Can the W.T.O. Change Russia?

If Vladimir Putin returns as planned to the presidency in 2012, he will once again face the challenge of modernizing the Russian economy. This is something both he and his seat-warmer, Dmitri Medvedev, have failed to achieve during three consecutive presidential terms. On Thursday, a meeting of the working group on Russia’s accession to the World Trade Organization is expected to end 18 years of negotiations by finalizing terms of membership for Russia, the largest economy outside of the trade body. Even Georgia, which fought a war with Russia in 2008, is now onboard. Once the few remaining issues are overcome, Russia should become a member during a ministerial meeting on Dec. 15.

W.T.O. membership will offer Russia some of the tools to rebalance its economy, which relies heavily upon selling the nation’s oil. Yet it presents challenges too. While membership promises increased market access for Russian exports, Moscow will have to open Russia to foreign imports. Agreements will need to be implemented as a means to attract investment, stimulate trade and increase competition. However, previous actions by the Russian authorities give ample cause for concern.

The current political elite is little inclined toward economic liberalism. The coercion of foreign investors in favor of national economic champions, protectionism during the 2009 economic crisis and Russia’s willingness to engage in trade wars with neighboring states have demonstrated this. They have long seen W.T.O. accession as a political rather than technical process: For them, tariff reductions are concessions to trade partners, rather than a means to stimulate trade and competition.

They also tend to view membership as an entitlement. During bilateral negotiations with Georgia, Putin stated that it was down to the United States and European Union to secure Russia’s accession. As such, Russian authorities at the highest level have demonstrated little affinity for W.T.O. principles.

A customs union among Russia, Kazakhstan and Belarus is another constraint: It has little economic justification and a 2009 plan for all three to join the W.T.O. as one bloc nearly delayed Russian accession further. Moves have been taken to reconcile customs union obligations with Russia’s W.T.O. accession; nevertheless, the project shows Russia’s use of trade for political ends, aiming to preserve Soviet era trade patterns that W.T.O. market access would likely disrupt.

Industrial and agricultural lobbies have opposed entry, claiming that Russian companies require more time before facing global competition. However, little has been done to make Russian industry more efficient in the last 18 years, even without unfettered competition.

The challenges of membership are not limited to economic policy; they also undermine the political model that has come to define Russia since 2000. Under Putin, Russian citizens accepted reduced political freedoms in exchange for stability and economic growth. Within the W.T.O., Moscow will have fewer means to support inefficient industries against competition from abroad. This could cause problems for the 460 monotowns, which rely on one factory or industry for jobs and public utilities.

Certainly, Russia does not stand to reap immediate rewards from membership. World Bank studies stress that while all households will benefit in the long run, some will confront initial challenges of retraining or relocation. The government will struggle to maintain its legitimacy if it does not provide ample means for these costs to be met.

As a major oil exporter, over 50 percent of its foreign trade is already tariff free. However, the metallurgy and chemicals industries stand to gain from increased market access and protection from antidumping measures. In time, other industries will benefit from restructuring and increased productivity stimulated by increased competition.

Russia needs foreign capital in order to affect its modernization and is aware of the need to project a more positive investment image. World Bank analysis also stresses that the largest gains from W.T.O. membership will come from increased foreign investment in the Russian market for services. Clearly, W.T.O. membership alone will not convince cautious investors, but opening the Russian economy to international practices can only have positive benefits for the business climate.

Still, to become a truly open economy, Russia will need to use W.T.O. membership as a springboard for wider economic change. It is Putin who will face the tough realities of implementing W.T.O. commitments, leading an elite that has long favored protectionism and subsidy over serious reform. However, the long-term benefits of membership should outweigh the initial costs. Russia will first have to make courageous decisions on which industries are truly sustainable and take measures to protect the population from the upheaval of adjustment.

Dominic Fean, a junior research fellow at the Russia/New Independent States Center at the French Institute of International Relations.

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