Friday sees Russia finally get to join the World Trade Organization, after nearly two decades of talks. The long-anticipated accession will be a boon for some industries, but is likely to hit tough on others, so Russians greet it with mixed feelings.
The signing of the package of documents on Russia’s joining the WTO is scheduled for Friday evening. Members of the ministerial meeting of the organization’s members will ink the papers in Geneva after the working group unilaterally approved Russia to become part of the 153-strong trade club. After that, ratification by the Russian parliament will be the only necessary step before receiving the membership.
“Russia is the world’s 12th largest trading nation ($400 billion in exports and $250 billion in imports) and until we have this important country among our members, we cannot truly be the World Trade Organization,” pointed out Pascal Lamy, the Director-General of the WTO, in an article published by ITAR TASS news agency.
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.
Georgia, which engaged in a war with Russia in 2008 after attacking a then-breakaway province which Moscow pledged to keep peace in, was the last country to block Russia’s accession to the WTO. Overcoming Georgian resistance took great effort from the mediators, reports RT’s Daniel Bushell.
As the newest member of the WTO, Russia will have access to larger markets, but will have to drop trade barriers of its own too. This means that the less-competitive industries have to brace for tough times and most likely layoffs. The two particularity worried sectors are agriculture and car industry, which both enjoy governmental subsidies.
Russian farmers received $9 billion annually in the previous few years. In roughly just five years after joining the WTO, that aid is expected to decrease by half to just $4.4 billion, reports RT’s Maria Finoshina. Currently 30 per cent of arable land in Russia is not in use, and there are fears that the cut of farming subsidies the accession will bring will only make things dramatically worse.
Russia, though, will hardly be starving, as lower import taxes will help fill the gap with foreign goods. Previously banned items like Georgian wine and mineral water, American and Polish meat and Lithuanian milk are also likely to make a return to Russia’s supermarket shelves. For customers it means greater choice and lower prices, while local producers may suffer.
“Russia is currently importing 45 per cent of all food products. I predict it will increase and may become 50, 60, 70 per cent. Local producers who are unable to compete will go down,” says Konstantin Babkin, CEO of the Rosagromash.
Similar sentiments come from the machine-building and car industries, which are far from thrilled about running head-to-head with world’s most modern producers with the Soviet-era equipment many of the Russian plants still use. It is no wonder that domestic car producers have been among the ardent anti-WTO lobbyists.
Ukraine’s 2008 entry into the organization led to a 50 per cent loss of employment in its auto industry. In Russia, however, the effect should be more gradual due to securing a certain privilege. Russian negotiators negotiated terms for a transition period – from two to three years for well-to-do industries to five to six years for the less efficient – over which the now-protected businesses will have a chance to build up some muscle before playing against foreigners on equal terms.
“Russian manufacturers have to invest more in order to increase their efficiency and productivity. This is one of the instruments in order to promote the modernization of the Russian economy,” explains Frank Shauff from the Association of European Businesses.
There will be sectors of the economy, though, where the benefits will be immense. Once trade barriers tumble, common rules will make the path for the Russian steel and chemical industries to the international market much smoother. It will also make large investments into Russia less risky and more profitable.
“The key amount of gains we believe are roughly 3.3 per cent of Russian GDP in early years after accession, and after more like 10 years, I think Russia will gain about 11 per cent of GDP,” predicts David Tarr from the World Bank.
But apart from economic achievements, the country’s political image should benefit – and maybe what is more important: Russia will no longer be an outsider, but a part of the prestigious club.