WTO: Unfair Battle between Emotions and Facts

Russia's accession to the WTO: thoughts and conclusions

Two weeks ago, I attended a conference on Russia's accession to the WTO. Discussion struck me by extremely low quality of reasoning, combined with emotions beating over the edge. One goes out and tries to prove with foaming mouth that it's time to book seats in the cemetery. Then comes another, and with the same confidence asserts that WTO is absolutely helpful for business development and competition in Russia. Nobody suggests specific arguments or numbers, and all the discussion proceeds at the level of "good or bad".

At the same time, the situation today significantly differs from what it was even a year ago. The full package of documents on the terms of Russia's accession to WTO is available for download from the site of the Ministry of Economic Development (MER):

This is not just a short summary, like the one prepared in November 2011 during the agreements preparation. This is a full base, where even an inexperienced reader can in two hours evaluate the conditions for product categories of interest.

After a quick study of the materials in their final form, I made three conclusions:

1. Real agreements and rumors vary dramatically. 
For example, almost everyone speaks about the terrible conditions for our meat industry: duties, they say, will be reduced to zero. In fact, the fees remain at the current level until 2020, that is, 7 years. You can build from scratch and almost recoup a large pig and poultry complex!

2. In general, the conditions of accession are quite comfortable for Russian companies.
Sharp deterioration in the positions of national companies can be expected only in a few industries. Most of the dramatic predictions are not based on evidence.

3. To assess the impact of WTO on the specific company, one needs to carefully examine the agreements for corresponding categories; it is even better to do this for particular HS codes. 
The conclusions can be made only after doing this; and general assessments are often misguided. For some industries there are clear drawbacks, while others benefit from WTO.

Certainly, for a number of sectors, 5% change in fees can significantly affect the balance of power in the market. For example, we recently analyzed the relative attractiveness of production location in Russia for an international FMCG company in "before" and "in" WTO settings. The entry arguments "for" became much smaller, but this example is an exception, rather than the rule. To make a really valid conclusion, it is necessary to carry out serious comparative modeling of the costs of Russian and foreign manufacturers across the whole value chain. According to the judgments quality, this step is skipped in most cases.

So why WTO discussions are still dominated by emotions, even given the availability of clarifying materials? 

Of course, in this particular case the industry specifics matter – there are enough “red directors” and zealous liberals in agriculture. But the presenters are smart people, professionals in business and management!

One explanation comes to my mind. Over the past 10 years, I’ve been to dozens of conferences, where WTO was discussed, and the mood of debates doesn’t change. Everybody expresses the opinion as a whole, but doesn’t discuss the specific facts and calculations, and the reason is that these facts are nowhere to take from. Coverage of the topic by negotiators and MER is very poor, and getting objective information takes long time for the person from outside. The sites wto.ru and economy.gov.ru are very difficult to navigate. Traditional mass media, such as press and TV, usually concentrate on pathetic talks, instead of delivering neutral analysis. 

To summarize, I argue that in conditions of inadequate information distribution, the public opinion is heavily influenced by politics and emotion. When the position is already formed, even the experts aren’t willing to dig into the details of actually signed agreements. However, just as the changes come into effect, managers will have to deliberately study the threats and opportunities thoroughly. Those who already do this will have more time for decision-making, resulting in competitive advantages.