Russia joins the party

December 17, 2011


St Petersburg was dark, slushy and freezing cold. An air of angst hovered over the wide, wet boulevards following public demonstrations against national elections that saw Putin’s party precariously elected back to power. But we were in Russia’s northern capital for a party – and no small party at that.

For the world of trade, this has definitively been Russia’s week: on Monday and Tuesday, hosting in frost-bitten St Petersburg the first major meetings of its year as host of the Asia Pacific Economic Cooperation group (APEC) – a significant and timely initiative intended to push Russia’s centre of economic gravity eastward towards the long-neglected wastes of Siberia and the lonely Pacific port of Vladivostok.

And then in Geneva today (Friday), Russia is celebrating accession to the World Trade Organisation (WTO) after a marathon 18-year negotiation – longer, even, than China’s 16-year marathon. There was a neat symmetry in Russia joining the WTO almost exactly 10 years after China joined – and the symmetry begs comparisons. Were Russia’s terms of accession tougher than China’s? How significant a liberalizing effect has WTO membership had for China 10 years on – and what might this imply for Russia’s economic development in the decade ahead?

As far as we know, the St Petersburg APEC senior officials meeting at the beginning of this week was the western-most meeting ever held by APEC. Most of APEC’s members – more familiar with balmy Pacific warmth – arrived looking nervous and a little disoriented in the faded European opulence of Russia’s cultural heart. There may be more comfortable places to celebrate an epic Russian trade party than the dark chill of St Petersburg, but Russian hosts more than made up for this with generous supplies of vodka and epic hospitality that ranged from an exclusive tour of the vast, opulent, overwhelming Hermitage Museum to an impressive firework display. While it was a real stretch to imagine anything “Asia Pacific” about St Petersburg, the “look east” symbolism of the event was clear. Even Russia’s logo as APEC host for 2012 carries deep symbolism – a billowing sail in Russia’s red, white and blue being blown forcefully eastward. As the symptoms and effects of Europe’s chaotic recession become daily more apparent, there could be no better time for Russia to look east. Their officials have put infrastructure-building at the heart of their agenda for 2012, and heavens, Siberia needs it. The infrastructure challenge was given grim relevance when officials learned that a major fire had badly damaged the huge bridge being built in Vladivostok to take APEC leaders to the Russky Island venue of September’s APEC leaders meeting. There is now a real possibility that leaders will be delivered to the meeting by ferry.

But today in Geneva, Russia becomes the toast of a demoralized and battered WTO. While the main, sad purpose of the meeting is to read the last rites over the long-moribund Doha Development Round, and to see what can be salvaged from 10 years of frustrated diplomacy, there will be a justified celebratory mood around the party welcoming Russia into the WTO fold. The accession comes almost exactly 10 years after China’s accession, and parallels are irresistible.

Inward flows of foreign investment seem to display similar tantalizing similarities. China’s inward FDI in 2000 amounted to US$41 billion, and has since risen to US$106 billion last year, in spite of global recession. Russia attracted negligible inward investment in 2000, but by last year attracted US$41 billion. It will take only modest success in attracting foreign investment into Russia’s massive infrastructure-building ambitions to lift this number to US$100 billion over the coming decade.
 



 

In short, China has been transformed over the past decade as it has begun in a serious-minded way to reengage with the global economy, and there are good reasons to believe Russia can see similar benefits.

Of course, there are downside dangers. China joined the WTO at a time of great optimism over the state of the global economy, and buoyant growth in international trade. Russia joins in the fourth year of the “great recession”, with the prospect of little improvement over the coming four to five years. Trade protectionism is the new apparent danger, and could frustrate the most serious-minded liberalizing aspirations.

And there are curmudgeons around – most of them American – who claim that the past decade has been not a decade of Chinese liberalization, but a decade of broken promises. Michael Wessel, a strongly anti-Chinese member of the US-China Economic and Security Review Commission, complained in the London Financial Times this week of nine feet of bookshelves full of files that “catalogue the failure of America’s naïve expectations that China would honour its many (WTO) commitments (and) demonstrate the futility of relying on Beijing’s promises of serious reform.”

Sitting in Hong Kong in the week we signed the eighth addition to the 2003 Closer Economic Partnership Arrangement (CEPA), such extreme complaints fly ludicrously in the face of fact. Yes it is true that China still has much to do before it is a fully open economy, but huge progress has been made and the world economy has been a beneficiary. Russia without doubt also has much to do before it can claim to be a truly open and liberal economy, but we are right to celebrate them joining the WTO family – even if it was in the freezing damp of St Petersburg in deep winter.

* The translated Chinese version was published in Ming Pao on Dec 17, 2011.

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