The WTO and the BRIC Countries

For a long time the newspapers had been reporting on Russia’s entry to the WTO. Its entry was delayed over and over again and only happened at the end of 2011.  Many people like you had however been wondering ”why all that fuss with Russia’s entry in WTO”? So I think that a very good way to understand how will Russia benefit from its entrance on December 2011 would be to see the impact that the WTO entry had to the rest of the BRICs.

WTO explained simply

So what exactly is the WTO? According to its website it is:

”The only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements are negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business”

The WTO  successed the General Agreement in Tariffs and Trade (GATT), which from 1945 had been governing the international trade. Put it simply, it was a global organisation which is oversaw and dealt the ‘rules of trade’ between its members. They supervised round 60 agreements. Examples include:

These agreements had the status an of international legal text and when the terms  were breached, then the GATT can intervete and offer resolutions to the disputes.

As you might see, it is like a ‘club’ between its members, helping their trading relations to be more fair and efficient.

As in all clubs however, in order to become a member, you have to pay a price. And this price is expressed in terms of the requirements for the WTO ascension . When a country wants to enter the WTO, it has to make an individual application, and every time, the criteria that the country has to satisfy in order to enter the WTO ist ‘tailored’ by its members.  The things that its potential member will have to do in order to enter the organisation depend on the difference between the rules of the organisation and the applicant’s international and domestic trade policies and laws.

I’m sure that you now understand much better what WTO is.

But why did Russia struggle so much to enter the WTO? Lets see what happened in the cases of China, India and Brazil, and I’m sure that you will then have a much better idea.

Chinese ascension

The country which has benefited the most through its ascension is definitelly China, which enterred WTO only ten years ago, after 14 years of negotiations. Specialists, such as Zhang Hanlin, are of the opinion that “Seventy percent of China’s economic achievements this decade can be attributed to our membership in the WTO”. The benefits that China enjoyed were multiple. Most of its products started dominating foreign markets, leading to the saturation of many local industries (ie the manufacturing and the cotton industries in Europe). This lead to job creation and increased the prosperity level for many Chinese people. New jobs were also created from the fact that since China was a full-member, then companies would be able to outsource their services. All these facts definitely had a major role in transforming China in the modern economic super-power. There are however several issues concerning the use of copyrights, the restrictions in the exports of rare high-tech raw materials and many other which create tentions between China and the WTO.

Brazilian ascension

Brazil has benefited so far clearly less than China. Things seem to to be gradually changing: In 2011, Brazil was the country which was first in the export growth among BRICs. Recent disputes include ethanol tarrifs  in which Brazil might file a formal complaint against the US and car import taxes which are dissatisfactory to Japan. Brazil has also started making calls to the WTO concerning review of the rules of international FX trading.

Indian ascension

It could be said that India has benefited even less than Brazil from its ascension. The main reason for being that Indian economy doesn’t depend as much on exports, decreasing the benefits that the country can enjoy from its ascension. Recently there have been however several calls for investment and R&D in specific sectors that India can export, such as Pharmaceuticals and Agriculture. This means that these sectors can repsesent a growing opportunity in India for the next years.

And the time has come for Russia…..

The main advantage for Russia was not directly in terms of trading volumes but that it could ”redefine its relationships with the world”. The WTO accession made the country more open and transparent and lowered the risk environment for foreigners to invest and work. In addition, it could result in the modernization of its trade relationships with EU, while it could also assist the US-Russia relationships as  theUS could grant Russia permament normal trading status. Its clear that the indirect implications from its ascension can be crucial for the current and short- and long-term environment of the country.

For more information on the way that all BRICs have benefited through their ascension, you can see watch this debate, and if you want to focus on the way that China benefited, here you go.

About Konstantinos Tsanis

Currently, I am focusing in the completion of my PhD - research topic: Business strategies and financial performance in the high tech industry. I have worked with high tech start-ups, energy, food and pharmaceutical companies. Moreover, I have taught at the University of Edinburgh Strategic Management, International Accounting and Portfolio Management. I am also a Chartered MCSI from the British CISI institute.

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