Russia in WTO: Will it Stick to the Rules?

In a guest post blog for the Russia Foundation website, Kristiina Ojuland, former foreign minister of Estonia from 2002 to 2005 and current serving Estonian Member of the European Parliament, gives her assessment of whether Russia will stick to the rules following its accession to the WTO.

Russia’s accession to the WTO after 17 years of negotiations is a significant step towards integration into the world community after 70 years of Soviet isolation. The problems in different branches of industrial production and agriculture inherited from a communistic regime are only partially to blame for the protracted process. The political situation during the last decade has been steadily shifting away from the openness of the 90s to almost Soviet-level hush rhetoric and divisionary tactics, blaming the West for many vices and failures in domestic affairs. This setback in policy is manifested in strong protectionism, with 200 measures having been recently reported by Independent monitoring group ‘Global Trade Alert’. The group predicts WTO membership will be ‘a tough task’ forcing Russia to eliminate trade barriers though it is still unclear whether they will stick to the rules.

From one side there is hope and expectation for reform and modernization of the country, while from the other there is a great deal of doubt and skepticism, because during President Medvedev’s mandate Russian has taken more protectionist measures than any other country.

However, entering WTO for Russia goes beyond an economic reform – it inevitably touches opaque governance structures, intellectual property and human rights issues.

Consequently, the interests of the population seeking access to quality products and services are completely overshadowed by the other type of concerns. Fortunately the desire of the Russian elite to influence world trade won over the fears of the hardliners that the trade reforms will open the door to liberalizing the general political climate in the country.

Obviously there will be losses and gains. Among the latter, according to Russian officials, are metallurgy, the oil and gas industry, chemical fertilizers, and – shortly - the big segments of business. The losers include the machine construction industry, food, pharmacology and textile industries.

Consumers will win in the long run through the necessity to change the outdated ‘standards’, which, in many occasions, date from the Soviet past, through the elimination of the ‘shadow’ market and, finally, Russia’s hopes to attract investors.

Whether the latter objective will be achieved remains open to question, taking into consideration the epic corruption and handicapped judiciary in Russia. Instead of the long-awaited liberation of Russia’s most known prisoner-businessman, Mikhail Khodorkovsky, the story broke out of the tragic death of anti-corruption lawyer, Sergei Magnitsky. His life was cut short in a Russian prison in a Medieval manner, while those implicated in the corruption affair he uncovered are left to enjoy the benefits of their illegally gained fortune and freedom. These kinds of cases don’t encourage investors to come to Russia in spite of a promising WTO legal framework. The government’s intentions should be sealed with more than a stamp or a signature; they should demonstrate their determination to live up to the engagement.

At the moment, the flow of foreign investments in Russia is reduced as a consequence of the world economic and financial crisis and other significant factors. The most significant factor is the comeback of Vladimir Putin, or his “swap’ of chairs with Dmitry Medvedev that took away hope from potential investors for a real change.

The reluctance of the current rulers to embrace the pluralism of political life sends a negative signal to investors, suggesting Russia is mired in corruption and instability under an outdated power system.

Subsequently, the investments will continue to flow in the energy sector and related industries only, or in manufacturing of the daily consumer articles that can bring a quick turnover. But the need for "smart" investments in innovation will be absent, and the prospects for modernization of Russia will fade away.

Within this context, Russia entering the WTO means nothing more than just a framework that should be filled with content. It will not take long to see if Russian officials are serious about complying with the WTO rules.