Russia and the World Trade Organization.

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2.RUSSIA AND THE WORLD TRADE ORGANIZATION  

Myth 1. WTO membership means complete exposure of the economy to global competition, leading to the displacement of domestic industry followed by mass unemployment.

This myth rests on a number of assumptions:

Current tariffs protect Russia’s industry against competition.

WTO membership will lead to a drastic reduction in this tariff barrier.

WTO membership means that the government will lose the key instruments it uses to protect local industry.

Opening the economy as required by WTO membership amounts to a death sentence for domestic industry.

The truth is more complex:

Current tariff rates are low, some 7–15 percent at the two-digit industry level, too low to be very effective by international standards. Moreover, customs administration functions so poorly that only about half the tariffs are collected.

Joining the WTO will not necessarily lead to a reduction in tariffs. Tariff rates will be decided during accession negotiations, and some tariffs may even be raised. Because the rates are likely to be fixed once the accession agreement is signed, government and industry must think carefully about the levels of future tariffs.

The government will not lose its ability to protect domestic producers. Members of the WTO are permitted to implement temporary defensive measures. Also, keeping the real exchange rate low can help protect domestic producers.

Although it is true that exposure to international competition may be detrimental in the short run to some sectors of the Russian economy, such as the food and machine building industries, the long-term consequences of not joining and not restructuring are even more harmful.

Myth 2. WTO membership will open agricultural markets to cheap products from abroad, and domestic producers will be unable to compete successfully. The Russian agricultural sector will wither, and the country will become dependent on imported food products.

Almost every country in the world protects its agricultural sector. By world standards Russia’s agricultural tariffs and subsidies are not very high. Joining the WTO is unlikely to exacerbate the current situation if, during accession negotiations, Russia reaches agreement on a high and stable tariff system for agriculture. Moreover, WTO membership does not prohibit agricultural subsidies. It requires only that countries establish a subsidy ceiling, which may not be exceeded. Recently, Russia negotiated with the WTO a $16 billion ceiling for agricultural subsidies, well above what Russia now spends or plans to spend on agriculture.

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The claim that the Russian agricultural sector will wither once the economy becomes more open is unfounded. Many of the sector’s problems will persist regardless of whether Russia joins the WTO. Many of the current problems cannot be called "development-inducing" by any definition—soft budget constraints, vague property rights, opportunistic behavior by managers, and difficulties obtaining credit. Institutional reforms, including land reform, founded on a new system of incentives and greater specialization can propel Russian agriculture to a prominent place in the global economy.

Myth 3. The Russian banking system, insurance industry, and pension funds are still too small to face ...

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