VTB on Russia WTO accession

On November 10, the Working Party on Russia’s WTO membership agreed on the terms of Russia’s accession, releasing a report summarizing the details of the agreement. The next step is formal approval by the Ministerial Conference on December 15-17 and ratification by Russia before June 15 2012.

This is the end of an 18-year-long saga during which Russia has seen three presidents and numerous governments come and go since it first set out to join the WTO. There were moments when accession seemed within reach, yet years passed without result. With most other large (and small) emerging market countries joining the WTO, it became almost unbearable for both sides for there to be such a major player in global trade – not to mention a G8 and G20 member - remaining the odd man out.

In fact, it’s even clear who lost out more: Russia, in not having access to WTO trade arbitration mechanisms; or the WTO, as, with Russia out, it lacked credibility in such important areas of trade as metals, agriculture, intellectual property rights. But now the long story is over, and Russia is set to join.

The Working Party report states that Russia agreed to lower the average tariff to 7.8% from the current 10% (as of June 2011). According to Russian WTO negotiator Maxim Medvedkov, tariffs would initially decline to mid-2007 levels and anti-crisis protection for the sectors is to be lifted.

The working group report also said that Russia managed to protect its most vulnerable sectors - auto producers and agriculture – by attaining seven and eight-year transition periods, respectively.

For Russia, WTO accession will enhance competition and reduce the cost of imported goods, which is ultimately beneficial for Russian consumers and may encourage industries to modernize. It should also spur Russia to improve its institutions, in particular customs regulations and government procurement. Clearer rules on investment and resolving trade disputes could stimulate investment in the medium term.

According to the World Bank, in the case of Russia, WTO accession will see GDP rise 2.8% in the short term, 3.3% in the medium term and 11% in the long run. This implies about 0.4-0.5 pp of additional annual GDP growth over the next seven years.

This is not so much because of the opening of new markets, but rather the more efficient allocation of resources and consequent broadening of production potential. At the same time, it is to be a tangible counter-inflation force due to greater competition and the outright lowering of import tariffs. Both factors are positive for valuations assigned by investors to the Russian stock market. 

Alexey Moiseev is Deputy Head of Research, Head of Macroeconomy Analysis at VTB Capital, Head of Fixed Income Research at VTB Capital