Experts' Views on Russia's Accession to Wto

Experts' views on Russia's accession to WTO Maxim Medvedkov, Head of the Trade Negotiations Department of the Ministry of Economic Development Accession to the WTO is a flexible instrument. There are concerns about it, as we might face undesirable growth of competition, even though it could be desirable. We have a wide range of measures permitted by the WTO: from changing access conditions to state orders and giving grants (despite the popular opinion that grants are forbidden in the WTO, it isn't so) to emergency measures implemented in case of import growth that could damage our industry, which is in the focus of the Customs Union. We and our colleagues are working on this measure for it to be available to Russian business. Yevgeny Korchevoi, a member of the working group on technological modernization of agriculture and machinery under the government of Russia We believe that joining the WTO is harmful for Russia, because the WTO is an economic organization, while Russia joins it considering its political interests. From the economic point of view Russia's joining the WTO is unreasonable. First of all, because of unequal conditions for business provision. In Russia energy resources are more expensive. Electricity costs 1.5 times more than in the USA and Canada, three times more than in Kyrgyzstan. Gas will reach the European price level in 3-5 years. Fuel is by 20% more expensive than in the USA. We have a heavy taxation system. Modernization costs twice as much as in other countries. According to the rating of taxation systems, Russia takes 134th place, i.e. 130 countries have a more reliable taxation system, and this is bad for our business. We have terrible corruption, incredibly expensive logistics, cold weather. But the most important thing is the cost of credit. You know that credits are very important for business. In Russia the average rate is 12-14%, while in our rival countries, including China, it is 2-5%. Under these circumstances we cannot speak about fair competition. Secondly, we didn't receive from the government or the Ministry of Economic Development any business plans on certain consequences for branches, for regions and for the budget. How will fulfillment of the Russian duties influence them? Instead of that we receivedů you can see it on the pictureů Recently a clear analysis for each state of the US on the positive influence of Russia's joining the WTO has been published on the web-site of the American USTR. Moreover, this analysis is confirmed by the statement of Senator Baucus, that "the accession of Russia to the WTO is a gift to American enterprises, workers, farmers and ranch owners," as Russia will have to decrease tariffs, open its market to American exports without any demands on the US. We think ratification must be postponed, because the economic measures of adaptation which should be implemented will take years. In two years a lot can be changed, but in general we need 2-5 years. Furthermore, we think the conditions of the agreement should be reconsidered. The conditions were published in February on the web-site of the Ministry of Economic Development, so business could assess all the risks connected with the WTO only in February. Before February nobody knew what the conditions of the agreement were. Nevertheless, these conditions do not correlate with the interests and hopes of business, especially of the non-energy business. If we fulfill the duties written in the agreement on accession to the WTO, it will lead to an increase in our energy addiction. We predict that in case of $50 per barrel, which is discussed by Saudi Arabia, it would be a disaster for Russia, because we have no other economy except for gas and oil. And the last point, we have contacts with deputies of the State Duma, we see there is no discussion of the agreement and it won't take place in the future. Recently we participated in parliamentary hearings, there were no opportunities for expression of concerns. All these parliamentary hearings took place in back rooms for 50 people and were nominal. Moreover, the party of power has already made the decision. Even the three factions that stand against joining cannot do anything, as United Russia has 225 votes. We believe that ahead of ratification this issue should be discussed at a public ratification in order to discover people's opinion. How do they view joining the WTO, its influence on their lives, salaries? And are they ready to share our resources with the WTO? Mikhail Krikheli, Director for development and foreign ties of the Russian Grain Union Further postponement will lead to worse conditions. It is obvious that we are joining the WTO under worse conditions than was announced in 2006, and under worse conditions than our partners did. Of course the situation is ambiguous. We treat joining the WTO as a fact. For 90 years we have stewed in our own juice. Let's continue the stewing. And what will we achieve? Since 1991 up to 70% of agricultural lands have become disused. Should we blame the WTO for this? Is it the WTO's fault we are not able to cultivate, reinvest? Is it the WTO's fault that in Russia hundreds of collective households are bankrupt? Of course, there are many risks and negative moments, from a shallow point of view. For example, indirect negative aspects include an eightfold decrease of import taxes on pig exports. How does it influence grain growers? Indirectly it influences us. If we don't raise pigs in Russia, grain demand reduces. Let's look at this market. Up to 60% of pig farmers are private farmers. It is an uncontrolled market, products are not of high quality; the origin of their grain is unknown. So no taxes are paid into the budget. Grain growers have lost more than 100 billion rubles because of the embargo. Is it the WTO's fault? You know that one third of the vehicle fleet that served in the branch had left it for other branches after the start of the embargo. That led to price growth. Direct risks include a threefold decrease of rice export taxes. 10 years ago we had no rice farming. At the moment we provide for our internal demands. Of course after reduction of export taxes cheap rice will inflow to our country. If we take no preventative measures, the Krasnodar Territory will be hurt. Returning to the idea of my speech, I want to say the WTO is not good or bad, it is an instrument. With an axe you can kill or build a church. In the situation with rice, for example, we began to think what we should do. And we are opening the Pacific Ocean market, and it is ready to buy our rice for their European restaurants. We should work, think and move forward. Artyom Kuznetsov, PhD in Economics, researcher of the problem of Russia's ascension to the WTO If we talk about the present position of Russia in relation to other countries based on the level of tariff protection, we came to the conclusion that in fact the level of tariff protection in Russia more or less corresponds with the level of developing countries. In other words, the further decrease is not well grounded, since after the ascension to the WTO the average base rate will be closer to the level of developing countries which have more competitive economies. Thus, in our opinion there is no ground and no reason for Russia to further liberalize its economy and open it to imports. Regarding the statement that many countries benefited from it and usually China is given as the main example, as the country which largely benefited from joining the WTO. We have made a research based on the conditions based on which China joined the WTO and on the basis of which we are joining the WTO now. One can see that three main factors which defined the competitive level of Russia largely differ from the factors that China had 10 years ago. First of all, the rate of national currency in Russia, or the competitiveness of Russian goods which is 60 % lower, as you can see on the slide, as compared with China. At the same time the main resources cost more. We are talking about labor which is many times more expensive in Russia than in China and about the level of capital. In other words, all the reasons for the Russian goods to become competitive after Russia joins the WTO are absent. When one says that Russia should expect the same economic growth, industrialization and the development of processing sectors of economy is in fact has no foundation. There are a number of other factors which limit the benefits of Russia. I am talking about first of all the structure of economy and export where we have dominant commodities in export. The liberalization of trade is not so interesting for Russia exporters since they are already successfully exporting and dominating with their natural resources at the world market. The manufacturing sector at the moment is narrow from the perspective of structure of economy. In this regard, the possible benefit and expansion due to the above mentioned reasons will be largely limited. Moreover, there are a number of well-known institutional factors. I mean corruption, bad laws, and justice system - all these matters would not allow the manufacturing sector to quickly increase the volume of production and export. Looking at the financial system, first of all it does not allow economy to have cheap borrowed resources and at the same time is much less effective than in other countries. All the factors of institutional character once again tell us that economy will hardly greatly benefit in the field of manufacturing sector of economy. We see that according to the scenario which is offered at the moment by the protocol perhaps the ascension to the WTO is premature. In our opinion, one has to realize a number of state measures aimed at supporting concrete industries and changing the negative institutional atmosphere in the country. After these measures are implemented, the further liberalization of foreign trade and the opening of the foreign market would appear rather appropriate.