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Would WTO Membership Benefit Russia? - 2002-10-21

Russia is one of the few industrialized countries that is not a member of the World Trade Organization, the international body that regulates trade. While Russia has been seeking membership for years, the WTO says Russia must first reform its energy sector and open its markets to foreign competition. Many in Russia are beginning to wonder what benefits membership in the trade organization would bring.

It is difficult to find anyone involved in the Russian economy who is completely opposed to the country's membership in the World Trade Organization.

The Russian government has made it position very clear. It says it would like to gain entry as quickly as possible, but says the terms must be fair.

Maxim Medvedkov, Russia's deputy minister for economic development and trade, says WTO member countries are demanding terms Russia can not meet.

Mr. Medvedkov said Russia is ready to join the World Trade Organization tomorrow or even today. He says the process depends not just on Russia, but on other countries as well.

Ultimately, it is up to the countries that are already in the World Trade Organization to decide if Russia is ready. They say Russia must make certain reforms before it will be accepted into the club.

For example, the United States and EU countries say Russia is not doing enough to open its markets to foreign companies.

They also say Russia subsidizes its companies by selling energy in Russia at lower prices than it sells energy to outside buyers. U.S. and EU officials say this gives Russian companies an unfair advantage.

The Russian government says people in Russia can not yet afford to pay higher prices for energy. Additionally, they say having lots of natural gas is simply a competitive advantage that the country can use the way it wants.

Oleg Deripaska is the president of Siberian Aluminum, one of the biggest companies in Russia.

Another of his companies, the Russian car manufacturer GAZ, stands to lose a lot if Russia, as a price of membership in the trade organization, is forced to drop trade barriers that help Russian car manufacturers. Mr. Deripaska has been one of the most vocal opponents of a quick entry.

Mr. Deripaska says the advantages are mostly potential and right now it is unclear how much WTO membership would really benefit Russia's economy.

Scott Antel, from the international accounting company Ernst and Young, says those countries that are already in the World Trade Organization have done a poor job of making it attractive to Russia.

"The U.S. and the European Union, and others have given some generic notions of what the benefits of WTO membership are," he said. "But they have not focused on Russia's unique situations. When you look at some others that have joined: Much smaller - Moldova, Kyrgyzstan - post-WTO membership, you do not see any noticeable difference. Things may actually be worse."

Proponents of the WTO say it will help Russian export companies because it will give them better access to foreign markets.

Mr. Antel says this is not automatic. What the trade organization does do is give Russian firms a forum in which to fight for their rights. But he says this also has its disadvantages.

"Joining the WTO means a lot of litigation, negotiations, and ongoing costs for businesses," he said. "And many sectors simply cannot afford that."

Another issue is how WTO membership will affect Russian consumers. As a member of the trade organization, it will be harder for Russia to keep out foreign companies. That may be good for Russian consumers, but it may also force some Russian companies out of business.

And Mr. Deripaska, from Siberian Aluminium, says protecting Russian businesses from competition also protects consumers.

Mr. Deripaska says consumers are only consumers because they have jobs. If they lose their jobs due to competition from foreign companies, it won't matter that they have more of a selection of products because they won't be able to buy anything.

The insurance sector is another industry that is uneasy about membership in the World Trade Organization.

Vladimir Kruglyak is the president of the Moscow Association of Insurance Companies. He says Russia should join the trade body, but only if it receives protections for the insurance industry from foreign companies for an unspecified period of time.

Mr. Kruglyak says foreign companies have been in the insurance business for centuries, but Russian companies have only been operating since the fall of the Soviet Union.

If foreign companies are allowed into Russia, Mr. Kruglyak says, Russian companies that have invested money in the market for years will be driven out because they do not have enough money to compete.

But as the negotiations continue, Russia may find it harder to join the world trade body under beneficial circumstances.

Arnoud Willems, from the international law firm Linklaters, says it is perfectly natural for countries joining the organization to try to negotiate the best terms. But he says it may not be in Russia's interest to wait until conditions are perfect.

"If you wait too long, every time the barrier becomes higher," he said. "That is the same that we saw in China during the past 15 years."

Negotiators from Russia and the trade organization are scheduled to meet in Geneva next month to try to find a way out of the current impasse.