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SUST-RUS - Effect of a Russian World Trade Organisation (WTO) accession

Russia has recently joined the World Trade Organisation as its 156th member. Nevertheless, its accession process started in 1993, and a lot of negotiations had to be done. Achieved compromises involved sensitive subjects, such as the payment for the flights overflying Siberia, the need to compensate European producers for the discriminatory law on industrial assembly or the support intensity for the agricultural sector.

The equilibrium model developed under the SUST-RUS project was applied in order to assess the effect of a Russian World Trade Organisation (WTO) accession on certain sectors. Different scenarios were considered in the short and the long term. Short term scenarios considered a change in the tariff timetable, whereas long term scenario assumed that some foreign direct investment could return to the business service sector (banking insurance, financial services, wholesale trade, etc), given joining the WTO allowed foreign companies to access this sector. The general equilibrium for modelling this mechanism assumed a conservative reduction of barriers for foreign investments (proximately a 10% lower).

The main results confirmed that accession to the WTO will benefit the Russian Federation, with an estimated economic growth between 0.4%/year (short term scenarios) and 1.0 %/year (long term scenarios). Nevertheless, it should be pointed that performing the liberalization of services has a deep effect on the gains for consumer according to the model. The model forecasts that gross domestic product (GDP) could decrease in the short term, and trade could be also reduced to 10%. In a number of sectors, some products should have lower prices, such as timber and wood products, foodstuffs, transport, equipment, clothes, chemical and petrochemical products.

Liberalization of markets will benefit to Russian consumers, due to the easier access to new markets and the cheapening of the ruble. The easier access to the ruble should benefit some sectors; steel-making companies’ profits, for example, could growth about a 2%, whereas other sectors that have been protected against international competition (food industry, pharmaceutical companies and textile) could gain between 0.5% and 2% less.

Main conclusions from this study are that Russian enterprises will access in an easier way to foreign markets, but in general this benefit to be low if compared to the profit of service sector liberalization, since there are not too many export-oriented enterprises. Besides, a progressive reduction of tariffs could be good for damping the social consequences of joining the WTO (higher prices, unemployment, and impoverishment). In addition, strategic planning measures include programs for retraining of unemployed people, or financing migrations of people through new mechanisms.

 

Source:
Natalia Volchkova and Natalia Turdyeva, “Russia and the WTO”, FREE Policy Brief Series, December 2011, pp. 1-6.