It took Russia 18 years to get into the World Trade Organisation, but as the first anniversary approaches many Russian businesses are starting asking why the government bothered.

The conclusion of several surveys and reports issued ahead of the anniversary of WTO accession on August 22 is that few Russian businesses report any economic benefits, while several important sectors are actually a lot worse off. And if anything, the simpler trade rules have actually made Russia’s relations with the rest of the world worse, not better.

At the time, Russia’s membership was hailed as a real step forward in modernising the Russian economy and a badly-needed goad that would force the Kremlin to press on with reforming and diversifying the economy. However, it seems that the benefits, if any, will arrive much further down the road.

“The majority of Russian businesses have felt little or no change following Russian accession to the WTO in 2012,” Global Council, a consultancy belonging to Peter Mandelson, a former British politician and EU commissioner for trade, said in a report released at the St Petersburg International Economic Forum last week. “The Russian authorities expect that the impact of new competition will begin to be felt after three to five years, but the full impact could take much of this decade to emerge.”

In the spring, the Strategy Partners Group (part of state-owned bank Sberbank) surveyed 2,000 owners and top managers of Russian companies with annual turnover of more than $100m. More than half said they had expected a positive impact of WTO accession on the Russian economy immediately following accession, but now more than 50 per cent think that there has been no impact at all, with 32 per cent thinking the impact was negative.

These findings were mirrored in a separate survey conducted by the Association of European Business, although with the caveat that these foreign businessmen, as opposed to their Russian peers, remain optimistic about the benefits from the club’s membership in the medium term: two-thirds of the AEB’s members report no change in their business from the WTO accession.

The one area where the WTO accession is regarded as already having a significant impact is in agriculture – and that was extremely negative. Russia is phasing in the compliance to the WTO rules over eight years, with the most vulnerable sectors, like automotive, required to meet the new rules last.

But with agriculture all the restrictions were dropped from day one. “WTO entry has to some degree exposed a lack of price competiveness and a dependence on state support. The pork industry in particular has felt the impact of a reduction in in-quota tariffs to zero by some Russian companies,” says Global Council.

These problems are already causing a backlash in the Duma where companies are lobbying for more protection, or at least some compensation.

Opposition lawmakers from the Just Russia party (which voted against WTO accession) claimed at a panel discussion held on June 20, which was attended by groups lobbying on behalf of engineering, agriculture and clothing industries, that Russia has lost “billions of dollars” due the cut in import tariffs and lost business for domestic companies.

“The WTO is bringing us into an [economic] depression,” Konstantin Babkin, head of harvester producer Rostselmash, was quoted by the Moscow Times paper as saying. The industry was amongst the hardest hit by the lower tariffs which have opened Russia up to cheaper imports; milk imports alone have grown 17 per cent in the last year.

Babkin has threatened to challenge the accession in the constitutional court on the grounds that Russia still doesn’t have a representative office at the WTO headquarters. However, the Kremlin have ignored their complaints and is very unlikely to reverse the WTO accession, which was personally championed by Russian President Vladimir Putin.

The WTO accession has been a disappointment, but some analysts say that the problems are symptomatic of a more general reduction in Russia’s competitiveness in the global market place, which has caused the economy to slow even more dramatically than was expected at the start of this year.

“The WTO accession has done little good to the economy so far. Instead, Russia has to spend more resources protecting the uncompetitive sectors of the domestic economy than it benefits from through its exporters having access to international ones,” say analysts at Russian investment bank Uralsib.

Still, the majority of commentators believe that the WTO accession was an important step for Russia and that over the longer term the increased competition will benefit the country.

Financial Times