Russia's success in the WTO: What The Opportunities?

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Moscow, 27 April 2012 – The overall effect of a tariff change and better conditions of the Russian manufacturers’ access to foreign markets will be substantial in the long term, but will be 0.5% of the country’s consumption level in the short term. Such are the findings of the survey “Is the WTO of Secondary Importance to Russia? Accession of Russia to the WTO: Analytical Overview”, prepared by the Russian Economic School jointly with EY.

The effect is unevenly distributed between industries. On a country-wide scale, the greatest growth is expected in non-ferrous and ferrous metal production as well as in chemical and petrochemical production, and the greatest drop, in the timber processing industry, pulp and paper production, woodworking, light industry, and machine-building.

To make Russia’s accession to the WTO most advantageous for the country, the Russian Government’s steps should include those aimed at quickly and painlessly restructuring the least competitive industries of the Russian economy and those which will enhance the positive effects of the country’s accession.

To enhance the positive effects of Russia’s accession to the WTO, it is necessary, firstly, to increase the potential of the Russian non-raw-material export by reducing the obstacles to the Russian companies’ entry into foreign markets and to take steps to support exports which are not banned within the WTO. The experience gained by China and a few other exporting countries shows that the export-promoting policy holds out good opportunities for development. The accession of Russia to the WTO is an important prerequisite for using that mechanism for the country’s economic development. The matter in question is not direct measures of state financial support of exports: the WTO bans the use of most of these measures. However, the exporters’ costs are due to other causes, i.e., informational, licensing, customs, administrative, infrastructural, and other factors, in relation to which the WTO does not restrict state support measures, but, on the contrary, even stimulates them.

Secondly, Russia’s accession to the WTO will have a positive effect due to the growth of direct foreign investments in the country. The experience of the states which acceded to the WTO earlier and the assessment of the consequences of Russia’s accession to that organization show that direct foreign investments in the liberalized service sectors may eventually ensure the growth of production in the country to 11% of the GDP. To enhance that effect, the authorities of all levels should regard the improvement of the investment climate as the economic policy’s key priority.

The positive effect of Russia’s accession to the WTO on its economy and industries may, on the whole, vary on the regional scale either positively or negatively. The key parameters which determine such an effect are the structures of an industry’s costs at the regional level and the amount of transport and trade expenses. The report gives an assessment of the industry changes in several regions of the country. The effects vary even more when the municipalities are involved. The demand will sharply drop in many Russian towns with only one industry, known as “monotowns”, as was the case during the crisis in 2008-2009.

“To make Russia’s accession to the WTO most effective, it is necessary to take steps at all the levels of power to reduce costs and develop competitive industries and enterprises,” says Alexander Ivlev, Ernst & Young Managing Partner for Russia. “Measures should also be taken to allow industries and enterprises which cannot compete within the framework of the existing global division of labor to painlessly withdraw from the economy or be re-specialized if possible.”

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