Medvedev holds key to WTO
By Kaveh L Afrasiabi and Natalia Gold
In the wake of this week's Moscow visit by US secretaries of state and defense,
Condoleezza Rice and Robert Gates, and their showering of praise on Russia's
president-elect Dmitry Medvedev as someone that the US "can do business with",
eyes are now on Medvedev to see if the former protege of President Vladimir
Putin will stamp his own mark, for example by accelerating the tempo of change
in Russia, or whether it will be business as usual.
The younger and more technocratic Medvedev may be more ready than his
predecessor to steer the Russian economy towards
market liberalization and globalization, witness his decision to make a top
priority of Russia's entry to the World Trade Organization (WTO).
Russia's bid to join the WTO has moved forward slowly since 1993, yet
expectations are rather high that all the required bilateral and multilateral
agreements, as well as technical, legal and organizational issues, can be
wrapped up within the next few months.
In that event, Medvedev can then take credit for accomplishing something that
eluded Putin, even though the latter paved the way for Russia's WTO accession
by adopting many of the necessary economic and legal reforms. The country has
agreed to substantial tariff cuts, such as an average of 8% on manufactured
goods, and to permit complete foreign ownership of banks and investment
companies on accession to the world body.
However, just as Moscow has previously had to alter its forecast for WTO
membership several times, the Kremlin's new boss may discover that unless the
country adopts more economic changes and policy changes, accession to the WTO
may need to be postponed yet again.
Complicating matters are geopolitical complexities involving Russia's relations
with the United States, which often acts as WTO gatekeeper.
Come this spring, a new round of US-Russia talks will be held in Washington,
DC, covering Russia's WTO issues. If the discussions are successful, they will
likely facilitate the process of accession under the aegis of a WTO working
group, again depending in part on Medvedev's willingness and/or ability to
tackle the remaining few issues, such as Russian agricultural policy.
Trading partners have questioned Russian government's US$9 billion a year in
agricultural support, which is higher than is allowed by WTO norms. Medvedev's
intervention will be required to cut the size of the subsidy and remove what is
undeniably the single most prominent obstacle to Russia's WTO membership.
Medvedev has shown some flexibility here, by hinting at his readiness for a
compromise.
Maxim Medvedkov, the head of Russian delegation on WTO accession, stated in a
recent interview with the Russian news agency, Interfax, that the most serious
unresolved issue in the multilateral talks is agricultural subsidies, adding,
"We need to justify our demand that the level of agricultural subsidies
permitted to Russia be set at a level considerably higher than the current one.
Our colleagues in the Agriculture Ministry are tabulating all of our current
and planned subsidy programs, and we feel that when we show our partners these
calculations, they will understand our position." That was in December, 2007,
and several months later, there is no indication the other side will be
convinced by Russia's calculations.
Russia is a lucrative market for US agricultural and industrial goods and
nearly all sectors of the US economy, including high-technology,
telecommunications, construction, civil aviation and finance, are expected to
gain from Russia's WTO entry, which is bound to simplify the bureaucratic
process of granting import and export licenses.
Russia has agreed to improve market access for US companies in a broad range of
sectors, and to enact legislative changes that would back up promises to fight
Internet and optical disk piracy and strengthen border enforcement.
With several government ministries directly or indirectly involved in preparing
the nation for a major economic adjustment introduced by the process of WTO
accession, not to mention the prominent role of local and regional governments,
and the Russian government envisioning a multivarious transition period with
respect to the issue of reduction or elimination of tariffs, particularly for
the most sensitive economic sectors, it is hard to imagine that Medvedev can
somehow manage to achieve a well-balanced result with respect to all the
WTO-related issues within a short period of time.
The fact is Russia has yet fully to calculate the net impact of WTO accession,
in the short and long term. It is clear that some economic sectors will benefit
more than others and, what is more, some sectors may hurt more than gain in the
short run, depending on the scope of regulatory reforms, levels of investment,
and the implementation of WTO standards. For example, upgrading often archaic
Russian customs rules and fees in compliance with those standards promises to
be rather difficult and time-consuming.
As it stands, Russia's WTO outlook envisions a number of protective measures,
such as maintaining a high tariff on alcohol and civil aircraft and parts, that
are aimed at protecting local industries, while hoping to benefit consumers by
agreeing to lower many other tariffs, such as on drugs, manufactured goods,
food and live animals. Russia has also committed itself to fully implement the
TRIPS agreement's provisions on intellectual property, and to ensure that there
is no inconsistency with respect to its civil codes and the key international
intellectual property rights.
Enormous benefits
Without doubt, the European Union, Russia's main trading partner, which is
currently engaged in a dialogue with Russia over a "common economic space",
would benefit enormously from the WTO-based attempts to harmonize Russia's
semi-market economy with international standards, just as Russia is keen on
more tangible results from the on-going energy dialogue with the EU, given the
fact that EU's imports from Russia are mainly energy (67%).
Although WTO negotiations do not cover the energy field, the mere issue of
state subsidy of the agricultural sector's energy needs alone points at the
need to link those negotiations with price regulatory mechanisms on the
domestic market, impacting the large state-owned enterprises who often enjoy
monopolistic rights.
Since WTO accession fosters greater economic transparency, it is hardly
surprising that some of the biggest irritants to this issue have come from the
state enterprises.
Medvedev's hand may soon show in this area, by accelerating the privatization
of various state sectors, such as telecommunications, by liberalizing the
structure of private investments in those sectors. Indeed, Medvedev's top
priority is to improve the country's investment climate, given the positive
recent improvements in foreign direct investment, by promoting trade, providing
better protection of property rights, infrastructure development, and improving
the financial services.
These are all factored into the various bilateral market access agreements
previously signed with other countries such as the US, or with the EU, some of
which expire in 2009 and need to be renegotiated. It is all the more important
for Medvedev to send early signals about his government's readiness to renew
them, for example the 2003 meat Agreement, deemed important by the US since
Russia is US's largest export market for poultry.
At the moment, all the vital signs in terms of expanding bilateral trade
relations between the US and Russia, as well as Russia and the EU, are positive
and, as a result it is fairly safe to assume that barring unforeseen
circumstances pertaining to non-economic, security and strategic
considerations, the US and the EU are now poised to grant Russia its
long-sought WTO status, which was deprived of Putin as one of his legacies.
Again, this depends to some extent on a hands-on approach by Medvedev to
resolve the few outstanding issues mentioned above, above all the agricultural
issue, and the sooner the better. Then the outside world will likely believe
that real change has transpired by the passing of the torch into Medvedev's
hands.
The internal debates on the pros and cons of WTO membership for Russia have had
salutary effects in terms of generating "the first experience of democratic
discussion and consultations on a very important issue of national economic
policy", to paraphrase Alexey Portanskiy, head of the information office on
Russia's accession to the WTO in Geneva.
Kaveh L Afrasiabi teaches international relations at Bentley College,
Massachusetts; Natalia Gold teaches business at Bentley College.
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