Russia's WTO Membership – Marking the First 5 Years

22 august 2017

Yaroslav Lissovolik - Programme Director of the Foundation for Development and Support of the Valdai Discussion Club, Chief Economist of the Eurasian Development Bank.

Resume: This August Russia is marking its 5th anniversary of WTO membership. As Russians look back at the experience of the past 5 years for many this anniversary is a reminder of the record-long odyssey to join the Club as well as the disillusionment over the lack of dividends after the entry into the organization.

This August Russia is marking its 5th anniversary of WTO membership. As Russians look back at the experience of the past 5 years for many this anniversary is a reminder of the record-long odyssey to join the Club as well as the disillusionment over the lack of dividends after the entry into the organization. Membership in the WTO was never meant to be a "bed of roses" for Russia - with a little over a week after its official entry into the organization its key trading partners pronounced that it was breaching the norms of the WTO. What happened since then was a growing pile of complaints and cases directed into the Dispute Settlement Body of the WTO against Russia by the WTO counterparts even as the benefits of accession in the form of higher capital inflows and trade confounded expectations. To be sure, there was no "honeymoon period" for Russia in the WTO during the first years of its membership.

Indeed, Russia's experience with the WTO stands in stark contrast with a warmer welcome received by China, which was largely relieved of the brunt of dispute settlement during the first several years of its membership. Most importantly, however, China greatly benefited from WTO accession in terms of significant increases in FDI inflows as well as export growth. The sizeable growth in FDI inflows post-WTO accession took place despite the relatively high base of FDI inflows that had already accumulated in China. The experience of Vietnam is even more impressive in this respect - after WTO accession FDI inflows into Vietnam grew nearly three-fold (from 3 bn US Dollars per annum to 9 bn US Dollars) in a matter of several years. Alas, for Russia this was not to be - and the fall in global economic growth and trade expansion were not the only factors to blame. 

What turned out was that WTO accession hardly charged the grim reality of trade restrictions that plagued Russia for decades. The Jackson-Vanik amendment existed for decades even after the fall of the USSR and the removal of all possible pretexts for maintaining such trade restrictions. But just when it seems that the WTO was instrumental in the US finally opting to deal away with the Jackson-Vanik amendment, new restrictions were introduced. As for inflows of FDI, rather than growing in line with the experiences of Asian economies, they experienced a massive drop that reached its peak in 2014-2015.   

The popular opinion in Russia on the WTO is accordingly far from being exuberant - for many the WTO seems to symbolize false promises of speedy accession (almost on a yearly basis since the 90s) and nearly several decades of  waiting at the door of the organization even as Russia's neighbours and dozens of more ''fortunate economies" passed right through. This is despite the fact that the WTO today is precisely one of the global organizations where each country has a veto power and where the interests and rights of developed and developing economies are more balanced compared to many other international economic organizations. 

This year the frustration over WTO membership escalated to calls by some of the domestic political forces for Russia to leave the WTO on the grounds that it was sustaining economic losses from observing the rules and commitments of the organization. In reality, however, the developments of the past several years overshadowed the significance of liberalization measures coming from Russia due to a massive depreciation in the rouble, which resulted in a precipitous decline in imports across the bulk of the traded categories. Accordingly, the bulk of frustration with respect to the lack of dividends from WTO membership should be directed not at the liberalization of the trade regime, but rather at the inability of the WTO norms to ensure full protection from blatant protectionism. 

But it is not only the accession rules of the WTO or the state of the global economy that are to blame for Russia's WTO misfortunes. To a significant degree Russia is to blame itself for the lack of preparation to what would inevitably be only the start of fiercer competition with WTO counterparts. The experience with the Dispute Settlement Body showed the lack of specialists, most notably lawyers in the international trade sphere. As Vladimir Putin declared before Russia's WTO accession in the Federation Council, "It is important to understand that the WTO is not the absolute evil, nor is it the absolute good. The WTO is an instrument of foreign economic policy". Hence blaming the world or the WTO counterparts for WTO misfortunes will be a miss - the lesson to be learned is that the WTO needs to become a more effective instrument of Russia's economic diplomacy, with a long-term strategic understanding of how membership in the WTO could serve Russia's national interests. 

Looking ahead Russia's agenda for moving forward with perfecting its WTO instrument is to forge alliances within the WTO, including with members of the Eurasian Economic Union as well as with the BRICS countries. Indeed, after Russia's WTO accession all BRICS members are now in the WTO and can create partnerships within the organization to defend national interests, advance sustainable development issues and counter the specter of rising global protectionism. A more active economic diplomacy that combines regional and bilateral alliances with activism within the WTO can still allow Russia in the coming years to balance the perceived loses with real and tangible dividends.

The Valdai Discussion Club

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