Klipping The Moscow Times
23 August 2012
Reuters
Opencanada.org
Optimists hope WTO entry will instill a sense
of urgency in the Kremlin's half-hearted reform efforts.
Russia’s 19-year wait to
enter the World Trade Organization is finally over. Unfortunately, the kind of
export and investment miracle enjoyed by China after it joined the club is
likely to remain well out of its Eurasian neighbor’s reach.
China too waited 15
years on the WTO’s doorstep. But for Beijing, joining in 2001 set the stage for
a decade that quintupled its exports and propelled its economy from sixth place
globally to the world’s second-biggest.
Russia’s commodity-based
economy is less well-placed to enjoy that kind of spurt. And with trade and
investment flows both scarcer than they were a decade ago, it will struggle to
attract investments on a similar scale to China.
There are plenty of
positives, however.
Foreign tariff barriers
are estimated to cost exporters $1.5 billion to $2 billion a year. The WTO confers
lower trade barriers and equal treatment for all members.
Moscow will have to haul
up its own barriers, with average tariffs set to fall by a third. Tariffs on
foreign cars, for instance, are to halve by 2019. So cheaper imports should
leave consumers and companies with more money to spend.
And while parts of some
uncompetitive sectors could sink — the domestic auto industry is a much-cited
example — others, such as banking and telecom, will be opened to foreign
investment.
Furthermore, the country
is hobbled by a reputation for crony capitalism, red tape and disregard for
investors’ rights. Optimists hope WTO entry, which has the blessing of
PresidentVladimir Putinand is bound by strict previously approved timetables, will
instill a sense of urgency in the Kremlin’s half-hearted reform efforts.
Ed Conroy, a fund
manager at HSBC Global Asset Management, reckons Russia, like most new WTO
entrants, will enjoy a growth and investment pickup if it dismantles
protectionist barriers and finally shows a clear commitment to free-market
policies.
“WTO is not a magic wand
they can wave to create an investment haven, but if you create a less
restrictive framework, you automatically create opportunities. Don’t expect a
revolution but an evolution towards a more open, competitive economy,” Conroy
said.
Conroy is betting bank
shares will be prime beneficiaries in post-WTO Russia. Others, such as Chris
Weafer at Moscow brokerageTroika Dialog,
advise loading up on shares in some retailers and airlines that stand to gain
from lower import tariffs.
This is in line with the
view of the World Bank, which has calculated the short-term value of WTO
membership to Russia at $49 billion a year, or more than 3 percent of gross
domestic product at 2010 prices. That would rise to $162 billion annually when
the longer-term impact on the investment climate is factored in.
But this does not spell
a China-like growth miracle.
A vast pool of cheap
labor handed China a post-WTO bonanza, with goods exports rising more than 20
percent a year. Foreign direct investment inflows surged five-fold over the
decade thanks to foreign companies setting up factories.
That won’t happen in
Russia. For one, its exports are dominated by oil and gas, which are not
subject to tariff barriers. Second, the manufacturing-for-export model is
unlikely to take off because of relatively high labor costs and a domestic
workforce limited by years of stagnant population growth.
The United Nations
Conference on Trade and Development has also admitted that WTO accession may
not have substantial investment generating effects for manufacturing.
WTO Director General
Pascal Lamy is not expecting too much for Russia immediately.
“I think China-2001 and
Russia-2012 are not really comparable,” he told Reuters Insider, citing the
different export structures of the two countries and also the fact that Moscow
had negotiated for a gradual phased-in opening up of trade.
“This is not a big bang
accession,” he added.
Crucially, Russia will
suffer from the difference in the world economy that has occurred since China’s
2001 entry. Back then, the global economy stood on the cusp of a trade boom
fueled by surging housing and credit markets.
“What China benefited
from was that for many years you had a period of debt-driven growth in the
West,” said John-Paul Smith, head of emerging equity strategy at Deutsche Bank.
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