Short-term and long-term effects of Russia’s WTO accession
The short-term, immediate impact of Russia’s accession to the WTO is relatively minor. It is just like minor concessions made at the final stage of the negotiations, compared to the concessions made steadily over the course of the entire 12 years. The sectors to suffer most will be pig farming (duties on the import of live pigs have fallen by 87.5%), dairy and cheese production, as well as the manufacture of trucks and buses. Seafood will become more expensive for consumers. The key to understanding the short-term impact of WTO accession is the stance taken by the state banks, which farmers say discontinued livestock loans immediately after WTO accession, and also AvtoVAZ, which has begun importing automotive sheet metal. As a result, according to official data, direct losses to the federal budget alone will total nearly half a trillion rubles within two years.
However, it is the long-term consequences that are really important. These are better understood when bearing in mind that in a few years’ time, the Russian economy’s tariff protection will be lower than China’s, while Russia will be immeasurably less competitive.
The reason for these effects is simple – the purpose of the WTO is to maximize free competition in international trade. Objectively, it entails the suppression of the weak participants in the global competition up to and including their annihilation. Russia, with its population crisis and poor management, is weak. The desire to remove for good all protective barriers, combined with the categorical rejection of the country's leadership to modernize, is like turning the Russian economy into a three-year-old child getting into the ring with Mike Tyson.
The economic meaning of WTO accession is a breakthrough for international markets of high-tech products (its markets are the most tightly regulated) for civilian use (the WTO does not regulate the arms trade). Thanks to the 20 years of national treason (i.e. the liberal reforms) this is simply not relevant to today's Russia. The loss from all restrictions of Russian exports, even by propaganda-inflated estimates, is significantly less than 5% of the volume of exports, and most of these restrictions will still be in force in the WTO. And the major sanction against Russia – the limiting of steel supplies to the United States – was applied to 20 countries, of which only Russia remained outside the WTO.
Protection of intellectual property while Russian patent law is stuck in the Stone Age, will only enhance the protection of foreign intellectual property in Russia, i.e., increase the cost of products by global monopolies like Microsoft, which already impose monopolistically high prices.
Therefore, as noted by Managing Director of IMF Christine Lagarde in November 2011, WTO accession makes no economic sense for Russia.
In 2000, liberal fundamentalists, in a rush to join the WTO primarily because of their insignificance, desperately needed to demonstrate at least some success. After German Gref’s stated “strategy” of a grain of wheat in a bushel of chaff, they had to show that they were able to do something at least. Standard liberal policies at the time spelled immediate social disaster. The idea of shoehorning Russia into the WTO was a happy discovery for them –knowing little about the WTO, they thought that the demonstration of their loyalty to the West with Russia's accession to this organization would not cause irreparable damage to the country and, therefore, social destabilization.
Accession to the WTO guarantees that Russia will not defend its market and its producers, and this is important for major foreign exporters, especially for global corporations. That is why they strongly supported the liberal fundamentalists.
Many Russian businessmen supported them as well – often unknowingly, partly to become “friends” of the West and gain some hope of political protection from the power of the Russian oligarchy. Importers have supported WTO accession consciously – the less manufacturing there is in Russia, the more opportunities are open to them.
Liberal fundamentalists have consistently ignored Russia's interests from the outset. Maxim Medvedkov, a key Russian WTO negotiator before his appointment to the post of Deputy Minister of Economic Development and Trade, was the leader of a non-government organization, which, by all appearances, lobbied for Russia's accession to the WTO!
Liberal fundamentalists openly stressed that WTO accession would create a new lever of influence to transform the state. The state both should and can improve its efficiency without external pressure, which could lead to a socioeconomic policy that is not in the interests of Russia, but is in the interests of its competitors (like in the 1990s).
Accession to the WTO requires the country to conduct thorough preparations, which were not carried out for 12 years, despite the almost hysterical liberal propaganda. The main thing is a failure in training experts. After all, the WTO has a sophisticated set of rules for the regulation of international trade disputes. An army of highly-qualified lawyers and experts is needed to protect its members’ interests. And even national business needs to be organized in a certain way. None of this was done at the state level in Russia. A shameless propaganda campaign used up all the time and energy, taking the wind out of the sails of other efforts.
The liberal fundamentalists’ lack of any ideas about industrial priorities also became an obstacle to WTO accession. The very term “industrial policy” has long been considered a dirty word. But meaningful negotiations with WTO members are not possible without priorities, since it is impossible to know which industries should be protected and which can be sacrificed.
However, many weak but necessary industries cannot lobby for themselves, so opportunities cannot even be used within the WTO rules. Harmonization of customs rates also undermines the state's ability to develop certain areas and thereby pursue a sensible policy.
Many of the steps aimed at meeting the developed countries halfway virtually exclude the existence of the Russian economy. For example, the already meager support for agriculture will have to be significantly reduced over the coming years. Experts say that four industries alone – machine building, agriculture, consumer goods and food – will lose 2.2 million jobs by 2020.
But the most important factor in the WTO is the regulation of trade disputes. Lower energy costs than in developed countries can, in principle, be considered as subsidies for domestic producers, after which they will have to pay fines not only on foreign, but also on domestic markets. As a result, Russian fertilizers will be priced out of the competition not only abroad but also in Russia – and although foreign fertilizers are cheaper, they will not be affordable for Russian farmers.
The global crisis and the sinking of the world economy into a depression objectively require protecting national economies and all major developed countries except Russia are reinforcing this protection. Having joined the WTO for promotional purposes, without the proper preparations, including the training of lawyers, Russia will not be able to defend its market by civilized means. This will lead to either the destruction of the economy and thereafter the statehood (such as in Kyrgyzstan) or its protection using uncivilized measures – devaluations (which Russians have recently been experiencing every year) and corruption. But this makes the medicine worse than the disease.
Mikhail Delyagin is Director of the Moscow-based Institute of Globalization Studies, member of the Valdai Discussion Club.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.