Russia’s WTO accession effects: Belarus hopes for compensation

Belarus hopes for compensation for economic losses associated with the anticipated Russia’s accession to the World Trade Organization (WTO). The implication is that the counterparts are to have contentious negotiations about future economic cooperation framework.

In the near future the protocol on Russia’s WTO accession will be submitted to the State Duma. All relevant procedures will be completed in July 2012.

Thus, in early August, Russia will become a full WTO member. Moreover, Kazakhstan’s accession to the WTO is also anticipated before the end of the year.

Russia and Kazakhstan’s accession to the WTO is fraught with a number of negative consequences for the Belarusian economy. Thus, reduction in customs duties will result in cheaper foreign goods, enabling the expansion of Russian and Kazakh markets by international businesses. As a result of increased competition, volumes of Belarusian exports to Russia and Kazakhstan will reduce.

Belarus’ major non-oil exports, which will face the danger of supply reduction to Russia and Kazakhstan include: trucks, tractors, truck tractors, cars, milk and dairy products, meat products, tires, steel products, furniture, sugar, building and construction materials , shoes, and clothing.

In some cases the reduction in Russian customs duties for foreign goods could affect single-company towns, both in the capital and in small and medium Belarusian towns. Moreover, private small and medium businesses may be affected.

At the same time, customs duties on Belarusian goods exported to third countries – WTO members, will remain unchanged. It will be difficult for the Belarusian enterprises to compensate for the losses on the Russian market via increasing the supply of goods to the third countries.

All in all, the average reduction rate of import duties to Russia is as follows: 2011 – 9.6%, 2012 – 9.5%, 2013 – 7.4%, 2014 – 6.9%, 2015 – 5.9% and by 2019 is forecasted to drop down to 5-5.3%.

In addition, within the Customs Union and Common Economic Space Belarus could anticipate an increase in imports of goods from the third countries via Russia and Kazakhstan. Accordingly, Belarusian companies will face with greater competition not only on the Russian and Kazakh markets, but also inside the country.

Ultimately, this could result in reduced production output, employment, incomes and profitability of Belarusian producers. In turn, the reduction in foreign exchange earnings against the backdrop of increasing volumes of imports may result in an increased deficit in the current account of the payments balance, increased demand for foreign currency and reduced Belarusian ruble’s exchange rate against the major currencies.

As a result of the deteriorating financial situation at Belarusian enterprises problems associated with servicing internal and external debt liabilities of Belarusian residents could deteriorate. Simultaneously, reduced number of employees and work places could trigger unemployment growth and increase social tensions in the country.

Finally, Russia and Kazakhstan’s WTO accession would reduce Belarusian investment attractiveness in comparison with its Customs Union partners, because customs duties for Belarusian residents applied by third countries – parties to the WTO, will be maintained at the same level, while reduced for Russian and Kazakh companies.

Certain risks are associated with the implementation of investment projects in Belarusian free and special economic zones. For example, in Russia, preferential conditions in Kaliningrad and Magadan free economic zones and investment agreements in the automobile industry to be completed by 2019, when all benefits that do not meet the WTO standards will be canceled.

However, there is no need to over-dramatize the negative effects on the Belarusian economy associated with Russia’s entry to the WTO. For the most part import duties for Belarusian goods will continue to be lower than those for foreign goods originating from the third countries (even taking into account the expected reduction).

Prime Ministers of Belarus, Russia and Kazakhstan, Mikhail Myasnikovich, Dmitry Medvedev and Karim Masimov on June 15 discussed enhancement of integration cooperation within the CU and the CES at a working meeting and the second business forum “Common Economic Space: New Opportunities for Industrial Development”, which took place in St. Petersburg. During the forum, Medvedev said that Russia will support Belarus and Kazakhstan’s accession to the WTO.