DISPUTES AMONG THE RUSSIAN MEMBERSHIP IN WTO

Мельникова Е.А.

Студентка магистратуры,

Финансовый Университет при Правительстве РФ

СПОРЫ ОТНОСИТЕЛЬНО УЧАСТИЯ РОССИИ В ВТО

Аннотация

Рассмотрим роль и значение Всемирной торговой организации в современной экономике. В статье рассмотрены преимущества и недостатки вступления России в ВТО, что помогает найти ответ, насколько это хорошо или плохо для нашей страны. Статья содержит выдержки из теории совместно с обзором реальной жизни. Анализ текущей ситуации может быть весьма полезен на практике.

Ключевые слова: глобализация, международная торговля, снижение тарифов, импорт.

Melnikova E.A.

Master,

Financial University under the Government of the Russian Federation

DISPUTES AMONG THE RUSSIAN MEMBERSHIP IN WTO

Abstract

We consider the role and significance of the World Trade Organization in the modern economy. The article provides overview of advantages and disadvantages of the accession of Russia to WTO and helps to find the answer, whether it is good or bad for our country. The article contains extracts from theory along with overview of the real life. Analysis of the current situation can be useful in practice.

Keywords: globalization, international trade, World Trade Organization, tariff reduction, import.

In this increasingly globalized scenario, companies need to be globally competitive in order to survive. Knowledge and understanding of different countries’ economies and their market is a must for establishing oneself as a global player. Now the business has gone beyond the boundaries of a nation and has turned into the international business. It’s quite necessary to understand the meaning of international trade and the international organization popularly known as World Trade Organization (WTO) and its contribution towards the international business and smooth trading between countries.

International trade is defined as a contract where two parties enters into the transaction of buying and selling of goods and services irrespective of national boundaries. This involves the import and export trade where one country either sells goods or service to other country or buys goods and service from other country. Since no nation can produce all its needs by itself alone, international trade has become not only a means by which nations source those goods and services they lack or do not have in sufficient quantities but also a subject of international politics either for achieving, promoting or maintaining peace between international trading partners or countries. As a result of external developments in countries with which countries inter-depends or depends on for the essential products and sometimes wars are also fought to preserve the national security.

The WTO is an international body, which not only takes care of the international trades but also actively participates on business improvisation. It always put required effort to keep the peaceful trans-boundary trades and to solve the disputes if arises among the member countries. We cannot think of international trade happening in absence of WTO and all the members are following the protocols set by WTO. Although there are various views on role of WTO but as far as my view is concerned, WTO plays an important positive role for the international trades and it is always beneficial for the countries to trade trans-boundary being the member of the WTO

The accession of Russia to WTO

On December 16th, 2011, an 18 year-long negotiation process regarding Russia’s WTO membership was finally brought to an end. The WTO adopted Russia’s terms and conditions of entry and Pascal Lamy, General Director of the World Trade Organization, and Elvira Nabiullina, the Russian Minister of Economic Development, officially signed the protocol of accession at the Eighth Ministerial Conference in Geneva.

Accordingly, since requesting accession to the GATT and afterwards to the WTO, the Russian Federation had undertaken an unprecedented process of reform of its economy, progressively adopting laws and regulations consistent with WTO multilateral rules and disciplines. This process was primarily aimed at establishing the conditions for a dynamic market economy in the Russian Federation based on a stable and predictable legislative framework capable of sustaining long term economic growth and ensuring improvements in the standards of living and welfare of the Russian population as well as in the modernization of the production capacity of the Russian Federation, and its international competitiveness. The Government of the Russian Federation had set a clear list of programs, policies and priorities that had, as their central goal, rendering the Russian Federation a better, more competitive and rewarding place in which to work and do business. It was clear that the growing interdependence of national economies, global integration of markets and linkage between trade flows and investment, required the Russian Federation to adjust its trade, financial and investment legislation to WTO rules and disciplines [1].

Undoubtedly, Russia’s WTO accession is an important event both for the global trade system and for the country. On the one hand, the entrance of one of the world’s largest economies into the global trading club should strengthen multilateral trading system and breathe new life into the WTO, which has been in crisis mode since the failure to reach an agreement during the latest round of Doha trade talks.

No country’s accession to the WTO has drawn as much interest and attention since China’s entry in December 2001. With Russia now in the club, the WTO controls over 97 per cent of global trade. It is also worth mentioning that the manufacturing, agriculture, and services producers from the US and the EU, as well as some other major economies, viewed Russia’s WTO accession as a chance to boost trade relationships and open new trade opportunities.

Advantages of the accession

However, by joining the WTO, Russia has committed to bring its trade laws and practices into compliance with the system of established, enforceable, multilateral trade rules that should provide greater certainty and stability to its trading partners. On the other hand, membership in the WTO should be beneficial for Russia as it should give the country an opportunity to become an active player of this international organization and to shape the rules of world trade, taking into consideration its own long-term economic interests. Integration into the global, rule – based system of trade relations should positively impact on Russia’s export through lower tariffs in affiliate countries, on the anti-dumping, safeguarding, and countervailing duty actions reduction, and on the expansion of the possibility of acting in Russia’s interests.

While outside the WTO, Russia was highly vulnerable to arbitrary restrictive measures against its exporters and producers. Once Russia enters WTO, affiliate countries became much more careful about imposing anti-dumping and countervailing procedures as after accession Russia has obtained the right to challenge its WTO trade partners via the WTO Dispute Settlement Mechanism.

WTO membership provided Russia with an ambitious plan to innovate and modernize the economy, since, first, imported inputs, particularly equipment, became cheaper as a result of tariff reductions after accession, and, second, the WTO “seal of approval” made Russia more attractive for foreign direct investments (FDI). FDI helps increase technology transfer, contributes to export expansion and makes countries more competitive. In addition, domestic economic reforms spurred by the process of WTO accession created a more conducive climate for Russia’s growth and development.

It was expected that WTO membership would give Russia an impetus to deepen cooperation with the European Union, whose share in Russia’s overall trade constitutes 45.8%, through an increase in mutual investment flows [2] and strengthened ties in the science, technology and innovation spheres. Russia joined the WTO under highly favorable terms that fully take into account the country’s conditions [3].

However, even now, once the WTO has already welcomed Russia as a member, the debates continue about the benefits and challenges of this accession. According to quantitative assessments, Russia’s entry into the WTO should bring many benefits, among which [4]:

• the better conditions for access of Russian products to foreign markets;
• the access to the authorities for resolving trade disputes;
• the improvement of the investment climate for foreigners as a result of bringing the legal system into compliance with WTO rules;
• the great opportunities for domestic investors in the Member States of the WTO (in banking);
• creation the conditions for improving the quality of Russian goods and services, due to the flow of foreign trade and investment in Russia;
• the diversification of the economy that would allow Russia not to depend so much on oil prices [5];
• improve import of hi-tech goods.

WTO accession had a varied impact on different sectors of Russia’s economy. The following branches of economy gained:

1) export-oriented and discriminated – iron and steel industry (3.63% of the base year), non-ferrous metals industry (14.45%), chemical and petrochemical industry (2.05%), defense, coal industry;

 2) services (service price cutting, expansion of services, quality improvement, more orientation to the customer’s demand, improvements of legal gaps).

Disadvantages of the accession

However, some of the sectors that were most protected prior to the tariff reduction and which have a relatively small share of exports loose out, e.g. production of machinery, equipment and construction materials, as well as the food and light industries. The one major respect in which accession hampered the Russian export effort was in driving up production costs on account of the need to meet higher international standards, particularly sanitary and phytosanitary (SPS) standards. It affected production for the domestic market at least as much as exports.

The critical areas of economy still remain: non-competitive import substituting industries: machine building (agricultural, automotive and equipment developing industry) (-2.77%), food and light industry (-4.35%, a percentage of the base year level), woodworking, pulp and paper production manufacturing of wood products (-6.74%), aviation industry, electronics, pharmaceuticals (0.5% -2%). 2) agriculture (the most vulnerable products: meat, meat products, dairy products with a long shelf life, rice, sugar, vegetables), which was previously the most protected tariff customs regulations. Russia lost $5.7 billion in 2013 and $7.8 billion in 2014 in tariff revenue because of WTO accession.

General negative effect amounts 468 billion rubles including on significant industry – up to 136 billion rubles:

• meat and meat products – about 50%;
• manufacturing of vegetable and animal fats – up to 134%;
• manufacturing of dairy products – up to 18%;
• production of beer – 25%;
• beverage industry – up to 94%;
• pharmaceutical products – 67%.

Nevertheless, the positive aspects of Russia’s WTO accession definitely outweigh the negative and the country has time to devise strategies to overcome challenges and has the capacity to support key sectors that are likely to be negatively affected.

References

1. Data from Report of the working party on the accession of the Russian Federation to the WTO - 11 November 2011
2. Jesper Jensen, Thomas Rutherford and David Tarr. Economy // Wide and Sector Effects of Russian WTO Accession - World Bank, 2014
3. Thomas Rutherford and David Tarr. Regional Impacts of Russia’s Accession to the WTO // World Bank Policy and Research Working Paper Number 4015 - World Bank, 2013
4. The EU is by far the most important investor in Russia with a share of more than 75% of its total investment stock // http://www.deljpn.ec.europa.eu/modules/media/news/2014
5. Data from website “Free Media In Unfree Societies” // http://www.rferl.org/content/russia_set_to_join_wto