Russia’s accession to the WTO: implications for the EU and Latvia
After almost 20 years of negotiations Russia finally had a green light to access to the WTO. State Duma has ratified Russia’s WTO membership. The last unsolved issue on the long path was a compromise with Georgia. However, there were a number critics regarding Russia’s accession to the WTO both in the West and Russia. A number of voices in the WTO member states have had concerns about Russia’s ability to comply with its commitments. Recent Russia’s ban on imports of pork from the EU obviously somewhat confirmed those concerns. On the other hand, Russian entrepreneurs from a variety of sectors such as raw materials, insurance, agriculture and others were rather resistant to Russia’s WTO accession. The main arguments pertained to reduced subsidies for domestic production and prospective competition for Russian industry with more modernized and effectively managed Western companies. Nevertheless, State Duma on July 11 ratified WTO accession that will have certain consequences in trade with EU and Latvia as a part of it.
The WTO has an individual approach to each country and every member state’s WTO commitments may differ. As a head of the press service of the Russian committee for entrance to the WTO Alexei Portansky has noted that Russian conditions are better than those that were offered to Ukraine or China. According to Portansky no industry would suffer from Russian accession to the WTO. There are predictions made by Russian government that indicate potential gains for Russian economy. It is interconnected with the assumption that Russia’s accession to the WTO will provide a new export directions. For instance, it has been argued that Russia will have an opportunity to explore new grain markets as the world’s third largest grain exporter. However, as indicated above, accession to the WTO has yet been criticised domestically. There are expectations that accession may lead to considerable loses to national companies in domestic market due to the a potential competition with more effective and modernized Western companies. Moreover, many of Russian cities and towns have been maintained by one large company with the rather inefficient production lines and energy consumption. Furthermore, according to some estimations, WTO commitments also may require reduction of state subsidies from 9 to 4 billion USD to agricultural sector.
Nevertheless, some real implications may appear only in a long term perspective. Just 1/3 of tariffs will be changed by the middle of 2012 after Russia’s ratification of the agreement. By 2015 other 25% of tariffs will be implemented. Moreover, poultry meat tariffs will be changed in 8 years, car industry 7 in years and insurance companies in 9 years. Therefore, it is unlikely to experience direct implications of membership right after Russia’s accession to the WTO because most of import customs duties will remain unchanged.
However, commitments written in the agreement allows to illustrate potential gains and disadvantages for EU and particularly Latvia. Analysis on current Russian tariff structure indicate that Russia still contains some high tariff sectors, but overall, this economy isn’t strongly protected. Therefore, it leads to an assumption that reduction of tariffs in some particular fields as one of the main aspects in negotiation process would not lead to a considerable gains or disadvantages for both EU and Russia. The accepted commitments require only small percentage reductions of tariffs in the sectors, which may be of interest for Latvian companies. For instance, tariffs of chemical goods will be reduced from 6.5 to 5.2%, milk production from 25 to 20%, textile products from 10 to 7%, drugs and pharmaceutical products from 15 to 6% and agriculture technique from 15 to 10%.
Most of all, Russia is protected to foreign direct investors in services where are still considerable barriers. Liberalisation of barriers against FDI will provide the significant gains to Russia from WTO because liberalisation may result in additional varieties of business services. For instance, Russia has committed to allowed 100% any foreign owned telecommunications company to operate in any telecommunications sector or foreign ownership of banks and other non-insurance financial institutions in their field. Russia will ensure market access and national treatment for a wide variety of professions, including lawyers, architects, accountants, engineers, health care professionals, advertising, marketing and management’s specialists as well as Russian insurance industry will be 100% free market for foreign companies.
Probably the main gain to Latvia from Russia’s accession to the WTO pertains to commitment to abolish different domestic railway tariffs in Russia . This may lead to an increase of a cargo turnover through Latvian ports. Russia will substantially reduce the high tariffs on wood exports (currently 25%) and introduce quotas. The current Russian policy that restricted the export of round timbers had limited the export to Latvia. With these restraints Russia sought to promote wood processing at home. But it led to stalling forest production. It could be beneficial to Latvian wood production and processing companies. However, Latvian wood exporters may also have to consider additional competition with Russian based large companies. Positive assessment has been given by Latvian agriculture representatives. Arguments involve assumption that Russia won’t be able to strongly restrict the trade. For instance, currently pork export to Russia requires 40% import rate but WTO intend only 5%. Provisional prognoses provide additional LVL 3.4 million profit to Latvia. Moreover, common phytosanitary disease testing system would facilitate Latvia’s agricultural export. For example, export to Netherlands requires only tests on three diseases but to Russia eleven.
Russia’s WTO membership implications might be both positive and negative for EU and Latvia, in particular. Obviously, the WTO accession will provide a wider competition that might have an impact on Latvian and other EU member states concerning their level of export. However, it also provides opportunities and gains for the EU and Latvia. The framework of cooperation with Russia should appear as a more transparent and encouraging. Nevertheless, the real implications of Russia’s accession are dependent on Russia’s will to comply with commitments as well as ability and capacity of the EU to motivate Russia to comply with those agreed commitments.
Published 19 July 2012