Russia in Wto
Affaires Master of International Business Essay “Russian Federation in WTO: Advantages and disadvantages” Written by student Alexandra S. Gudimova MIB group Moscow 2013 Content Introduction3 Russian Federation in WTO: advantages4 Russian Federation in WTO: disadvantages6 Controversial issues8 Market access for goods — tariff and quota commitments8 Conclusion9 References11 Introduction Russian Federation – an integral part of the global community.
Defining the individual path of economic and political development, of our country however cannot remain aloof from the processes taking place around. The modern world is dictating its terms, and any State has the right to decide whether to accept them or not. And if State takes, it has to be unconditionally or amended at the features of the development. Russia’s accession to the WTO, to which country was going neither more nor less than 18 years, is just such a step – considering the basic situation of world economic processes, Russia could not take them entirely due to a number of national characteristics.
Russia in Wto Essay Example
In addition, Russian Federation on its way to join the World Trade Organization faced many obstacles – both political and economic, and also social issues. There was even an attempt to hold a referendum against the entry of Russia into the WTO; however, this attempt has not succeeded. So, August 22, 2012 can be considered the starting point of a new stage of development of the Russian Federation – it became an official member of the WTO – one hundred and fifty sixth member of the WTO (156-th). It accessed on favorable terms.
Among the “Big Twenty” Russian Federation entered the WTO the last. However, nowadays the controversy on that subject does not cease. In this essay I try to understand what kind of benefits our country will gain as a result of this move and will clarify if there are any minuses of Russia’s accession to the World Trade Organization. The World Trade Organization was established in 1994 and is the successor to the General Agreement on Tariffs and Trade (GATT), which, in turn, has existed since 1947. Nowadays the organization controls about 97% of world trade.
The main objectives of the WTO are the liberalization of international trade, contribution to the economic growth in member countries and hence the increase of welfare of their citizens. In order to make decisions of such serious problems documents have been developed within the structure and, of course, their implementation should be mandatory by all members of WTO. Undoubtedly, Russia’s accession to the WTO is not synonymous with its bright economic future, because every process has both positive and negative sides. Russian Federation in WTO: advantages 1) Improving the image of the country as an equal participant in world trade.
Reducing barriers to international trade market. Free access to established international dispute resolution schemes in the field of trade (there is special Commission for the settlement of disputes in WTO). More opportunities for Russian investors to participate in the economies of the countries – members of the WTO. 2) Increase in competition in the financial sector as a result it could be the reduction of loan rates for households and for small and medium-sized businesses. 3) The modernization of the national economy in accordance with the requirements of the nowadays stage of development of trade and economic relations.
Many Russian producers will be forced to pay special attention to the quality of their products in order to provide it with high competitiveness otherwise it will be impossible to enter the world market. 4) Reduction of fees. As a result – the number of imported goods will become cheaper (for instance: medicines, foods, clothes, IT-products, etc. ). Definitely from this reduction will benefit only consumers, however Russian producers may lose. There will be also a decline in export duties, which will lead to the fact that Russian exports will also increase. From that decline will benefit mainly natural resource industries.
Foreign companies will be more active in the Russian market and will enhance competition. As a result – Russian goods will also become cheaper. 6) Entrance into the WTO is a major step for our country. The Russian foreign economic activity will become more predictable and stable. As a result, it can be expected an increase in the number of foreign investment. Also, probably, the ruble will become less volatile. 7) The transparency of trade laws of WTO members. Certainly, it is always easier to build trade and economic relations with a clear understanding of the positions of the parties, without any pitfalls.
There will be a support for trade and economic interests in the process of adoption of new legislation in the field of international trade. Independent experts claim: * Accession to the WTO is positive for the Russian economy, as it assumes the improvement of the investment climate in the country and the potential attraction of the new technologies in the economy. The increase in the volume of foreign investments as a result of Russia’s accession to the WTO could amount at least a few percent of GDP, while the reduction of fees under agreements (import and export) will be only 430 billion rubles or 0.8% of GDP. Russia’s Accession of WTO Membership is also positive for the Russian budget, according to, forecasts; the growth of foreign trade will grow in the coming years at around 10% annually, so it can be quite optimistic about the prospects for the federal budget and the state treasury income growth. The expert believes that the main beneficiaries of Russia’s accession to the WTO will be Iron industry (ferrous and non-ferrous metals), oil and gas industries, chemical and consumer sector and the transport sector, etc.
The main benefit of joining the WTO will be felt by exporters, as it will be easier for them to operate, since membership in the organization eliminates the possibility of the introduction of protective duties on exported Russian products. This will help to make more profitable export-oriented industries with high added value, which will improve the structure of the Russian economy and will help to reduce dependence on oil and gas exports. Russian Federation in WTO: disadvantages 1) Many Russian companies will be unable to compete. As a result there will be a loss of jobs; the number of unemployed will increase.
Particularly serious consequences will be in single-industry city, where because of the bankruptcy of city-forming enterprise can arise a social explosion. 2) The reduction of import duties could lead to the fact that a number of goods would be unprofitable to produce in Russia. The greatest risk is for the agricultural sector (both crop and livestock). 3) Reduction of import duties may have a negative impact on the domestic auto industry – the influx of second-hand imported cars is a direct threat to Russian automakers. (Example: The customs duty for import of used vehicles, until recently, was more than 40 000 Euros.
After Russia’s accession to the WTO, it will fall by more than 4 times). 4) Reduction of export duties will lead to further budget deficit, which will be paid by the emission of government bonds. This may lead to an increase in public debt, with all its further consequences. 5) . The Russian economy will lose considerable flexibility in the foreign trade. For example, Russia will not be able so zealously protect our car industry, which is now in the “hothouse” conditions, and in times of drought will not be able to set an embargo on agricultural products, as it was in 2010.
It will be more difficult for Russian Federation to get rid of dependence on raw materials. Independent experts claim: * Analysts argue that there are few industries in Russia which will gain disadvantages of joining the WTO, but for the most vulnerable among them (in particular agriculture, production of cars, machinery, and light industry) it has been able to get longer transition periods for 5-7 years. This will allow to these industries to prepare more effectively for accession to the WTO.
These industries will suffer from the fact that there will be a large number of the more interesting goods to buyers in terms of the price and quality, accordingly, some domestic companies in these sectors will lose a large volume of sales, revenue and profit due to increased competition. * However, it is likely when analyzing the IRR (internal rate of return) of the project to establish its own production or to start importing some goods; entrepreneurs come to the conclusion that net import is more interesting and profitable.
In this case, none of the Russian ruble will receive from this membership in WTO. There will be only losses as the reduction of fees would kill domestic producers, which immediately causes the growth of unemployment and social collapse, and even a revolutionary situation. * What will happen to Russia can be seen by examining what has happened to the other countries that joined the WTO, the economy of which were as unprepared as Russia’s. For example, in the Ukraine, which joined the WTO in May 2008, came the crisis in automobile industry (-57% in 2009) and the decline of some sectors of agriculture.
For example, there was the decrease in the production of flour (-10% in 2009 and -13% in 2011. ), in bakery products (-8% in 2009 and -9% in 2011. ), in dairy products (-8% in 2009 and -10% in 2011. ). Fell sharply the production of beef, veal and pork (-21% in 2009 and -12% in 2011. ). Controversial issues In addition to positive and negative aspects of Russia’s WTO accession there are still some controversial issues. These include the gradual disappearance of one-company towns (single-industry city).
Another controversial fact is that the WTO obligates Russia to purchase genetic engineering products (GMO products). For this reason Russia may gradually turn into a region, which will be full of genetically modified foods, because the agreement between the participating countries does not enable to thoroughly examine all imported goods, given the fact that trade relations between the WTO members are built primarily on trust. Therefore, these facts can create insurmountable problems for the food security of the population, and it is a very significant disadvantage.
Another question is: will foreign direct investment be attracted into Russia in order to satisfy the domestic demand or it will be more preferable to import from China and the Eurozone? Market access for goods — tariff and quota commitments As part of the accession, Russia concluded 30 bilateral agreements on market access for services and 57 on market access for goods. Below is some information from the site of WTO. On average, the final legally binding tariff ceiling for the Russian Federation will be 7. 8% compared with a 2011 average of 10% for all products: * The average tariff ceiling for agriculture products will be 10. 8%, lower than the current average of 13. 2% * The ceiling average for manufactured goods will be 7. 3% vs. the 9. 5% average today on manufactured imports. Russia has agreed to lower its tariffs on a wide range of products. Average duties after full implementation of tariff reductions will be: * 14. 9% for dairy products (current applied tariff 19. 8%) * 7. 1% for oilseeds, fats and oils (current applied tariff 9. 0%) * 5. 2% for chemicals (current applied tariff 6. 5%) * 12. 0% for automobiles (current applied tariff 15. 5%) * 6. 2% for electrical machinery (current applied tariff 8. 4%) * 8. 0% for wood and paper (current applied tariff 13. 4%) Conclusion WTO membership is a great opportunity for Russia to improve its economic and business environment and gain more political strength and power over other countries in the international arena.
However, the drawbacks brought up by membership may be too significant to ignore under the current situation even if all the benefits are considered together. The world is now changing very rapidly, and globalization is taking place everywhere, therefore joining the WTO looks inevitable for Russia to improve its economy. Such improvements could make Russia look more attractive to investors with resolution of the issues concerning property rights and gas prices, as well as the unraveling of trade conflicts with former independent Soviet republics.
Experts indicate different time frame in which should the first results of the Russian accession to the World Trade Organization appear. According to forecasts, on average the adaptation of the national economy will take 6-7 years. It seems that during this time the controversy around this issue will die down and then flare up with renewed vigor. In the long run, the WTO membership should be very beneficial for Russia. It will create a much more favorable business environment in Russia.
For example, the WTO membership will improve the legal system and enhance the legal environment for business in Russia; hence, it will positively affect the business investment climate in Russian markets. There are certain industries that will receive more benefits than others with Russia’s WTO accession. Those are telecommunications, metallurgy, footwear, garments, electronics, and strong alcoholic beverages; however, other industries will be facing increased competition and struggle to survive in sectors such as pharmaceuticals, furniture, the insurance industry, retail, and certain parts of the chemical industry. Some regions of Russia will be sensitive to the changes in tariff policies, especially those with a high share of industries depending on high import share. The overall result of WTO membership accession should be beneficial for Russia. It will bring reduction of tariffs and quotas, reform young service industry, which is still under development and needs a lot of government protection. However, it will shack up the labor intensive industry sectors and raise the unemployment rate, which in the long run will go down with the market situation eventually balancing out.