Loading...
See More

Russia finally joins WTO

Aug 22 2012 18:28 AP

Related Articles

Russia's highest court backs WTO entry

Reuters Science News Summary

Statoil to drill on Russian shelf

Russia WTO membership passes final hurdle

Russia to ratify agreement to join WTO

SA most business-friendly Brics nation

 

Moscow - After 18 years of negotiation, Russia on Wednesday entered the World Trade Organisation (WTO), which restricts import duties and subsidies in an attempt to create a level playing field for international trade.

Analysts and politicians hope that Russia, which has long proven a formidable market to foreign investors because of its byzantine bureaucracy and protectionist tariffs, would be transformed by its entry into the WTO.

Russia is one of the last major global economies to enter the group, which has long included other developing nations like China.

While consumers here will benefit from the lower cost of imported goods, some worry that struggling industries long coddled by state subsidies, such as agriculture or the automobile industry, will suffer from foreign competition.

Russians often complain about the burdensome cost of Western-imported consumer products, which range from refrigerators to jeans. With its entry into the WTO, the country will cut its average import tariff by 5.9%, making those imports cheaper.

M Video, one of Russia's largest electronics retailers whose shelves are packed with foreign-made CD players and American movies, said Russia's entry into the WTO would bring more customers into their stores.

"We believe that (entry into the WTO) is going to be a very good decision for our customers in the future, because they will be able to purchase goods with prices harmonised with other economies," said Enrique Fernandez, chief commercial officer of the company.

But uncompetitive domestic goods, which have long been propped up by Soviet-style subsidies, could be threatened by the invasion of higher-quality imports.

Nearly 100 major business leaders and industry groups including dairy and meat producers signed a petition earlier this summer addressed to the ruling United Russia party, asking that its deputies vote against ratification of the WTO treaty.

Agriculture, the automobile industry, and Soviet-style "Monogorods," or towns which revolve around a single factory or industry, are bound to suffer next to foreign competition unless they can reform quickly.

These industries are based in regions that have often displayed the most support for President Vladimir Putin, but could easily turn into a hotbed for protest if already fragile industries were to collapse.

At a car dealership in Moscow, 63-year-old engineer Alexei Tarakanov said he doubted that low-quality Russian cars could win on an open market.

"I already have a negative attitude towards our (Russian) cars," said Tarakanov, who was buying a Renault. "I doubt that they can win the preference of the modern buyer."

Because state-subsidized industries proved such a pivotal issue in Russia's WTO negotiations, financial aid to struggling sectors will be gradually phased out, rather than abruptly cut off, over the course of seven years.

"The industry will not collapse immediately, (major Russian car-maker) AvtoVaz is going to continue steadily producing its 700 000 cars per year," said Ovanes Oganisyan, an analyst at the Moscow-based investment bank Troika Dialog.

"But eventually there's going to be more competition, and if AvtoVaz doesn't change in seven years it will have to go out of business."

In addition to the challenges faced by unreformed industries, the Russian government expects to take a short-term financial hit from the loss of income from import duties and taxes.

But the government emphasises long-term gains, and the World Bank has estimated that WTO membership could increase Russia's GDP by an extra 3.3% a year in the next three years.

While the WTO will significantly open up the Russian market to foreign producers, the US faces the threat of paying higher tariff rates than other WTO members to sell goods in Russia, leaving American producers at a competitive disadvantage compared to European or Asian industries.

The reason for the disparity is the Jackson-Vanik Amendment, a law passed by Congress during Soviet times that denies Russia normal trade relations with the US.

The US president has been granting Russia annual waivers since 1992, but Moscow insists it will not lower its tariffs for the US as much as for other countries until the law is scrapped.

"The last thing that America needs right now is for foreign companies to have lower tariff rates than American companies," said Andrew Somers, president and CEO of the American Chamber of Commerce.

Vice-President Joe Biden lobbied for the repeal of Jackson-Vanik in 2011, as have previous presidential administrations, but Congress has so far proven intransigent to executive pleas.

Congress has increasingly taken fire at the Russian administration for its human rights record. In June, the US House of Representatives passed the Justice for Sergei Magnitsky Act, a bill named for a Russian lawyer who died in a Russian prison last year after allegedly being abused at the hands of Russian authorities.

This week, President Barack Obama expressed his disappointment after the three participants of Pussy Riot, a punk band who sang an anti-Putin prayer in Moscow's Cathedral of Christ the Saviour, were convicted to two years in prison.

"Business hates uncertainty," said Somers, "If the Jackson-Vanik Amendment remains on the books and the US continues not to have normal trade relations with Russia, who knows what will happen."

*Follow Fin24 on Twitter, Facebook and Google+.

 
wto  |  russia
NEXT ON FIN24X

 
 
 

Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
1 comment
Add your comment
Comment 0 characters remaining
 

Company Snapshot

We're talking about:

Small Business

Retailers of any shape and size can now unlock the power of mobile transacting.
 

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...
Loading...