What Will WTO Membership Mean For Russia?

After 18 years of on-again off-again negotiations, this past week Russia cleared some of the last hurdles standing in the way of becoming a full-fledged member of the World Trade Organization.

The WTO’s working group on accession will meet Nov. 10-11, and is expected to give the go-ahead for Russian membership at the ministerial conference in December. Membership in the club could boost the Russian economy by 3% in the medium term, and is expected to dramatically increase foreign investment thanks to the application of higher standards and rules. But what this will mean for Russia’s habit of corporate raiding, corruption, and politically motivated trade barriers, is the big unanswered question.

The most surprising aspect of Russia’s accession was the overnight disappearance of Georgia’s threat to block entry based upon outstanding grievances from the 2008 war. Thanks to a Swiss mediation team, as well as pressure from EU leadership (desperate for bailout help on the debt crisis) and the not-so-subtle suggestion from WTO Director General Pascal Lamy there might be a loophole for Russia to enter the organization regardless of Georgian opposition, the two sides appeared to have reached agreement to move forward with a proposal.

Now the last snag in the process is the restoration of permanent trade partner status for Russia in the United States, which is currently blocked by the outdated Jackson-Vanik Amendment, which linked trade with emigration rights for the Jewish population of the Soviet Union. Few people would argue that Jackson-Vanik has any relevance today, however it has taken the place as an important form of leverage that many lawmakers are reluctant to give up. For example, Senate Finance Committee Chairman Max Baucus and others signed a letter to trade rep Ron Kirk warning that “A high standard accession package will be essential to ensuring support for granting Russia permanent normal trade relations.”

The general reaction to this news among commentators has been positive. Many believe that WTO membership will create jobs in the manufacturing and agricultural sectors, while making Russia become more transparent and predictable to investors via its participation in a rule-based structure to govern trade. But despite the obvious benefits to a country looking to modernize and diversify its economy, there are many signs that Russia isn’t really all that motivated to join – which may help explain why it has taken 18 years.

In the words of RIA Novosti columnist Konstantin von Eggert, “Membership in the WTO would provide Russian and foreign companies in Russia an external reference framework for resolving economic disputes. This will eventually mean the Kremlin losing at least a part of its influence on economic processes. This goes against the grain of everything we know about Vladimir Putin’s principles of government. Keeping Russian business on a short leash has let him accumulate unparalleled economic and, by extension, political power.”

This contradiction helps explain why much of the rhetoric about how WTO membership will “change Russia for the better” is empty or at least overly optimistic. The WTO’s singular mandate is to promote an economic theory that is as unimpeachable as it is elegant: trade liberalization creates economic development. It’s language is the reduction of tariffs, the elimination of import and export restrictions. Issues like human rights, rule of law, and freedom from government intervention are not seen as very important (for example, consider China’s membership).

One of the most obvious signs that the organization isn’t exactly preoccupied with anticorruption measures, for example, is its very membership: it includes the three least corrupt countries on earth—Finland, Iceland, and New Zealand—and also the two most corrupt, Myanmar and Haiti. When it comes to corruption the WTO endorses a theory of self-interest: since corruption by its very nature thwarts liberalization, it is an irrational act not in the best interest of members. The problem, of course, is assuming that member countries pursue rational interests.

While the organization has several procedural instruments that encourage transparency, none specifically address the obvious link between corruption and development, and the majority of these rules are focused on stopping the “petty” corruption of bribery at the border, while relying on traders’ self-policing themselves to have any impact. The one legal instrument that aspires to tackle official corruption in government procurement, the Agreement on Government Procurement, isn’t even mandatory—as of 2011, only 41 of the WTO’s 153 members had accepted its provisions. When language specifying the insidious effect corruption can have on government procurement was inserted into a revision of the GPA in 2006, it was only accepted “provisionally.” In Russia, corruption in government procurement cost the state an estimated $33 billion in 2010. One surmises it won’t be first in line to sign any revision of the GPA.

This explains why Russia may be the WTO’s biggest test yet. What happens when a rule-based organization engages with a habitual rule breaker? The leadership in the Kremlin is fond of control – control over the courts, control over the media, and control over the political process. The idea that they would have to surrender some small amount of control over the economy to international rules is difficult to measure. When they are mad at Poland or Georgia, they won’t be able to cut off imports of meat and mineral water. When they want to strangle a neighboring government or force the sale of an energy asset, it won’t be a easy to cut off the pipelines.

The reluctance to submit to international standards is very difficult to measure, and the past instances of uncoordinated sabotage to the WTO accession, such as the Customs Union debacle with Belarus and Kazakhstan, indicate that there is a split in the elites on this issue. These reversals and sudden proposals have caused significant embarrassment among some Russian officials. Given past difficulties, we should not be surprised to see another curveball or two before Russia’s WTO membership is fully confirmed and enacted.

November 2, 2011

Source: eurasiareview.com