Russia’s Accession to the World Trade Organization: a Win-Win Situation

May 2012 | Statistics

On March 29th, World Bank experts presented a report examining the status of the Russian economy throughout 2011 in Moscow. The report presented several perspectives of economic development, and after noting the impressive achievements of the Russian economy, the World Bank predicted some of the visible benefits that Russian will gain from its impending accession to the World Trade Organization (WTO). In preparation for the upcoming event, the Analytical Informational Service at the World Organization for Development (WOD) conducted a study to further investigate the economic state of other countries in the WTO to determine who would benefit more from Russia’s new status: Russia or the World Trade Organization?

The Situation with the Global Economy, Production, and Trade
The decision to accept Russia into the ranks of the WTO was made in difficult times – the recent financial crisis affected both global GDP output and import/export rates around the world. Even now, the world economy remains in a precarious situation, and leading international organizations are gradually reducing their previous forecasts for GDP growth in 2012. And in the midst of all this, Russia’s accession to the WTO, as one of the largest economies in the world, could become a sign of hope for both countries who are already members of the organization, and for the entire global economy.

As shown in Figure 1, the global economy recently experienced the most serious economic crisis it has seen in the past 40 years. In 2008, global GDP grew by only 1.3%, the lowest rate of growth the world has seen since 1993. And in 2009, GDP declined at a rate of 2.6%. These rates stabilized only in the following year, when the world GDP increased by 3.7%.

The growth in industrial production output reached almost zero in 2008, while agricultural products and mining product industries saw an increase in production. In 2009, however, agriculture showed only a slight increase (0.6%), the output of the mining industry decreased by 1.3%, and industrial production sank by 3.8%. Total world production recovered and increased by 4% in 2010.

In certain situations, changes in export volumes can serve as a general indicator for the economy. 2009 showed the biggest decline in exports since 1970, by a rate of 12.1%. The largest decline was seen in the exports of industrial products (15.2%), followed by the exports of fuels and mining products (5.3%), and exports in the agricultural sector (2.3%).

It’s also important to consider the dynamics of the world’s commercial services (the WTO began collecting these statistics only recently).

Figure 4 shows that throughout the world, exports of commercial services in the world are growing very rapidly. In 2007, the volume of exports increased by 20%, and by 13% in 2008. Evidence of the crisis is seen in the statistics from 2009, when the rate fell by 12%. By 2010, the situation had improved, but growth rates are still at a low 9%.

In the CIS countries, and particularly in Russia, this indicator is growing faster than the global average, but a more abrupt fall in exports can also be seen in 2009. The next year, 2010, was more positive for the CIS countries as a whole, rather than just Russia alone.

Consumers Receive the Main Benefit
The Russian Federation, upon its accession to the World Trade Organization, is committed to liberalizing its trade regime and improving its integration into the global economy. In the discussions concerning Russia’s new position, 30 contracts allowing access to the Russian services market and 57 contracts making the commodity market available were signed. After its accession, Russia will implement new measures required by the organization, taking into account the transit periods for some products and services. Russia is also committed to reducing the average tariffs on all sorts of products from 10% to 7.8% in 2012.

The economic effects of Russia’s accession to the WTO will only be visible a few years after the process is complete, as a number of Russian industries have varying periods of transition. Pascal Lamy, the Secretary General of the WTO, expressed confidence in the fact that Russia’s accession to the organization “will bring benefits to both the organization itself and to Russia. Of course, trading partners will receive more opportunities and benefit from having access to the Russian market, but Russia will also have clear advantages.” He also stressed that “Russia will begin playing a big role in the WTO because of its size and power.”

After its accession to the World Trade Organization, Russia will have many more opportunities to attract foreign investors, which will help the economy grow. And foreign investors, knowing that Russian exports are guaranteed the same level of access to the global market as other member countries in the WTO, will regard Russia as a more attractive place to invest their money.

The benefits that the World Trade Organization will receive after the accession of the Russian Federation are also interesting to note. In November of 2011, U.S. president Barack Obama, when congratulating the Russian government on the completion of the negotiations from the terms of Russia’s accession to the WTO, said, “Russia’s membership in the WTO will lower tariffs, improve international access to Russia’s service markets, hold the Russian government accountable to a system of rules governing trade behavior, and provide the means to enforce those rules.

“Russia is also opening its service markets in certain sectors that are priorities to American companies, including audio-visual, telecommunications, financial services, and computer and retail services,” said the United States President.

However, consumers are the ones who will be getting the main benefits from Russia’s accession to the WTO – as a result of Russia’s new status, product range will expand and prices will become more reasonable, because of growing imports and increased competition. And many Russian producers will be forced to lower their prices to remain competitive, which bodes well for everyday shoppers.

Text: World Economic Journal