Bloomberg News

WTO Admits Russia as 156th Member to Cap 18-Year Talks: Economy

August 22, 2012

Russia's President Vladimir Putin

President Vladimir Putin, elected for a third term in the Kremlin in March, wants to win more favorable trade terms for Russian companies, harnessing the nation’s potential by attracting capital and diversifying the economy of the world’s biggest energy exporter. Photographer: Michele Tantussi/Bloomberg

Russia became the 156th member of the World Trade Organization after completing almost two decades of negotiations, bolstering President Vladimir Putin’s efforts to gain greater influence in global affairs.

Putin returned to the Kremlin in May for a third term, seeking annual growth of about 6 percent to turn the $1.9 trillion economy into one of the world’s five largest by purchasing power. He is also championing a bigger role for Russia and other leading emerging-market nations in navigating the global economy, saying richer countries failed to contain the debt crisis.

Russia, which will hold the rotating Group of 20 chairmanship next year, was the largest economy outside the WTO and had sought membership since June 1993. Putin wants to win more favorable trade terms for Russian companies, harnessing the nation’s potential by attracting capital and diversifying the economy of the world’s biggest energy exporter.

“Russia continues to play an active role as a first-tier nation,” Vladimir Pantyushin, chief economist at Barclays Plc’s investment-banking unit in Moscow, said by phone. “The G20 discusses a lot of problems related to foreign trade and cooperation, so being the chairmanship without WTO membership would have been damaging for Russia.”

Russia’s entry into the organization, which marks the biggest step in global trade liberalization since China joined a decade ago, will add about $162 billion each year to economic output over the long term by improving market access and luring foreign investment, the World Bank said in March. WTO members carry out 97 percent of global trade, according to the Washington-based lender.

Luring Investment

“The argument that investors made was that Russian shares were valued lower than the other BRIC countries because Russia was not a member of the WTO,” Marcus Svedberg, chief economist at Stockholm-based East Capital, said by e-mail. “That argument will now disappear and membership will probably increase foreign direct investments in the country.”

The 30-stock Micex Index (MOSBIRZ) slumped 0.8 percent to 1,443.50 by 3:43 p.m. Russia’s benchmark gauge trades at 3.5 times estimated earnings, having added 2.9 percent this year. That compares with a multiple of 9.5 for companies in the MSCI Emerging Market Index (MXEF), which has added 5.8 percent this year. Russian equities have the cheapest valuations based on estimated earnings among 21 emerging markets tracked by Bloomberg.

Russia may lose 188 billion rubles ($5.9 billion) next year and 257 billion rubles in 2014 as a result of lower import duties, Economy Minister Andrei Belousov told lawmakers before the July 10 vote to ratify the accession. The figure may reach 300 billion rubles by 2015 as the average weighted duty level drops to 6 percent from about 9.5 percent, he said.

Little Transition

“The Russian Federation has committed to fully apply all WTO provisions, with recourse to very few transitional periods,” the WTO said on its website.

Among concessions Russia won in its WTO talks was the right to channel as much as $9 billion a year into agricultural subsidies during a transition period, up from more than $5 billion at present, according to Belousov.

“Today’s WTO accession is a major step for Russia’s further integration into the world economy,” European Union Trade Commissioner Karel De Gucht said in an e-mailed statement. “It will facilitate investment and trade, help to accelerate the modernization of the Russian economy and offer plenty of business opportunities for both Russian and European companies.”

Russia was joined by the Pacific island of Vanuatu, which became the organization’s 157th member, according to the WTO.

‘Long Journey’

“It has been a long journey for both countries and they will undoubtedly strengthen the multilateral trading system,” WTO Director-General Pascal Lamy said in a statement published on the Geneva-based arbiter’s website today.

The U.S. Congress will probably repeal Cold War-era trade restrictions on Russia within days, Lamy said yesterday in an interview on Bloomberg Television’s “Last Word.”

U.S. companies including Caterpillar Inc. (CAT:US), Boeing Co. (BA:US) and General Electric Co. (GE:US) have urged lawmakers to repeal the curbs set down in a 1974 amendment called Jackson-Vanik that barred favorable trade status with the Soviet Union because it wouldn’t allow Jewish citizens to emigrate. Retaining Jackson-Vanik will give overseas competitors an edge over U.S. businesses when Russia, the world’s ninth-largest economy in dollar terms according to the World Bank, joins the WTO.

Without permanent normal trade relations, the U.S. won’t be able to use the WTO’s dispute-settlement body to settle trade spats with Russia, according to the Coalition for U.S.-Russia Trade, a Washington-based industry group.

Japanese Deficit

Japan, which accounts for about 3.6 percent of Russian trade, had a wider-than-estimated trade deficit in July as Europe’s sovereign-debt crisis and a slowdown in China dragged down exports and nuclear shutdowns boosted energy imports.

The shortfall was 517.4 billion yen ($6.5 billion), after a revised 60.3 billion yen surplus in June, the Finance Ministry said in Tokyo today. The median forecast in a Bloomberg News survey of 28 analysts was for a 270 billion yen deficit. Exports fell 8.1 percent from a year earlier, compared with an estimated 2.9 percent drop. Imports rose 2.1 percent.

Sales of existing homes in the U.S. probably climbed in July from an eight-month low, economists said before a report today. Purchases rose 3.2 percent to a 4.51 million annual rate, following a decline in the prior month, according to the median forecast of 73 economists surveyed by Bloomberg. Minutes of the Federal Reserve’s latest meeting are also due today.

To contact the reporter on this story: Scott Rose in Moscow at rrose10@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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