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20 December 2011
WTO Entry: A World of Opportunity


The Daily Telegraph # Russia Now supplement

After 18 years of negotiations, Russia has been formally accepted into the World Trade Organization (WTO). While closer integration with the global trading system will bring economic benefits to Russia – some estimates claim that it will give the economy a boost equivalent to the value of 1 percent of GDP per year – the rest of the world also stands to gain.
Although import tariff rates have been declining since Russia began its transition to a market economy 20 years ago, WTO membership will further accelerate trade liberalization. Tariffs on over 700 categories of products will be abolished or reduced, with the average import tariff rate expected to fall from 10 pc to 7 pc. 
In the short term, this will hurt certain sectors of the Russian economy, particularly the uncompetitive light industrial and machine manufacturing sectors.  But the reduction of tariff barriers will not only reduce prices for consumers but spur Russian firms to become more competitive internationally.
While the market for goods is important, the real prize for foreign investors is access to the Russian service market – an area in which Russia lags significantly behind the rest of the world. Compliance with WTO rules will open the market for a whole range of services, including legal, insurance and telecoms. And although overall foreign participation in the banking system will be limited to 50 pc, 100 pc-foreign-owned banks will be allowed to open in Russia for the first time.
This new market could partially offset declining demand in the EU. For too long, Russia has been considered a risky place to invest, not least because of the perception that investment rules are prone to political interference. WTO membership will introduce an independent framework of rules, regulations and dispute resolution mechanisms that will be extremely difficult for Russian companies and the government to circumvent. Disputes will be settled by an independent body, rather than by the Russian courts – a move welcomed by foreign firms.
WTO membership will also create an expectation among politicians and business leaders that reform is both expected and inevitable. WTO rules should also usher in a new era of transparency, as the Russian government will now be required to publish in advance all new legislation relating to goods, services and intellectual property rights. No longer will foreign investors be caught off guard by new rules and regulations.
While the reform of the Russian economy does not end here, WTO accession should help end Russia’s undeserved reputation as a risky investment destination. The opportunity is there for foreign service industries to invest and expand into a welcoming market; it could be one of the best opportunities of the decade.

Atanas Bostandjiev is the CEO of VTB Capital’s UK and International Division.
Corporate Communications VTB Capital