Russia and the WTO

In a guest post blog for the Russia Foundation website, Igor Danchenko, former senior research analyst at the Brookings Institution in Washington, D.C. and panellist at our most recent event in London, analyses the likely implications of Russia’s accession to the WTO. He warns that President Vladimir Putin will be willing to use Russia’s membership in the WTO as a political tool, so we should expect some tough statements from Putin and his associates should they choose to use the WTO in their political games. Overall, WTO accession will be beneficial for Russia, as it will gradually facilitate the process of diversification of the Russian economy away from commodities exports. However, as long as the current elite are in power in Russia, we should not expect any substantive progress.

Guest post from Igor Danchenko, an expert on Russian and Eurasian affairs, who formerly served as senior research analyst at the Brookings Institution in Washington, D.C. from 2005-2010.

Russia’s accession to the WTO has been a subject of genuinely open political and economic debate in Putin’s Russia over the past 12 years, at times revealing true interests of some members of the Russian elite: some had vested interests in Russia’s fast-track accession; others protected certain industries in which they had personal financial interest; yet others suggested that Russia had already given up too much of her sovereignty to international institutions and laws to join the WTO. However, it has always been understood by all that Russia will eventually join the WTO. Putin endorsed accession early in his tenure but soon understood that Russia was not going to join promptly, and decided to keep WTO accession as a tool in his box of anti-Western policy rhetoric.

Whether Russia will or will not benefit from WTO accession depends on the sector we are discussing. Russian hi-tech sector is expected to benefit as Russia still has some competitive products to offer. However, many of the most innovative and successful companies in the sector have been acquired by the state corporation Rosnano in recent years, and their business models have been altered to such an extent that it will likely be challenging for them to benefit from the WTO membership unless Rosnano loosens its grip. In the cases of grain, oil, gas and other commodities there is great demand with or without the WTO - it is virtually impossible to limit these exports, and the trade patterns are well-established. For these sectors, laws of supply and demand rather than WTO regulations are important. For other sectors, such as agricultural machinery, however, so many state officials have interests in them that WTO membership is a big issue, and they will do their best to postpone accession and then lobby for higher barriers.

It has taken Russia some 20 years to become a WTO member state not simply because some countries have been against it, but because Russia has kept changing its negotiations position. For the past two decades, Russia has not had a proactive economic policy. Even its strategies today are quite fluid and reactive, and the most important variable is the price of oil. Strategy documents, such as Russia’s economic and energy strategies, never spell out Russia’s clear position on the WTO. They are similar to Kazakhstan’s Strategy to 2030, which Kyrgyz nicknamed “Strategy Half Past Eight.” Russia’s own WTO accession map is one of such ‘half-past-eight’ documents, and appears that now that Russia has joined the WTO, it will play it by ear lacking clear understanding what membership gives it. Short-term confusion about the WTO could easily turn into long-term erratic trade policy. Putin is willing to use Russia’s membership in the WTO as a political tool, and we should expect some tough statements from Putin and his associates should they choose to use the WTO in their political games.

Overall, WTO accession is beneficial for Russia, although when it finally formally becomes a member a number of major domestic conflicts are expected. All will revolve around corruption, subsidies to state enterprises, mono-towns, and the oligarchs’ relations with Putin. Accession will gradually facilitate the process of diversification of the Russian economy away from commodities exports, but as long as the current elite are in power and in commanding heights of both politics and business, we should not expect any substantive progress. Most members of Russia’s ruling class will prefer to do business as usual and make money, disregarding Russia’s membership in the World Trade Organization.