WTO Accession: Myths and Reality By Pedro L. Rodriguez Sr. Economist, The World Bank (Presented by Mark Davis)

Content Myths on the following areas: 1.Winners and losers 2.Services 3.Agriculture 4.Trade Related Investment Measures (TRIMS) 5.Take your time

WTO Accession Process After 10 plus years, accession negotiations of Kazakhstan and Ukraine are nearing final stages. Impact assessment of WTO accession through JERP (similar process in Russia and Ukraine, with similar results correlated with initial protection levels and structure of economy. Political economy of accession: Especially the role of Russia, US and EU.

Myth 1: Foreigners Win - Kazakistanis Loss Tarr & Jensen estimate that: It will gain about 6.7% of the value of Kazakh consumption (3.7% of GDP) in the medium run from WTO accession, and up to about 17.6% in the long run (9.7% of GDP), when the potential positive impact on the investment climate is taken into account. Export intensive sectors, such as ferrous metals, non-ferrous metals, chemicals, (agriculture?) are the sectors that expand the most as a result of WTO accession. Tradeable sectors that do little exporting and are relatively highly protected will lose in the short to medium run: wood products, medical equipment, vehicles and trailers, other non-metal products and publishing industry. While we don’t have these numbers for Kazakhstan (yet?),Russia results showed that the vast majority of Russian households will gain from WTO accession and the poor will gain as least as much as the average Russian household from WTO accession. Rural households are expected to gain slightly less than the average urban household. Workers are likely to gain more than capital owners, but capital owners in general will also gain. However, owners of immobile capital in sectors that compete with foreign direct investment and who do not form joint ventures with multinationals will likely lose from accession in the medium term. Government safety nets are crucial to help with the transition and especially for the poorest members of society who can ill afford a harsh transition.

Breakdown of gains Improved market access: (7% of total gains) –Open access, leverage in negotiations, anti-dumping defense. Tariff Reductions: (6% of gains) –“gains from trade”/transition/productivity –Tariffs are not very high now. Liberalization of services (70% of total gains) –Especially telecom, transport and financial services –Productivity impact (technology, knowhow and competition) on domestic economy.

Breakdown of gains Crude oil and natural gas (7% of total gains) –Assumption is to, (a) exempt multinationals from VAT on local content while, (b) eliminating local content requirements. Generally, exports sectors gain, wages up by 5% in real terms, labor gains especially in business services.

Gaining from WTO WTO only provides a basis for gains, but does not assure it. Market supporting institutions and business climate are crucial (e.g., TRIPs, SPS). Improvement in the investment climate (e.g., protecting against domestic lobbies and building market supporting institutions, along with transition to comparative advantage sectors) represents a nearly 20% gain in terms of consumption over the long run. Which model to follow: China, Ukraine (EU in relation to Russia) or Norway?

Myth 2:Tariff Offer is More Important than Service Commitments Given that Kazakhstan is landlocked, away from key markets, and it has reformed less services, the service offers are the key: –Telecommunications –Transport (railways, roads) –In both of these cases, accession offer should be used to carry out structural reforms that are needed in any case –Offer on Financial sector (banking, insurance + others) and Tourism should be re-assessed in light of proposed Financial Center and Tourism Cluster in Almaty But tariff offer is of course important in any case—should be used to simplify collection by customs and facilitate trade

Myth 3:Agriculture Sector Will Be Killed with WTO Accession Biggest threat to agricultural sector is Dutch Disease, not WTO Accession (SPS, Transport, trade facilitation and access to markets should help). But is important to design an aggregate level of support that is compatible with the development of the sector (how much to subsidize and which subsidies are most effective) Which model: Chile/Australia/New Zealand/Canada or EU/US? (Explicit subsidies versus green box programs)

Myth 4:TRIMS: Current Local Content Rules Are Working

Myth 5: Kazakhstan Should take its time Would 12 years be enough?