WTO accession to boost foreign companies’ business in Russia
World Trade Organization Director-General Pascal Lamy holds the protocol documents. | AFP FILE PHOTO/FABRICE COFFRINI
On 22 August, Russia officially joined the World Trade Organization (WTO) as its 156th member. Russia started negotiating WTO membership on 16 June 1993, when the Working Party on accession of Russia to the WTO was established. Over 19 years later, on 21 July 2012, Russian President Vladimir Putin signed a federal law that authorises the protocol, opening the way for Russia to officially join the trade group on 22 August.
“[It] is especially important as the world goes through troubled times and continues to suffer from one of the worst global economic crisis in memory. Joining the WTO is a sign of confidence in the organisation and in what it can deliver for its members,” WTO Director-General Pascal Lamy said, in announcing Russia’s WTO accession.
European Commission President José Manuel Barroso reminded that Russia is the EU's third largest trading partner, adding that its WTO accession would bring a qualitative change to the current trade regime.
Russia’s former finance minister Alexei Kudrin tweed: “This is a great stimulus for developing the economy and competition”.
The lower trade barriers that come along with membership will open up new opportunities for foreign companies to do business in Russia, which is heavily dependent on mining and energy industries.
The World Bank calculates Russia's membership will boost GDP by 3.3% annually for the first three years, with that figure likely to increase later.
But critics to Russia’s WTO accession argue that the membership will hurt the country’s national sovereignty and security and could ruin entire sectors of the domestic economy such as agriculture and the motor industry.
Natalya Orlova, the Moscow-based chief economist at Russia's Alfa Bank, told New Europe on 22 August that given that Russia is exporting mainly raw materials, WTO accession will not have any impact on Russian exports. She cited official estimates provided by Russian negotiators that on the export side it should gain around $2bn, which is less than 1% of the Russian export trade.
Chris Weafer, chief strategist at Russia’s Troika Dialogue, wrote in a note to investors earlier that the oil and gas are exempt. “There is no obvious impact on the oil, gas and energy sectors, while the outlook for the steel and mining stocks, despite the removal of tariff barriers, is much more dependent on global demand,” he wrote.
Thus the key expectation is on the import side, Orlova told New Europe. “Essentially we expect some decline of the import duties following today’s [22 August] official accession but it should not be too dramatic,” she said. “Some local producers will lose their market share while the importers – the companies importing to Russia – would gain. In the meantime, I don’t expect this process will be very, very significant,” Orlova said.
Meanwhile, WTO rules will not apply to Russia’s trade relations with the US, the world’s biggest economy, until the 1974 Jackson-Vanik amendment, which restricts trade with the Soviet Union and other non-market economies until they allowed free emigration, is repealed. The restrictions imposed by Jackson-Vanik are often waived, but remain in place and are a thorn in the side of Russia-US trade relations. “It’s kind of settled score – it’s just the same as it was," Orlova, adding that Russia’s WTO accession will not affect trade with the US at all.
Weafer wrote that Russia’s accession to the WTO is not a magic wand - it will not instantly improve Russia's business climate or immediately change how investment sceptics view country risk. “It is nevertheless a game changer that has significant medium to longer-term investment implications,” he wrote.
Weafer noted that WTO membership is most positive for consumer and service sectors. “For investors, the more important impact from WTO membership is that it will likely sustain and expand growth in the consumer and service sectors. Imported goods (finished and components) will be cheaper, and World Bank studies show that WTO membership usually drives wage growth, especially among the lower-wage earners,” Weafer wrote.
Construction spend might also benefit, he wrote. “Construction companies will also eventually benefit from being able to buy cheaper materials and machinery,” Weafer wrote.
Importing equipment will be cheaper. “Companies that buy expensive imported equipment will also benefit as costs come down and leasing terms turn more advantageous. The cost of buying imported aircraft, for example, will be a longer-term cost saver for Aeroflot and other Russian airlines,” Weafer wrote.
He noted that WTO membership has already “forced the state to stop procrastinating and create some real protectionist measures in socio-economically sensitive sectors. These measures, and others to follow in similar sectors, may help those industries become more competitive and more solidly based by the end of the WTO compliance period. Investors will also gain by participating in this restructuring”.
Weafer also said that food and machinery manufacturers will see more competition. “Industries that will face some pressure include the food manufacturers, construction material suppliers and makers of light industrial equipment and machinery. The price of imported competition will start to fall. How they fare long term will depend on whether they can adjust to compete on pricing and quality,” he wrote.
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OLA ALLAZOYN. Το μέλλον πρέπει να είναι ελπιδοφόρο.
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