Monday, November 20, 2006
Russia to Gain Only Margin Profits from WTO Membership
20–11–2006 Kommersant.ru – The WTO Accession – Russian and U.S. presidents are to announce the end of bilateral talks on Russia’s accession to the WTO. Russia has almost gone the whole way to the membership. Remaining obstacles such as the U.S. Congress and Georgia’s enmity are all only about political games.
Russia has been seeking the membership in the organization for 13 years, which is not fantastic at all. China and Saudi Arabia each, for one, spent 12 in the talks while Vietnam negotiated the membership for 11 years. The longest and the hardest part in the process is bilateral talks with the big four - the EU, the United States, Japan and Canada, experts at the World Bank say.
President Vladimir Putin told the Federal Assembly back in 2001: “We must achieve basic agreements with WTO country-members by the end of this year.” Experts were upbeat about prospects of our country’s integration in the organization. The ruble was weak after the 1998 default while salaries had gone down, which gave Russian producers an edge. What is more, labor cost half as much as it had done before the default. If Russia had managed to join the WTO then, the lifting of customs barriers would have boosted not only metallurgy and chemical industries but also Russian machinery and equipment exports. Igor Belyakov, an export at the Economic Expert Group says: “After the failure triggered by the 1998 crisis Russian, exports grew 49 percent in value terms and exports of machinery, equipment and transport means went up 14 percent.”
The negotiation process, however, took five more years, and the situation in Russian economy took a U-turn. The influx of petrodollars raised people’s incomes and strengthened the ruble. It hit Russian exporters twice. Expenses on labor went up whereas products became more expensive for overseas consumers. For example, an average monthly salary went up from $111 in 2001 to $302 in 2005, according to the information of the Russian Statistics Agency. What is more, labor productivity was growing slower than salaries were in a lot of sectors. The Development Center estimated that labor productivity fell behind salaries in 2000-2004 in agriculture, power industry, food industry, building trade, ferrous metallurgy, chemical industry and machinery construction. As evidence for this, the World Economic Forum recorded Russia’s decline in the business competitiveness rating, down from rank 58 in 2001 to number 79 this year.
The situation is the following. Russian machinery, equipment, transport and equipment exports rose 41 percent between 2001 and 2005. In money terms, the exports climbed from $10.5 billion to $13.5 billion, or 19 percent up (taking inflation into account). Consequently, the profitability of exports is falling. Over the past five years, Russia has been selling more machinery but at lower prices. “Our machinery and equipment are usually sold to emerging nations (China, India, Eastern Europe and the CIS),” Belyakov explains. The volume of supplies grew 22 percent in the last five years while exports prices dropped 16 percent because those countries are trying to develop their our machinery industries. The situation with exports to CIS countries is somewhat better. These supplies grew 106 percent while prices added 5 percent, which is also because the ruble against CIS currencies has been growing slower than in relation to other currencies.
Thus, Russia’s accession to the WTO will not bring the country lofty dividends as it would have in 2001 when the membership could Russian machinery exports more competitive. CIS countries which are still continuing to ask for more Russia imports are not WTO members. On another note, exports of natural resources do not need any special protection measures. At the same time, machinery exports seem to be on a rise only because of declining prices, according to statistics.
The problem is that the current model of Russian economic growth is stitched to the growth of domestic demand boosted by profits from natural resources exports. In this situation, Russia’s profits from joining the WTO will be marginal. Metallurgy and chemical industry appear to be the only industries which will have major wins. On the other hand, the accession to the WTO will make our domestic market more accessible for overseas investors. However, all these arguments do not mean that Russia ought not to enter the WTO. It is completely out of question for a country which hopes to occupy a decent place in the world economy. Still, the biggest profits from the WTO memberships flow to the countries which have the product to offer on foreign markets, but not simply boost stock-lists and the size of exports.
# posted by Deval : 1:56 AM
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