Will Russia cope?

Russia's entry into the WTO has been watched with great interest around the world. I have blogged about Russia's entry into the multilateral forum here, here and here. The consequences of Russia becoming a member of the WTO has been widely discussed. Experts have largely felt that while liberalizing trade would have an adverse impact on the local industry in some sectors, on the whole Russia will benefit from increased competition, market access and transparency.World Bank has analyzed the probable impact here. Reform of domestic laws to be in consonance with WTO rules would be a natural corollary.

A recent piece by David Collins in FT blog brings out the challenges Russia would have with it's WTO entry. Capacity to comprehend and effectively use trade rules to protect as well as advance one's national interest has been a recurring theme in this blog.The lack of capacity is a serious impediment that many nations face even after being in the WTO for decades. How would russia cope with this challenge. The piece rightly highlights the importance of building capacity to effectively engage with the WTO.

"Although Russia’s accession process has been planned for a number of years there remains a very significant knowledge gap within Russia regarding what WTO membership will mean to the country.  It is widely believed that many of the politicians who voted for (and against) WTO accession did not fully appreciate its implications in all sectors. The Russian government is eagerly seeking to recruit personnel with experience in international trade, including lawyers and economists.  Several hundred positions need to be filled in Moscow and Geneva and there is an insufficient pool of qualified professionals to draw from because Russian universities do not yet offer courses on the WTO. Clearly the development of a suitable foundation of local expertise in international trade could take some time. Until then foreign expertise will be needed, likely in the form of expensive American and European law firms.  The WTO itself sponsors a number of training initiatives and it is hoped that Russians will make use of these."

Multidisciplinary teams, both for negotiation as well as dispute settlement, is a way forward to address this issue. Indigenization of legal expertise and capacity to effectively engage with the quagmire of multilateral legal rules is a sine qua non of a strategic use of the WTO. How and when Russia will achieve this self sufficiency would be an interesting aspect of Russia's tryst with the multilateral trading regime.

Negotiating positions and domestic interests

This blogpost from globalisationanddevelopment highlights the dilemma of a negotiating position during multilateral trade negotiations. Though I have never been part of any such negotiations, I found these remarks interesting:

"In fact, a major problem in trade negotiations in the WTO has been the contradiction between the free trade theoretical approach of the organisation, which views trade negotiations as a positive-sum game; and the mercantilist ethos of the country negotiators, who effectively define the negotiations as a zero-sum game.  This, of course, makes a successful outcome difficult, and, in some cases (e.g. agriculture), impossible, at least so far.

The fundamental cause of the mercantilist stance of negotiators lies, of course, in the national political economy of the negotiations.  Governments stand to lose revenue when they reduce tariffs; national industries stand to lose domestic market shares when they face competition from imports.  The training of negotiators compounds the problem."

The author seems to provide this as a solution:

" For one thing, the training of negotiators –both from developing and developed countries- and more generally the public discourse of the WTO and the international trade community should strike a balance between emphasising the win-win possibilities of trade and recognising frankly its distributional consequences.

For another, and more importantly, the international community as a whole should address the distributional issue seriously through mechanisms to compensate the countries that would experience welfare loses; this can be done by means of direct transfers as well as policy changes elsewhere that raise the welfare of the affected countries."

Is this easier said than done? All countries at negotiations take "national", "mercantilist" positions. They, I presume, bargain for the best deal for their country and considerations of international competition and benefit to consumers is not on the agenda. They look to benefit domestic producers by protecting them from competition as well as seeking increased market access outside. Therefore, the general free trade theory of benefitting from the comparative advantage the world economy has to offer is not on top of the agenda of trade negotiations. Can this attitude be achieved in trade policy negotiators? Are domestic pressures too strong to allow such an attitudinal change? It would amount to consciously sacrificing domestic producer interests which may not be domestically, politically palatable. Is this also the reason why protectionism in varying forms continuously surface? A well thought out strategy for compensating the losers of globalisation (which is felt locally) would be required if free trade theory is to prevail in negotiating positions.

Cafe Hayek has brought out this dilemma rather beautifully:

"Chief among these myths is the notion that the key to economic prosperity lies not in attending chiefly to the long-run interests of consumers but, rather, in attending to the short-run interests of producers – the false notion that the ultimate point of consumption is to stimulate production rather than the understanding that the ultimate justification for production lies only in the consumption it makes possible.   This myth is made especially pernicious because it is so politically convenient for office-holders and seekers."

Trade negotiators around the world, perhaps, would need to reflect on it.