November 15, 2006 (the date of publication in Russian)
Russia's final round of the WTO entry negotiations: a gateway to "shining future", or to economic degradation?
Russian mass media were happy to report that the talks with the United States over Russia's entry into the World Trade Organization are completed. According to top officials of Russia's Ministry of Economic Development and Trade, the agreements represent a kind of a compromise, and that both sides are left satisfied.
Meanwhile, numerous attempts of industrialists and regional officials to find out what exactly the Russian Federation has agreed upon with the United States, as well as other nations involved in the debate, have been unsuccessful. Russia's plenipotentiary negotiators, in their traditional laconic manner, are assuring the "inquirers" that the conditions of entry are quite acceptable, as everyone will make sure when the final text of the document is presented to the State Duma and the Federation Council.
Still, the negotiating team, headed by Maxim Medvedkov, Director of the Economy Ministry's Foreign Trade Department, admits in unofficial blitz interviews, given to a number of journalists, that in case the "branch specialists" reveal some details of the compromise, the situation may go out of control.
TOO LATE TO TAKE LESSONS FROM CHINA
Generally, the whole process of negotiations over Russia's entry in the WTO was, frankly speaking, ambiguous and odd.
For instance, China had been negotiating over WTO membership for almost fifteen years, and its delegation delivered monthly reports on the results of the talks, discussing them with scientists in economy, representatives of branches of industry, regional authorities, not speaking of political analysts. Delegations of most of other nations were also working in the regime of transparency.
It is noteworthy that the Chinese People's Republic joined WTO in a status of a "transitional economy" which enabled this nation to guarantee a high level of duties and tariffs for commodities and services, produced in China in the framework of national programs of industrialization and/or import substitution. In addition, in accordance with WTO's Charter, a "transitional economy" enjoys a priority for receiving long-term capital investments from abroad. As an emerging economy, China also achieved practically termless privileges in prices, amounts and assortment of its commodities and services sold in WTO's "market economy" member states.
Legal advantages and privileges, similar to those achieved by China, are also enjoyed by a number of former Soviet republics, accepted in WTO in the period of 2000-2003, namely Moldova, Kyrgyzstan, Georgia, and Armenia – also as transitional economies. Therefore, the Russian Federation's trade bans on Georgia and Moldova are a subject of a debate in the WTO framework. Under this very pretext, Georgia and Moldova refused to sign protocols of approval of Russia's entry.
According to available information, the Russian delegation has assured the United States that the trade sanctions, introduced against Georgia and Moldova, are going to be lifted in the nearest time. Has the quality of the Georgian and Moldovan hard and soft drinks promptly elevated?
Meanwhile, WTO member states, unlike Russia, don't raise doubts over quality of Georgia's wine and mineral water.
As a G-8 member, Russia decided to join WTO as a market economy. Meanwhile, the conditions of entry, most of which had to be accepted, practically guarantees a non-restricted import of all kinds of consumer goods as well as a broad range of machinery and semi-products. Meanwhile, no reciprocal guarantees for those commodities have been provided. That is quite natural: according to UNCTAD's and UNIDO's statistics, Russia belongs since 1990s to the first ten world's champions in imports, which encompass over one third of the aggregate assortment of commodities.
In this regard, it is also noteworthy that while Russia's exports of industrial products and semi-products is subject to strict compliance with today's international standards (of exploitation, technology, environmental hazard etc.), Russia's raw materials are actually free from similar restrictions.
In other words, Russia is encouraged to export raw materials of various kinds, thus only enhancing the already existing imbalance in production and exports. Meanwhile, manufacturing industries, especially machine building, are likely to collapse under pressure from industrial-semi-product imports, or in the best case, to transform into "give-and-take processing workshops" for the economies of industrial nations and transnational corporations, functioning – as well as most of the developing and post-Socialist economies – accordingly to orders, technologies, and supplies from the same industrial nations and corporations. In this case, the Russian producers of equipment are doomed for everlasting stagnation. In this regard, it should be emphasized that 85% of today's anti-dumping and relevant restrictions for Russia's production, introduced in over 40 countries, encompass exactly industrial semi-products and products of Russian origin.
THE FRUIT OF TRADE DIPLOMACY
In its effort to join WTO, Russia was dealing with "delegations" of around 60 countries, which actually represented almost 200 nations of the world.
For instance, Russia had to negotiate on its agroindustrial production with 20 countries which actually represented 70 nations. As this author was told already in 2002 by Alexander Kushnirenko, one of the members of Russia's negotiating team, countries like Uruguay and New Zealand, among others, demanded that Russia drastically reduce or even lift subsidies for internal and external transportation of grain and flour, insisting on a similarly drastic increase of domestic prices for meat and meat production, while the sides representing major countries of Eastern Europe, North Africa, the Mideast, as well as Turkey, demanded that Russia necessarily process concentrated juices and drinks of their production. Naturally, customs duties for those goods were supposed to be minimal or zero. With most of those conditions, as Kushnirenko complained, Russia was forced to comply.
The negotiations with the United States, in a certain way, summarized the diplomacy with other countries. Demands from the United States and other countries were synchronic on almost 70% of the issues. As experts from many Russian ministries believe, it was actually the United States which de facto managed the whole diplomatic process, promoting interests, favorable for corporations of its own.
For instance, Costa Rica was actually representing the US interests in sugar exports, as well as those of other twenty sugar-producing nations. Costa Rica's delegation demanded to reduce the sowing areas of sugar beet, to increase of procession of sugar cane, and to suspend today's tough restrictions for import of relevant commodities. As it was reported weeks ago, this round of negotiations was very favorable for the Costa Rican side: Moscow agreed to keep the same tariffs and quotations for sugar cane only until 2008, while in the following period, they will be gradually reduced, so as to guarantee equality in the competition of cane and beet sugar in Russia. Meanwhile, no preferences for Russia's beet sugar in Costa Rica were even discussed.
Such kinds of compromises, which actually represent unilateral concessions, are typical and characteristic for Russia's diplomacy of the "period of reforms".
By the way, the first step towards the demands of transnational companies, viewing the Russian market as a convenient storage for cheap low quality commodities, – a formidable step with regard of its implications – was made in 1996, when Russia introduced everlasting privileges in quotations and duties for commodities and services from over 90 developing economies.
In addition to that, Russia, unlike the United States and related negotiating countries, was not supported by any allied nations. Unfortunately, neither the executive bodies of the Commonwealth of Independent States nor the Russia-Byelorussia Union – though both are reputed as workable coalitions – could elaborate a coordinated approach towards WTO diplomacy. This circumstance contributes to the international corporate pressure upon the Russian economy and trade policy.
ARE THE "JUST CONDITIONS" REALLY JUST?
In accordance with a rather vague formula of Economy Minister German Gref, "the Russia-US agreement on Russia's entry in WTO suggests establishing of just and predictable conditions of trade in commodities and services, most significant for both sides". Similar combinations of words are used by Mr. Gref's subordinates, like Maxim Medvedkov and his colleagues. But what do those declarations actually imply?
The United States, as well as other market economies – like Canada, Australia, New Zealand; Argentina, Uruguay; a number of EU states, along with such "non-market" economies as Paraguay, Mongolia, Ethiopia and a Eritrea, have proposed, in particular, a strict conditionality purporting that certificates for frozen meat and its derivates be issued without any audit from national vet control authorities. Earlier, approval of exports to Russia was signed only after an audit of relevant industries by Russian specialists on the subject of compliance of the industries themselves and their production with Russian veterinarian standards. Eventually, Russia conceded to that issue as well.
Similarly, the Russian side conceded also to the conditionality of access of daughter companies and affiliates of Western insurance firms to the Russian financial market.
At the same time, the US sides did not provide any definite guarantees of abolition of such legislation as the notoriously anti-Russian resolution "On Captive Nations", passed by the US Congress in 1959; the Jackson-Vanick Amendment (1973) to the US Trade Law of 1972, as well as the Congress' resolution on Kaliningrad Region (1995). All those documents allow to introduce any sanctions at any time against Russia, its regions, branches of industry, and particular enterprises – in the framework of international projects/organizations as well. Surprisingly, the Russian side did not condition its agreements with the United States with abolition of the above mentioned legislation. Is the political advertising effect of the WTO deal with the US more significant for Russia's leadership than the economic implications of Russia's membership in this institution?
Russia's dependence on export of raw materials was used by the negotiating sides to a full extent. Or, more precisely, unrestricted access of Russia's raw material-trading oligarchy to the global markets was exchanged for a decline or collapse of major branches of Russian economy.
In particular, Russia is forced to accept a regime of minimal or even symbolic level of subsidies for its own agroindustry and food industry. It has to be emphasized that those conditions are far from market, not speaking of transitional regime. Actually, it corresponds to a level of underdeveloped countries, lacking a capable statehood – like Haiti, Somali, Sierra Leone, Cabo Verde, Chad, Burundi, Rwanda, Western Sahara etc.
In accordance with the most of the "protocols of approval", Russia pledges to reduce the above mentioned subsidies since 2008, including a 2.6% reduction of import duties for the whole assortment of agroindustrial goods, as well as import of many kinds of textiles, leather, fish and fish products; since 2007, Russia is also supposed to suspend compensation of transport costs in domestic and foreign transportation of relevant commodities. Such kinds of obligations are not imposed even upon underdeveloped "dependants".
According to the calculations of Russia's Ministry of Agriculture, 80 per cent of Russia's agroindustrial and food producing industries are unprofitable already today because of the increase of dumping agro imports. In ten years, in a dozen of years after Russia's entry in WTO this ratio is likely to reach 95 or even 100 per cent. Thus, Russia will be comparable with the unfortunate countries of Africa and Latin America, territorially large and rich in resources but forced to import the products of procession of their own raw materials.
In addition, as German Gref declared in public, Russia has committed itself "not to establish domestic prices for gas below its costs" – while the overwhelming majority of WTO members states are not liable to such kinds of obligations.
That means that an inevitable increase of domestic prices for natural gas will result in increase of costs in the whole sphere of industrial production in Russia. This is likely to accelerate bankruptcy, primarily, of manufacturing branches of industries, thus stimulating growth of all kinds of imports, already enhanced with the relief of import tariffs. Simultaneously, gas industry will be eventually oriented exceptionally on exports, in order to remain profitable – as the increasingly expensive natural gas will meet a reliable demand only in the sphere of export.
As for the protectionist instruments in foreign trade, they are going to be curbed. According to Dmitry Lyakishev, head of the WTO Office of the Economy Ministry's Foreign Trade Department, the transitional period, for which today's (relatively low) level of tariff protection is prolonged, is restricted for Russia to five years. Later on, this protection is supposed to be suspended – though it is obvious that within a five-year span, it is hardly possible to transform the economy in a way allowing it to secure itself from the inflow of imports, especially in the conditions of restriction, and later a drastic reduction of direct and indirect subsidies for national industries.
Today, the share of imported commodities comprises from 40 to 60 per cent of the Russian market. With regard of the number of population and the size of the territory, as well as the existing highly diversified economic complex, developed by the onset of market reforms, this at least twice exceeds the optimum level of the "presence of imported goods". But to what extent it is going to increase tomorrow?
According to prognostic estimates of several ministries and research institutions of Russia, calculated in the period of 2005-06, the level of tariff protection of Russia's productive sector is going to reduce at least twice during the next decade, with obvious socio-economic implications. The same forecasts indicate that support of competitiveness of most of Russia's branches of industry is likely to reduce to a 4-5 times smaller level than that practiced in other "market economies". Meanwhile, the possibility of a dirigist influence of the state on the national economy and trade is likely to be actually exhausted within 5-7 years, being also legally unavailable, regarding the same conditions of Russia's entry in WTO.
The conditions of Russia's entry in WTO are comparable with the conditions of foreign borrowing in Yeltsin's Russia. That suggests that the transnational strategy of the notorious "shock therapy" is likely to be applied to Russia by the World Trade Organization in a permanent, or more – in an everlasting regime.
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