Vladimir Appakov has been running a
successful vegetable business in Tatarstan for
more than two decades. So successful, in fact,
that he is widely known in this central Russian
republic as the "potato king". But with Russia now
officially a member of the World Trade
Organization (WTO), Appakov is deeply worried
about his farm's future.
"Starting a
business in Russia is already a heroic feat," he
tells RFE/RL. "Under the new rules, for example,
vegetables and potatoes will have to be cleaned
and neatly packed before they are sent to shops.
No farmer in Tatarstan can meet WTO standards."
With its US$1.9 trillion economy - the
world's ninth largest - Russia was by far the
biggest economy outside the global trade
club. Its August 22
accession, after 18 years of arduous negotiations,
is the most significant WTO entry since China
joined more than a decade ago and could lift
long-term economic growth. But for many
Russian entrepreneurs there it little cause for
celebration.
While the country hopes to
attract more foreign investors as a WTO member,
joining the organization means Russia will have to
dismantle its protectionist policies and open up
its markets to foreign competitors. The
agricultural and industrial sectors, which have
enjoyed subsidies and high tariffs, are expected
to be the hardest hit.
Division and
accession Russians have been deeply divided
over whether to join the WTO ever since accession
talks began almost two decades ago. The Communist
Party has been at the forefront of opposition to
WTO entry, holding protest rallies and earlier
this year staging an unsuccessful attempt to have
the accession agreement rejected as breaching
Russia's constitution.
Despite estimates
that the country can expect 11% growth in the long
run, there are widespread fears that membership
will destroy large swaths of Russia's industry and
lead to unemployment. In terms of exports, joining
the WTO will bring no significant gain in the
short term, since few Russian products aside from
raw materials are in much demand abroad.
Mikhail Delyagin, the director of the
left-leaning Institute for Globalization Studies,
says membership will sound the death knell for
thousands of producers catering to the domestic
market.
"Russian producers will suffer big
losses, tariff protection of some sectors will
drop by about 10%," Delyagin says. "In some
sectors where the profit margin is 5%, like in the
milk industry, for example, this reduction is
fatal. Producers of cheese, pork, [and] trucks
will suffer a terrible blow. The government's
promises that the losses will be compensated by
budget subsidies contradict WTO rules, so they
probably won't be fulfilled."
'Sad
consequences' Konstantin Babkin, the
president of Russia's Union of Agricultural
Machinery Manufacturers, says the Russian economy
has already slumped in the run-up to WTO
accession.
"The entire agricultural sector
has been very tense ahead of those new rules,"
Babkin says. "We have been selling fewer
combine-harvesters, which means we have been
investing less in development and buying less
equipment. Machinery equipment producers are also
feeling the negative effects of Russia's entry
into the WTO. We are seeing these sad consequences
in almost all sectors, so I don't think anything
good will come out of this."
Entering the
global trade body also means that Russia will have
to cut back on privileged trade deals it has
negotiated with a number of other ex-Soviet
countries. A customs union launched last year by
Russia, Belarus, and Kazakhstan, in particular,
which offers lower export-import tariffs and
cheaper prices for many goods, is inconsistent
with WTO rules requiring equal treatment for
imports from all other member states.
"Special relations will now require
special decisions," Yevgeny Yasin, a former
Russian economy minister, notes. "Concerning the
customs union, the issue of WTO accession for the
other members, Belarus and Kazakhstan, will have
to be raised. The deal will definitely have to be
revised."
President Vladimir Putin himself
appeared ambivalent about WTO membership until the
global financial crisis underscored the Russian
economy's vulnerability and lack of
competitiveness. According to official estimates,
Russia will lose $5.7 billion in revenues in 2013
and $7.8 billion in 2014, with some of the losses
likely offset by accrued foreign investment.
WTO director-general Pascal Lamy cautions
that Russians should not expect an immediate
economic boom.
"There is one more reason
for that, which is, like China 10 years ago, this
is not a big-bang accession," Lamy says. "The
Russians have negotiated, of course, an opening of
their trade regime, which is what the country
needs to do to join the WTO, but with necessary
transitions and phasing-in periods. So nothing
like a big bang."
The
pay-offs But many economists believe the
risks carried by entering the club will eventually
be outweighed by the benefits. Advocates of
Russia's WTO accession stress that the reduction
of import tariffs will take place gradually to
give firms time to bring their policies in line
with international standards and boost their
competitiveness.
Economist Aleksei
Portansky, who heads the information department of
the Russian committee for WTO entry, says being
outside the organization has put Russian exporters
and producers at a clear disadvantage on global
markets.
"By becoming a member we will be
able to start lifting the discriminatory
restrictions affecting our exporters and
producers," Portansky says. "We are still excluded
from the process of drafting rules governing
international trade, which hurts us now and will
hurt us even more in the future. Also, we cannot
make modernization plans without being involved in
the free exchange of goods, services, and new
technologies - in short, without being in the
WTO."
WTO membership is likely to improve
Russia's investment climate with the new
reassurance that Russia is expected to play by
international rules. It will also force the
country to better allocate its resources and
undertake much-needed agrarian and industrial
reforms.
An additional benefit could be
the repeal in the United States of the
Jackson-Vanik Amendment, a set of trade sanctions
introduced by Washington during the Cold War to
pressure Moscow into allowing Soviet Jews to
emigrate. With Russia now a WTO member,
Jackson-Vanik puts the United States in violation
of the organization's rules and may result in
unfavorable terms for US exporters.
In the
end, the biggest winners of Russia's WTO accession
are perhaps Russian consumers, who stand to gain
in terms of choice, quality, and prices of goods
as foreign imports gather pace.
"We can
say that we are not modernized, that we lag
behind, that we are not ready," Igor Nikolayev,
who heads the strategic analysis departmental at
the FBK audit firm, says of Russia's growers and
producers. "But let's view this process from the
perspective of the consumer rather than the
producer. If the consumer gains from it, then the
producer will gain from it, too. Planned economies
are centered on producers, and we've all seen
where this type of economy leads."
Danila Galperovich of RFE/RL's
Russian Service and Rustem Iskhakov of
RFE/RL's Tatar-Bashkir Service contributed to this
report.
Copyright (c) 2011, RFE/RL
Inc. Reprinted with the permission of Radio Free
Europe/Radio Liberty, 1201 Connecticut Ave NW,
Washington DC 20036
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