Russia knocking on the WTO door

Russia is like a train that is speeding on by the road to the WTO. After three-day talks in Paris, Russia's Economic Development and Trade Minister German Gref expressed his conviction that Moscow would sign agreements on WTO accession with the EU and the USA by the end of 2004.

Moreover, the agreement with the EU could be signed on May 20. It would be a befitting prelude to the May 21 Russia-EU summit, held to discuss the package of issues pertaining to Europe's enlargement.

The signing of a similar protocol with the USA will take longer. The Americans are worried about the protection of intellectual property and Russia is the second largest (after China) pirate who supplies 200 mln of counterfeit audio and CD disks to world markets every year. Microsoft and US audio firms have things to grumble about. But this problem can be solved, says US trade representative Robert Zoelleck. He agrees with Gref that the protocol on Russia's accession to the WTO could be signed by the end of this year with America welcoming this step.

It took us more than ten years to find a reason for common rejoicing. Russia first knocked on the WTO door in 1993, when the organisation was still called the General Agreement on Tariffs and Trade (GATT). Many discounted Moscow's action as brazen.

In point of fact, the meaning of WTO membership is for the member country to reduce import tariffs and open its markets to foreign players. Yeltsin-era Russia acted to the contrary. Certain funds created under the "cover" of sports and veterans' organisations were granted lavish import privileges and used their tax benefits to strangle foreign businessmen who tried to establish themselves in Russia.

Besides, Russia needed to gear its economy, born in conditions of centralised planning and Stalin's five-year plans, to the WTO demands. As the experience of other countries shows, this is a long and painful task. Worse still, the larger the country, the more time it needs for economic reorientation. It took China 15 years to join the WTO, while Bulgaria ran through the door in ten years.

While Russia patriotically protected its markets, the WTO admitted quite a few former Soviet countries, in particular Moldova, Georgia, Kyrgyzstan, Latvia, Estonia and Lithuania. Moscow watched helplessly as the commodities and services distribution system created in the era of the Comecon crumbled around it.

During the Comecon period, everything was planned and apportioned neatly. Russia sent lathes and aircraft to Hungary, which reciprocated with its Ikarus buses. Now that its partners have become WTO members, Russia is facing such an unusual (for it) thing as international competition. It has lost its monopoly of vital industrial goods and national exports have become dependent on raw materials.

Moscow was faced with a harsh alternative: remain outside the WTO and keep the national producer in the cocoon of protectionist measures, or carry on the dialogue on admission to the global trade club.

The former threatened falling further behind the West and a general economic slide. The latter promised painful shocks for such incompetitive Russian industries as aircraft manufacturing, insurance and banking. The fall in profits of some promised bankruptcy for others.

But these are the short-term consequences of WTO membership. In the longer term, WTO membership could help Russian companies to emerge on the world markets, access to which is so far shielded by high customs duties. Russia could hope for larger quotas for steel exports to the EU, the USA and Turkey, and for the lifting of nearly half of the current anti-dumping measures. A reasonable drop in the exchange rate of the rouble would reduce production costs and competition would force Russian producers to improve quality and reduce prices.

This is what Vladimir Putin thinks. Memories of the 1998 financial crisis were still fresh when he became head of the country and declared WTO membership to be a priority task of his government.

But the devil was in the details. Will Russian negotiators convince the EU and the USA to humour it by limiting the negative consequences of Russia's accession to the trade club? The list of EU demands to Russia, whose fulfilment will open the WTO door, is a long one. In particular, the EU wants Russia to raise domestic prices of natural gas and reduce import duties on commodities that bring profits to Europe (aircraft, cars and agricultural produce). The EU also wants broad access to the Russian market of banking services and telecommunications.

In its turn, Moscow is demanding a transition period when it will use duties to protect national industries that will otherwise crumble under the onslaught of Western rivals. There is nothing new in this position. Many aspiring countries pressed for and got the preference period. Russian producers would use it for modernisation, for raising the quality of their goods and reducing their prime cost.

However, Russian critics accuse the Kremlin of taking too long to begin. It could have, simultaneously with the WTO talks, restructured the economy more energetically and adapted it to the WTO demands. Happily, there is still some time left for this. After all, the result of Russia's accession to the WTO will depend on two things: what it gets from the EU and the USA and what it does by the end of the transition period.

For its part, the WTO should be ready to listen to Russia's claims, too. For example, Moscow is not happy that the WTO is becoming increasingly dependent on three or four leading members. The more this group of countries is trying to force its influence on the organisation, the sooner the WTO will be paralysed, say Russian experts.

The World Trade Organisation should become a kind of union of minorities. Only in this case will it have a future; only in this case will it be equally important and useful to all countries.

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