Last week, during the Asia Pacific Economic Cooperation (APEC) meeting in Hanoi, Vietnam, Russia signed a long-awaited deal with the U.S. that moves the country closer to membership in the WTO.

Of course, WTO membership is not yet guaranteed – Russia still has to negotiate with Georgia and Moldova before it can officially join the global trading system.  While the Russian government is optimistic about the prospects of these negotiations, it is probably unlikely that they will be completed in the coming months due to strained political relations with both countries.  Regardless, Russia has cleared a major hurdle in getting membership approval from the U.S., and it can start planning for the future.

The most important step in the WTO accession process, however, took place months before, when Russia was officially granted the status of a market economy.  Indeed, attaining WTO status is an important indication that the country has become a market economy. 

Yet, while Russia currently meets the criteria of being a market economy, many experts question the direction the country has taken with the rise of state capitalism.  In fact, the Heritage Foundation and the Wall Street Journal would not agree with Russia’s market economy status in the first place, as according to their Index of Economic Freedom, the country’s economic status is “mostly unfree.”

Few will argue with the fact that the government has extended its reach into the economy.  And, if current trends continue, it would be reasonable to ask: Will we see multinational companies which are simply arm of the government participating in the global economy?  Will there be any space for small business to compete?

In discussions on the implications and impact of WTO membership on Russia, some intense debates are developing surrounding the issues of protectionism in the agricultural sector, securing intellectual and real property rights, and liberalizing the automobile industry. 

The auto industry is a prime example of the benefits and challenges WTO membership brings.  The country’s auto market is booming, yet, at the same time, the market share of Russian automakers continues to decline.  According to a recent report by Ernst & Young, the share of Russian producers has dropped from nearly 60% to 49.6% over the past few years, and the trend is expected to continue.

When Russia begins to lower tariffs from its current level of 25% on foreign automobiles, its domestic producers will face even greater pressure to improve the quality of their products.  And, according to experts, foreign automakers now setting up assembly plants in Russia to avoid high tariffs and gain access to the market may also find themselves at a loss.

So, while WTO membership will mean greater selection and lower car prices for Russian consumers, it also makes doing business more difficult for domestic producers that have been sheltered from real competition for years. 

Overall, just like in the auto industry, Russians are concerned with two things – getting imports at lower prices and ensuring the survival of companies in the increasingly competitive global economy.

WTO membership helps to achieve the former, yet, at the same time, it also makes it impossible to guarantee the latter the way it has been done for years – through protectionism.

This means that reformers will have to go much further than signing WTO agreement and reducing tariffs – they will have to restructure the domestic economy, build up the financial sector, reduce dependency on natural resources, combat corruption, improve the investment climate, and repeal government’s encroachment into the business of doing business.

WTO accession is not a panacea for development.  However, Russian membership in the organization will certainly bring to the forefront issues of competitiveness and local market development that have been brushed aside in recent years. 

If the Russian government is able to address those fundamental economic issues, reverse the process of state capitalism, and help Russian companies remain economically efficient and competitive on the global scale, it will be able to ensure that free trade is a win-win situation for all – consumers and producers, employers and employees, and government and society.