The Russian government drew plenty of criticism earlier this month for its alleged rigging of parliamentary elections, which provoked major demonstrations in Moscow. Investors, however, have a reason to be happy that the ruling United Russia party guaranteed itself a majority in the new Duma. The legislature must ratify Russia’s accession to the World Trade Organization, the terms of which were finally agreed on December 16 after a record 18 years of negotiation. United Russia considers WTO membership a major policy goal Russia’s two top opposition parties, the Communists and A Just Russia, are against joining the global trade body.
The final approval of Russia’s application is a landmark for the WTO, bringing by far the largest nonmember economy inside the fold. It also marks a rare demonstrable achievement for President Dmitry Medvedev’s vaunted “modernization” program, which has become the object of some derision since Medvedev meekly agreed to step down in favor of Vladimir Putin’s return to the Kremlin in the presidential election in March.
WTO accession looks like a mixed blessing for the Russian economy. The country’s competitive export industries already enjoy low tariffs abroad thanks to bilateral most favored nation agreements with the European Union and other key trade partners. Joining the global trade club will force the Kremlin to dismantle barriers of its own that have protected weak domestic sectors such as agribusiness and building materials.
Russia’s diplomats, past masters in the art of saying nyet, did negotiate a leisurely 10-year phase-in for the WTO rules, plus carve-outs for key industries like autos. A clever Kremlin carrot-and-stick policy has lured a raft of global carmakers to commit to make more than $1 billion in investments in Russian production over the past year. Still the potential for dislocation is considerable. Moscow economics journal Expert estimated that Russian companies will gain $23 billion in sales from joining WTO and lose $90 billion.
But dislocation is just the point, free traders within Russia argue. “Improved allocation of resources represents the most fundamental benefit as Russia will have to shift from less to more productive areas,” writes Ivan Tchakarov, chief Russia economist at Renaissance Capital in Moscow. More open access for global providers of services like insurance and telecommunications will boost efficiency throughout the economy, potentially adding more than 2 percent to annual gross domestic product, RenCap claims. Stiffer competition should also lower consumer prices, which are conspicuously high in Russia relative to incomes.
Accession supporters also say a commitment to WTO grounds rules will help Russia reap a windfall in foreign direct investment, which has lagged far behind levels in all the other BRIC countries. “The fact that Russia has not joined the WTO has been met with suspicion by many investors,” says Sergei Kravchenko, country director for Boeing, which has nonetheless spent $6 billion building up its Russian engineering capacity. “WTO membership will allow us to be more confident in investment stability.”
There is still one hitch, though, for Boeing and other American companies. The U.S. Congress must repeal the so-called Jackson-Vanik Amendment, which has restricted U.S.-Russian trade relations since 1974. Passed during the height of the Cold War to pressure the former Soviet Union to allow emigration by discontented Jews, Jackson-Vanik still prevents Russia from enjoying “permanent normal trade relations,” the U.S. equivalent of most-favored nation status. Repealing it in 2012 might seem only sensible, considering Russia’s WTO accession and the U.S. desire to boost exports. But Congress, unlike the Russian Duma, cannot be dictated to, or predicted.
