Russia and world trade: In at last?

The Economist discusses pronouncements this week that hint at the impending arrival of the Russian Federation at its long-awaited WTO destination:

After 18 years Russia is on the verge of joining the World Trade Organisation

There was disbelief this week when Arkady Dvorkovich, adviser to President Dmitry Medvedev, told journalists that Russia was close to joining the World Trade Organisation (WTO). Russia has been “close” for ages, but the timing has always slipped. Yet after 18 years of talks, it seems that membership now beckons.

Both America and the European Union have long agreed, as have all the other 153 WTO members bar Georgia, a small former Soviet republic which fought a brief war with Russia in August 2008 and is still partly occupied. Georgia had insisted, quite reasonably, on placing international observers to monitor the movement of goods at its sovereign border, which includes the territories of Abkhazia and South Ossetia.

Russia, which has recognised the independence of Abkhazia and South Ossetia, said this compromised their status. Swiss mediators have found a deal that does not mention their status, refers to the border as a corridor and provides for monitoring not by a government agency but by a private foreign company accountable to the Swiss government. Now Georgia has said “yes”, clearing the way for Russia’s entry.

After a few days, Russia also accepted the deal. There is no doubt that Mr Medvedev would like to go down in history not just as somebody who tinkered with Russian time zones but as the man who took his country into the WTO. The final decision still lies with Vladimir Putin, Russia’s prime minister and likely future president, though he is unlikely to block it now.

As Vedomosti, Russia’s business daily, points out, Mr Putin has always been the real obstacle to Russia’s entry into the WTO. In 2009, when talks between Russia and America were going full steam, Mr Putin unexpectedly thwarted them by saying that Russia would join only with Belarus and Kazakhstan, with which it has a customs union. Mr Putin, initially eager for Russia to be in the big international clubs, has come to see some WTO demands as a politically motivated nuisance.

The benefits of WTO membership are debatable. Some estimate that Russia could gain at least $50 billion a year. Others argue that Russia would do better to stimulate exports before joining. As it is, two-thirds of exports are oil and gas, not covered by WTO rules. Apart from extractive industries and metal, few Russian goods are competitive. A World Bank report notes that Russian exporters have trouble not just entering foreign markets but surviving in them.

The real problem, however, is not trade barriers to Russia’s goods, but the country’s own inefficiency, institutionalised corruption and stifled competition. None of these problems can be solved by WTO membership. But Sergei Guriev, head of the New Economic School in Moscow, says that it would at least expose corruption and increase competition, deeply alien to Russia’s ruling bureaucracy. Indeed, the main benefit of WTO membership may be political. “It will be a sign that Russia is moving towards the civilised world,” says Mr Guriev, “not away from it.”

Joseph S. Nye: The Future of Power

Joseph S. Nye,former US Assistant Secretary of Defense, Harvard University professor and author of The Future of Power, provides an up-to-date perspective on the "future of power" in our increasingly multipolar world:

Global government is unlikely in the twenty-first century, but various degrees of global governance already exist. The world has hundreds of treaties, institutions, and regimes for governing interstate behavior involving telecommunications, civil aviation, ocean dumping, trade, and even the proliferation of nuclear weapons.

But such institutions are rarely self-sufficient. They still require the leadership of great powers. And it remains to be seen whether this century’s great powers will live up to this role.

As the power of China and India increases, how will their behavior change? Ironically, for those who foresee a tri-polar world of the US, China, and India at mid-century, all three of these states – the world’s most populous – are among the most protective of their sovereignty.

Some argue that our current global institutions are sufficiently open and adaptable for China to find it in its own interests to become what Robert Zoellick, president of the World Bank, once called a “responsible stakeholder.” Others believe that China will wish to impose its own mark and create its own international institutional system as its power increases.

The countries of the European Union have been more willing to experiment with limiting state sovereignty, and they may push for more institutional innovation. But it is unlikely that, barring a disaster like World War II, the world will witness “a constitutional moment” such as it experienced with the creation of the United Nations system of institutions after 1945.

Today, as a universal institution, the UN plays a crucial role in legitimization, crisis diplomacy, peacekeeping, and humanitarian missions, but its very size has proven to be a disadvantage for many other functions. As the 2009 UN climate-change summit in Copenhagen demonstrated, meetings of 192 states are often unwieldy and subject to bloc politics and tactical moves by largely extraneous players that otherwise lack the resources to solve functional problems. As US Secretary of State Hillary Clinton put it recently, “the UN remains the single most important global institution…but we are constantly reminded of its limitations….The UN was never intended to tackle every challenge; nor should it.”

Indeed, the main dilemma that the international community faces is how to include everyone and still be able to act. The answer is likely to lie in what Europeans have dubbed “variable geometry.” There will be many multilateralisms and “mini-lateralisms,” which will vary by issue with the distribution of power resources.

For example, on monetary affairs, the Bretton Woods conference created the International Monetary Fund in 1944, and it has since expanded to include 186 countries. But the dollar’s global pre-eminence was the crucial feature of monetary cooperation until the 1970’s. After the weakening of the dollar and President Richard M. Nixon’s decision to end its convertibility into gold, in 1975 France convened leaders of five countries in the library of the Chateau de Rambouillet to discuss monetary affairs. The group soon grew to seven, and later broadened in scope and membership – including Russia and a vast bureaucratic and press apparatus – to become the G-8.

Subsequently, the G-8 began the practice of inviting five guests from the emerging economies. In the financial crisis of 2008, this framework evolved into the G-20, which boasts a more inclusive membership.

At the same time, the G-7 continued to meet on a narrower monetary agenda; new institutions, such as the Financial Stability Board, were created, while bilateral discussions between the US and China played an increasingly important role. As one experienced diplomat put it, “if you’re trying to negotiate an exchange-rate deal with 20 countries or a bailout of Mexico, as in the early Clinton days, with 20 countries, that’s not easy. If you get above 10, it just makes it too darn hard to get things done.”

He’s right, of course. After all, with three countries, there are three bilateral relationships; with ten, there are 45; and with 100 players, there are nearly 5,000. That is why, on issues like climate change, the UN will continue to play a role, but more intensive negotiations are likely to occur in smaller groups such as the Major Economies Forum, where fewer than a dozen countries account for 80% of greenhouse gas emissions.

Much of the work of global governance will rely on formal and informal networks. Network organizations (such as the G-20) are used for setting agendas, building consensus, coordinating policy, exchanging knowledge, and establishing norms. As Anne-Marie Slaughter, Director of Policy Planning in the US State Department, argues, “the power that flows from this type of connectivity is not the power to impose outcomes. Networks are not directed and controlled as much as they are managed and orchestrated. Multiple players are integrated into a whole that is greater than the sum of its parts.”

In other words, the network provides power to achieve preferred outcomes with other players rather than over them.

To cope with the transnational challenges that characterize a global information age, the international community will have to continue to develop a series of complementary networks and institutions that supplement the global framework of the UN. But if major countries are divided, it is unlikely that even network organizations like the G-20 can set the agenda for the UN and the Bretton Woods financial institutions to act upon.

In the immediate aftermath of the 2008 financial crisis, the G-20 seemed to help governments to coordinate their actions and avoid rampant protectionism. The world waits anxiously to see how it will perform when it meets again in Seoul this November.