Markets: News  

Russia's parliament ratifies entrance into the WTO

SAN FRANCISCO (MarketWatch) -- After more than 18 years of negotiations, Russia's lower house of parliament ratified the nation's entry into the World Trade Organization on Tuesday, a move that's expected to free up global trade with the globe's second-largest oil exporter.

"The changes of trade conditions will not be immediate as Russia got a transition period to adjust to new rules," Julia Tsepliaeva, a chief economist at BNP Paribas in Moscow, wrote in a note Tuesday. "We welcome the process and expect sizable gains from the entry in the medium term, in particular further economic liberalization."

The State Duma voted 238 to 208 to pass the bill, with one abstention, according to BBC News, which also said it needs to be signed by President Vladimir Putin and would become law 30 days later. Reuters, however, reported that the upper chamber of Russia's parliament, the Federation Council, must approve the bill before it's sent to Putin to sign.

The news was apparently welcomed by Russia's stock market, which saw its benchmark RTS index (RTS) climb 0.8% to 1,362.95, ending a four-session losing streak, according to data from FactSet.

Russia first applied for membership in June 1993, and the WTO approved its membership in December 2011.

"The accession of Russia to the WTO is a win-win deal," Pascal Lamy, the WTO's director-general, said in a statement when the WTO approved Russia's accession in December. "It will cement the integration of the Russian Federation into the global economy…. It strengthens and opens new trade opportunities."

WTO trade ministers have said that Russia's accession to the organization would make it a more attractive place to do business, though critics have been concerned about the increase in foreign competition.

"Two opposition parties -- the Communist Party of the Russian Federation and A Just Russia -- had blocked the ratification process by claiming that the Russia's accession had to be put under a referendum," said Martina Bozadzhieva, senior analyst for Central and Eastern Europe (CEE) & Russia at Frontier Strategy Group. "On Monday, the Russian Constitutional Court ruled down their claim and today the Russian Duma officially ratified Russia's accession treaty."

"Strongly protected sectors such as the consumer products, auto manufacturing, industrial machinery and pharmaceuticals, will see increased international competition when WTO membership results in lower import tariffs," she said. "This internal opposition is the main reason why Russia took 18 years to join the WTO."

Russia had to make sure that "sensitive issues," such as agricultural subsidies and high import tariffs for auto manufacturers, are "phased out only partially and gradually over a seven-year period," she said. Read about Russia's potential impact on global resources.

Russia's average import tariffs for all goods will fall to 7.8% from 10%, according to Bozadzhieva, and the World Bank estimates that Russia's GDP will grow by 11% over the long term as a result of the country's WTO accession.

"We expect the consumer sector to experience greater competition and prices of consumer products such as textiles and consumer electronics to decline," resulting in "increased consolidation of the industry as uncompetitive local businesses will either go bankrupt or be acquired," she said.

Russian small and medium businesses are wary of "increased foreign competition at a time when high taxation, expensive credit, and an unwieldy bureaucracy are limiting their growth potential," Bozadzhieva said. "Their owners are typically members of the middle class and Russia's WTO accession will be another reason for them to become disillusioned with the government."