Good News from Thu, 09 August, 2012:

Russia’s WTO membership demands reforms

Russia’s accession to the WTO, resolved at the end of 2011, is entering a concrete phase with the ratification of the agreement by President Putin in July. A nearly two-decade-long negotiation phase has finally ended, indicating a positive development in Russia’s willingness to implement reforms.

Unlike with China, Russia’s WTO membership will not, at least in the short term, stimulate the country’s export sector to any significant extent due to the sector’s energy-driven focus. The sectors to suffer most from the membership will be Russia’s forest industry and agriculture, which have been supported by various protectionist measures. In any case the changes will take place slowly as Russia has negotiated for itself very long transitional periods for implementing the provisions and during the transitional phase Russia will be allowed to apply several protectionist measures.

In Russia’s case the benefits are largely indirect. The WTO provisions present Russia with a political anchor of sorts, committing it to international practices. This is expected to increase the inflow of foreign investments which in turn is anticipated to create a variety of positive rebound effects. It is also likely that the membership will promote structural change in the economy, eliminating inefficient operators and creating a foundation for a more innovative operating environment.

What does all this mean for Finland? First of all, the purchasing power of the Russian consumer will increase due to lower import prices and toughening competition, thus also increasing the demand potential for Finnish producers. Other benefits will surface in the form of clearer customs formalities and decreasing Russian export duties (e.g. wood export duties). The membership also guarantees the same treatment for foreign products on Russia’s markets as for Russian products. The Bank of Finland Institute for Economies in Transition (BOFIT) assesses that Russia’s WTO membership will increase Finland’s GDP in the mid to long term by EUR 200–300 million and employment by 4 500–6 500 people.

Another development worthy of attention is Russia’s growing integration with the former CIS countries, which may open up possibilities for Finnish manufacturers in previously untapped markets.