Stuart McMillan – NZ Should Benefit From Russia Being in WTO

Getting Russia into the World Trade Organisation makes sense for all trading nations, including New Zealand.

Russia may be able to join before the end of this year or early next. The European Union lifted its objection late in October and Georgia was reported ready to lift its objection in the last few days.

The United States was already in favour of Russia?s membership, a policy that might have been challenged during 2012, a presidential election year. Russia is also having a presidential election next year and it will be as well to get the membership issue sewn up before then. The United States House of Representatives, controlled by Republicans, has issued a warning against Russian entry. The House of Representatives may be able use legislation to stop the US trading with Russia, though it cannot stop Russia?s entry. Such Republican opposition could heat up in an election year.

An 18-year wait

Russia first applied to join in 1993 and so has had a wait of 18 years ? longer than any other country has waited to join the 153-member grouping. It is the only member of the Group of 20 not in the WTO.

Because the WTO likes to have a unanimous decision Georgia, already a member, was able to hold up Russia?s bid. After the 2008 war between Russia and Georgia, Russia did not return to Georgia the regions of South Ossetia and Abkazia, previously part of Georgia?s territory. Georgia wanted control over the borders. It has accepted a compromise proposed by Swiss mediators that the customs post would have international staff.

The advantage for the world in Russia?s membership is that Russia will be a member of an organisation that is rules-based. Russia has much corruption, a sometimes arbitrary way of conducting business and its legal system is still weak. This is despite Dimitry Medvedev, shortly after he became president of Russia three years ago, saying that he wanted to strengthen Russia?s legal system

Vladimir Putin, now Prime Minister, is almost certain to become president again next year and his commitment to a strong legal system is less vocal than Mr Medvedev?s.

By embracing WTO principles, however, Russia will be required to abide by international rules. Russia?s inheritors of the Soviet system have relied too much on personal connections for business. As happened with China, membership of the WTO will reform Russia?s domestic practices.

Settling disputes

There may be trouble enforcing the rules but there is an accepted way within the WTO of settling disputes. even if the going is rough at times.

Although Mr Putin, when he was president, became frustrated with the delays in the WTO membership application, he is likely to embrace membership with satisfaction.

Georgia has something to gain from Russia?s membership. Russia has not been accepting Georgian wines or mineral water, both important Georgian exports.

For Russia itself membership of the WTO should encourage foreign investment. Many foreign investors have been wary of Russia.

Russia is much too heavily dependent on the oil and gas sector of the economy which in 2010 provided 46% of government revenue. In 2009 Russia was the world?s largest exporter of gas and the world?s second largest exporter of oil. It is also a major exporter of steel ( the world?s third largest) and a major supplier of aluminium. The country badly needs to diversify its economy away from such a reliance on commodities.

Prices fluctuate

One consequence of relying so heavily on energy exports is the fluctuation in energy prices. Russia was hit heavily in the 2998-2009 period, While Russia is already engaged in the global system of manufacturing, it wants to become more heavily involved. Many firms will want reassurance that their businesses in Russia would not be subject to arbitrary interference from the Russian state.

The Europeans will hope that having Russia inside the WTO will stop Russia using its gas exports as political leverage as they believe Russia does from time to time.

The stretched-out faltering of the Doha round of multilateral trade negotiations does not alter the fact that the WTO provides a rules-based system for much international trade.

Apec?s host

Russia will host next year?s Apec (Asia-Pacific Economic Forum) meeting in Vladivostock. Russia?s new membership of the WTO will greatly boost its profile. Russia, which is a developing country, integrated into the world economy cannot fail but to help global trade. That is particularly so for the Asia Pacific region.

NZ is engaged in a free trade agreement with Russia. As an early backer of Russia?s WTO bid and having already signed trade agreements with Russia in 2003, NZ should be in a good position to boost trade and other business with Russia during 2012. It can do with more confidence because Russia will have to adhere to international rules.

Stuart McMillan is an adjunct senior fellow in the school of social and political sciences at the University of Canterbury.

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