Russia Joins the WTO

From Russia Foundation chairman David Clark.

Tomorrow Russia accedes to the World Trade Organisation, setting the seal on one of the longest running on/off flirtations of recent diplomatic history. Russia first applied to join in 1993 in the post-Soviet flush of enthusiasm for westernisation and multilateralism, but the process stalled repeatedly in the years that followed as Russia re-examined its priorities and adopted a more assertive and hard-bitten view of its place in the world. Until the last minute there were real doubts about whether President Putin would finally go through with it.

So what will membership actually mean for Russia? The pessimists think that it will have very little effect. They point out that Russia under Putin seems happy to get by as a serial violater of its international obligations and cite the large number of rulings against it in the European Court of Human Rights as evidence of its indifference to world opinion. Since most of Russia’s exports consist of oil and gas, which are not covered by WTO rules, the organisation’s capacity to punish Russian wrong-doing by sanctioning retaliatory measures is much more limited than for most other countries.

The optimists take encouragement from the fact that Russia has chosen to join another rules-based multilateral organisation. Membership had been the priority of President Medvedev and the relatively liberal circle of St Petersburg economists and lawyers around him. On his return to the Kremlin, Putin could easily have decided to signal a more sovereigntist and Eurasianist turn by snubbing the WTO and giving priority to the political and economic re-integration of the post-Soviet space under Russian leadership. The fact that he has chosen not to suggests that he at least wishes to keep his options open. The optimists believe that membership will have a normalising effect on Russia’s economic behaviour in the long-term.

The truth is that WTO membership on its own will count for very little without the political will needed to make the most of it. Russian leaders, including Vladimir Putin, have for many years decried their dependence on a “primitive” model of resource extraction and spoken repeatedly of their ambition to modernise and diversify the Russian economy. So far efforts in this direction have come to nothing. State-sponsored, high-tech projects have failed to attract serious international interest while capital has continued to drain out of the country at the rate of around $80-85bn a year.

Properly grasped, WTO membership could be an opportunity to chart a new economic course, but only if the elite is willing to press ahead with serious reform and loosen its grip on the levers of central control. It would mean creating a climate that encouraged the right combination of domestic entrepreneurship and inward investment by addressing Russia’s systemic weaknesses, like weak property rights, an absence of the rule of law and predatory and corrupt behaviour within the elite itself.

One under-appreciated consequence of WTO membership is that it now clears the way for Russia to join the Organisation for Economic and Co-operation and Development with its tougher rules on investor protection. If Russia were to accept this discipline it would help to instil the greater confidence needed to attract non-energy investments on the kind of scale needed to achieve a qualitative shift in the country’s economic prospects. But Russia turned its back on this approach when it withdrew from provisional application of the Energy Charter Treaty and its investor protection clauses in 2009. It found these provisions being used against it and decided to limit its exposure to external enforcement. That attitude will need to change if Russia’s leaders want the reality of economic progress to catch up with the rhetoric.

At a political level, the signs are not encouraging. The use of increased repression to deal with Russia’s newly invigorated opposition suggests that the old controlling mentality is still in place. Perhaps Putin imagines that he can copy the Chinese achievement of economic modernisation within an authoritarian political framework. If so, he is likely to be disappointed. Real economic modernisation requires the enthusiasm and energy of a growing middle class; in other words, the very section of society that has become most disillusioned with Putinism. The price of their support is likely to be a meaningful share of political power and that is something Putin has so far been unwilling to concede.