Russia’s likely entry to WTO should be cheered by everyone
Having first applied for membership to the World Trade Organization in 1993, Russia seems set to join the group early next year. It should have entered the club a while ago - accession became a very realistic prospect in 2007 - but following the 2008 war with Georgia, which saw two of its disputed regions paying allegiance to Russia, Tbilissi repeatedly vetoed on the application. Thanks to the recent breakthrough in Swiss mediation between the two parties, Georgia has now dropped the most contentious conditions to Russia’s entry, and, Moscow says, a deal could be reached ‘within hours’.
Accession would be a diplomatic success for Putin, who’s been campaigning for integration over the past two decades. It would also bring the leader good PR before his return to the presidency next year. But it would also be a very good thing for Russia: the World Bank estimates that, in the short-term, membership could add 3.3 per cent to the country’s GDP; and in the long-run it could help the economy grow by as much as 11 per cent.
Where would such a boost come from? Not really from enhanced exports, observers say. The bulk of Russia’s exports is made of oil and gas, and energy is not covered by the WTO. So it will be mainly through a healthy injection of new competition that the economy, forced to rationalize and modernize, will grow (and grow up). In the short-term, pain will come along the gains, as formerly protected industries, such as car manufacturers, will have to face sudden pressure from abroad. But in the long run competition will foster innovation and efficiency in non-energy sectors - something the Kremlin has so far been unable, and little interested, to do.
Yet the biggest gains will come in a more concrete form: foreign cash. Aside from its more remote pay-offs in terms of increased trade and competitivity, Russia’s bid for accession aims at attracting investors from overseas, as it seeks to demonstrate its willingness to improve the business climate and assuage concerns that the country is a risky place to set up shop. If the new administration continue to follow these priorities, the resulting increase in FDI could further modernize Russia’s economy and balance its current accounts.
This is also good for the WTO’s 153 members, and for the World economy. Even if the membership does nothing to liberalize Russia’s huge energy sector, it will open up opportunities for foreign exporters and investors in other sectors, such as steel, distribution, food and wine (Georgia is counting on that). It will also correct the aberration of having one of the World’s largest economy outside its leading trade body.
Yet, despite these rather encouraging prospects, the news hasn’t triggered much reaction worldwide. This is understandable, given the nasty problems the G20 currently has on its plate. But it’s worth noting that Russia’s accession would represent the biggest development for trade liberalization since China joined the organization a decade ago. In a context where protectionism threatens to creep up again, and where trade looks like the only source of support to a flagging recovery, it would deserve more than muted welcome by the rest of the club.