Will the WTO cure Russia’s ills?

Anders Aslund is bullish on the Russian economy, not least because Russia appears set to finally join the world trading system.

Russia is finally about to accede to the World Trade Organization (WTO) within a year, which would be a game changer. The best available studies predict enormous gains for the country. Economists Jesper Jensen, Thomas Rutherford, and David Tarr estimate in a World Bank study that Russia should gain about 3.3 percent of GDP annually in the medium term and 11 percent of GDP in the long term. The gains would mainly come from increased foreign direct investment and services. International integration and convergence will drive the country’s growth for a couple of decades.

Plenty could still go wrong. Russia’s food safety czar sent a shiver down trade negotiators’ spines when he announced last month that he would ban all frozen poultry imports on health grounds (he later backed off). And there are always worries that Vladimir Putin–who seems notably less eager than his president to join the trade bloc–may still complicate matters. Because of the WTO’s consensus rules, Georgia could prevent Russia’s accession, or at least force drawn-out negotiations. Nobody familiar with the tortuous negotiations is declaring victory yet. But the signs do seem to be good. Last week, Russia reportedly concluded productive negotiations with the EU to clear remaining obstacles, including duties on timber. 

Even more significant than the economic boost Aslund trumpets may be the WTO’s effect on Russia’s business culture. It’s no secret that there are plenty of influential Russian players that like the country’s murky and corrupt economic system the way it is and have no interest in accession. In pushing membership so aggressively, President Medvedev has apparently sided with those who want to open up the Russian economy to outside investment and are willing to accept greater outside scrutiny as a consequence. If membership does boost these forces and help marginalize Russia’s shady oligarchs, it may have significant political benefits as well. 

Tracking the societal and political effects of WTO membership is not easy, but China’s recent experience offers a few hints. China joined the organization in 2001, and Forbes ran a series last year on how membership has changed China, or at least its diplomatic practice. One key conclusion was that being part of the organization has made China comfortable suing other countries.

For Beijing, this is no small shift in both mentality and strategy. For years after China joined the WTO in 2001, the government preferred foreign diplomacy and bilateral negotiation over starting a legal dispute, said Liu Jingdong, vice-director of international economic law at the government think tank Chinese Academy of Social Sciences. Taking the extraordinary step of suing another country meant that its diplomacy was a failure, said Liu, who has worked closely with the Ministry of Commerce and other government officials on global trade matters. [snip]….China also wants to show that it is a leader within the international economic order, that it will play by the existing rules and institutions, and that it can play it well.

Litigiousness is not usually seen as an attribute, but getting comfortable with the WTO’s dispute resolution system may have increased China’s buy-in to the international system. China has never seen major international organizations as belonging to them, and the WTO experience may be changing that. For somewhat different reasons, the process of WTO litigation may also be a healthy tonic for a Russia sliding away from democracy and the rule of law. At the very least, Russian officials will have to stand before judges and present evidence for any new trade restrictions they impose. And Russian businesses who want to bring cases will have to petition their government to do so based on the law and the facts.