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Russia's Entry Into WTO

Posted in Finance Articles, Total Reads: 1918 , Published on February 19, 2013

22nd August 2012 was the most remarkable day in the business history of the world because on this day Russia became the member of WTO family. After a 19 years odyssey of un-ending political turmoil and negotiating marathon the day finally came for Russia when on 21st July 2012 president Vladimir Putin signed into Parliamentary legislation thereby connecting Russia’s trading laws in concurrence with the International Standards as defined in WTO(World Trade Organization)- Yes, Russia became the 156th country to join the WTO club. As a result, the trade barriers will fall along with the price of most of the foreign goods available to the fellow Russians Now let us see what exactly WTO is and why Russian entry has created so much ripples in the news ?

Image: FreeDigitalPhotos.net

What is WTO?

The World Trade Organization is a body which supervise and liberalizes international trades across the world. The organization started its journey on January 1, 1995 under the Marrakech Agreement replacing the age old GATT. With the principles of non-discrimination, reciprocity, transparency and safety valves, the WTO provides a fine framework where the participating countries can enforce effective trades amongst themselves which essentially leads to an economic growth. WTO members are instrumental in rendering 97% of global trade, according to the World Bank. So a 17 year old organisation has a total of 157 members (nations) under its veil.

What took Russia so long?

The process of becoming a WTO member is not the same to each applicant, and the terms of accession are dependent upon the trade policy and economic status of any country. The process for becoming the member takes about five years, on average, but again it varies from situation to situation depending on different variables such as political issues. The best example can be seen by Kyrgyz republic which took the shortest time to be the member, while Russia, which having first applied to join GATT in 1993, was approved for membership in December 2011.But the main problem was constant change in negotiation delegations in addition to the drastic governmental flux on all sides which proved negotiating esoteric. Even Vladimir Putin wasn’t too interested in the membership due to new conditions being enforced by WTO members and it is reported that he froze all negotiations during that period. Also the common Russian population lacked the interest to pressurize the government to join WTO. Also many of the contemporary Russian commentators argued that it is best for Russia not to join as Russia’s economic condition is just recovering from the aftermath of the Soviet disintegration and so it would miserably falter with the stringent WTO norms which intends less government interference by decreasing government subsidies and granting national treatment to overseas organizations which common masses feared that it would eradicate the nascent Russian industries which would eventually succumb to the excessive pressure of competency. Meanwhile during the economic boom when the economy of Russia was showing promising signs many still thought that Russia doesn’t need the WTO to support its economy. However many Russians still feel Putin was never against joining WTO, it was a geo-politic game that he played by winning time. It is really not easy for someone to contrive to do for the mass when the country is shrouded in political enigma and Zionist mafias from all sides.

What made Russia to rethink for the WTO?

However as the world experienced the most dreadful recession destroying the economies of invincible countries like America, the government of Russia couldn’t ignore the necessity of the membership. It seems they have learnt a valuable lesson from the recession and the fact of connection with the rest of the world seemed justifiable then and the intrusion into WTO would in turn strengthen the country’s security was forecasted. The Russian government also knows that the country is having an inhospitable climate for investors and also towards the ambivalent attitude to the law. Thus admission to WTO would effectively render higher trade and investment standards. Russia also aimed in increasing its WORLD BANK ranking of countries that are suitable to do business with. The country just prior to inclusion to WTO held 120th rank in the list and the critics hugely castigated the irksome capitalism and corruption that dismantled the economy. Also the image of the country was largely dismantled due to the allegation of its support to Syria’s rebel president Assad, allegation of election rigging, arresting Gary Kasparov for protesting out the court, imprisonment of the punk band Pussy Riot which mocked the political scenario prevalent in the then country with their public charades-so it was necessary for Putin to join WTO to somehow revive the image.

Impact on Russian economy

M Video, one of the largest electronic retailers in Russia having largest inventories of foreign made CD players and American movies expects that a drastic change is round the corner, more and more customers would come and they will be able to purchase goods with prices that is in harmony with other economies. Murat Ulgen the chief economist of HSBC Africa and Europe remarked that Russian entry to WTO means its export and import duties must be reduced with a transition slab of 3-5 years, the monetary barriers will get effectively reduced rendering a fruitful investment environment. It would also help to reduce its age-old dependency on oil and gas exports. However the investors shouldn’t expect miracles straight way as it is just a journey towards betterment. The director general of WTO Pascal Lamy pointed out that this inclusion would boost foreign investment as the foreign investors would perceive it as a less risky country to invest. The recent World Bank reports suggest that the 1.9 trillion dollars economy would enhance to roughly 2 trillion in this year. Pascal Lamy also said that joining the WTO for a country is just like getting a brand label that foreign investors perceive as a reduction in risk premium. After the inclusion many foreign investors have indeed shown their interest in investing in Russia. Billionaire investor Jim Rogers told that he is pretty much exhilarated to invest for the first time in Russia. Many critics foresee big problems for the Russian companies as they might lose the race while competing with foreign organizations. But this might be the ideal time to rethink as without change Russian economy will be unable to live. The economy has a precise time frame to prepare as the import duties will be adapted in the next 7 years. In near future Russia would be able to actively participate in coining rules for international trades.

Effect of this decision on USA

With the intrusion of Russia into WTO the trade representative in Washington Ron Kirk urged US lawmakers to abandon the age long Jackson-Vanik amendment, a grotesque by-product of the cold-war. The amendment is considered inconsistent with the WTO norms and is out-of-date. Many American companies like Caterpillar, Deere and General Electric are also worried of the fact that they may even face higher Russian tariffs than other companies form different countries

Effect on Asian countries

While World Bank estimates that intrusion of Russian to WTO would add 3 percentage points to Russia’s GDP as the new tariffs are disclosed, it would also impart some changes to the GDP of Asian countries which involves in direct trade relations with Russia.


China enjoyed a huge WTO bonanza because of its cheap labour which provided a 20% more exports a year. However same is not expected as Russia’s labour-rate is pretty high and also its exports are dominated by oil and gas. However Russia’s current exports of metals are instrumental in growth slowdown in China. Russia will always want to extract more out of this opportunity thus threatening the big-player of Asia like China and Japan.


India is expected to double its exports to 500 billion dollars per year by 2015. The predominant industries currently focussed on expanding its trade are spices and wheat industry. However due to the amiable relation with Russia for the past 60 years India should try to reap full benefits in trades with Russia. It is expected that this WTO intrusion would bring India and Russia more closely in space-cooperation, science and technology, cooperation in energy etc.

Word of mouth
Though long into process yet WTO membership has come at the right opportune time for the world’s largest country. The current global macroeconomic environment would rightly bestow such growth and it’s for sure that the newest generations of Russia will ultimately step into a much more dynamic, more integrated and a more welcoming economy devoid of clouds of recession and depression. Putin have foreseen the future and it is now the ardent duty of the Russians to walk along the long road which Putin have lightened for them-a hope for a better future. Zbigniew Brzezinski once told Russia is generally an un-necessary country. It seems Putin is trying to change the fate of the fate.

This article has been authored by Advaita Das from XIMB.

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