The EU-Russia WTO Deal: Balancing Mid-term and Longerterm Growth Prospects?

In any discussion of EU external relations, Russia looms large as the EU’s largest neighbour and the world’s largest gas producer. With Russia now virtually certain to ratify the Kyoto protocol, two big issues remain prominent: its accession to the WTO and the economic growth targets of the Russian government.

From the international perspective, the long-running negotiations on Russia’s accession to the WTO have helped maintain credibility in a reform process recently described as faltering by Andrei Illarionov, an economic advisor to President Putin. At the same time, expectations of Russia’s economic performance have been raised by the President’s announcement of a long-run growth target. The question examined here is whether reforms unleashed by Russia’s WTO accession can have a positive impact on its economic performance.

The government’s growth targets for Russia are certainly ambitious. The headline goal is to double the level of GDP within ten years (between 2003 and 2012). Of course the simplicity of this formula makes it publicly attractive. However, as with all such ‘plans’, it also invites uncomplimentary comparisons with ‘dirigiste’ regimes and of course the possibility of general embarrassment if the goals are not achieved.

Hitting the growth target will require the consistent achievement of 7% per annum growth in GDP or better. With around 7% GDP growth achieved in 2003, the goal appears achievable at present (forecasts for 2004 are between 6½% and 7%), but meeting such targets consistently will require more fundamental structural reform, in line with Russia’s declared ambition to reduce the country’s dependence on oil and gas (Yukos alone makes 4% of GDP). Here, the policy imperatives attached to joining the WTO might be expected to play an important role.

Russia needs to maintain high growth levels for the remainder of the decade and underpin the sustainability of its growth prospects in the longer-term. However, achieving these twin ambitions will not be easy. Structural economic reforms imply costs. Does the growth agenda make reforms more or less likely?