WTO membership: confused by the double-headed eagle

WTO Russia.jpg

Russia has taken seventeen years of WTO negotiations to get to a stage that most candidate countries reach after six. Now, with the country finally on the verge of joining, there is no sign of any consensus at the top, write Rihards Kols and Nicolae Geaman.

Nicolae Geaman
17 May 2011

It is a full seventeen years and three presidents since Russia first embarked on the accession process to the World Trade Organisation (WTO). This year, finally, expectations are high that Russia will be accepted into the organisation. Yet membership is certainly no done deal, and rather than technical hurdles, it seems differences of opinion between President Medvedev and PM Putin are providing the single biggest stumbling block to membership. Russia appears to have become a living embodiment of its national seal – the double-headed eagle.

WTO Russia

President Medvedev has adopted an enthusiastic pro-membership position from the beginning. In appearances at least, he has repeatedly presented membership as a key goal within his economic modernization agenda. Putin’s interventions, on the other hand, have been quite different. On 9 June 2009, when Russia was close to joining, Putin shocked many with a totally unexpected announcement that Belarus, Kazakhstan and Russia would be entering the WTO collectively, as a single Customs Union. The development would be quite unprecedented, and legally contentious. It was a move that appeared to be playing for time, and was certainly successful in derailing the accession process. Only days before, Putin himself had stated his expectation of Russia swiftly joining the WTO ….

Russian industry, however, is in favor of the WTO. The liberal or technocratic elite realize that Russia is far too wealthy, educated, and open to be so corrupt and bureaucratic. They want to return to the market reforms that the Russian government pursued in 1991—1993 and against 1998—2002. To judge by the precedent, Russia needs a severe economic crisis to wake up and pursue reforms. Admittedly, Russia’s GDP fell by 8—9 percent in 2009, much more than in 1998 when it fell only by 4.8 percent. But the question is whether the shock was big enough and whether the oil price has already risen so high that reforms do not seem necessary to the elite. WTO accession is likely if Russia becomes serious about reform again.

Anders Aslund

Of course, Putin’s political outlook is authoritarian, calibrated for power consolidation and state control (especially of the energy sector). Such a vision is incompatible with a diversified economy free of the energy resource curse, such as that which Medvedev has imagined. Energy exports represent external political leverage, and that matters more to Putin than the estimated 0.5-1 per cent higher economic growth rates WTO accession will bring. Putin is also bent on regaining Russia’s sphere of influence in the rest of the former Soviet Union, and he wants a free hand in pursuing this objective. The WTO issue will almost certainly be caught up in this dynamic.

There is also a question of who needs who. What does Russia stand to gain from WTO membership? Does it risk its key interests? There is almost unanimous consensus outside Russia that the Russian economy would stand to benefit substantially from WTO membership, but among Russia’s power elite the merits of membership are not so clear-cut - especially to Putin, it seems. These concerns are reflected in the various trade battles Russia has fought during negotiations.

During a speech he gave in St. Petersburg last month, Deputy Economic Development Minister Andrei Klepach complained about Russia having its hands tied on the use of import duties to block cheap machinery imports from China by its WTO accession obligations. Putin, who was also present at that meeting, interrupted Klepach and directly reprimanded him by stating "Tied by what? I told you all a hundred times. We will implement these rules when we become a fully fledged member. Until then our hands are free."  Putin’s attitude can hardly be seen as conducive to a successful completion of the accession negotiations this year.

Earlier major trade conflicts were generated by Russia blocking chicken and pork imports from the United States. Russia is the industry’s biggest market and this has caused deep concern in Congress. The traditional US retaliation has been the Jackson-Vanik amendment, whereby Russian exports entering the US market at normal tariff rates are connected to a waiver certifying the emigration rights of Jews. On the European side, meanwhile, the EU regards Russia’s decision to impose export tariffs on Nordic raw timber and to ban Polish meat imports as a serious provocation.

All the same, on June 2010 Barrack Obama stated his strong support of the bid and in October the US and Russia concluded a bilateral agreement on Russia’s accession. Soon after, at the EU-Russia Summit, the EU also completed an identical agreement, thereby putting end to most technical issues. In normal circumstances, the remaining issues would be a mere matter of a few months’ negotiations.

Foreign policy must not be forgotten. Being the only member of the G-20 that is not yet a member of the WTO has given Russia an inferiority complex of sorts in which it believes that it is treated as a second-rate member by others within the

G-20. Yet, even though the Kremlin is always anxious to have a seat for Russia at every relevant table, its eagerness has not spilled over to matters regarding international trade, a table where Russia still lacks a seat. Russia’s absence in the WTO is becoming an ever greater anomaly.

Anders Aslund

Maxim Medvedkov, Russia’s chief negotiator over WTO accession, believes that Russia will finally crack it this autumn. And there is certainly evidence to back up the claim: Georgia aside, every other negotiating party has expressed its full support for Russia joining this year. First Deputy Prime-minister Igor Shuvalov, who chairs the Russian working group on the WTO accession, also predicts a success by the end of this year. Failure to join would mean a deferral to 2013, as 2012 is an election year in Russia and recently both Dmitry Medvedev and Vladimir Putin have announced they are running.

But Russia’s Foreign Minister, Sergei Lavrov, who hasn’t been directly involved in the negotiation process, has recently expressed his scepticism about Medvedkov’s and Shuvalov’s optimistic predictions, saying that ever since he took office, seven years ago, he’s been told the same thing every year.

Russia could have joined the WTO years ago, but internal politics prevented it. It seems the double-headed eagle has yet to make up its minds.

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