Commodities Corner: Russia’s WTO entrance redraws global resource map

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SAN FRANCISCO (MarketWatch) ?€" Russia?€™s acceptance into the World Trade Organization last month didn?€™t just mark an end to nearly two decades of negotiations, but opened a door to free up global trade with a nation that is one of the world?€™s largest oil producers and home to the globe?€™s biggest natural gas reserves.

And if the impact on the last large economy to join the organization ?€" China ?€" offers any clue, the outlook for Russian trade and its economy has much improved.

On Dec. 16, the World Trade Organization approved Russia?€™s membership. WTO trade ministers have said Russia?€™s accession to the organization will bring the nation more firmly into the global economy and make it a more attractive place to do business.

?€œRussia took 18 years to complete its WTO negotiations, but in the end it walked away with a great deal,?€ said Martina Bozadzhieva, senior analyst for Central and Eastern Europe (CEE) & Russia at Frontier Strategy Group. ?€œOver the long term, WTO accession will increase the competitiveness of the Russian economy and [foreign direct investment] inflows.?€

That?€™s particularly important given Russia?€™s vast natural resources. The nation holds the world?€™s largest natural gas reserves, or about a quarter of the world?€™s total proven reserves; the second largest coal reserves; and eighth largest crude oil reserves, according to the U.S. Energy Information Administration.

Russia has yet to ratify the WTO deal but from the date of accession, Russia has committed to fully apply all WTO provisions and lower its tariffs on a wide range of products. One of Russia?€™s commitments include a tariff ceiling that will average 7.8%, compared with a 2011 average of 10% for all products.

?€˜Russia joining the WTO will likely alter the global commodities trade matrix permanently.?€™

Kevin Kerr, UncommonWisdomDaily.com and Kerr Trading

Most of the tariffs will be reduced over time, with the longest implementation period at 8 years for pork, the WTO said. Read more about Russia?€™s commitments.

?€œRussia joining the WTO will likely alter the global commodities trade matrix permanently,?€ said Kevin Kerr, Eastern European trading specialist for UncommonWisdomDaily.com. ?€œIt may push aside the Middle East as the number one supplier of energy and it may strengthen China as the floodgate will open for natural gas resources.?€

Gradual transition

But don?€™t expect that to happen all at once. Russia?€™s trading market faces many challenges.

?€œWhatever the treaty says or does not say will be difficult to enforce on a local level,?€ said William Gamble, author of Investing in Emerging Markets: Rules of the Game. ?€œMany of these domestic industries, including an overwhelming majority of the commodities companies, are in state hands.?€

And ?€œjust because a treaty is supposed to open up a particular sector does not mean that a state-owned industry with close ties to local bureaucrats is going to let that happen,?€ he said.

Membership in the WTO is a ?€œgood sign, but it will hardly help Russia become a developed country,?€ said Gamble.

Russia has also negotiated a gradual transition with the WTO.

?€œWTO membership means that Russia will be required to abide by its requirements, which ultimately mean a more open economy and increased access to various sectors such as those in the services industries,?€ said José Morales, U.S. and Europe, Middle East and Africa (EMEA) chief investment officer at Mirae Asset Global Investments.

?€œHowever, this will not happen overnight as many of the current structures will be eliminated only gradually over the next few years.?€

Part of that gradual transition includes tariffs in the agricultural sector.

Authors: Commodities - Yahoo! News Search Results

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