The suspension of the Doha Round of WTO trade talks and a host of other international political issues have reduced consideration of Russia joining the WTO to a third or fourth tier issue. This demotion allows the opportunity for a fundamental reassessment of Russia joining the WTO.
Russia joining the WTO was high on the radar screen when President Bush left for the G-8 summit in St. Petersburg, Russia on July 15-16. The hope was that Presidents Bush and Putin could put the finishing touches on months of work on an agreement in meetings before the summit. The U.S. is the only major country that has not reached agreement with Russia on specific bilateral trade issues. The talks stalled on access of U.S. pork and beef into the Russian market.
There are plenty of sound economic arguments for bringing Russia into the WTO. Russia could interact on international trade policy on a consistent basis with the other 149 members of the WTO. Disputes could also be handled within the WTO dispute settlement process. Economic growth would accelerate in Russia as tariffs are reduced and the economy diversified away from overdependence on petroleum and natural gas exports.
The downside is that Russia appears to be pursuing domestic economic policies that are not a good fit with its obligations as a member of the WTO. WTO members are supposed to have market-based economies, and former communist countries can have difficulties making that transition because free trade is about individuals and companies making choices in a bottom-up system. The experience with China shows how complex implementation can be. Chinese government and business leaders were anxious to join the WTO to gain access to markets around the world, but implementation has been bumpy as rules accepted in other countries have been hard to translate into reforms in China.
Analysis by Anders Aslund of the Institute for International Economics in Washington, DC provides an indication of the economic policy climate in Russia. Since 1999 the Russian economy has grown by seven percent per year with almost all of that occurring in private businesses. Despite those market successes, beginning in 2003 Russia has pursued a policy of re-nationalization with the European Bank for Reconstruction and Development estimating that the share of gross domestic product (GDP) created by private companies declined from 70 percent to 65 percent from 2003 to 2005. In 1999 the oil industry was 90 percent privately owned and production increased 8.5 percent per year for five years with the help of foreign technology and operations expertise. Petroleum production growth slowed to 2.7 percent in 2005 and has averaged only 1.7 percent in the first four months of 2006. Re-nationalization has also occurred in banking as five big state owned banks have bought up small private banks. Plans to open the automobile industry appear to have been shelved. A recent draft law identified 39 industries that the government wants to dominate. Other analysts have noted Russia’s violation of intellectual property rights and restrictions on foreign investment.
U.S. negotiators in the Doha Round have noted that numerous existing WTO members have talked a good line about other countries changing trade policy, but have made little or no efforts to offer proposals about how their countries would change. Adding another country with a one-way street mentality on trade and domestic policies does not appear to be in the best long-term interest of the WTO as a trade-enhancing institution.
As noted with the breakdown in talks due partially to agricultural issues, U.S. agriculture has a stake in Russia joining the WTO. Russia has about 300 million acres of arable land, and agriculture accounts for 5 percent of the nation’s GDP and 10 percent of total employment. Russia has a population of 143 million people that is declining by 0.4 percent per year, with per capita GDP at $11,000 per year. Given its northern climate, in a fully functioning international market Russia would likely be an exporter of some grains and an importer of foods for a broad-based diet similar to other higher income countries.
In calendar year 2005 total U.S. agricultural exports to Russia were $955 million. Poultry meat at $642 million accounted for 67 percent of the total. Red meats were the next highest at $69 million followed by tobacco at $65 million and tree nuts at $34 million.
Regulations on agricultural trade with Russia are far from certain under the existing trading rules. According to the U.S. Agricultural Attaché, in late April all poultry import permits were cancelled effective May 8 due to fraud and violation of various laws. Beef and pork imports had been stopped a couple of weeks earlier for most of the same reasons. New regulations have been slow in coming. Importers also were told that new import permits would cost $110-$115 per metric ton of poultry meat, increasing the cost of poultry by10-15 percent. These are the latest efforts over the past four years to restrict poultry and red meat imports from the U.S.
Admitting more countries to the WTO has generally been thought of as a positive with little consideration of the watering down of the organization’s overall commitment to freer trade. Now may be the opportunity to reinforce the fact that WTO membership has both benefits and responsibilities. The WTO membership may need to shrink some to get all participating countries on the same page. Holding up membership to Russia until they make serious commitments to open international markets may be a good way to let current WTO members know that the time for “free riders” has ended.