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One year of WTO membership - are results consoling for Russia?

August 22, 2013, 16:56 UTC+3 Alexandrova Lyudmila

MOSCOW, August 22 (Itar-Tass) - One year ago today, after many years of painstaking negotiations, Russia joined the World Trade Organization. Now it can take a look at the first results. Was the WTO worth joining? Why have the prices shown no signs of coming down and when will the first favorable results be in sight at last?

Many experts and analysts these days have been trying to offer their answers. Some of them argue that WTO membership has yielded no benefits for the Russian economy. On the contrary, some industries have been heavily harmed. Others believe that admission to the WTO gave Russia a stable environment for its foreign economic activity, which will bring about positive results before long. At this point, it is hard to make any judgments, though.

Only large retailers have reaped the harvest of benefits from Russia’s WTO membership, as follows from conclusions offered by experts at the rating agency Moody’s. The exporters’ hopes have not come true yet. About a hundred restrictions against Russian companies are still in effect. Agriculture and light industry are on the list of economic branches that were hit most severely.

The sole beneficiaries of joining the WTO are large retailers trading in imported products, and also the distributors of international networks in the consumer market. The ratings of these companies have shown some noticeable improvements over the past year, Moody’s said.

Its experts believe the easier rules of access for Russian companies to foreign markets and the unification of legislation would have favorable effects on the credit image of Russian businesses in an estimated three to five years from now.

Russia became the 157th member of the WTO on August 22 last year, after 18 months of multilateral talks. One of the country’s main pledges was gradual reduction of the average import tax rate from 10% to 7.8%.

Experts had predicted large problems for domestic market-oriented industries. Some of their fears have proved justified, and others haven’t. Light industry is experiencing problems but the main sector that has experienced the lack of price competition and dependence on state support is agriculture, say Global Counsel experts.

The automotive sector has been harmed far less than some had originally anticipated, because import has been on the decline since last September. The situation here may change, though. In July, the European Commission officially protested in the WTO at Russia’s decision to introduce the disposal tax on imported motor vehicles. If the parties fail to achieve a compromise, the WTO will most probably declare the tax as discriminatory.

From the standpoint of the average Russian, no favorable changes have occurred so far, media say. First and foremost, authorities had promised that the ordinary Russian customer will be the first to enjoy the benefits of WTO membership. The borders will open, there will be more low-priced foreign goods on offer and the general level of prices will go down. Some even went as far as saying how exactly the prices will fall - by 2% on average. According to the federal state statistics service, Rosstat, consumer prices in the country have gone up by more than 6% over 12 months (from July 2012 through July 2013).

It was hoped that imported meat, jeans, household appliances and imported cars will become less expensive. According to some forecasts, the advantages of being a WTO member, such as lower prices of these goods, were to be felt at once. First and foremost, thanks to the import of cheap pork. The taxes on its import were to be cancelled as soon as Russia became a WTO member.

It is true that the import of pork has grown considerably since September 2012, largely because of African Swine Fever, which keeps killing Russia’s own livestock. The price of pork fell by one percent in January and February.

The import taxes on foreign cars did fall, but there appeared the so-called disposal tax on imported cars, which was immediately included in the price. There has been no fall in the prices of imported cars or any other motor vehicles. On the contrary, the European Union has already warned Russia it would take it to court for violating WTO rules.

The sole group of goods that went slightly cheaper over the past year, as follows from a Rosstat survey, is “television and radio appliances.” Some experts attribute this to a fundamental generation change on this market segment. There have appeared many super-new gadgets, so the older models lose value overnight.

Despite the cancellation of EU quotas for the Russian metallurgical industry, Russian producers have experienced no great improvement. Obviously, the country is poorly prepared for operating in the context of open borders, and Russian products have turned out utterly uncompetitive on domestic and foreign markets.

“Agriculture, which is already struggling for life in an ocean of problems, was the hardest-hit,” said Mikhail Delyagin, the director of the Globalization Problems Institute. The profitability of advanced pig-breeding farms, as one can see in the Belgorod Region (the industry’s leader) has slumped from 29% to 10%. The not-very-modern ones are close to zero profitability, and individual private farms across the nation have been going loss-making one by one,” Delyagin told the web-site Nakanune.ru.

The situation in machine-building is no better. The first year of work in the WTO environment showed some deplorable results. The president of the industrial union New Commonwealth, co-chairman of the Moscow Economic Forum Konstantin Babkin, is quoted by the website as saying the European market of farm machinery showed a tiny 7% growth over the first five months of this year. The shipments of tractors in Russia have fallen by 13%, and of combine harvesters, by 39%.

“Domestic farm producers in the pig-breeding industry alone have sustained 50 billion-ruble losses, while government support for the industry is just one-tenth of that amount, 5.7 billion rubles,” he said.

But many disagree that the WTO spells only losses for Russia and keep warning against hasty judgments.

The greatest advantage of being a WTO member is the “stability of conditions for foreign economic activity and, in the final count, the stability of prices,” Russia’s chief WTO negotiator, director of the Economic Development Ministry’s trading department, Maxim Medvedkov, told the weekly Argumenty i Fakty.

“True, one year is too short a period of time to feel this advantage,” he said. “It will become evident in three to five years’ time. The prices are under many influences, not just WTO membership. For instance, there are many other, far more important factors, such as the level of inflation and the prices charged by natural monopolies. We have warned more than once that nobody should expect early advantages or disadvantages. This is precisely what has happened.”

“Firstly, two little time has elapsed since WTO accession,” the daily Komsomolskaya Pravda quotes the director of the Strategic Analysis Institute of the FBK company, Igor Nikolayev, as saying. “Secondly, far from all import taxes have been lowered - only about one-third.”

According to the expert, there are far more profound, fundamental reasons. “If only competition on our internal market would have been more developed, we would have already felt the benefits of being a WTO member,” Nikolayev said.

And another fundamental reason. In Russia, the WTO accession issue has in fact turned into a struggle with the WTO, a sort of grandstand campaign for the interests of domestic producers.” “Import taxes on cars have been lowered, but the disposal tax introduced in exchange. After accession to the WTO, taxes were raised on LCD TV sets and on imported dairy products. It is pretty clear that in a situation like this, the consumer will never feel any benefits,” the expert warned.