WTO makes Russia look rosy again

12th December 2010, Comments 0 comments

Will WTO membership be that magic wand that makes all the hardships of investing and doing business and Russia suddenly vanish?

Experience-hardened realists here sincerely doubt it. But they see more Westerners investing in Russia and fewer potholes lurking in their path.

"There are now very good prospects for Russia's accession in the second quarter of next year," said American Chamber of Commerce in Russia President Andrew Somers after Moscow's membership earned a formal nod from the EU.

"Membership should help alleviate the concerns of those who take a more conservative look at Russia," Somers told AFP during a break in his pro-Russian lobbying efforts in Washington.

"This should make them take a much more thorough look from now on."

Russia's relations with the World Trade Organization have encapsulated its temperamental two-decade tango with West.

It began with a jubilant 1993 vow to release itself from the shackles of Soviet economics and accept the international standards of trade.

This was soon followed by a mutual cooling that saw Russia look inward and wear the stigma of being the biggest economy outside the free trade club.

But all the major players are again on speaking terms and promising to finally get the job finished. They are also riding high from a "reset" in Russia-US relations that has seen the Barack Obama administration work hard to make Moscow feel welcome abroad.

"This is the most concrete result of that reset," remarked chief Renaissance Capital strategist Roland Nash.

"The improvement between Russia and the West in the past 18 months has been remarkable."

----- 'This Will be a Gradual Process' ------


But this is Russia -- a place where expats love to swap horror stories of customs bills the size of mortgages and police raids that come at particularly prickly points in business disputes.

Could WTO membership wake Russia from that nightmare?

"This will be a gradual process," said Somers.

"It is not going to solve all the problems with the investment infrastructure," Nash agreed. "But this is the stamp of approval that investors needed."

The World Bank estimates that WTO accession may add up to 11 percent to Russia's gross domestic product as the business process becomes more streamlined and the investment climate improves.

But analysts warn that membership has its price.

The WTO will sound the death knell for some Russian companies that sell to domestic markets that suddenly become flooded with cheaper -- and often much better -- goods.

"The government will not be able to artificially restrict the flow of goods the way it could before. This is a net positive for the population," said Higher School of Economics Vice Rector Andrei Yakovlev.

The new rules will also hurt Russian airlines that lose the extra tariffs they levy on European carriers that fly over Siberia. And Russian farmers will have a much harder time securing protectionist policies from the state.

Nor will the WTO do much for Russian exporters. The dire state of the country's post-Soviet industry means that producers here have little to offer the world at competitive prices besides natural gas and oil.

But their import duties are already tiny and their overproduction will only harm Russia. Bank of America Merrill Lynch analyst Ivan Tchakarov admitted that "some question the economic benefits for Moscow."

But he argued that such grumblings miss "the key point" of what confidence can do to the economy.

Western executives with their toes in Russian waters could hardly agree more.

"The real number of investments should increase automatically," said Association of European Businesses in Russia CEO Frank Schauff.

Perhaps the two biggest questions is why the big push comes now and what happens to the Russia's two existing free trade partners: Belarus and Kazakhstan.

The first question appears answered by the 2009 financial implosion.

Analysts say that it rattled the Kremlin. The feeling of invincibility it enjoyed on the back of sky-high oil prices disappeared. And the social spending bills kept piling up.

"Russia can no longer rely on oil revenues to fund growth," said UralSib chief strategist Chris Weafer.

Belarus and Kazakhstan meanwhile are an enigma. Their attachment concerns Western partners -- but not enough to keep Russia out.

"The customs union will be a hurdle," said Somers. "But the US government has been meeting with the three in Geneva to make sure that this is not going to hurt Russia's membership."

© 2010 AFP

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