An analysis of Russia’s accession to the WTO

In a guest post blog for the Russia Foundation website, Fredrik Erixon, Director of the European Centre for International Political Economy, and panellist at our most recent event in London, analyses the potential benefits of Russia’s accession to the WTO. He says that Russia has much to gain, but the country requires comprehensive economic and institutional reforms outside the scope of trade policy in order to reap the full rewards of accession.

 

Predictably, Russia’s ratification of the WTO accession has been a politically charged affair. Russia, which must ratify the accession before mid July, is getting closer to missing the deadline for accepting the invitation. The Duma has been slow to process the ratification bills and, like everything else, they have been caught up in the behind-the-scene power plays that followed on the return of Vladimir Putin as Russia’s President.

Russian politics is famously unpredictable and no one can say for sure whether Russia will join or not. Putin has signalled his preference for ratification, which is the strongest indication yet that Russia will accede to the WTO. He is politically wounded since this winter’s demonstrations against him, and Putin’s Cabinet appointments suggest he is pressured by the modernisers. Yet Putin’s own support base is not the economic modernisers. And his close political friends in business have mixed, not to say sceptic, views about the benefits to them from WTO membership.

Russia should join, but one should be careful not to exaggerate the benefits of Russia’s accession. There are two sources of problems. First, for a WTO accession to yield significant economic results – for Russia and its trading partners – it requires comprehensive economic and institutional reforms outside the scope of trade policy. Russia has a deficient structure of economic and commercial policy. Its position in the World Bank’s Doing Business Index, for example, puts the country in the company of slow-reformers or non-reformers rather than the growing, outward-looking and reform-friendly emerging markets. Russia is a BRICs country in name only. The programme for economic modernisation has yet to deliver sweeping economic and institutional reforms. This may change, but Russia does not look upon its accession in the same way as China did when it joined: as a vector for transforming the entire economic-policy infrastructure.

Second, Russia is likely to fail in implementing the full set of obligations that come with membership and it is not a wild guess that Russia will neglect to respect politically sensitive rulings against it by the WTO’s dispute-settlement body. As the WTO itself cannot enforce rulings, the system requires that countries respect the authority of the dispute-settlement body. This risk of Russian disobedience is underlined by Russia’s recent history of flaunting international agreements and, as in the case of the Energy Charter Treaty, withdrawing from agreements.

Such behaviour is corrosive for the dispute-settlement system. And, again unlike China, an appetite to boost merchandise export to other countries is not going to be a disciplining factor. Fear of loosing market access will mot really work in the case of Russia as its exports do not stand to increase much by WTO accession. The fear that Russian insubordination will unravel the entire dispute-settlement system is, however, hyperbole. Other countries, including big emerging markets, have a great interest in respecting the rules and rulings because the benefit from them. But it points to a need for other countries to devise strategies in order to make the most of Russia’s accession.