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. Last Updated: 07/27/2016

Let Russia Enter WTO

The meeting last December in Singapore of the countries of the World Trade Organization set new landmarks on the path toward trade liberalization. But not all of the main players involved in international trade participated in this important forum: Russia and China are still standing at the door of the WTO, waiting to be admitted. Russia's exclusion from the WTO is not only detrimental to the prospects of liberalizing Russia's foreign trade but also to the effectiveness of the trade organization itself, which has been striving to boost its political authority in the world community.


Indeed, given that Russia is not a member of the WTO and thus does not have access to the dispute settlement body, the number of anti-dumping cases that was filed against it -- without any threat of reciprocity -- reached 41 by the end of 1995. Of these disputes, the Russian government contends that 22 are unjustified and considers them to be cases of overt discrimination. Russia's entry into the WTO would enable it not only to block future restrictions on trade that it considers unfair, but to contest some of the ones that already exist.


In a broader sense, joining the WTO would be a step toward bridging the gap between economic developments across the world and in Russia. As the scope of the WTO's sphere of competence expands -- into telecommunications, trade-related investment, intellectual property rights -- Russia is increasingly marginalized from all of these developments. This type of backwardness is costly, and can only become all the more so, the longer Russia is excluded from participating in the organization.


Membership in the WTO would also enable Russia to take part in determining the organization's policies as well as the main issues of international trade. Finally, Russian membership in the WTO would lead to the creation of a favorable macroeconomic, trading and investment climate within Russia that is consistent with international rules and practices. This would effectively serve to promote greater openness and liberalization of the Russian economy, with firmer guarantees of reciprocity and nondiscrimination in foreign trade.


On the other hand, entry into the WTO involves certain costs, which are particularly acute for a transition economy such as Russia's. First, the low level of tariffs to which Russia would have to commit itself on entering the WTO would decline even further, thus increasingly exposing domestic producers, including those that are viable, to foreign competition. Another problem is that drastic trade liberalization with substantial reductions in import and export tariffs would effectively drain budget revenues.


The liberalization of export regulations that culminated in the elimination of export tariffs, including on oil, beginning last July, is a case in point. In 1996, together with a slight increase in the ratio of import duties to gross domestic product from 0.5 percent to 0.6 percent, export duties contracted sharply from 1 percent of GDP to 0.4 percent. In 1995, the ratio of export and import duties to GDP reached 1.5 percent of GDP, while the corresponding figure for 1996 is estimated at 1 percent of GDP. Given that the GDP share of federal revenues fell by 2 percent in 1996 compared to 1995, the elimination of export taxes alone could have been responsible for about one-quarter of the fall in federal revenues in 1996.


On the whole, however, it seems reasonable to assume that the benefits of entry into the WTO exceed the costs of exclusion. The delay in granting Russia membership in the organization undermines Russia's bargaining power at trade talks and makes it more vulnerable to being exploited by WTO member states. At the last round of talks, for example, the organization's members insisted on the widest possible range of concessions on Russia's part. Eager to join the organization, Russia gave in to the pressure and committed itself to a series of liberalization initiatives and concessions that later proved hard to implement.


This overly hasty approach toward joining the WTO has already been discredited by the Chinese experience. Despite all its liberalization efforts, China has been unsuccessful in joining either the General Agreement on Tariffs and Trade or the WTO, to which it first applied in 1983. Paradoxically, the reason behind this failure is the considerable number of concessions that China made at first to the WTO countries, which later led the country to backtrack on its promises. The WTO's response was to harden the terms of accession to the organization. Thus, not even the reduction in import tariffs on some 5,000 commodities, which cut the average level of tariff protection by more than 30 percent, was enough to gain access to the WTO.


The Russian side also came to realize the strategic drawbacks of giving in, for it was clearly leading to a loss in the bargaining power that could be exercised to extract more concessions from the WTO partners at the talks. This is one reason why representatives of the Foreign Trade Ministry shifted toward favoring a rise in import tariffs. Such moves, of course, can only further delay Russia's entry into the organization: Plans to raise some import tariffs as well restrictive measures imposed on imports of alcohol have drawn negative responses from both the International Monetary Fund and the WTO.


As a result, Russia continues to stay out of the organization. The situation will undoubtedly change as Russians become more amenable to Western pragmatism. But their counterparts in the WTO should also realize that too great a pressure on Russia could delay its entry into the organization and, consequently, restrain the pace of reform. Excessive pressure on Russia to liberalize in the short term may have the effect of increasing protectionism, which can benefit neither the West nor Russia.





Yaroslav Lissovolik is an analyst at the Russian European Center for Economic Policy. He contributed this comment to The Moscow Times.