After 18 years of growing pains, Russia came of age Wednesday, becoming the 156th full member of the World Trade Organization. Maybe Canada can now have an adult relationship with the ninth-largest economy on the planet.
Clearly, Russia’s membership in the WTO is good for the global economy, for the WTO, for Russia, and for Canada. Membership will increase foreign investment in Russia, and as a logical and somewhat familiar trading partner that includes us, with Canadian investment in mining, agriculture, infrastructure, housing, aerospace, biotech and other fields.
The WTO gains enhanced credibility by bringing into the tent the largest economy that was still on the outside.
It is also a credibility boost for Russia. The WTO exists to expand the global economy, which it does by ensuring WTO standards of openness and predictability in world trade. Foreign investors will feel an increased sense of security; a promise of protection by WTO rules. As a WTO member, there will be increased stability in the rule of law, and there will be improved governance.
Membership has its rewards. WTO membership has historically conferred a 1 to 3 percentage-point gain in gross domestic product for countries joining, and Russia will be no exception. It will be able to access new markets without restrictions that exist now, and trade volumes will increase significantly.
Russia will also now have an important voice in major global trade negotiations.
With increased foreign investment will come more jobs and more competition, which will translate into increased household income for ordinary Russians, and increased buying power. Russians will pay less for imported products. For example, with tariffs on agricultural products set to decrease from 13.2 per cent to 10.8 per cent, Russians could see cheaper wine, fruit, sugar, meat and poultry. Meanwhile, import tariffs for cotton and mobile phones will drop to zero, hopefully not too late to help Research In Motion. But duties on computers will increase to 10 per cent in accordance with WTO regulations.
So, on the positive side there is increased stability, predictability, access to new markets and the promise of growth. The major price to pay will be increased competition, particularly for the agricultural sector and some machine-industry sectors. Russian businesses are concerned the low import duties and restrictions on subsidies will hurt them. The Russian government is also concerned about reduced revenues from customs duties and import tariffs.
Besides duties and tariffs, WTO membership also reduces other obstacles to getting foreign products into Russia – red tape, bureaucracy and corruption in customs. WTO membership will change that by making the import process more transparent. That has been a major focus of the Russian government leading up to WTO membership, and it is good news for exporters to Russia.
Canada may be a prime beneficiary of the Russian opportunity. Consider that Canada-Russia trade is now only about $2.5-billion a year, about half our trade with Brazil. Canadian investment in Russia (focused mostly in mining) is around $2-billion a year, one-fifth our investment in the Netherlands, one-fourth our investment in Hungary and 1/32 of what we invest in Britain.
There aren’t that many economies in the world that are growing and modernizing at the rate Russia is, and in about a month that rate is going to start increasing.
Canada will have an immediate advantage over the U.S. in exploiting Russia’s new status. Under WTO rules, members must “immediately and unconditionally” accord to imports of goods and services from a WTO member no less favourable treatment than that accorded to any other. But south of the border, the U.S. invoked a rule that means it will not accord Russian goods and services the same treatment as those from other countries. That’s because American companies are hemmed in by a 40-year-old regulation – the Jackson-Vanik amendment to the Trade Act of 1974 – which precludes the U.S. from extending normal trade relations to Russia.
The U.S. Congress is looking at its options, but meanwhile, as the rest of the world gets ready to turn on the taps to fully jump into the Russian market, Canada has a head start. We already do business in agriculture, mining and industrial machinery. Some Canadian companies (for instance Kinross Gold and Magna) are well-respected at the regional and federal levels in Russia and are financially very successful. Russia has worked for many years to put itself in a position to be part of the global trading community. Membership in the WTO completes that journey, for the benefit of all.
Piotr Dutkiewicz is a professor and director of the Centre for Governance and Public Management at Carleton University.