COMMENTARY & ANALYSIS: Boris Kagarlitsky The Moscow Times, Moscow, Russia, Thursday, Dec 22, 2005

The World Trade Organization meeting in Hong Kong brought at least one piece of good news: Russia and Ukraine were not inducted into that august institution. Representatives of most of the economic branches of both countries breathed a sigh of relief. Their lives had been extended for at least another year.

The plans of both governments, which had promised to join the WTO by December 2005, did not look very realistic from the beginning. But the bureaucrats in Moscow and Kiev frightened critics off, swearing up and down that they would complete the negotiations in time for the Hong Kong summit.

Naturally, people started lobbying away furiously for their special interests. But since the interests of all branches of the economy (except the export of gas and oil, and possibly of metals) are irreconcilable with membership in the WTO, the position of the official negotiators became difficult in the extreme.

For they not only would have to sell their own populations down the river (which wouldn’t bother anybody in Russia or Ukraine, Orange Revolution or no), they also would have to give over the majority of their entrepreneurial classes, including foreign investors who have already put money into doomed industries.

Whenever Russian membership in the WTO comes up, people mention the automobile industry, no doubt because its representatives have been the most vociferous in expressing their views on the government’s plans. And of course, everybody notes right off that under the long-standing protectionist policies, the owners of the auto factories simply did not learn to make good cars.

The famous Volga is going out of production, and the Lada gets progressively worse and more expensive as the years go by. Yet people forget that the national auto industry has not consisted simply of Volgas and Ladas for a very long time now. There are Fords from the Leningrad region, Hyundais from Taganrog and a whole series of other brand names whose cars have been assembled in Russia for some time, just as the Ukrainians have been assembling Daewoos.

A side effect of the protectionism was that foreign corporations were forced to develop their production in Russia. If the protectionist policy is retained, the production of automotive component parts will also be expanded. But the opening of these markets would spell doom for such plans.

What’s happening with Russia’s and Ukraine’s WTO membership is only one aspect of a larger crisis within that organization, a crisis which makes the violent protests of the South Korean farmers in Hong Kong seem no more than a minor irritation.

The WTO’s crisis is systemic. It is entirely clear that the organization needs to change course, that the policy of liberalization and deregulation has reached a dead end and that continuing it will not be profitable even for those countries that pushed it through in the first place.

The Western nations understand perfectly that opening their agricultural markets would lead not only to the disappearance of farming but also to a whole chain of ecological and social disasters well outside the agricultural sector. Thus, despite the small relative weight of the farmers in the general population, their interests are aggressively defended in both Europe and the United States.

Many Third World countries nevertheless continue to demand the opening of Western markets, seemingly by inertia. The governments in question are merely faithfully following the recommendations of their U.S. and European teachers.

But in practice, the strengthening of export orientation in weakly developed economies brings them even more trouble than it does the West. The greater part of the agricultural population does not gain from developing exports.

On the contrary, the position of the transnational agribusinesses is strengthened at the expense of local rural populations. Unemployment rises, internal markets are disrupted, and the economic crisis deepens. The sole answer is to let the West retain its protectionism, but with the condition that everybody else gets the right to defend their own markets too.

As always happens with failed policies, the costs associated with their continuation exceed the benefits many times over. The WTO’s steering wheel needs to be turned in the opposite direction, but structures of this kind are simply incapable of doing that.

They are doomed because they were “imprisoned” by the strictures of a single task — the liberalization of markets in this instance — and they do not have the minimal flexibility necessary to react either to the demands of society or even to the needs of a fairly large portion of the Western elites. -30-

Boris Kagarlitsky is director of the Institute for Globalization Studies.

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