Does Russia really need WTO?

Two weeks ago Russia announced the suspension of its bid to join the WTO and now intends to file a collective membership application as a customs union with Kazakhstan and Belarus. There are multiple reasons why Russia should seek to join the WTO as soon as possible, but there are two reasons why it is not a high time to do so. Namely, they are financial crisis and Russia’s sphere of influence.

A quantitative assessment of WTO accession impact on Russia by the World Bank in 2005 indicated that, despite economic benefits are achievable in the medium and long term, many households may lose during a transition period. Employment will decline in the sectors in which Russia has a comparative disadvantage, namely, light industry, food, machinery and equipment and construction materials. Russia’s GDP shrank by 9.8 percent in the first quarter of 2009 and the World Bank predicts a slow and painful recovery with a weak economic growth until 2012. This means that Russia will have to struggle with rising unemployment and possible social unrest for another 2.5 years. Joining the WTO now may exacerbate these negative effects on Russia’s economy.

Furthermore, Russian government will not be able to impose trade restrictions that seem to have a greater calming effect on Russian people than on the economy. World Bank predictions for the economic growth after WTO accession also indicate that liberalization of barriers against foreign direct investment is the most important component of the impact on the Russia’s economy. Thus, in order to achieve huge benefits from the WTO accession, Russia will have to review a number of legal provisions that regulate FDI in the economy, including the famous Strategic Sectors Law. Joining WTO under such circumstances may further hurt the economy and hamper its weak growth.

Another aspect of Putin’s decision on WTO is Russia’s assertive policies toward its neighbors. Russia believes into a multipolar world and would like to become a center of integration in Eurasia. This requires for establishing a close relationship with its partners and which Russia deems its circle of influence. Kazakhstan is assuming chairmanship of the OSCE in the next year, and is a growing energy power in the Central Asia. Staying outside the WTO allows Russia to use trade barriers in its foreign policy, mainly in regard to its neighbors that act against Russia, for example, Ukraine.

The most important question is whether the customs union with Belarus and Kazakhstan is possible. Just days before the announcement of the customs union formation, Russia has been engaged in a “milk” war with Belarus that clearly showed the scope of the relationship between the two countries. Kazakhstan may also be increasingly reluctant toward Russia’s demands as it is trying to lead its own economic policy and highly values its sovereignty. These tensions may hurt the effectiveness of the Customs Union.

This period of the economic crisis can be a period of opportunities for Russia. It can establish long-needed economic institutions that will enable Russia to mitigate the pain imposed on the industries and population in the period of a downturn, and increase labor productivity and industrial efficiency. Russia has a huge potential to come out of this crisis with stronger economic institutions and checks-and-balances system, that will be enable Russia to reap huge gains from its future WTO accession even in the short-run.

Russia’s policy in the North Caucasus. What Russians should learn from Obama’s speech?

Situation in Russia’s North Caucasus is becoming alarmingly unstable. While the Kremlin was able to stabilize Chechnya, mainly by flooding the republic with federal money and giving Chechen authorities all the freedom they want, Dagestan is becoming the next hotbed for insurgence and failure of the Kremlin’s policy in the region.

High unemployment, reaching 80% in Dagestan, corruption, arbitration of authorities, high crime rate and absence of rule of law largely contribute to formation of insurgence as a form of protest against the current regime. These factors have reached such a magnitude that local authorities and criminal clans within these republics have started to collide to gain control. The opposition is suppressed with a significant help of a 1999 Law ‘On Wahhabism and Religious Extremism’, that equips local authorities with an effective way to get rid of the opposing forces by trying them as religious extremists and wahhabi. Chechen authorities have become bold enough to reach to their opponents in Moscow and abroad. “Power in exchange for stability” pact between North Caucasus and Moscow has failed.

The U.S. deals with a similar problem in regard to Muslims and has been fighting insurgence in Afghanistan and Iraq. In the aftermath of nine eleven and Bush policies toward the Muslim world, the relationship between Muslims and the West has been undermined, as it has let a great deal of people in the West to view Islam as inevitably hostile. In order to fix this, Obama administration adopted a new, peaceful policy toward Muslims. In his Cairo speech, Obama called for partnership with Islam and a search for new grounds of interaction.

Russians also view Islam as hostile and dangerous. Muslims face extraordinary difficulties with employment when escaping from North Caucasus to other Russian regions. Hate crimes are on the rise among Muslims and these attitudes have long been supported by Russian authorities. Ineffective Kremlin policy in North Caucasus only adds fuel to the fire, leaving large populations of North Caucasus without basic living norms and creating grounds for opposition and insurgence.

Russian government, at its top, needs to adopt a new policy toward its Muslim population, similar to those of Obama administration. North Caucasus republics should receive funding for social infrastructure, and small business development programs should be launched. Tolerance toward Islam should be promoted among Russians. This will help prevent escalation of violence in North Caucasus. About 20% of Russian population is Muslim, and it is increasing quickly. There is even an idea spread by official muftis that Russia is a Christian country temporarily. Putin’s tactic of force and reliance on administrative resource is not going to work anymore.

Medevedev has announced his plans to meet at a big meeting with Muslim leaders. It is fascinating that the meeting of this scope will be held for the first time in the history of modern Russia. This shows that Medvedev once again asserts himself as someone who wants to depart from Putin’s authoritarian methods and start a diplomatic dialogue with Muslims. It seems that Medvedev understands that only well-defined policy of Russian leaders toward Islam may lead to a stable situation in North Caucasus. The only factor that may affect this equation is how much political power Medvedev will gain in the near future.