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Procedia Engineering 165 (2016) 1039 – 1045

15th International scientific conference “Underground Urbanisation as a Prerequisite for

Sustainable Development”

Implications of the Russian Federation's accession to the WTO

Viktor Gnevko a, *, Nina Shahina a, Sergey Kirsanov a
a
St. Petersburg university of management technologies and economics, Lermontovskiy Ave 44, St. Petersburg, Russian Federation, 190103

Abstract

Russia has accessed to the WTO as a developed country, assuming the absence of any preferences. Analysis of the
legislation showed that Russia has corrected juridical drawbacks in certain fields, revised the outdated laws and
made the new ones, thereby adjusting the legislation in accordance with the WTO regulations. Liabilities concerning
the following subjects were assumed: special economics areas, reducing of import tariffs, fixation of export duties,
suspension of tariff quotas (excluding several agricultural goods), support of agriculture, market access for services,
protection of intellectual property rights, investment of capital, sanitary and phytosanitary standard specifications,
technical regulations, etc. In order to get the maximum benefit and the minimum losses for the country out of the
accession to the WTO, the government’s actions must include both the measures aimed at fast and painless
restructuring of the competitive sectors of Russian economy and the measures allowing one to increase the positive
effects of membership in the World Trade Organization.
© 2016
© 2016Published
The Authors. Published
by Elsevier by Elsevier
Ltd. This Ltd.
is an open access article under the CC BY-NC-ND license
Peer-review under responsibility of the scientific committee of the 15th International scientific conference “Underground
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review
Urbanisation under
as aresponsibility
Prerequisite of
forthe scientific committee
Sustainable of the 15th International scientific conference “Underground Urbanisation as a
Development.
Prerequisite for Sustainable Development
Keywords: WTO; tariffs; duties; economic restructuring.

1. Introduction

Russia’s accession to the WTO was a political decision to a considerable extent, as soon as that enhanced the
prestige of the country in the international arena, allowed it to participate in the elaboration of international trade
regulations taking into consideration the national interests and to use the WTO mechanisms to settle commercial

* Corresponding author. Tel.: +7-812-575-03-00

E-mail address: rector@spbume.ru

1877-7058 © 2016 Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the scientific committee of the 15th International scientific conference “Underground Urbanisation as a
Prerequisite for Sustainable Development
doi:10.1016/j.proeng.2016.11.817
1040 Viktor Gnevko et al. / Procedia Engineering 165 (2016) 1039 – 1045

disputes, and improved the country’s business image. Moreover, the accession to the WTO was considered
necessary for implementation of social and economical reforms, structural reorganization of the economy,
implementation of business legislation compatible with the international law, and correction of juridical drawbacks.

2. Materials and Methods

Considering the implications of the accession to the WTO for Russian economy, the following positive
implications can be distinguished: 1) improvement of the economy's well-being in the long-term period by 0.96%
per year; 2) aggregated consumption growth by approximately 0.4% (the World Bank – up to 3.3%) (Rutherford et
al. 2004); 3) inflow of foreign investments; 4) rise in labor productivity and effectiveness of production; 5) an
increase in demand for skilled labor (an increase in real remuneration – 0.85%) (Ernst and Young, NES, 2011).
The negative implications include: 1) a decrease in federal budget revenues (on average by 5.5%); general
setback in production (less than 1%) (RAS National Investments Council., 2002); decline in jobs (loss of 0.2%
workplaces for every percent of setback in production); 4) declining labor situation for less qualified personnel
(decrease in real remuneration – 0.56%).
The uncertain socio-economic implications studied in this work are as follows: 1) GDP change – 1-3% according
to Russian researchers (Ernst and Young, NES, CEFIR), 3-5% according to the World Bank analysts, while some
other studies suppose a decrease in GDP (Carnegie Research Center, WTO-Inform analytical center); 2) consumers’
advantage resulting from the drop in purchasing prices (up to 3%) (Ernst and Young, NES, 2011); 3) an increase in
exports and imports may play a negative role in a short-term period and a positive role in a long-term period.
Considering the accession implications according to sectors of the economy, the following sectors were classified
as benefited from the opening of markets: 1) export-oriented sectors: ferrous metallurgy (3.6%), nonferrous
metallurgy (14.4%), chemical and petrochemical production (2%), defense industry and coal industry (Russian
Ministry of Economic Development, 2013); 2) service industries (reduction in the prices of services, extension of
assortment of services, increase in quality, better consumer-orientation, correction of juridical drawbacks, etc.).
The following sectors are considered to be in vulnerable situation: 1) import-substituting industries: mechanical
engineering (farming machines, automobile industry, equipment) (-2.7%), food industry and light industry (-4.3%
from the base year level), woodworking, paper and wooden goods manufacturing (-6.7%), aircraft industry,
electronics, pharmaceutical industry (up to 2%); 2) agriculture, with the most vulnerable goods being meat foods,
dairy products with long-term shelf-life, rice, sugar, and vegetables.
The neutral effects of the accession will be observed for the sectors of industry that are not regulated by the WTO
rules (crude oil, gas and weapons) and other sectors that either were not discriminated earlier or had minimum
barriers (sorts of mineral raw materials and some production of chemical industry). The same is true for the sectors
in service industries that demonstrated high level of market penetration of foreign companies (audit and consulting,
accounting and brokerage services) and bank sector as the most protected one due to the negotiations.
The accession to the WTO will promote growth of foreign trade turnover and the inflow of foreign investments
mostly to the more developed and “open” regions with the sectors of export economy, growing service industries
and solved problems of corporate management (Beliaeva, 2013; Plotnikov, 2014). Most of these regions are located
in the Ural, Northwestern, Central and Volga Federal Districts. Poor development, “closedness” of regional
economy, localization of problem sectors, and concentration of company towns are the main risk factors regarding
the accession to the WTO.
The major positive effect from Russia’s accession to the World Trade Organization is certainly the general
increase in competitiveness of our economy, although time should pass in order to see the real influence of these
changes on the situation.
The problem areas of Russia are well-known: agriculture, agricultural mechanical engineering, light and food
industries, and automobile industry.
It is very important to continue monitoring of goods markets, to control the situation with the most sensitive
positions for our people, first of all with food commodities.
The Government’s plan of action aimed to adapt certain sectors to functioning in the WTO frame is being
implemented taking into account the suggestions of entrepreneurial society, parliamentarians and experts.
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All Russia’s liabilities or at least most of them provide for a transition period that can make up to 7 years for
certain goods. One should understand how the participation in the World Trade Organization affects the activity of
our companies, since the membership itself does not automatically make our goods more competitive and more
needed on the foreign markets. Russian companies should learn to work under conditions of increased competition
and first of all pay attention to cost reduction, industry modernization, introduction of new power-efficient
technologies, and improvement of management and logistics.

3. Human rights and animal rights

It is important to properly control the possibilities given by participation in the WTO and to use the authorized
mechanisms and procedures, including the WTO Dispute Settlement Body. This body is working already.
The primary task is to eliminate the unjustified trade restrictions applied against Russia. Actually, these
restrictions are still in use in some cases, contradicting the general regulations of the World Trade Organization.
Some of them directly affect the interests of our investors and exporters.
It is clear that the internal work is somewhat more difficult than the negotiations on the accession; however, it is
necessary to promote our positions and to develop our presence on the international grounds, including new spheres
such as regulation of investments, intellectual property, government procurement, in the areas where no solutions
have been found yet, but constant work and active discussion go on. Foundation of a full-fledged Russian permanent
representation to the World Trade Organization will make this work more consistent and systematic and will allow
Russia to interact on equal terms with the partners that have more experience of working with the World Trade
Organization.

4. Discussion

4.1. Domestic industry

Following Russia’s accession to the WTO, Russian light industry has become stratified into high-yielding,
export-oriented, and languished sectors. Manufacturing of windbreakers and weatherproof jackets increased 2.2-
fold, carpets and synthetic tissues – 1.5-fold, blankets and plaids – by 18%, bedclothes – by 6%. Export of light
industry production on the balance of January-May increased by 8% compared to the respective period of 2012.
Manufacturing of linen tissues decreases by 15.5%, hosiery and warm jackets – by 13%, knitted wear – by 6%.
Consumers and traders prefer imported goods of higher quality.
x The quality of raw materials (flax, wool, chemical fibers, leather raw stock and staining agents) decreases.
x The equipment is renewed by 3-5% per year due to the lack of investments. Its average age is 15-20 years
and more. No progressive technologies are available.
x This sector was unable to take advantage of the anticipatory increase in prices for its production compared to
other sectors of manufacturing industry during the first six months. The employment rate decreased to a very
little degree – by 0.1% or approximately 400 people. Wages rose by more than 10% but remained the lowest
in the manufacturing industry anyway (13-14 thousand rubles per month).
x Timber industry demonstrates a decrease in all the segments, excluding that oriented to domestic house-
building. Furniture manufacturing decreased by 11%, but on the other hand this sector is really booming
because of the investments: capital stock investments in woodworking increased 1.7-fold, in paper industry
and furniture manufacturing – 1.6-fold [ibid.].
Reorientation towards the domestic market is understandable: the prices for export production decrease, while
those on the domestic market slightly rise. It is not surprising that the export of timber and paper products remained
on the last year’s level, while the import increased by 11%.
The most unexpected results of the first year of work in the WTO frames were obtained for ferrous metallurgy.
This sector was considered the main beneficiary of full-fledged Russia’s participation in the world trading. It was
the sector that experienced the most pronounced restrictions for the access of its production to the European market
and other markets.
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However, the recession in the EU and the weakness of other markets led to a significant decrease in demand for
metallurgy production, and the Russian export dropped by more than 8%. Moreover, the national manufacturers
experienced an incredibly strong pressure from the foreign competitors on the domestic market.
x Cutback in production reduced the need of national metallurgy for the import of raw materials.
x On the other hand, import of ferrous metal rolled products raised by 30% at once (with the share of imported
production approaching 10% of our domestic production already), import of steel pipes – by 25% (with the
import share more than 10% already).
x Import of casing pipes from China raised by 4540% or 46 times, oil well tubings – 3 times, drill pipes –
twice.
x Import strongly presses the national manufacturers despite the fact that prices on the domestic market
dropped by 13% for steel and by 19% for rolled products, compared to the first six months of 2012.
This is a direct consequence of Russia’s accession to the WTO. Rates of duty for tubings were immediately cut
for most of the commodity nomenclature codes. This process will be active until 2016. Moreover, Chinese
production subsidized by the state supersedes national manufacturers on the domestic market.

4.2. Service industries

The sphere of service industries is rather young and therefore underrepresented in Russian legislation.
Competition from foreign providers following the accession to the WTO will stimulate national manufacturers in
service industries to extend the assortment of services, raise the quality, lower the prices, and allow for the needs of
customers to a fuller extent. This will bring direct advantages to customers and will in its turn stimulate the growth
of demand as a basis for further progress of this sphere. Acceptance of the WTO regulations in this sphere will
promote the correction of juridical drawbacks.
Despite the positive effects from liberalization of sphere of services, there are threats of national market
penetration by unfair manufacturers and phony companies. The greatest concern is caused by the risk of seizure of
certain market niches by the experienced foreign companies and the drain of qualified human resources to these
companies. The only exclusions are audit and accounting services, where the five leading transnational companies
already have 60% of Russian market, and communications (more than 40%).
In general, the threat of Russian services market seizure by foreign competitors is obviously exaggerated. The
researchers say that foreign competitors are deterred by an unfavorable investment climate and a lack of need for
some services, therefore no excessive inflow of foreign companies is expected (Jensen, 2007).
The market for financial services (bank, insurance, brokerage, etc.) can be characterized as belonging to the
initial period of development. According to the World Economic Forum, Russia holds the 127th place in the world
by the level of financial sector development. The efficiency of labor organization in the country’s banks is 4 times
lower than that in foreign banks (e.g., American ones) (Jensen, 2007; Gnevko, 2012)
Consideration of the financial sector is important from the point of view of national economic security in the
context of the WTO accession. In practice, Russia has kept the existing complex of financial services after the
accession to the WTO, as it was mentioned above.
Experts in the insurance field consider the augmentation of market participants reasonable due to the entry of
foreign insurance companies and possible improvement in service quality. An increase in the role of foreign insurers
may cause substantial cost reductions for the insurance services (Zemnitskiy, 2001). Similarly, this can be applied to
reinsurance, being profitable for Russian financial companies in the first place.
As for the bank services, no drastic changes are expected, since the positions of foreign banks in some segments
are rather strong; in other segments the competition will increase (e.g., in investment banking). On the other hand, it
will be difficult for foreign banks to compete with big Russian banks with the state participation due to their
established reputation, large branch network, and grey schemes of work with corporate clients based on the
connections between top management and owners of big banks. Thus, the experts expect no big changes in the
banking sphere (Fomenko, 2011).
The market of brokerage and other financial services was the one most involved in global financial system even
before the accession to the WTO. Its mode of operation is liberal; therefore no substantial changes are expected,
excluding a slight increase in competition.
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Reduction of import tariffs for food commodities will make the situation of retailers slightly easier because of
harder price competition between foreign and Russian food producers.
Integration of Russia in the international trading space infers a substantial reduction of the retail prices for the
agricultural goods. Sergey Yushin, the head of the Executive Committee of the National Meat Association, believes
that the prices for poultry meat will be rather stable during the next several years, since the share of poultry import
will drop to less than 10%. Thus, price fluctuations on the external market will not significantly influence the prices
of Russian manufacturers. In 2011, they increased the production by 11% and it is expected that these dynamics will
continue despite the WTO (Dolgov, 2003).
It is mostly frozen meat that comes from abroad and that is worse than our chilled meat in all respects. Thus,
poultry farmers expect that the domestic production will keep the demand. Moreover, extension of markets is
possible by means of export. Southeastern Asian countries currently buy Russian poultry, but poultry farmers hope it
will also be in demand in Europe. However, this production must become competitive to achieve this goal. The main
problem is that about 30% of poultry farms in Russia use the outdated equipment, meaning that approximately the
same amount of goods cannon compete with the foreign production. The issue is not even in the quality of poultry
meat, which is much higher that for foreign analogs. Modern package and new freezing technologies are needed for
Russian chicken legs. Additional equipment is also required to expand production capacity.
As for the prices for beef meat in Russian retail, they will gradually continue to grow. The investments in this
area are currently insufficient because of long payback periods (11-12 years). It should be noted that the world
prices for beef increased by 30-40% during the past 2.5 years.
The most difficult subject for the prognosis is pork meat. On one hand, there are prerequisites for further
expansion of national production capacity, on the other hand – an acute decrease in number of private farms that
hold around 40% of production takes place, because of the worsening of situation with African swine fever. The
expert says that the reduction of dues for the import of store pigs from 40 to 5% and for the import of pork meat in
frame of tariff quotes from 15 to 0% represent the serious risk for future investments in swine breeding. However,
this marked reduction of dues will not necessarily reduce retail prices. The retail will be able to keep high prices due
to the insufficient supply if the new facilities will not cover the drop in production volume.

4.3. The necessary steps to be taken after the accession to the WTO

An analysis of the implications of the WTO accession for the national economy points to both economical losses
and benefits. Economical losses result from partial liberalization of customs tariffs in the first place. On the other
hand, liberalization of tariffs in certain sectors leads to the growth of production volume. Other positive implications
of the accession to the WTO include improved access of Russian exporters to the foreign markets and growing
volume of direct investments in the liberalizing sectors of services.
Social policy measures aimed at acceleration of workforce migration from non-competitive companies and
sectors to these with better growing potential are required in the first place to minimize losses. Company towns with
their forming enterprises at a higher risk represent the toughest challenge in this respect. Therefore, the most
attention of regional and federal authorities should be given to solving problems of company towns.
In order to strengthen the positive effect of Russia’s accession to the WTO it is necessary to improve the potential
of Russian non-raw material export by reducing the barriers impeding the access of national companies to foreign
markets and taking the export-supporting measures that are allowed in the WTO frames. These measures include
both reducing the administrative load of export business and investments in export infrastructure. The measures
aimed at improving the business climate in the country are also very important. This will allow one to make the
liberalizing economic spheres more attractive for foreign direct investments and to alleviate the negative
implications from the WTO accession.
Development of transport infrastructure will assure the connections of a town with other regions of the country
and make it open for trade. Natural advantages of the town’s location should be considered in this respect. Frontier
towns, for example, can serve as the export gates. Thus, China is now implementing plenty of programs for creating
special economic areas, including building towns on the border with Russia.
1044 Viktor Gnevko et al. / Procedia Engineering 165 (2016) 1039 – 1045

Creation of incentives to attract large investors. Large business enterprises both in manufacturing and bank
sectors that work in frames of governmental orders of any kind must assume the liabilities to purchase goods and
services from small and medium-sized business enterprises in problem regions and towns. The use of this limitation
in the USA for benefit of small business owned by representatives of the American Indian population supported the
growth of large business investments in problem towns. Reduction of costs linked to the access to communal
infrastructure is also important for investment attraction (http://info.tatcenter.ru, 2012).
Securing the access of representatives of small and medium-sized business in these towns to funding. Incentives
for the creation of alliances between state-owned and regional banks should be developed. This is necessary for the
potential entrepreneurs to get bank loans, including those needed for participation in privatization of non-core assets.
Special conditions may also concern the acquisition of equipment in leasing. This practice already exists in Russia,
but its scale is insignificant yet. Measures for stimulating small business foundation may include financing of loan
interest rate for opening of a company by means of giving special vouchers to the employees of enterprises forming
a company town in case of their voluntary discharge.
Activity of public employment service under the conditions of economic crisis. The most important function of
public employment service’s regional bodies is rendering state services including assistance in job search,
professional orientation, professional training, retraining and advanced training of unemployed citizens. The
significance of this activity increases in case of worsening of labor market situation, because the rate of workers’
adaptation to the changed economical conditions depends on quality and timeliness of the provided services.
Meanwhile, the load upon employment centers increases as more and more people seek for their assistance. This
situation raises the question whether the employment service is ready to efficiently assist the citizens in training and
job placement under crisis conditions [ibid.].
Thereby, in order to alleviate the losses resulting from the WTO accession for Russian economy, appropriate
measures should be taken at all levels of authority. We have formulated the following proposals in connection to
abrupt deterioration of the economic component of sustainable development that resulted from Russia’s accession to
the WTO:
x the Ministry of Economic Development should form a well-defined state policy for the development of
certain sectors, clearly formulate the aims and goals and determine the tools to achieve the latter, with the
involvement of business representatives and Chambers of Commerce and Industry;
x the Ministry of Economic Development should organize monitoring of goods markets in all entities of the
Russian Federation, and control the situation with the most sensitive positions for the population, first of all
with food products;
x it is necessary to initiate the formation of regional councils for preparing regional economies for the
development in the WTO frames;
x the Ministry of Education and Science of the Russian Federation should promptly organize training of
lawyers, economists and managers in Russian regions who would specialize in the WTO;
x the Committee for economic policy, innovative development and entrepreneurship of the State Duma of the
Russian Federation should comprehensively analyze the current state and actual prospects of the most
important sectors of national economy for the next years in frames of continuation of the WTO membership;
x Chambers of Commerce and Industry in the regions should form committees to coordinate activity of
regional entrepreneurs under the WTO conditions.

5. Conclusion

We can assert that the implications of the WTO membership mostly depend on the measures of state and regional
policy on adaptation of national and regional economies. The integration into global economy is necessary for
Russia despite its painfulness, in order to intensify the structural reorganization and increase the efficiency.

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