by Anders Aslund, Peterson Institute for International Economics
Op-ed in the Moscow Times
August 21, 2006
© Moscow Times
Soon after becoming president in 2000, Vladimir Putin energized Russia's previously half-hearted attempts to enter the World Trade Organization (WTO). At the time, he said the country was committed to acceding to the WTO by 2003. Today, in 2006, Russian officials have returned to the stock phrase of the 1990s: that membership will be achieved within the next year.
Russia needs to improve its approach to WTO negotiations to get there.
Admittedly, it took China 14 years to manage to become a member of the WTO, in 2000, and Russia will only hit the 14-year mark next year. But it should have been much easier for Russia than China because Russia has been recognized as a market economy for years, while China is still not.
Perhaps Russia does not really need the WTO? After all, it mainly exports oil and gas, which everyone is almost desperate to buy, so there is very little threat of protectionism in this sector. Further, Russia has suffered little from protectionism in recent years—a mere 1 percent of Russia's exports are subject to antidumping measures abroad—but the situation is likely to change quickly when the current long-term commodity boom finally ends. About one-fifth of Russia's exports consist of metals and chemicals, both of which are highly sensitive to protectionism.
As long as Russia remains outside the WTO, it has no legal protection when it comes to its exports. It can never win an antidumping case because the WTO is the international arbitration court for trade, handing down judgments and issuing penalties that are honored all over the world.
Today, Russia is the largest economy in the world that has yet to become a member of the WTO, which has 149 members at present. In all likelihood Ukraine will end up joining the WTO before Russia does, since Ukraine's new government under Viktor Yanukovych has declared its strong intention to gain accession before the end of the year.
Russia's problem is not that WTO demands are overly severe or that the Russian economy is all that distorted. On the contrary, the demands being presented to Russia for WTO entry are far less severe than those China faced. The problem is much more one of perception: The Kremlin has simply misunderstood the nature of WTO negotiations in five vital regards.
First, the WTO is a club, and any applicant has to conform to the rules of that club as they are interpreted by its current members. Therefore, Russia cannot throw its weight around, as is the case in other negotiations, and gain any advantage through its traditional negotiating methods. The present WTO members can ultimately demand that Russia accepts the WTO standards, which is something the Kremlin just does not seem to get.
Second, Russia, as a strong power, is used to demanding and obtaining special—meaning better—treatment. The WTO might be unique in that it poses greater demands on big than on small countries. Any member country can ask an applying country for a bilateral accession protocol for market access. Russia has to conclude such agreements with no less than 68 countries, while only 50 nations are looking for such special agreements with Ukraine. More countries worry about the impact of and market access to a big economy, while few cared about Kyrgyzstan or Georgia when they joined the WTO. Time and again, you hear Kremlin officials exclaim: "You cannot treat Russia like that!" But the WTO does discriminate against big economies in its accession negotiations. China accepted that, and the sooner the Kremlin does as well, the earlier Russia can accede to the WTO.
A third Kremlin illusion is that Russia can hope for better conditions in the future by prolonging the negotiations. The problem is that the opposite is true with the WTO: The longer you wait to join the organization, the greater the number of parties that impose demands, meaning that the number of conditions increases all the time. Unable to understand this, Russian officials raise complaints about foul play when new conditions are raised. If Ukraine were to enter the WTO before Russia and have its accession ratified, which takes about a year, it could solve all its many trade disputes with Russia by presenting them in the form of ultimatums governing Russian WTO accession.
Fourth, a standard Kremlin complaint about US demands is that they are all political. In fact, they are all commercial. Nobody, with the possible exception of the Kremlin, is trying to politicize Russia's entry to the WTO. The US negotiators have their backs against the wall when facing the US Congress and the manifold business interests behind it. If the US trade representative concludes an agreement that US business interests are unwilling to accept, Russia's WTO accession will most likely be blocked by Congress. Such an embarrassment must be avoided.
Finally, Putin appears to have made a spectacular misjudgment in his bilateral meeting with US President George W. Bush in St. Petersburg in July. Apparently, he—or his advisers—thought that they could get Bush to accept phytosanitary rules—dealing with plant health—that would allow Russia to block imports of pork and beef from the United States at will. Congress would thwart any US president who endangered the country's agricultural interests in this way. The Kremlin does not seem to understand that Bush faces even more constraints than does Putin.
All of the WTO's members have repeatedly stated that they want Russia to join the organization, but it is up to the Kremlin to face up to reality and learn to play by the rules of the game.
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Book: Russia after the Global Economic Crisis May 2010
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Paper: The Russian Economy: More than Just Energy? April 2009
Testimony: US-Russia Economic Relationship: Implications of the Yukos Affair October 17, 2007
Paper: Russia's WTO Accession November 21, 2006