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21.10.09
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Flirting With The WTO
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By Tom Balmforth
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On October 15 in Geneva, delegations from Russia, Belarus and Kazakhstan announced their intention to bid to join the World Trade Organization separately, scrapping plans to accede together as a customs union. After Russia proclaimed in June that it would seek WTO membership as part of a customs union, a complicated process which has never been done before, it was widely understood that Moscow had put its accession to the trade club on the backburner. Thursday’s decision, however, indicates Russia’s renewed interest in membership.
The ostensible reason for Russia’s dropping its joint bid is the fact that doing so would significantly complicate the accession process. Applying as a customs union requires the parties to prove that they operate according to a single, sovereign trade directive. Given that Moscow, Minsk and Astana do not answer to a single authority on trade matters, accession as a customs union would not have been simple. “I think that [Thursday’s] decision demonstrates that Russia wishes to continue at a faster rate, instead of accepting some delay,” said Natalia Orlova, the chief economist at Alpha Bank.
Russia, the largest non-member economy, has been seeking to join the trade group since 1993, and has already met a significant proportion of WTO requirements, but Prime Minister Vladimir Putin put the whole process in jeopardy in June, when he announced that Russia would now join as part of a customs union. With WTO officials left scratching their heads, the June decision not only cost Russia’s accession bid precious time, but also created the need to “restore lost faith” in its commitment to join.
The latest installments in Russia’s WTO saga have also exposed differences over public policy in the Vladimir Putin-Dmitry Medvedev tandem. When in July, president Medvedev mooted the possibility of going back to “plan a” and dropping Putin’s proposed joint accession bid only a month after it was first announced, the Financial Times was quick to discern a clash between the president and his mentor. Certainly, the recent toing and froing in Russia’s WTO policy seems to correlate with Medvedev’s and Putin’s differing world views. While on the one hand, Medvedev has championed greater dialogue and integration with the international community, notching up recent victories such as the annulment of U.S. missile defense plans, Putin generally appears to be far less interested in Russia’s integration with the rest of the world, not just from a foreign policy perspective but also from a business one.
In that it has actually made Russia’s WTO membership a possibility in the near future, Thursday’s decision carries the hallmarks of Medvedev. “The fact that the idea to join as a customs union has been dropped after a relatively short period of time, only five months or so, is perhaps an indication of Russia being in the ascendancy of Medvedev’s policy of more integration with the international community, and the championing of that over Vladimir Putin’s more inward-looking policy style,” said Tom Mundy, vice president for equity strategy at Renaissance Capital. “I think it is a fair assessment that the international community is pushing for Russian WTO membership much more than, say, Vladimir Putin is, so the fact that [the June decision] has been pulled away now probably indicates that either Medvedev is taking a stronger line with domestic-looking policies, or that there is much more of a challenge or a schism within the Kremlin than people previously thought,” he added.
Putin launched an unexpectedly early battle for the 2012 presidential elections at the beginning of October, when he said that he and president Medvedev would “figure it out between themselves who would run in 2012.” Nonetheless, WTO accession seems an unlikely issue for Medvedev to set out his stall against Putin on. Only a minority of Russians actually favor Russia’s joining the trade group, a poll by the All Russian Public Opinion Research Center (VTsIOM) revealed in June. Still, the renewed enthusiasm for WTO membership implicit in Thursday’s decision seems to belong to Medvedev’s broader policy of greater integration with the international community. President Medvedev has shown himself to be keen on formulating his own policies, which are distinct from those of his predecessor, and he has also been quite critical of the development of the Russian economy under Putin.
For Russia, accession to the WTO will mean that it will no longer be able to dictate its trade regime on a unilateral basis, instead having to conform to the regulations of the trade group. That Russia has not been a member of the WTO during the financial crisis has in fact been a blessing, since protectionist policies have been implemented in order to keep certain domestic industries afloat. For example, last year Russia raised import tariffs on vehicles in order to stimulate demand for cars made domestically.
However, Russia’s resumption of practically-minded WTO accession talks stands to greatly improve the investment climate. “Anything that shows that Russia is more willing to be integrated with the international community is good for investor appetite and tends to bring down Russia’s risk profile,” said Mundy. Coupled with recent comments from the Russian government that it wants to be less involved in private enterprise, the Kremlin’s renewed interest in WTO accession will be good news for would-be investors. “For foreign investors, this [decision] is a very powerful sign. I think just by continuing these negotiations, Russia shows that it will continue to integrate with the world economy,” Orlova concluded. |
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