Germany stands to profit from Russia′s WTO membership | Business| Economy and finance news from a German perspective | DW | 22.08.2012
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Germany stands to profit from Russia's WTO membership

After 18 years of protracted negotiations, Russia has finally become a member of the World Trade Organization. Germany hopes the move will improve bilateral trade relations and remove former barriers.

German cars are at a premium in Russia. But whoever wants to own a Mercedes, BMW or VW needs to dig deep into their pockets. There's a 30 percent import duty on new cars on top of the regular sales price, and a 35 percent tariff on imported used cars. It's part of Moscow's idea to make buying foreign cars expensive and thus unattractive for Russian citizens. And it's not just about cars but a plan for many other products as well.

Peter Balas, who represents the European Union's interests in WTO accession negotiations, called that protectionism. Russia's been sealing off its markets systematically since 2006, he said, adding that based on a very open partnership and cooperation agreement with the EU, Russia took a number of measures to shelter its agriculture sector.

Pile of wood

Heavy tarifs on wood and other items are a huge trade burden

"What followed were higher duties on wood and anti-crisis duties levied in 2009; duties which are still in place today," Balas said.

Decline in direct foreign investment

Balas said Russia's policy hasn't necessarily done its economy any favors. He said statistical data shows direct investment in Russia by EU member countries has been declining considerably in recent years because of existing trade barriers, widespread corruption and red tape. Such an environment, Balas said, has had a role in Russia's economic stagnation, low productivity and run-down infrastructure.

WTO accession is important for both Russia and the EU, Balas said. "Russia will not be an interesting business partner and investment target as long as there are no secure and stable legal conditions for foreign trade partners," the EU representative said. But Russia's WTO membership means a lot of changes that will support the Russian economy's modernization.

German companies sense brisk business

Considering Russia's modernization needs, it's first and foremost German manufacturing and engineering firms which are hoping for new business opportunities. Russia is already their fourth-largest export market. If import duties were to come down to an average of 6.4 percent from the present 9.4 percent, trade activities could experience a boost.

Part of the Sakhalin-2 liquefied natural gas project in Ai region

Oil and gas account for 65 percent of all Russian exports

German-Russian trade volume last year was put at 70 billion euros ($87.75 billion), the highest annual level ever achieved. With Russia now a WTO member, the bilateral trade volume could increase by another 2 billion euros annually. German carmakers also sense good business opportunities, should import duties on vehicles dip gradually to 15 percent.

But Hans-Joachim Henckel from the German Foreign Ministry's Foreign Trade Department said businesses shouldn't be overly enthusiastic. There would only be improvements if Russia stuck to the "rules of the game."

"But doubts are in order, as intense debates in Russia continue about possible protectionist measures in many industries," Henckel added.

Russians dread competition

Balas, for his part, claimed Russia had misused the pre-WTO period of transition. He said new protectionist measures in Russia were cooked up almost on a weekly basis and that they ran foul of WTO stipulations.

It's the Russian business community that has been resisting the notion of more liberalized trade relations. Domestic companies are afraid of competition from abroad, with foreign rivals being able to offer their goods at lower prices, should import duties come down. The Kremlin, for its part, has been hoping for reduced consumer prices in the wake of WTO membership - a side effect that could help stifle rising dissatisfaction among ordinary Russians.

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