By Daniel Salter, Head of EMEA Equity Strategy at UniCredit Securities.
Russia is by far the largest global economy outside the WTO. Entry negotiations have been going on for eighteen years, since Russia applied to join the WTO’s predecessor, GATT, in 1993. However, after numerous false starts, progress appears to have accelerated recently – we could see an announcement as soon as December this year. A positive decision would be good news for growth and investor sentiment in Russia..
Russia and the EU have this month reached an agreement on the last remaining bilateral issues, including a compromise accommodating Russia’s wish to help increase domestic content in auto production, an agreement on rules for agricultural exports to Russia and a quota regime for wood exports, as well as reducing overflight fees. The EU has expressed its strong support for Russia’s candidacy.
Russia’s last significant hurdle to WTO membership has been Georgia. Under the WTO convention, any of the 153 members has the ability to veto the admission of a new country. Yesterday, Georgia agreed to a Swiss-brokered proposal to accept international monitoring of trade between Russia and the disputed territories of Abkhazia and South Ossetia. Russia should respond shortly to the Swiss proposal.
The US administration has been actively supporting Russia’s accession to the WTO as part of the US-Russia “reset”, and has been encouraging congress to vote on permanent normal trade relations with Russia – in essence, repealing the 1974 Jackson-Vanik amendment, the terms of which are not compatible with WTO rules. Congress removed China from the amendment’s coverage before Chinese WTO entry in 2001. Russia gets an annual waiver from the amendment, and failure to repeal Jackson-Vanik would not prevent Russia’s WTO accession.
Russia’s membership is due to be discussed on 15 December at the WTO’s 8th Ministerial Conference, due to consider the recommendations of the working party Russia’s accession, due to meet on 10-11 November.
We see WTO entry as a net positive for the Russian economy, although quantifying the benefit is challenging. For China, accession in 2001 boosted the annual rate of GDP growth by 2% over the following six years. The impact is likely to be less dramatic on Russia, which is richer on a per capita basis, more industrialized and urbanized – and which has already signed most favored nation agreements with its key trading partners, as well as key energy exports not being subject to tariffs.
The World Bank has estimated the medium-term benefit to the Russian economy totaling 3.3% of annual GDP, increasing to an 11% boost to annual GDP over the long-term, with the ferrous and non-ferrous metals and chemicals sectors benefitting the most, and light industry, food processing and construction materials seeing the greatest challenges.
Sorry, comments are closed for this post.