Barrels full of trouble
July 28, 2010
Is being able to export goods and services a privilege granted by the recipient country’s government?
Judging by the ongoing dispute concerning the allegedly questionable quality of Moldovan wine exports to Russia, the answer seems to be “yes.” Judging by basic principles of economics and of the current world trading system, however, the answer is “no.”
Following the latter, trade with products and services of varied quality are subject only to the market mechanisms of the law of demand and of competition and entrepreneurship in an environment of free trade and competition, nondiscrimination, and predictability and transparency. Unfortunately, for both Moldovan and Russian entrepreneurs, for sellers and for buyers, freedom to trade wine has become a privilege permitted or restricted by the Russian government, for political reasons.
Judging by the ongoing dispute concerning the allegedly questionable quality of Moldovan wine exports to Russia, the answer seems to be “yes.” Judging by basic principles of economics and of the current world trading system, however, the answer is “no.”
Following the latter, trade with products and services of varied quality are subject only to the market mechanisms of the law of demand and of competition and entrepreneurship in an environment of free trade and competition, nondiscrimination, and predictability and transparency. Unfortunately, for both Moldovan and Russian entrepreneurs, for sellers and for buyers, freedom to trade wine has become a privilege permitted or restricted by the Russian government, for political reasons.
The history of Moldova and Russia recorded in the last decade of independence and democracy in the two former Soviet countries reveals a destructive pattern in Russia’s political discretion in the wine trade. Examples include forcing the Moldovan government to support Russia’s accession to the World Trade Organization or punishing Moldova for issuing an anti-Soviet decree extremely inconvenient to Russia's current leaders.
The recent disputes over wine quality are, again, history repeating itself.
Almost two weeks ago, Russian health authorities announced a two-week ultimatum on instituting an embargo on further wine imports from Moldova. Since then, the representative bodies of the two countries have engaged in a rather tense political dialogue regarding Russia’s pretense to lift the ban on Moldovan wine imports only after seeing improvements in quality. The result -- five days before the ultimatum was due to end and despite of firm opposition by Moldova's agriculture minister -- was one of obedience, with promises of immediate compliance with Russia’s health requirements.
This history of good dog-bad dog economic incentives, used by Russian leaders to influence Moldovan politics, should alert academics and other experts and entrepreneurs in the world of Russia’s deliberate ineptness in honoring contractual commitments of trade liberalization and integration, which play a vital role in achieving Russia's much-desired and much-promoted “economic modernization.”
Under these circumstances, it seems unlikely that Russia will join the WTO anytime soon. I simply cannot imagine how the WTO could function if any of its current 153 members tolerated Russia’s deliberate reneging of its multilateral contracts on trade liberalization.
Moreover, this is a pattern of abnormal trade relations that none of the legitimate actors involved -- that is, buyers and sellers (in contrast to the Russian political actors interested in implementing their covert strategies) -- values. Russian bans on trade with neighboring countries in particular, and trade with the rest of the world in general, are not only damaging to the economies of the exporting countries. Consumers and businesses in the economy of the importing country are equally affected.
Both sides stand to lose from an increase in protectionism, which triggers price increases due to destructive measures sparked by eliminating the competition.
It should be clear by now that Russia is far from being a reliable international trading partner. Additionally, as long as the Russian people continue to tolerate these types of opportunistic and destructive policies implemented by central political leaders on their behalf, Russia – the country and its people – will move further and further away from WTO membership.
Therefore, Russia's citizens should exercise their democratic rights and support only policies of trade liberalization that will redirect their underdeveloped economy from a state monopoly toward market competitiveness and “economic modernization.”
-- Olga Nicoara
George Mason University
