WTO: Comparing Problems
President Kuchma has declared that Ukraine’s membership in the World Trade Organization is a “matter of honor.” Its pros and cons continue to be discussed with mounting intensity, considering that Ukraine has no experience of playing the game by the universally accepted rules as well as the fact that it often lacks experience (and sometimes the will) in winning and keeping foreign markets. The pros are perhaps numerically stronger (like lifting tariff restrictions on trade exchanges with various countries). WTO membership will also help prevent imports at dumping prices. The cons reside mainly in the need to open up markets and meet the challenges of competition. This is also something not to be shrugged off. Moreover, WTO membership could well help Ukraine negotiate better trade terms with the EU, US, and candidate EU member states. Still, there is a large gap in the theoretical arrangements for Ukraine’s admission, as Verkhovna Rada has passed only 13 of the required 20 bills. Also, the pirate CD issue is still open, and there are loose ends in the foreign political domain to be trimmed. Last year, Ukraine signed just the first bilateral protocols providing access to commodity and services markets with member countries of the working group of Mexico, Uruguay, and New Zealand along with bilateral protocols involving Slovenia, Latvia, and Turkey. Access to the markets of another 19 countries is being negotiated. An agreement providing access to the EU goods and services markets is expected to be signed in the first half of this year. Access to the insurance sector and setting up branches of foreign banks in Ukraine remain to be negotiated with EU. The Ukrainian delegation in Geneva continues talks on trade terms with other WTO countries and plans to sign corresponding agreements with Poland and Hungary in the first quarter of 2002. Kyiv expects to complete bilateral talks with other WTO countries by October.
Perhaps it is worth considering the Chinese experience as a newly admitted WTO member and that of Russia in order to get a better idea about one’s own capabilities.
WTO’s current membership numbers 144 countries with 98% in the world trade turnover. Ukraine has been negotiating its admission for the past eight years. Lithuania, Moldova, and China became members in 2001. Taiwan assumed membership responsibilities as a separate customs territory January 1, 2002. WTO Director General Michael Moore mentioned the possibility of membership for Ukraine, Saudi Arabia, Vietnam, and Cambodia early this year.
A total of 28 countries are vying for WTO membership.
CHINESE QUESTION
China was officially admitted last October and is now placed six in terms of world industrial development. It looks quite attractive compared to the skidding Southeast Asian countries and Japanese recession. For China, WTO membership means lifting restrictive quotas on cheap Chinese merchandise bound to enjoy growing market demand now that the world economy is slowing. Beijing hopes to take advantage of its membership mainly in terms of inexpensive labor. To an extent this task is made easier by the numerically strong Chinese diaspora. It is no secret that Chinese businessmen abroad often wield more influence than the local elite. Chinese business is thriving in Southeast Asia, Indochina, and the Russian Far East. Many companies and firms in Indonesia, Malaysia, Lagos, Singapore, Thailand, and the Philippines are under ethnic Chinese control, Vietnam being the only exception. The higher living standard and an opportunity to build a fortune convince many Chinese to leave their homeland permanently. In China, the average annual wage is some $780 (compared to over $3,000 in Malaysia and more than $8,000 in South Korea). About 10% of the total assets in the Chinese economy are in foreign hands and the percentage will rise dramatically in the next few years. WTO membership spells fresh direct foreign investment, but on the other hand there is no way to prevent the cancellation of tax concessions for foreign companies operating in all those “special economic zones.” At present, such companies pay 15% income tax, compared to 33% levied on domestic businesses, so a uniform tax rate is being discussed (25-33% being the most likely option). As a result, problems may well be encountered when attracting foreign investment precisely to those special economic zones.
For fifteen years after admission China will not be considered a country with a market economy, nor will it have a right to defend its interests by referring to WTO arbitration. China must hold its markets open to others to a greater degree than being itself accessible to foreign investors. The PRC faces an influx of imported goods and a considerable sharpening of the competition on the financial and insurance markets, along with an inevitable rise in unemployment.
RUSSIAN PROBLEMS
Russia will most likely become a full WTO member by the start of the Fifth Ministerial Conference scheduled in mid- 2003 in Mexico, Michael Moore said early this year. The talks received a fresh impetus and there was nothing coincidental about it. The last WTO meeting in Doha marked a new round in the talks to further liberalize world trade. The WTO director general believes that Russia would be better off joining the WTO in the middle of the talks; first, because it will be admitted on negotiated terms, which might well become tougher after the talks end, and second, because it would be able to influence the negotiating process on a par with other countries. Experts point to Russia’s biggest problems in the talks with the so-called Cairns Group (Australia, New Zealand, Brazil, Argentina, etc.) that refuses to steer a middle course with regard to state agricultural subsidies. Supported by the US, it wants all export subsidies liquidated, along with government support of all domestic agricultural producers. In fact, experts insist that Ukraine should pay most serious attention to this aspect. Incidentally, the United States extends $20 billion in such subsidies.
Another thing worth being taken into account is that the CIS states already admitted to the WTO (Kyrgyzstan, Georgia, and Moldova) can hardly be considered rivals on any markets and this made their admission considerably easier. Ukraine, like Russia, is a different story.
