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“The main reason I believe President Putin supported the WTO accession is that it will provide Russian high-tech enterprises non-discriminatory access to foreign markets.” – Mr. Bernard Casey, an innovation and modernization specialist for the post-Soviet space said in a Voice of Russia interview.
Can you give our listeners an update about what is going on with the WTO accession of the Russian Federation?
Ok. Well, the first development today was that the Russian State Duma ratified the agreement for Russia to join the World Trade Organization. There are two main provisions – one is – there will be a reduction in Russia’s average importers. Today, the awaited average tariff rate is 9.5%, this will be reduced to 7.6% in 2013, 6.9% in 2014 and 6% in 2015. And the second main provision is basically the reciprocal action from all 135 WTO member countries meaning they also have provide the same nondiscriminatory access of Russia to these markets at the same awaited average tariff rate.
What is a weighted average tariff rate?
A weighted average, it means it is weighted based on which items have a higher tariff. So, for instance if 90% of your goods have 10% tariff rate and 5% of them have 20% rate the awaited average would actually be much more closer to 10% than 20%. It is the average that’s weighted based on what is the tariff rate for the vast majority of goods that are actually traded.
What are some of the negative effects this might have on Russia?
There will be certainly be a loss of revenue to the Federal Government. It is estimated around 188 billion rubles will be lost in reduced import duties in 2013 and another 237 billion rubles in 2014. This loss of duties will result primarily from serious competition to Russian enterprises involved in agriculture and textiles. Although this would be somewhat mediated by Russia’s initiatives which have an increase in investments and modernization, and increased efficiency of Russia’s agro-industrial complex. There will also be an increased competition in high-value goods like IT, including industrial machinery and agricultural machinery.
However I think even in the worst case scenario, where there are Russian citizens who suffer financial distress, I’m confident that President Putin will step in and mediate any potential suffering, I know there are certainly measures that have been discussed already. We saw for instance, even this past weekend, that President Putin was in the Krasnodar Region offering humanitarian support even before the floodwaters had receded and he has just increased social spending by three times to intercede the very potential decline in private humanitarian aid as a result of the mpending NGO bill.
I think any potential negative effects they will be faced because of the tariff rate will be reduced progressively between now and 2015. Although the Russian Government will be prohibited from certain subsidies of industries, they will certainly not be prohibited from increasing social spending that may be needed.
I guess there are many more positives than negatives?
I certainly believe so. In terms of GDP growth based, on the World Bank numbers; the interest rate of 3.3% in the short term GDP growth in the near term and up to 11% over the long term. Much of this is coming from improving quality and price reduction for goods and services, better access to foreign markets for Russian exporters and an increase in salaries as well. The main reasons I believe President Putin supported the WTO accession are that it will provide Russian high-tech enterprises nondiscriminatory access to foreign markets, and I think that the big one is, really, attracting foreign direct investments in the Russian high-tech enterprises, especially the participation of private investors from foreign countries in the privatization of Russian strategic state assets, like seaports, airports, oil companies, power companies, airlines. We have already seen foreign high-tech enterprises establishing operations and joint ventures in Russia. This will also allow Russian investment in high-tech enterprises abroad which we are already starting to see.
Is this going to open up Western strategic areas for the Russian investor?
Non-discriminatory access, so these foreign countries have opened up the strategic assets to investment from other WTO members. They are now required to allow Russian investors to invest in those enterprises as well. One point I want to mention as well is protecting the rights of Russian investors in high-tech enterprises operating abroad, I mean there was an attempt by Russian investors to acquire Opel of Germany that ended up not going through, but I believe if that would not have been prohibited under the WTO. This is a type of deal that would go through for Russian investors being provided the same non-discriminatory access to the other WTO members allowed under the provisions of the WTO.
Do you know anything about Jackson-Vanik?
This was passed over 40 years ago because Russia had a temporary loss. It was only on the books for one year and prohibited the Jewish intelligentsia from immigrating abroad. But again that was repealed one year later and after the fall of the Soviet Union, it is my understanding, that over 1 million Jews have immigrated to Israel and the US, and other nations. So, it is really not a reflection of the reality today. The Jackson-Vanik amendment prohibits American companies from selling certain valuable high-tech goods to Russia. It precludes permanent normal trade relations with Russia and it actually has to be renewed on an annual basis. So, once the Jackson-Vanik amendment is repealed, which should be happening shortly, then there will be an opportunity for American companies to export high-tech goods to Russia. So, it actually hurts America more than it hurts Russia in that regard.
You are confident it will be repealed soon?
Yes, but I’m not confident that the Magnitsky bill won’t be put in its place.
If a person or persons are prosecuted for his murder, do you think they will continue to try to implement something like this?
Who knows, I mean it seems that they want to replace an anti-Bolshevik law with an anti-Russian law and as I said the whole impetus for Jackson-Vanik to begin with was a law that was only on the books for one year and yet the Jackson-Vanik has been in effect for 40 years. So, I mean even if Russia serves up heads to Washington DC, would that satisfy the Americans? – I don’t know. There seems to be a lot of anti-Russian rhetoric now during the election season, unfortunately.
What about the negative effects for the WTO members?
Increased competition in the US, EU, Ukraine, China, India and Brazil. There is a perception among many that the WTO membership provides benefits to the more developed nations and negative effects to the less developed. And if that’s the case, if someone would accept that hypothesis, then Russia being, as it’s been said one-brick-ahead-of-the-rest, would certainly benefit from more exports to China, India and Brazil than those nations exporting to Russia. Certainly there will be more opportunities because in the US there is a steel quota agreement in place at the moment. And as I said that primarily with the West a lot of impetus for this is certainly to get the investment from the US and the EU, and Russia.
Most of the effects that influence the WTO members will be positive, I mean they will have non-discriminatory access to the Russian market, they will be able to participate and hook up investments in high-tech, mining, oil and gas, automotive manufacturing. And we’ve already seen a lot that in anticipation of the WTO accession anyway. And as I’ve mentioned earlier they will be able to participate in the privatization of a lot of the Russian strategic state assets – the seaports, airports, oil companies, power companies, airlines and so on.