The process of Russia's entry to the World Trade Organisation (WTO) has been going on for so long that it will soon get into the Guinness Book of Records. The endless delays at the negotiations has cost me personally 100USD. At the beginning of 2004, impressed by German Gref's very convincing speech, I bet that we would have an entry date by the end of the year. So that money's down the drain. I didn't place any more bets, but in my lectures on international economics I kept telling my students that there was still a slight chance we might be admitted to the WTO this year.
After Putin's announcement on June 9 I was tempted to place another bet that accession would not take place either this year or next. However, Medvedev's recent intervention in the debate makes it far more likely.
Strictly speaking, Vladimir Putin's declaration that Russia would now be applying for admission to the WTO as part of a Customs Union with Belarus and Kazakhstan could hardly have been described as anti-liberal or harmful to the development of Russia's international relations. On the contrary, it was very much in tune with the world tendency towards strengthening regional trading links, as opposed to multilateral. The best example of this is the European Union. The creation of the WTO stimulated the growth of regionalism and the failure of the Doha Round further accelerated this process.
Why then has Prime Minister Putin's stance found no support among the experts, or at least those who do not have any special interests? The answer is that stressing regional links with Kazakhstan and Belarus to the detriment of developing multilateral links within the WTO is not actually in Russia's interests. Indeed it sworks against them.
The main victim of this decision will be the diversification of the Russian economy, the need for which has been discussed for a long time and in the highest places. To be more precise, not the diversification, but its frail green shoots. What is implied by diversification is the increase of the non raw-material sector in Russia's output: the priority development (or, in current conditions, the slower decline) primarily of the manufacturing industry and the service sector, as these are the areas where we can compete on world and domestic markets. In order for a sector to grow faster (or to slow down the decline) priority needs to be given to investment of both financial and human capital. What is needed to make a sector competitive is investment in three areas: new technologies, more qualified workers and management personnel. Omitting even one of these categories will render the others meaningless. Investing in general and professional education and new business schools is first and foremost a matter for Russian investors, but only foreign investments will enable Russia to acquire new technologies.
It seems to me that no right-thinking person in Russia, whatever their economic or political affiliation, can hope that new technologies will appear in Russia without foreign investment. But the last 50 years have revealed something else , which is less well known to the general public: the volume of direct foreign investment between two countries is proportionate to the volume of trade between them. Russia will acquire new technologies as she develops her trading relations with those partners who have those technologies. As with everything in economics, this does not guarantee the immediate arrival of new technology in the country, of course, but it significantly increases its probability.
The message of the government's new rhetoric would appear to be that Russia is banking on Kazakhstan and Belarus to provide new technologies. Unfortunately I can't recall anything particularly high-tech or competitive in the economies of these countries, which could contribute to the diversification of Russia's. But volumes could be written about new technologies developed by other countries, with whom trading relations have today been downgraded.
There are no grounds for hoping that the loss of investment potential will be compensated by Russian manufacturing successes in the wider reaches of the Belarusian and Kazakh markets. The industrial structure of these countries are much too similar - they have, after all, sprung from a single Soviet stem - and not one of the members of the future Customs Union can boast conditions favourable for business.
So from an economic point of view the idea of a custom union with Kazakhstan and Belarus should not regarded as a priority for Russia's trade policy at all. Strengthening Russia -EU trade relations and WTO accession are the instruments of trade policy that would help diversify Russia's economy and ensure its stable development.
