Russia readies for World Trade Organisation

["Ulhas Joglekar" <joglekarulhas@xxxxxxxxxxx>]

The Financial Express

www.financialexpress.com

January 26, 2002

PUTIN'S COMMITMENT COULD SEE ACCESSION THROUGH IN TWO YEARS

Russia readies for World Trade Organisation

Prakash Shah


With the accession of China and Taiwan to the World Trade Organisation
completed during the Doha Ministerial last November, the Russian Federation
remains the only major country outside the WTO. This isn't because Russian
policymakers are indifferent to the idea. Far from it. In fact, joining the
WTO is one of the major topics on the economic policy agenda of the Putin
administration. Several important members of the government have, from time
to time, expressed the determination of the government to join this prime
international trade organisation.
At the Russia 2001 meeting organised by the World Economic Forum in Moscow
last October, President Putin made it very clear that it was his intention
to work towards Russian accession. However, he stressed the need for
pragmatism in Russia's approach and made it apparent that his country would
never join the organisation on "non-standard terms". Finance minister Kudrin
suggested that Russia's bargaining position had been enhanced by a
favourable political situation existing today as a result of Russia's
cooperation with the US war in Afghanistan.
At the meet, a full session was devoted to this issue, underlining the
importance the international community and Russian leadership attach to it.
It was significant that in addition to top Russian policymakers, the
business community attended the meeting too. The implications of joining the
WTO were hotly debated and the fears expressed by some industrial and
financial sectoral interests were not much different from what was heard in
the course of our own internal debates. Despite that, I came away with the
feeling that there was a large opinion in favour of accession. It was also
felt that accession would have to be accompanied by several necessary
structural reforms, if the "accession dividend" was to be maximised.
Since President Putin has been at the helm of affairs, the country has made
great strides in pushing forward reforms that are improving the investment
climate as well as conditions for sustainable growth in Russia. The economy
has enjoyed three consecutive years of healthy growth; 5.4 per cent in 1999,
8.3 per cent in 2000, and 5.5 per cent in 2001 despite a world recessionary
environment. Russia is one of the 20 best performing economies in the world
today, according to Putin's economic advisor Andrei Illarionov. The
structure of the economy has undergone a dramatic transformation with
private consumption and private sector investment showing encouraging
dynamism. President Putin revealed that the impetus behind domestic
structural reforms was the desire to see Russia fully integrated into the
world economy.
It is in this context that Russia's future membership of the WTO is
considered as a logical step forward in its globalisation process. Quite
clearly, the Russians believe that greater access to international markets
and improved climate for foreign direct investment will be the main benefits
of WTO membership. The Russians are particularly concerned about the more
than 100 anti-dumping cases pending against their exporters and believe that
protection to their exporters in external markets will be a major gain.
Russia will also gain through transparency and protection of intellectual
property rights, which they think will stimulate investment in IT and
telecom.
The Russians seem to have studied the experience of other countries,
including India's, in the approach to WTO membership. There was clear
concern that accession would lead to swamping of the domestic market with
cheaper imported goods, since tariff protection for domestic producers would
no longer be available. But this argument was countered by interesting
statistical information. In Russia, import tariffs are currently quite low,
providing little protection to domestic producers. Average tariff rates
range between 7 per cent and 15 per cent on most commodities. One
participant pointed out that even these low rates were not uniformly applied
to imports. According to one estimate, up to 50 per cent of all imports
evaded import duties. Of course, with structural reforms it was rather
embarrassingly pointed out that customs realisation would be higher and
implementation of import duties more stringent. Concern was also expressed
that agriculture would suffer a grievous blow and food would be more
expensive as subsidies get phased out, the financial sector would wither and
foreign exchange would move out of the country.
These are not unfamiliar arguments against joining the WTO. Other countries
in similar stages of economic development have dealt with these
apprehensions. Those who favour accession argue that Russia's financial and
banking sector is, in any case, weak and unviable, with an overwhelming
majority of Russian banks being uncompetitive. Financial reforms in Russia
are highly overdue, with or without membership of the WTO. Reforms of the
banking sector already approved by the government will lead to many bank
closures. Preparations for future WTO membership will actually assist and
accelerate the overdue reforms. Similarly, there will be short term costs in
agriculture and telecom sectors where prices are currently low due to
subsidies. The social consequences of higher prices in the short run cannot
be ignored but these will have to be managed in the interests of long term
gains.
The reality is that, to maximise the accession dividend, Russian authorities
will have to work hard to raise domestic awareness of short term problems
and long term benefits. The large majority of the Russian population,
particularly in non-urban areas, is unaware of the implications of entering
the WTO. Yet, this will be the silent majority which will immediately be
affected because of its dependence on agriculture and the impact upon food
prices. Accession negotiations will be crucial, and Russian negotiators will
need to be very clear that they can only gain by demanding market economy
status for themselves and access to markets in OECD countries.
For the Putin government, WTO accession remains a matter of important
economic priority. For a nation that is trying to Europeanise and globalise
its economy, the pressure from potential investors in OECD countries for
Russia to accede to the WTO is an important consideration. That is why the
finance minister asked Russian and foreign business leaders present at the
meeting to extend their support and lobby their governments for Russia's
membership. The government hopes to complete accession negotiations before
the end of the current year. If President Putin stays at the helm of
affairs, we may see Russia joining the WTO by the end of 2003.

Prakash Shah is a former member of the Indian Foreign Service and India's
Permanent Representative at the United Nations

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