Main subjects of discussion
After we have found the data about our topic, we will choose the relevant information, also we will discuss the different academic articles, we will analyze all this information and after this we will make our own conclusions and recommendations about this topic according to the information mentioned above. As we have already mentioned above, the main purpose of our project is to discuss positive and negative consequences for Russia that might result from entering the WTO, also we will discuss the aspects which impedes Russia to enter the WTO and the necessary changes it need to make, in order to get the membership of this organization. In addition we will discuss existing political attitude about the entrance in the World Trade Organization and we will try to define the ways how the Russian government should act in order to attain their goal of becoming the member of the WTO.
Chapter 3: Theoretical Framework
Theories based on CRS research
The Russian accession process is moving forward, but differences over some critical issues remain, making the time for Russian accession to the WTO uncertain. After we have found the needed information, then we chose the most reliable theories, on which our project discussion will be based. One of these sources is the research made by Congressional Research Service (CRS). The European Union and the United States have raised concerns about Russian energy pricing policies which allow natural gas, oil, and electricity to be sold domestically far below world prices providing, they argue, a subsidy to domestic producers of fertilizers, steel, and other energy-intensive goods. Russia counters that the subsidies are not illegal under the WTO. Concerns regarding Russian trade barriers in the services sector, high tariffs for civil aircraft and autos, and intellectual property rights have slowed down the process and made the original target of completion in unattainable. The most important theories which were discussed in this research is that the main impulse that can speed up the entrance of Russia in the WTO, is the necessary changes in economic structure of this country. Russian has to change its domestic economic and alter its approach to international trade policies, also energy pricing, intellectual property rights protection and political changes are significant factors for success of this achieving this goal.
Russian government’s approach about WTO entrance
The accession to the WTO is critical for Russia and the political leaders of the country are trying to make all necessary changes in political and economical structure in order to receive the desired entrance in this organization. The president of Russia – Vladimir Putin made this issue top priority of Russia. He views this entrance in WTO as important step in integrating Russian economy with the rest of the world and in fostering economic growth and development by attracting new foreign investments and reducing the existing trade barriers. The government and the president of Russia think that, all these changes can increase the stability and strengthen the economy of country.
Russian government has made some significant changes in their political and economical attitudes toward other countries and that has induced the increase in exports and imports. We can see on the chart, that in 2007 the amount of import and export both are high. According to this information, we can say, that Russia has good trade relationships with countries, which are shown on chart. This is good tendency, which can help Russia to access WTO and after accession to the WTO this trade relations will be much better.
Theories based on USTR researches
As in the report of the Office of the United States Trade Representative (USTR) is written, one of the main factors that hinder the entrance of the Russia in the WTO is that Intellectual Property Rights are not protected well, because laws about the IPR are only written on the paper, but they are not really controlled in today’s Russia. WTO demands to reserve all of the following policies:
- Fighting optical disc piracy;
- Fighting internet piracy;
- Protecting pharmaceutical test data;
- Deterring piracy and counterfeiting through criminal penalties;
- Strengthening border enforcement against piracy and counterfeiting;
- Bringing Russia’s laws into compliance with the WTO agreement on trade-related aspects of intellectual property rights (trips agreement) and other international IPR standards;
- Continuing training and bilateral cooperation on IPR protection.
In Russia all of above mentioned policies are not reserved and this is one of the major factors that impede Russia to enter WTO according to USTR researches. The government of Russia is due to fallow all of above mentioned laws, they should protect intellectual property, it is very important for receiving the invitation letter from WTO.
Chapter 4: Empirical Findings
Barriers for Russia Impeding Its Entrance to the WTO
There are several barriers for Russia that can impede its entrance to the WTO. Some of them were discussed above, but there are other significant barriers too. One of these barriers is that Russia is somewhat protectionist. It has not fully liberalized trade and in many occasions Russian government intervene in businesses, usually in favor of Russian companies against foreign ones. The second problem is that Russia manipulates with its gas and oil supply and prices according to political reasons. It has very sough relationship with Georgia who is already the member of the WTO and can and threatens Russia to block its WTO entry until trade agreement about customs regulations not reached and until Moscow lifts its economic sanctions against Tbilisi. “The Foreign Ministry and the Ministry for Economic Development said the Georgian government was interested in Russia's entry to WTO, but added that if the agreement is not reached, the process of Russia's accession to WTO will be suspended.” Georgia demands that Russia stop illegal trading with its two breakaway regions of Abkhazia and South Ossetia and that all goods pass through checkpoints run by the central government. The statement comes days after Russia secured a much-sought bilateral agreement with the United States, removing the last major obstacle in Moscow's 13-year journey to join the world's biggest trading club. To become a WTO member, Russia must secure similar agreements with all its major trading partners in the body. Georgia, which has already concluded such a deal with Russia, has suggested that it would re-negotiate terms or recall the agreement because of what it calls illegal trade and because of a Russian ban on Georgian wine and mineral water. Moscow banned the goods citing quality concerns. Tbilisi claims the ban is punishment for its pro-Western course. These problems should be solved by Russia in order to get access to the WTO. One of the main barriers is the high level of crime and corruption in Russia. Russia has traditionally been beset with banditry, corruption and near-uncontrolled secret police forces, and is now suffering an explosion of organized crime.
As the survey of Economist Intelligence Unit revealed the major constraints for the firms operating in Russia and potential investors are risks which are shown on the chart above.
Researches of Thomas Rutherford and David Tarr
In the introduction we have mentioned what would be gains for Russia if it will enter the WTO. We have found the most reliable information about this topic in the researches of Thomas Rutherford and David Tarr. According to their researches, if the Russia will enter the WTO, the average gain in welfare as a percent of consumption for the whole country will be 7.8 percent. They estimated that three regions will gain considerably more: Northwest (11.2 percent), St. Petersburg (10.6 percent) and Far East (9.7 percent). On the other hand, they estimated that the Urals will gain only 6.2% of consumption, considerably less than the national average. In recent years the growth of capital investment in Russia has fluctuated. As we can see on the chart, in 2002 the growth rate was considerably low, but form 2005 it still started to grow.
According to Researches of Thomas Rutherford and David Tarr, the benefit that the Russia will get from the entrance in WTO, is that the foreign direct investment in Russia will rapidly grow in the following sectors.
List of sectors:
1. Sectors where foreign direct investment from new multinational services providers is possible
Railway transportation
Truck transportation
Pipelines transportation
Air transportation
Other transportation
Telecommunications
Science & science servicing
Financial services
2. Sectors where new foreign firms may
Ferrous metallurgy
Non-ferrous metallurgy
Chemical & oil-chemical industry
Mechanical engineering & metal-working
Timber & woodworking & pulp & paper industry
Construction materials industry
Food industry
Other industries
3. Competitive sectors subject to constant returns to scale
Public services, culture and arts
Agriculture & forestry
Coalmining
Housing and communal services
Construction
Electric industry
Gas
Crude oil extraction
Oil refining and processing
Other goods-producing sectors
Wholesale and retail trade
Textiles and apparel
According to the data collected by us, we came to the conclusion that most scientists and economists agree that it is very important for Russia to enter the World Trade Organization. They will have to go on some compromises, change their economical and political attitudes toward other countries, but the gains which they can receive by this entrance worth more than all these compromises they may have to make.
Russian FDI and trade tariff liberalization
According to Thomas Rutherford and David Tarr tariff reduction in Russia will lead to improved domestic resource allocation since tariff reduction induces the country to shift production to sectors where production is valued more highly based on world market prices. This impact, known as the “gains from trade” is a fundamental effect from trade liberalization and is often stressed by international trade economists in the literature. Also we observe that the reduction in barriers on trade will result in an improvement of Russia’s welfare. . Thus, the estimated gains from tariff and FDI liberalization are almost three-quarters of the total gains from Russian WTO accession. Liberalization of international tariffs is very important for Russia in order to get the access to the membership of the World trade organization. In the past few years Russian government has made some changes and has liberalized its trade and FDI tariff.
Chapter 5: Analysis
According to the information that we have collected from different sources and academic articles about Russia and WTO, we found out some important issues. It is very important for Russia to enter the World Trade Organization, by this entrance Russia can gain economical advantages over other nations. This entrance will increase the welfare of the country; will deepen its relations with its existing and potential trade partners. But WTO has its strict criteria for countries to evaluate their potential and readiness to enter the WTO. Russia meets some of these criteria but there are also lots of criteria that Russia can not satisfy. The most important of them are Russia’s economic and political attitudes toward other nations. Russia doesn’t have close relations with other economic units, which could have brought lots of benefits to it. Also Russia has incorrect political attitudes. In recent years as President Putin has made his priority to become the member of the WTO, he and other politicians have made many political and economical changes in order to get the invitation letter from their desirable organization. One of the criteria of the WTO is the protection of IPR and Putin is trying to solve this problem to make intellectual property rights more secured. The most important IPR issues which should be protected are: deterring piracy and counterfeiting through criminal penalties; intellectual property rights (trips agreement) and other international IPR standards; continuing training and bilateral cooperation on IPR protection; bringing Russia’s laws into compliance with the WTO agreement on trade-related aspects of strengthening border enforcement against piracy and counterfeiting. Beside that the government of the country has made important efforts to decrease level of crime and corruption in the country. As the Russia has removed trade barriers Moldova it also should behave in such way with other countries. The best example for this is Georgian-Russian relations, as we mentioned above, Russia has imposed trade restrictions on Georgian products, such as mineral water and wine, this relationship is also tensioned by political conditions, because Russia support illegal governments of Abkhazia and South Ossetia, Russia don’t have to act in this way and should improve it’s political attitudes toward Georgia.
Chapter 6: Conclusion
After researches we came up to some conclusions. We have found out that Russia’s entrance to the WTO will be very favorable for Russia, but this can’t be attained without some compromises from Russian side. Russia should change its political and economical attitudes with the other countries, they should make their trade more liberalized and the tariffs should be acceptable for other countries. Russia should pay more attention to Intellectual Property Rights; it should even make necessary changes in its constitution, if it is important for IPR protection. Russia should focus on the reduction of the level of crime and corruption in the country by issuing some sanctions for those who break law and first of all corruption should be reduced among politicians and oligarchs, who are using their power for their own benefits and by this damaging the reputation and strength of the country. Russia should make its market more open for the foreign investments and ensure foreign investors that they can do their business in Russia without the fear of loosing their wealth. But these compromises are nonsense compared to what they will attain by the entrants to the WTO, the economics and the wealth of the whole country will increase, trade barriers will be removed, Russia will become more secured country for foreign investors and the foreign investments will grow rapidly, all this will have positive effect on Russia.
The WTO membership offers a range of benefits. Taking these benefits is, pragmatically, the goal of joining the WTO. If Russia will enter WTO it will gain much by this entrance:
- Will improve existing conditions for access of Russia’s products to foreign markets and provision of non-discriminatory treatment for Russian exporters;
- Creation of a more favorable climate for foreign investments as a result of legal system change in accordance with the WTO criteria;
- Expansion of opportunities for Russian investors in the WTO member-countries;
- Creation of conditions for growth of domestic production, quality and competitiveness as a result of increased flows of foreign goods, services and investments to the Russia’s market;
- Participation in negotiations of the international trade agreements taking into account national interests;
- Improvement of the image of Russia as a competent international trade participant.
Relevant Web Sites and Articles:
- Articles
- CRS Report for Congress, Russia’s Accession to the WTO – by William H. Cooper
- Progressive Policy Institute – “A View from Outside: Russia and the Case for the WTO” By Edward Gresser.
http:// – “Results of Bilateral Negotiations on Russia's Accession to the WTO”
http:// – Statistics
http://www.indem.ru – “Diagnostics of Russian Corruption” by the INDEM Fund
http://www.eiu.com – The Economist Intelligence Unit – Survey about constraints of Russia.
