Download Balkans Poverty Reduction Forum: Advancing National Strategies

BELARUS
WORLD
BANK
GROUP
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Special Focus: The Impact of WTO Accession
November 2, 2015
For Belarus, full WTO membership could generate substantial income growth over the medium to the long run.
Welfare gains stem from the reductions of discriminatory and especially non-discriminatory barriers against
suppliers of services.
WTO accession would help to promote productivity-boosting reforms in the business services sectors.
Expected changes of Belarus’s trade regime
As a small and open economy, Belarus’s development perspectives are intrinsically linked to its ability to produce and
sell goods and services competitively in the global marketplace. Over the recent years, Belarus has gradually lost market
share internationally for many of its major employment generating manufacturing, including transport equipment (such as
tractors, dump trucks, and diesel-powered trucks) and machinery. At the same time, rising commodity prices resulted in
increasing concentration of Belarus’ export bundle in minerals and chemical products, thus making Belarus more vulnerable to
commodity price shocks. After Kazakhstan joined the WTO in July 2015, all countries of the Eurasian Customs Union (EACU)
but Belarus are members of the WTO. As Belarus is accelerating its own negotiations with the WTO, understanding the
challenges and opportunities faced by the country’s exporters is critical to putting in place an effective adaptation strategy that
will enhance competitiveness and ensure Belarus can take full advantage of more open market access.
As a member of the Customs Union, Belarus is obliged to adopt reductions in the unified external customs union tariff
consistent with Russia’s commitments to the WTO. A gradual reduction in the unweighted average tariff from 10 percent in
2012 to 7.8 percent in 2020 will have to be adopted regardless of whether Belarus itself joins the WTO. Quantitative assessment
of this reduction suggests a net increase in the real income of Belarusian households by 1.1 percent of private consumption, or
0.5 percent of GDP. The estimated gains are the net impact of two aspects: (i) a gain of 2 percent of consumption from improved
resource allocation and productivity impacts in Belarus; and (ii) a loss of 0.9 percent of consumption from erosion of tariff
preferences in the markets of Russia and Kazakhstan. However, there would be tariff-induced output contractions in transport
equipment (by 11 percent), leather and footwear (7.8 percent), pulp and paper production (5.5 percent). The expected output
declines emphasize the need for Belarus to improve its international competitiveness as part of comprehensive adaptation
strategy.
Full WTO membership would require wide-ranging reforms in Belarus’s regulatory environment. As part of accession
negotiations, Belarus is expected to schedule commitments in areas, such as rights of investors in business services, customs
regulations, product standards (especially in food and agricultural products), trade related intellectual property and trade related
investment measures. A central WTO scenario estimates the impact of four different types of policy changes relevant for the
services sector (and does not incorporate further tariff reductions beyond EACU-related commitments): (i) enhanced market
access through improved rights in antidumping investigations for WTO members; (ii) reduction of discriminatory barriers in
service sectors; (iii) reduction of non-discriminatory barriers in service sectors; and (iv) adoption of sanitary and phyto-sanitary
standards (SPS) consistent with WTO requirements.
Estimation of sectoral impact of the WTO membership
Lower barriers to foreign investment and WTO-induced liberalization of regulatory environment would lead to
expansion of all business services. Quantitative analysis shows that the most substantial expansion of output would occur
in business services, especially in insurance, communications, other professional services, as well as rail and other
transportation services. Employment is likely to expand the most in insurance, other professional and financial services. Overall,
the estimated direct welfare gain related to the expansion of service sectors, following the reduction of discriminatory and nondiscriminatory regulatory barriers amounts to 7.2 percent of consumption or 3.5 percent of GDP.
Most welfare gains stem from the reductions of discriminatory and especially non-discriminatory barriers against
suppliers of services. A fifty percent reduction in the discriminatory barriers against foreign suppliers of services is estimated
to result in a gain of 1.7 percent of consumption per year; and a 25 percent reduction of the ad valorem equivalent of the nondiscriminatory barriers that adversely impact both Belarusian and foreign service providers is estimated to lead to a welfare gain
of 5.5 percent of consumption per year. The reduction in the barriers against suppliers of services increases profitability for
services suppliers in Belarus, thereby inducing new entry by service providers. Belarusian businesses would then have
improved access to services in areas like telecommunication, banking, insurance, transportation and other business services.
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Additional service suppliers in the business services sectors should lower the cost of doing business and result in a productivity
improvement for users of these goods in manufacturing and throughout the economy. In comparison, the improved market
access (under antidumping provisions) and adoption of SPS are estimated to generate a combined welfare increase of 0.5
percent of consumption.
More competitive business services would generate benefits for industry. Most manufacturing sectors would expand
slightly in the medium term and more strongly in the long run. The reduction in regulatory barriers in services sectors would
bring in additional service varieties and contribute to a productivity growth in manufacturing as a user of business services. The
cost of business services are expected to fall in all sectors, with the most significant decreases – by about 14-16 percent – in
other professional services and insurance. Exporting sectors would benefit from an improvement of their prices due to the small
real depreciation of the exchange rate. The largest expansion in the long run (percentages of output increase in parentheses)
could occur in food, beverages and tobacco (5.1 percent); chemicals (7.1 percent); textiles and textile products (4.2 percent);
pulp and paper production (4.5 percent); and leather and leather products (13.7 percent). However, the estimation shows that
several sectors could decline, such as wood and wood products (3.4 percent), machinery and equipment (0.8 percent) and
electrical and optical equipment (0.8 percent).
Agriculture is expected to see positive impacts in the long run. Annual output growth in this sector could reach 0.8 percent
in the medium term, more substantial growth of about 6.3 percent a year may be possible over the long term, which is almost
twice of the average growth rate of the past decade (3.8 percent). Positive long-term effects stem from a higher level of sectoral
capital stock. As part of the obligations under EACU membership, Belarus must reduce its trade-distorting agricultural subsidies
for these to be approximately consistent with Russian levels under Russia’s WTO commitments; that should be sufficient for
Belarus to meet WTO accession requirements. Similarly to the case with tariffs, subsidy reduction should not be considered an
additional obligation of Belarus due to its WTO accession.
WTO membership as an element of structural reforms
The WTO process could provide an important external anchor for structural and regulatory reforms to boost service
sector development. There is a strong evidence that liberalization and more competition leads to lower prices, better quality
and wider choice for consumers. Enabling the provision of services by the private sector, allowing foreign investment and
eliminating restrictions that create non-competitive and inefficient market structures, could all contribute to more productive
service sectors. These direct benefits in terms of improved service sector performance, in turn, work their way through the
economic system and help to improve supply conditions for many other producers that rely on service inputs, such as
telecommunications, financial and transport services.
The WTO accession process offers an important opportunity to Belarus to promote regulatory reforms, especially in
services. Unlike in the trade for goods where liberalization is focused primarily on the removal of tariff and non-tariff barriers,
service liberalization implies the creation of a competitive and non-discriminatory regulatory environment. Currently various
domestic regulatory requirements prevent market access and foreign investment in key sectors, including financial,
telecommunications, professional and transport services. WTO accession can induce reforms in regulatory environment and
lock them in under international agreement. Steps to deregulate therefore need to be accompanied by efforts to establish sound
and independent regulatory and supervisory infrastructures.
Targeted liberalization measures to remove barriers to competition and open up markets could contribute to higher
productivity, lower cost and broader access to services. Increasing the performance of service sectors matters not only
because the service sector itself remains small in terms of value added and exports, but also because services are critical
inputs for many other sectors. Enabling the competitive provision of financial, transport, logistical, communication and other
business services is an important pillar of an overall strategy to strengthen competitiveness, especially of the tradable sector.
Given the deep forward linkages services have with the rest of the economy, efficiency improvements in intermediate
commercial services are innately linked to the competitiveness of other sectors of the economy. Such reforms would
substantially increase the incomes of the citizens of Belarus.
This Note is prepared on the basis of the World Bank Report “Assessing the Impact of WTO Accession on Belarus: A
Quantitative Evaluation”, Report No. 96604-BY, June 2015.
Contact info:
Juan Pradelli
Kiryl Haiduk
Maryna Sidarenka
[email protected]
[email protected]
[email protected]
(+375 17) 359-19-50 ● www.worldbank.org/belarus
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