international trading system. At the same time, Russia’s entry into the WTO would continue a trend in which, as the WTO becomes larger and more diverse, it becomes more difficult for that membership to reach a consensus on important issues. In addition, trade disputes between Russia and its trading partners will be brought to the WTO for resolution rather than being addressed bilaterally, adding to the WTO’s ever-growing caseload.

Still, to become a truly open economy, Russia will need to use WTO membership as a springboard for wider economic change. It still looks likely that Putin will be the one to face the tough realities of implementing WTO commitments, but he leads an elite that has long favoured protectionism and subsidy over serious reform. The long-term benefits of membership should nevertheless outweigh its initial costs. Russia will have to make courageous decisions on which industries are truly sustainable, and take measures to protect the population from the costs of adjustment."

It is well documented that China has benefitted tremendously from its membership of the multilateral body. However, China has pursued an aggressive domestic policy to take advantage of its accession to the WTO. It would be interesting to see what impact the WTO would have on the political and economic landscape of one of the world's largest trading partners.

Dabro pazhalavat, Russia - Welcome Russia

"Dabro pazhalavat" means "Welcome" in Russian. 





The WTO said just that to Russia today when it became the 154th member of the multilateral trade body. Russia will have to ratify the deal within the next 220 days and would become a fully-fledged WTO member 30 days after it notifies the ratification to the WTO.


“This is a historic moment for the Russian Federation and the rules-based multilateral trading system. After an 18-year marathon, the finish line has been crossed. This is a double win for Russia and the WTO. The package we have just adopted is the result of hard technical work, led by modernizing political leadership,” said WTO Director-General Pascal Lamy.

Martial Trezzini/KEYSTONE, via Associated Press

Elvira Nabiullina, Russia's minister of economic development, left, and Pascal Lamy of the W.T.O at a ceremony in Geneva.

The 12th largest trading economy entered the WTO after a long wait. As RT reported,
"Russia’s 18-year path to the WTO was almost record-slow, with only Algeria’s negotiations taking longer at the moment. It was also the world’s largest non-member economy. The hurdle was caused by the principle of consensus the organization uses, which means each member can veto its enlargement."


The Moscow Times didn't have the accession on its headline.The overhelming news coverage was the domestic political imbroglio. Instead it had an opinion from Pascal Lamy about Russia's entry, 
"In Russia's long and proud history, many initiatives have been launched to integrate the country into the wider world and to open up its vastness to foreign commerce, ideas and culture.

Now Russia is embarking on an exercise of economic integration unlike any that has preceded it. On Friday at the World Trade Organization's Ministerial Conference, ministers from our 153 member countries will welcome Russia to their ranks."

The New York Timer reported,
"  Membership ends the anomaly of having Russia, a leading oil and natural gas exporter as well as a permanent member of the United Nations Security Council, outside the world trade system. Russia, with a population of 140 million, is the last major world economy to join the organization. The W.T.O. says that with Russia’s accession, more than 97 percent of all world trade will take place among member countries. It had been about 95 percent. "


The possible impact on Russia entering the WTO was discussed in this piece,


" How good WTO membership turns out to be for Russia itself is less clear-cut. Russia doesn't have much to gain in terms of better access to foreign markets, because few of its exports other than commodities are very competitive. The key point is that the main “good” that the WTO will bring to Russia is in the longer term, and it will happen by causing pain in the shorter term. Russian companies will be more exposed to direct competition from their foreign counterparts. The idea is that this pressure will in turn force Russian companies to become more competitive. That will lead to growth in the economy, higher living standards, more jobs. That’s what’s supposed to happen — in theory. But reality doesn’t have to follow that track. The immediate negative consequences — reduced sales, lost jobs — may be so severe as to be intolerable. The real question is whether Russia really will change in order to conform to the WTO rules, or whether it will bend or evade the rules. "


What impact the entry will have on Russia and on the world economy only  time will tell. As commented earlier in a piece, it is not long that the Dispute Settlement mechanism will have Russia either as a complainant or a respondent!

Russia joining the WTO - Benefits

The benefits for Russia in joining the WTO are often cited as reasons for Russia to push for their membership in the international organisation. The US sees it as huge potential market for their industries wherein transparent and rule based trading would be possible under the WTO regime. Russia views it in terms of a legitimacy of entering an open, mlutilateral system benefitting its participation in the global economy. To what extent Russia would be able to use the WTO mechanism to further its domestic interests would be an interesting study. Following China's example of effectively improving its position in the international trade status under WTO, Russia would need to make an assessment of how to effectively utilise it's position. This article weighs the pros and cons of Russia's entry into the WTO. However the Jackson Vanik amendment still remains a contentious issue.

Russia to be number 154!

Russia's accession to the WTO would be the 154th country coming onto the WTO juggernaut! It is obvious that Russia sees a benefit in being part of the multilateral trading system rather than being out of it. It would seem to benefit their producers by giving them market access. For the outside world, it be an opportunity to take part in international trade with Russia based on rules and the WTO system. The rise in China's trade since it became a member of the WTO seems to be another reason that propelled the Russians to push hard for their inclusion as explained by the Russian trade negotiator. It would be interesting to see the impact of the membership on Russia's exports and accessing foreign markets as well as impact on the domestic industry.


It is also a shot in the arm for the WTO as  according to Pascal Lamy in an interview, Director General of WTO, "One way to reinforce the rules is to extend the perimeter of rules on this planet."


While Russia has amended many of it's domestic legislations to be accepted as a player in the multi-lateral system, it remains to be seen whether the Jackson-Vanik amendment in the US would stand the test of time. The amendment restricts trade, amongst others, with non-market economies which do not have free immigration policies. That Russia is getting a Presidential waiver from the amendment is another matter. The issue is whether the mere existence of the amendment due to Russia's entry into the WTO will make the domestic legislation subject to challenge in the WTO. Though not challenged in the Dispute Settlement Panel, the amendment has come in for a challenge domestically in the United States by the Russia House, a group that espouses better Russia-US trade relations.

Russia's accession to the WTO

News of Russia becoming the latest member of the WTO, since it first applied in 1993, is abound. The WTO website made a formal announcement in this regard listing out the various commitments that the large economy would have to make in order to fulfil it's obligations as a member of the WTO.


In an extremely warm letter to the Chairman of the Working party on Russia's accession to the WTO, the US Ambassador to the Permanent Mission of the United States to the United Nations and other International Organisations welcomed the final stages of accession of Russia and opined that "the package that we have approved today is good for the United States, good for Russia, and good for the WTO."


US lawmakers think otherwise or are not yet convinced. The lawmakers, both Democrats and Republicans stated in a letter that Russia must take  "transparent, substantive and prompt actions to battle rampant intellectual property theft before it can join the World Trade Organization". The thrust of the letter seemed to suggest that Russia's enforcement of intellectual property rights was weak and mandated strengthening.


Can the US continue with domestic legislation that discriminates against Russia once Russia has become a WTO member? The impact of  Russia's accession on the Jackson Vanik amendment needs to be studied further. A CRS Report for Congress on impact of Russia's accession to the WTO does throw light on this matter.

Russia walks in

Reports that Russia will be finally become a member of the WTO is abound. It is quite amazing that a country as large as Russia with immense natural resources and potential has not been part of the multilateral trading network. China also became a member of the WTO in 2000. This report indicates that Russia was not in a great hurry to become a member. It would be interesting to see how Russia's trade profile, domestic industry as well as response to dispute settlement mechanism will play out in the coming years.