The European Union is the main trade heavyweight still hesitant about admitting Russia into the WTO 18 years after negotiations began, but qualms about Russian auto sector policy are competing with a stronger wish to usher Russia in before Prime Minister Vladimir Putin, a WTO-sceptic, returns to the presidency in elections next March.
Russia itself, while refusing to abandon industrial interests in the car sector, this month said it is only an EU approval away from membership.
Russia’s $1.5 trillion (965 billion pounds) economy is the largest still remaining outside the league of trading nations and the World Bank estimates WTO membership will allow its gross domestic product to grow by as much as 3.3 percent in the medium term and 11 percent in the long term, particularly by attracting more foreign investment.
“Reliance on oil wealth cannot sustain growth in economy,” said Chris Weafer, chief strategist at Moscow brokerage Troika Dialog. “Putin will establish a very pro-business and pro-reform cabinet. Membership of WTO is a priority.”
Russian growth forecasts are compelling when the BRICS countries of emerging economies (Brazil, Russia, India, China and South Africa) and their rising fortunes represent one glimmer of hope amid a deepening global economic crisis.
The car sector is predicted to be a concentration point of growth outweighing the cost of Russian demands on investors: automakers widely expect sales of cars, vans and trucks in Russia to double to 4.1 million vehicles by 2020, from approximately 2 million today, making Russia the largest market in Europe, overtaking Germany.
GM, Fiat (FIA.MI), Ford (F.N), Renault (RENA.PA) and Volkswagen (VOWG_p.DE) plan to invest $5 billion in Russia to set up production, in exchange for duty breaks on imported components. They hope to cash in on low Russian labour costs and create export platforms for growing markets across Asia.
A new member of the size and calibre of Russia is just the sort of face-saving exercise that the WTO desperately needs. Collapsed hopes for the Doha round of trade talks that began ten years ago are casting doubt over its credibility.
Initiating Russia into their midst is the one thing that could turn a meeting of trade ministers in Geneva this December from a wake for Doha into a vindication for the WTO.
An impressive chorus has been egging Russia on in the last years of its bid: the G20 group of developing nations, G8 group of rich nations, World Bank, the U.S. administration and the WTO itself have all lined up to push Russia through before the Russian elections create new obstacles.
That said, Russian accession talks have been fraught. Observers talk of the unpredictable nature of these talks, which make the recruitment of China into the trading body ten years ago seem relatively simple.
One example of this came last year, when weeks after EU President Herman Van Rompuy and EU Commission President Jose Manuel Barroso announced their green light for Russia, Moscow launched new industrial policy that has renewed EU opposition and delayed its membership.
Specifically, Decree 166 — as Moscow named it — offers carmakers operating in Russia incentives as long as they abide by the following requirements: they must produce more than 300,000 cars and 30,000 trucks per year, create a majority of a car’s total value locally, and open research and development centres in Russia among other things.
The scheme divided non-Russian carmakers, depending on the quality of the deals they had with Russia before it launched.
“Russia’s argument is, if we do away with all our protection of all our industrial sector, the knock-on effect is going to be so big that lots of companies are not going to survive,” said Fredrik Erixon, Director of the Brussels-based European Centre for International Political Economy.
The U.S. Trade Representative’s office said it was monitoring talks over Decree 166, though under WTO rules the U.S. agreement with Moscow will become public only after accession.
Top Russian officials from Putin to economic advisors have said Russia will keep in place Decree 166 until at least 2018, even though these are illegal in the eyes of the WTO.
Russia has also yet to remove restrictions on meat imports, timber exports among others, though these are smaller issues, trade officials say.
“If it’s not so easy (negotiating trade issues with) the Chinese, it’s not easier with the Russians,” EU Trade Commissioner Karel De Gucht said this week.
Diplomats familiar with the talks cite EU fears that the minimum production requirements may turn Russia into an exporter competing with Europe, and that jobs will migrate eastwards.
Nonetheless, Europe’s powerful business community says it’s better to yield in the short term in order to better hold Russia to account in the long term with the WTO’s house rules and the combined pressure of its 153-strong membership.
“As long as Russia is outside the WTO, there is little Europe can do in terms of trade counter protectionist measures,” said Adrian van Den Hoven, director for international affairs at BusinessEurope, Europe’s largest employers’ group.
“There will always be EU.L countries that are afraid that Russia will retaliate.”