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Introduction
Russia took 18 years to join the World Trade Organization, yet it had the largest economy outside the institution’s membership. It is imperative to understand why this process took so long in order to clarify whether those obstacles will resurface again among other bidding countries. Additionally, it is necessary to demystify why Russia wanted membership in the first place and why this desire fluctuated from time to time.
Several theorists have come up with their own explanations on why accession dragged through two decades; it is likely that elements of truth exist in each analysis. After accession, one must also anticipate what will happen to the country. Benefits of WTO membership are contingent upon certain qualities. Therefore, it is necessary to analyze Russia’s ability to maximize on this membership, so as to offer suggestions on how the country can improve in the future.
Why Russia sought membership
Russia wanted to become a member in the WTO because doing so would give it influence over global economic decisions. The country’s leaders realized that membership would not solve all their problems at one glance. However, the institution would give it a platform for increasing the nation’s global presence. To a certain extent, this intention has some hidden implications. The country would gain from the prestige of being a WTO member as well as apply international norms in trade.
Furthermore, the country was interested in exposing its economy to foreign investment or competition. It knew that the external environment refrained from investing in Russia because of some perceived hindrances, like corruption. The country’s leaders felt that they would eliminate these obstacles through assistance from an international institution like the WTO (Milthorp, 2009).
Russia needed to improve its ability to deal with some of the challenges it encountered when trading with the EU. Prior to the accession, 160 billion Euros worth of oil and gas were exported to the EU. However, matters were not streamlined between these two entities. There were disagreements over energy policies in Russia and its trading EU member countries.
Additionally, difficulties concerning the poor democratic principles in this nation also affected Russia. The latter country reacted by asserting that EU members were interfering in their internal issues. Excessive tensions between Russia and such a key partner necessitated an intervention in the form of WTO. Since 2007, there was not agreement between the two countries as it had been stalled.
EU members awaited Russia’s accession in order to resume talks with them. Therefore, the WTO was perceived as a contributor to improved relations between Russia and its key trading partner. It would assist them in negotiating with such a partner. One should note that a third party was necessary because the EU had frustrated Russia on several occasions.
In 2004, it persuaded Russia to enter a bilateral agreement in which it would engage in climate change alterations. The EU wanted to pursue its climate change goals but did not offer Russia something substantial in return. Therefore, Russia required a mechanism for holding this partner to account, and the WTO fit the bill.
Technical obstacles to accession
One of the reasons why the accession process took almost two decades was the technical difficulty of gaining membership (Asland, 2010). The WTO expects candidates to send their applications first. The global institution then sends this information to all affected member sates for analysis. A country must also hand – in a tariff profile as this allows interested nations to access its status.
Thereafter, bilateral protocols should be negotiated with all the interested/ committee member states. They have a right to ask new questions and seek clarification on unanswered ones from the previous round. After this process, then individuals must come up with an accession package.
For Russia, this process took a relatively long time because interested countries were approximately 50, and some of them had very poor relations with the applicant; Georgia was especially infamous for this. The applicant grew frustrated at these developments as it had the onus to respond to their concerns all the time. Therefore, one can state that Russia took so long to enter the WTO because of the lengthy accession process.
It is too dependent on negotiations among member states that may not always be in the applicants’ good books. In addition to a lengthy accession process, Russia had selected a poorly – experienced team to carry out its negotiations. Things were further complicated by a downgrading of the negotiating team in the 1990s. In the 2000s, some of the political figures that were in charge of the process either left the team or had too many responsibilities to handle.
A case in point was the state deputy to the Prime Minister. He was overwhelmed with other ministerial activities and thus may have undermined the membership bid. Additionally, in 2004, the country used WTO accession as a tool to accommodate a demoted minister of economic development. Therefore, he did not regard his accession duties as his first obligation. Such an attitude undermined the process (Fean, 2012).
Russia had to meet the high threshold that had been set by certain member countries prior to their accession. China had acceded to the WTO after engaging in seamless bilateral talks with most member nations. It had a comprehensive accession deal that would be difficult to match. Additionally, Ukraine had also acceded after accepting bilateral talks with the US.
Consequently, expectations from members countries concerning what an applicant can concede had risen sharply. This explains why Russia received so many demands from WTO member states. Whenever Russia protested to the demands, it would get the same reference. They were asked to imitate recently acceded countries.
Political obstacles to accession
During the application process, the country was marred with a series of political challenges. At the time when the country first made its application, it was changing from a communist regime to a democratic one. President Boris Yeltsin governed the country during a tumultuous period, and this minimized its commitment to WTO membership.
Furthermore, before a country accedes, it must demonstrate that it has the right political environment to support WTO requirements. Russia’s unstable political leadership was unable to do this during the first decade of the bid (Fean, 2012). As mentioned in the above section, Georgia was one of the members in the WTO committee of interested countries.
Georgia regarded this bid as an opportunity to secure its interests. The conflict between Georgia and Russia at its borders was an opportunity for the country to deal with this problem. Before Russia could accede, it has to accept Georgian border crossings inside the Russian territories of Ossetia and Abkazia.
However, Georgia was not willing to concede to Russia’s membership unless it received a guarantee from the WTO that Russia would deal with these border crossings. Switzerland was selected as the mediator between the two entities in 2011. It was only after this assurance that Georgia accepted the deal.
Russia also had intentions of using the accession to further its Eurasian ambitions. Two years before its accession, the country announced that it would form a customs union with Belarus and Kazakhstan. The country’s president – Putin – claimed that the only way it would enter the WTO would be through this customs union. The WTO objected to such an approach because Belarus and Kazakhstan were not at the same level of preparedness as Russia.
Furthermore, it had never accepted a trading bloc as one applicant into the institution. Tariff agreements between members of the small trading bloc contradicted tariff limits set by the WTO, and Russia had to privilege the latter’s requirements over the former’s. In fact, these varied demands on Russia’s part made many analysts question the state’s commitment to WTO membership.
Negotiators’ activities were often tempered by utterances made by senior officials. If an official spoke about the difficulties in meeting certain trade agreements, then the negotiators would take this as a cue to refrain from pursuing the matter. Therefore, the inconsistent utterances made by government officials undermined the negotiation process.
If a common strategy for the Russian government existed, then chances are that the process would have taken a shorter time (Asland, 2010). The country’s President prior to the accession also had a profound influence on the country’s lengthy bid. He developed a skeptical attitude towards the WTO, and this influenced the speed with which they negotiated the application.
President Putin felt that the international community already imposed several concessions on the Russian people, so he did not see the point of joining the WTO. His assertions illustrated that the President did not treat membership as an avenue for trade liberalization, but he saw it as an opportunity to protect the country against concessions. Such attitudes dramatically hampered the membership bid.
The President’s words would have been of little consequence if the country’s population lobbied for accession. Locals did not care about the accession so they did not prompt their leaders to alter their attitude towards the process. Another issue that may have delayed the accession process was the relationship between Russia and the US. These countries had poor relations especially during Preside Bush’s tenure.
The Bush-Iraq invasion in 2003 and its intentions for enlargement of NATO were a source of disagreement between the two countries. Russia felt that US wanted to pursue unilateral goals while the US continued to distrust Russia on its ammunition strategies. The US claimed that Russia supported its rivals in the Middle East, such as Iran. In supporting their armament processes.
Therefore, the rivalry between these two nations was in need of some serious intervention from either party. In 2009, President Obama participated in a reset agreement between the two countries. Washington wanted to trade with a partner that utilized rules in its economic transactions. Therefore, this was one of the agreements in the reset.
The US pushed for Russia’s WTO membership because this would be a dependable way of ensuring that the key reset goals were achieved (Milthorp, 2009). Several countries made demands concerning economic agreements. The US was top on the list especially with regard to intellectual property. The latter country lost approximately 6.5 billion dollars worth of intellectual property over a five year period because of Russia’s efforts.
Prior to accession, the US required Russia to implement these changes before it could participate in a bilateral agreement. In response to the challenge, Russia could not merely hope to deal with the problem through minor steps; it needed a radical shift from its prevailing policies. Russia responded to those demands by creating a government commission that would deal with piracy syndicates.
It also passed new laws in order to punish wrongdoers. As a result, the country dealt with the problem, albeit partially. These demands on intellectual property prolonged the accession process and thus contributed to such an excessive delay.
Economic obstacles to accession
Some of the economic policies and structures in Russia were simply incompatible with WTO terms. Certain geographical locations in the country were entirely dependent on one industry; a typical case is the automotive industry. Trying to change these patterns not only requires a lot of commitment from the government and a strong resolve to change the status quo (Fean, 2012).
WTO had to negotiate with Russia the amount of time it would take to eliminate uncompetitive components in these industries. Russia wanted a seventeen – year traction, yet the WTO could only allow seven, on condition that the country involved was underdeveloped. Russia went back and forth with this issue thus explaining why it took so long to change.
Russia’s main export item is oil, and this product has no tariffs. Therefore, many influential members of the country did not see the usefulness of WTO membership. They felt that other states, other than Russia, would benefit more from its accession. The development explains why the country kept making progress and reneging on earlier commitments.
Their inconsistencies during negotiation stemmed from their uncertainty about the benefits of WTO membership (Asland, 2010). One of the reasons why the country backtracked was the haphazard performance of its economy. In certain circumstances, global oil prices would go up, and this would enhance the confidence that the Russians had in their economy. At the time, they believed that they did not need the WTO.
It was only until these patterns changed again in 2009 that they realized how useful the trade organization would be to them. The global financial crisis led to decreases in oil prices and the need to establish economic modernization tactics for the country. Protectionism is also another reason why the accession process took longer than it should have.
Key stakeholders and analysts felt that a number of industries in Russia were still at their infancy. Consequently, they needed government intervention to stay profitable. The truth behind these assertions was placed into question after a number of analysts pointed out the excessive length of time that these industries (metal, aluminum and aviation) had claimed to be in their infancy.
Whether or not stakeholders were right in resisting concessions is irrelevant. What matters is that their beliefs in these ideas were sufficient enough to slow their accession process. Some economic policies were seen as incompatible with trade liberalism. These may have made it difficult for both sides of the negotiation to envision Russia’s commitment to the deal.
One such instance was demonstrated when the country imposed limits on gas and oil trade partners. Additionally, Russia was in an aggressive trade war with Belarus and Georgia; therefore, these countries imposed limits on the amount of timber that could enter their country from Russia. Such tactics illustrated that much had to be achieved in terms of meeting WTO’s criteria.
It is likely that Russia may have been wary of these changes. Additionally, it took too much effort to deal with the requirements at the time. Russia was also confident about its numerous sources of wealth. Manufacturing companies span across various sectors of the economy. Consequently, the country did not feel pressured to make radical reforms within its economic sector.
The negotiators may also have been concerned about meeting the needs of the country’s major industrial leaders. Merging all their concerns with WTO requirements was difficult thus explaining why the accession process took so long (Milthorp, 2009).
Benefits of joining the WTO
Russia will be expected to fulfill certain obligations to the WTO. If the country implements them, then it may report an increase in GDP of 3.3% in the near term. In the long term, the country’s gross national product may increase by as much as 11%. Therefore, Russian leaders should think of these long term measures rather than threat the concessions as a price to pay for WTO membership.
These benefits will stem from a series of avenues. First, tariff reduction in a number of export-oriented industries will increase access to international markets. Metallic industries are likely to gain substantially from this membership. Other export-oriented industries like chemicals are also likely to enjoy these concessions. The metallic industries needed these interventions because whenever they would transport their commodities to different countries, they would experience export discrimination.
It is likely that players in this industry will reap the greatest reward for their efforts (Fean, 2012). Besides tariff reduction, WTO membership will liberalize trade by exposing the Russian economy to foreign investment. These benefits are likely to spread into different sectors of the economy at a high rate. Investors often appreciate climates in which trade policies are predictable.
WTO membership will assist Russia to achieve this status, and thus encourage several investors to try out the country as an investment destination. Russia is in urgent need of a modernization program as the economic crises of 1998 and 1990 proved that the systems inherent in Russia needed revamping. If the economic conditions were left unaltered then the country’s ability to survive in future circumstances can be put into questions.
In the past, Russia had to contend with impediments to trade among its trading partners. However, membership will give the country the ability to negotiate and challenge these restrictions. Dispute resolution has always been difficult for the organization because it was on its own. Now Russia can utilize the WTO as a mediator that would secure it more favorable deals.
Membership will contribute towards a stronger multilateral trading system, especially between Russia and its key trading partner – the EU. The region will be confident about doing business with Russia because international trade norms are likely to prevail in the country. The country has a number of opaque industries that need to be shaken up. The WTO will be the tool needed to do so; a case in point is the telecom industry as well as banking.
Monopolistic tendencies and unfair training policies have hampered growth in these sectors for so long. After the WTO, the country will probably benefit from greater transparency and thus more competitiveness. Aside from transparency in these sectors, entry of foreign investors will also increase demand for skilled workers in Russia.
Many households could do with greater expansion of their traditional industries, and WTO membership could be the means with which the country can achieve this. Corruption has a been a difficult thing to tackle for Russia; an external entity may be the solution towards this problem.
The country could also benefit from the prestige that stems from belonging to such an institution. This will also illustrate that the country is capable of joining the OECD. In fact, President Putin affirmed that the OECD would be the ultimate target as it would demonstrate Russia’s status as a rich country. Foreign investors would respect the country simply because of belonging to such an entity.
WTO membership is also likely to affect the country’s foreign relations. While the political will was questionable during the negotiation process, membership status will demonstrate to others partners that Russia is willing to cooperate with them. Since this was a lengthy process, Russia will take pride in the process and will be more confident bout its capacity to negotiate such deals in international relations.
Costs of joining the WTO
Accession into the World Trade Organization will not come without a price. The country will have to contend with certain transitional challenges. For instance, an increase in foreign investment may increase the level of competition with local goods. This would probably be extreme in industries that had traditionally gained from quotas and other form of protectionism.
Typical cases here include the aluminum industry as well as the automobile sector. Additionally, it may trigger unemployment among locals, which could cause mild unrest. Unless the country equips its individuals with the necessary skills needed to enter into new industries or compete with foreigners, then it could encounter many difficulties in the short term.
Russia’s legal systems are weak, yet implementation of WTO obligations highly depends on the strength of its legal institutions. Therefore, the country will have to work on its legal systems in order to ascertain that the rule of law prevails in the country. Russia will not benefit from full WTO membership if it does not correct this challenge.
Trade partners could be very frustrated if Russia does not rise to the occasion because the WTO’s capacity to resolve disputes is limited. Disgruntled partners have to go through a tedious process that does not even guarantee them favorable outcomes. In essence, if Russia does not take its international commitments seriously, then chances are that it will not realize the gains of WTO membership (Fean, 2012).
It should be noted that the President who spearheaded the final agreements prior to accession was President Medvedvev. While the previous President – Putin – was ambivalent about the WTO’s usefulness to Russia, Medvedev was certain about its benefits. He was deeply committed to completing these negotiations.
It was under his leadership that the country entered into bilateral agreements with all the member states (Georgia was exempted). President Putin came back into office in 2011 and he was responsible for the final paperwork. Therefore, one may question Putin’s commitment to implementation of WTO agreements during his tenure in office.
Most of Russia’s economy depends on the raw material exports. The WTO mostly protects the manufacturing sector. There is a danger of expecting too much from this process because raw materials are exempt from these benefits. Some countries have often criticized the Russian government and its political structures. They claim that Russia does not listen to the will of its people and it often undermines their freedoms.
However, many Russian citizens were willing to trade off these freedoms for stability and growth. Therefore, it seems their main priority was economic strength rather than political development. With accession into the WTO, the country may have to make political changes which could create a certain level of instability. This could undermine the social pact in which Russians are operating thus leading to a level of unrest.
After accession Russia needs to demonstrate its commitment to the WTO by making the required changes. Failure to do so could prove that the country is not really interested in pursuing the liberal agenda. This could lead to disillusionment among the international community and Russia as well. It should be noted that failure to comply with the WTO has occurred in the past.
Post accession environments can be sources of turmoil if governments are not aggressive about implementation. A case in point was China just after it had acceded. Many of the stakeholders who intended on partnering with the country felt disillusioned about the country’s membership. This prevented a number of them from engaging with China. To avoid such a scenario, Russia will have to act quickly and in accordance with WTO norms.
Nonetheless, China responded accordingly later on by closing small shops and allowing big firms to prosper; the country has a lot to show for these changes today (Milthorp, 2009). With several alterations in the economic environment, it is likely that Russia will diversify its economy. It will reindustrialize and focus on adding value to its products. Furthermore, this is likely to translate into a stable economy.
Overreliance on oil and gas may explain why Russia’s economy kept fluctuating from time to time. It will be necessary to look for more dependable sources of income for the country. Global oil prices may increase but this may not affect Russia substantially if it will have a diversified economy, the WTO will help the country to achieve this.
Conclusion
The ascension of Russia into the WTO was an illustration of how negotiations can stall when too many variables are involved. In this case, economic challenges like protectionism and tariff benefits, foreign relations challenges like armed conflict between Russia and Georgia as well as political challenges like idealistic leadership and unstable governments contributed to the lengthiness of the negotiation.
Russia probably felt that it had invested too much time and resources to abandon the deal. Its persistence was indicative of the perceived benefits that would emerge from the project. Membership in the WTO is likely to increase competitiveness as well as economic sustainability. Although some critics oppose the number of tradeoffs and sacrifices that Russia will have to make, most of them do not look at the big picture. The country had the option of protecting its uncompetitive industries and undermining economic growth.
Alternatively, it could join the WTO and make some short-term adjustments which can eventually translate into expansion of its economy. This country had the choice between protection in a small economy or exposure in a large territory. The latter is a more sustainable approach for development.
References
Asland, A. (2010). Why doesn’t Russia join the WTO? Washington Quarterly, 51.
Fean, D. (2012). Decoding Russia’s WTO accession. Retrieved from
Milthorp, P. (2009). WTO accessions: The story so far. The Hague Journal of Diplomacy, 4(3), 108-109
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