SLOW AND STEADY WIN THE RACE

For fifteen years already, Azerbaijan has enjoyed observer status in the World Trade Organization (WTO), and hopes to become a full member. During this time, a series of negotiations, including multilateral rounds, have been held. The path of neighbouring Russia, which joined the international community of free trade only after 19 years of complex negotiations, was not short either. The Russian experience of participation in the WTO will be very interesting for our country, because in addition to obvious advantages, membership in the trade organization contains many threats to the young market economies of the post-Soviet area.

Russia: the deal is made

Today the World Trade Organization includes about 80 per cent of world countries, which account for 97 per cent of world trade. Over the past 10-12 years, the WTO has been joined by several post-Soviet states - the Baltic states, Ukraine, Moldova, Georgia, Armenia and Kyrgyzstan. Another 30 countries are in various stages of negotiations to join the WTO, including Azerbaijan and its partners in the CIS - Belarus, Tajikistan, Uzbekistan and Kazakhstan.

It is noteworthy that, until recently, the Russian Federation was the last major world economy outside the WTO. The negotiations with the organization and its predecessor - the General Agreement on Tariffs and Trade - began in distant 1993, and continued with mixed success during this period, facing mainly economic challenges. The plot of such a long negotiation process was based on lobbying for the interests of the Russian industry and agricultural and financial sectors, which had a vested interest in retaining state protection. On the other hand, in recent years advocates of globalization have got noticeably stronger in the Russian Federation, which is not surprising, given the increasing pressure from the world's major corporations that are interested in the maximum openness of the Russian market.

One way or another, new trends that prevail in the post-crisis period prompted the Russian government and its negotiating partners to expedite Russia's accession to the WTO. At last, on 22 August 2012, Russia was formally recognized as the 156th member state of the World Trade Organization.

In spite of the fait accompli, the advantages of membership in the WTO are still not seen explicitly both by businesses and the expert community of Russia. According to the prevailing opinion, the advantage of WTO membership will be felt to the greatest extent by Russian metallurgy, chemical and coal industries, as well as construction, transportation and trade. The sector of mechanical engineering and the automotive, food and light industries might be harmed. 

It is also possible that the monopolistic positions of some credit-financial and telecommunication institutions will be undermined. Serious problems definitely await the agricultural sector: even today poor technical equipment and high production costs make the products of Russian farmers uncompetitive in many ways. And now, after accession to the WTO and the removal of protective trade barriers, the price of imported fruits, rice, rice flour, dairy products, wine and beer, pork, seafood, etc. is expected to fall in Russia.

According to preliminary calculations by experts of WTO Inform and Strategic Business Solutions (SBS), under these circumstances, the Russian budget will inevitably suffer some losses. Losses in 2020 are estimated at 3 per cent of GDP, which is no less than 6.6 trillion roubles. If negative trends prevail, experts say, Russia may lose about 26 trillion roubles in eight years. At the same time, according to the World Bank, in the first three years Russia's accession to the WTO will be bring about 3.3 per cent of GDP to the country's economy each year due to the growth in trade, capital flows and new investment and employment opportunities. If the positive trends continue and foreign trade, the tax base and collection of fees grow, profits could rise to 11 per cent of GDP - about $ 162 billion - in 10 years.

Azerbaijan: the next round

Either way, the benefits and losses from joining the WTO will only become apparent to the fullest extent in five to seven years after the end of the transitional period given to Russia for the gradual liberalization of trade with foreign countries. So far it is more interesting to wonder how Russia's accession to the WTO will affect, in particular, economic relations with Azerbaijan. "No special changes can be expected in this regard: bilateral trade agreements have been signed with Russia, on the basis of which mutual trade will continue on the same terms, even considering the fact that our country is not yet a member of the WTO," says Doctor of Economics Oqtay Haqverdiyev.

However, it should also be taken into account that the basis of Azerbaijan's exports to Russia (excluding gas supplies) is agricultural produce - fresh and canned fruits and vegetables, vegetable oil, cotton yarn and other industrial crops, and to a relatively lesser extent - non-ferrous metals, petrochemicals and other industrial products. And in this context, it is important that during this transition period Russia will reduce the import tariffs on agricultural products from 15.6 to 11 per cent, which will open good prospects for our country to increase the volume of agricultural exports to the northern neighbour's market in the future, of course, on condition that by that time, Azerbaijan will become a full member of the WTO.

So far, Azerbaijan continues complex negotiations on accession to the WTO, trying to soften the possible negative impact on the domestic economy.

In July last year, the Azerbaijani side held another round of bilateral negotiations on goods and services with the member countries of the WTO in Geneva. And in February 2012, they held a ninth multilateral meeting on Azerbaijan's membership in the WTO, during which they had talks with the US, the EU, Norway, Canada, Ecuador and Japan. Today, Azerbaijan is in the process of bilateral negotiations with Brazil, Sri Lanka, India, South Korea, Taiwan Province of China, Canada, and Switzerland. Negotiations have already been completed and protocols have been signed with Turkey, Oman, the United Arab Emirates, Georgia and Kyrgyzstan, and protocols with Moldova are in the process of signing. Azerbaijan continues to work to improve the current trade regime and bring the national legal framework in line with WTO requirements. These include laws to protect intellectual property rights and investment measures in trade, tariffs and services. About 40-50 legislative acts must comply with the requirements of the organization, and about 30 documents have already been unified.

The next tenth round of the negotiations might take place at the end of 2012, but before it starts, all required documents must be submitted for review by experts of members of the WTO in September this year. However, apparently, the tenth round will not be the last one: such scrupulous attention and even carefulness of our negotiating team is justified. Despite Azerbaijan's remarkable progress in the diversification of the economy, especially in the development of its non-oil sector, over 90 per cent of domestic exports are still hydrocarbons and their derivatives. On the other hand, our accession to the WTO is hampered by serious disagreements. For example, Azerbaijan wants to join the WTO with the status of a developing country, and thus get a limit of 10 per cent on subsidies to the agricultural sector, while the WTO agrees only to the 5-per-cent limit. There are also differences in the sphere of customs BAUM tariffs. Given that no compromise has been reached on these issues, our country is not ready to surrender just for formal membership in the WTO. Loss of vigilance can lead to negative consequences for some sectors of our economy and weaken agriculture, banking, etc.

However, for the sake of objectivity, we should also mention bonuses and preferences from our country's accession to the WTO. "After the accession of Azerbaijan to the WTO, the EU will start negotiations on a free trade agreement, which will greatly facilitate the access of local products to the European market," the head of the EU delegation in Azerbaijan, Ambassador Roland Kobia, believes. According to him, membership in the WTO is one of the basic requirements for the further progress of trade and economic cooperation between the EU and partner countries, including the establishment of a comprehensive free trade area. In particular, the EU offers Azerbaijan the following system of trade preferences: over six thousand types of different products from our country, provided they comply with sanitary and technical standards, can be transported to the EU without taxation.

Actually, the main task of the ongoing negotiations on accession to the WTO is to achieve the best balance between the benefits of joining the organization, above all for our exporters, and to minimize the damage from concessions such as lower tariffs and the opening of the internal market. The main thing is to ensure that the goals are achieved.