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. Last Updated: 07/27/2016

The Advantages of Insider Trading

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Russia is once again standing on the threshold of WTO accession. Officials involved in the negotiations are once again giving rein to unrestrained optimism. As for the dangers liberalized trade poses for Russia's economy, they say their hope is that Russia will have a greater role in determining the rules of the game once it has achieved membership. There is some basis for these hopes.

On Monday, at an event titled "Russia in the WTO: Prospects and Strategic Possibilities," Economic Development and Trade Minister German Gref said Russia expected to conclude bilateral talks on World Trade Organization membership with Vietnam and Cambodia by the end of May. He also said that he expected to conclude multilateral talks with the organization as a whole by the end of July, meaning that Russia would gain membership to the trade body "by the end of 2007, or in the worst case in the early part of next year." The outcome of negotiations with Georgia, the last bilateral deal that has to be sealed, is still unclear, but Moscow can probably expect help from Washington on this front. Last week U.S. Commerce Secretary Carlos Gutierrez expressed unconditional support for Russian WTO accession.

Russia is joining the organization at a time whentrade globalization is facing a crisis and growth in international trade is slowing. According to WTO figures, in 2005 the volume of trade between the world's countries was $10.1 billion, or 13 percent higher than in 2004. But in 2003 and 2004 the rate of growth was significantly higher, from 17 percent to 21 percent. In corners where the call for freer trade has traditionally been strongest, like the United States and the EU, protectionism has been making a comeback in recent years, and the benefits of freer trade are increasingly being called into question.

It is for this very reason that Russia should feel quite at home in the WTO. The hopes on the part of our officials are riding on the fact that membership in the organization has not always meant the immediate liberalization of access to home markets. The examples of China, the United States and other countries that have successfully subsidized their producers and torpedoed any "harmful" decisions from the WTO all provide solace for Russian policymakers. By joining the WTO, Russia will simply move into a higher league of protectionism, where it will have to battle for each and every ruble of trade preference. It will be tough at first, but practice and experience will eventually lead to more effective performances.

The hopes of liberal economists are the exact opposite: By helping to open up Russia's markets, they believe WTO membership will engender a rise in competitiveness. Russia will enter the big leagues of competition, meaning that its companies will have to battle for every ruble. Uncompetitive companies and entire sectors will ultimately fail, contributing to a rise in the effectiveness and strength of those that remain.

The Economic Development and Trade Ministry maintains that the conditions it has negotiated for accession are reasonable. The most trade-sensitive sectors of the economy will enjoy a seven-year transition period during which import duties will not be lowered. The biggest sectors that will still enjoy protection will be automobile manufacturing, shipbuilding and agriculture. With regard to 1,100 other products, there will be adjusted combined tariffs determined by world price conditions. Average import duties on manufactured goods after the expiration of the transition period will fall to 11.5 percent -- not much lower than the current 12.9 percent.

After joining the WTO, Russia will still be allowed to maintain quotas on the import of beef, pork and poultry products. Protective tariffs will remain on liquor and other drinks with high alcoholic contents, as will measures prohibiting foreign banks from opening local branches. Foreign insurance companies will not be allowed access to the Russian market for nine years.

Gref was also able to point out that the projected fall in budget revenues resulting from the changes will be negligible. In 2008, this will mean a fall of 40 billion rubles ($1.6 billion) for the federal budget. The sum will be 70 billion rubles in 2009 and 100 billion rubles in 2010. He provided no estimate of the expected benefits associated with an increase in trade volumes.

In reality, the effects of WTO accession will depend on how well Russia uses existing instruments within the organization. Russia's exports are for the most part to countries already in the WTO. If it is able to increase its exports to these countries during the transition period, then the competitiveness of Russian companies will improve and calls for protectionism will dwindle. If the state does not stimulate exports, then sooner or later imports will manage to overcome any protectionist measures.

This appeared as an editorial in Vedomosti.