August 1, 2003｜Russia
Director, Japan Education Center for Business Management
In my previous opinion article, I outlined my personal views regarding Russo-Japanese trade; in the conclusion, I stated that, “Russia is now doing its utmost to ensure that it can join the WTO. Its efforts will cause the country great pain, but its courage in taking on this challenge is worthy of praise.” In fact, we cannot discuss Russian trade now without considering the prospect of Russia joining the WTO. Although there can be no doubt that Russia’s accession to the WTO is now only a matter of time, the negotiation process necessary for meeting the conditions of accession is still at an unpredictable stage. However, in order to ascertain trends in Russian trade in the near future, as well as in the mid- to long term, we must not avert our eyes from the way in which negotiations progress. In that sense, I would like to provide a coherent outline of the current situation, as well as examining the prospects for the future, on the basis of the information I have been able to obtain about how the Russian side views the situation.
In July, the 20th meeting of the working group for Russia’s accession to the WTO was held in Geneva. According to government sources on the Russian side, “in spite of the fact that 85% of the conditions for joining the WTO have been agreed, we have once again failed to see any progress in solving outstanding issues.”
There is no change in the fact that one of the crucial prerequisites for Russia’s accession to the WTO is an upward adjustment of domestic electricity and gas prices to bring them onto a par with international prices. However, it is not only the question of achieving parity between domestic and international prices, but also the WTO’s requirement for transparency in the mechanism for setting energy prices that is giving Russia a major headache. According to information from those on the Russian side, the issue of specific oil and gas prices has not been discussed at all. At the same time, the Russian delegation has maintained an inflexible attitude, refusing to be placed under any obligation in this matter on the grounds that, “energy issues are not a subject for regulation by the WTO.” This is the same attitude as has been demonstrated in previous negotiations.
Meanwhile, apart from energy-related matters, another of the problems as yet unsolved by negotiations is the issue of tariffs on various items. The main products targeted by tariffs include motor vehicles, airplanes, furniture and pharmaceuticals, and the WTO is also demanding that the protectionist measures imposed on agricultural produce be eliminated. For example, WTO member countries have urged Russia to reduce its import tariffs on vehicles from the current 25% to 5%.
The Russian side demonstrated its hopes for and positive attitude towards the conclusion of negotiations regarding “the relaxation of restrictions on the entry of foreign businesses into the Russian market for goods and services”. Piecing together these circumstances, the Russian side seems hopeful that there is a good chance of joining the WTO in 2004 if negotiations go well. I dare not express an opinion as to whether or not this is excessively optimistic. Initially, the debate within Russia on the pros and cons of joining the WTO was deeply divided. There is still opposition from those of the view that domestic industries, and thus national interests should be protected, but the main weight of opinion is with the pros. Turning to the perspective of the WTO member countries, they too are hoping to complete negotiations with Russia as soon as possible, as Russia’s accession will lead to the opening up of a sizeable market. In that sense, they share a mutual interest. However, since appropriate conditions are required to allow the market to function properly, it seems only natural to make the demands strict from the very beginning; that is to say, from the stage of negotiating the country’s accession. The next working group negotiations are scheduled to be held in October this year.
Incidentally, in Russia, where the government failed to provide the world of industry with a satisfactory explanation at the outset of negotiations, there were many calls to suspend negotiations and requests for explanations of the merits and demerits. Such cries have converged and those who support the negotiations are dominant, for the most part. There is a background to the development of this earnest approach and increasing hopes regarding accession on the part of Russia. This means that joining the WTO has become real issue for Russia. It seems that the following series of incidents surrounding the export of iron and steel to the U.S. has provided Russia with what might be described as a major incentive, making it fully realize the necessity of joining the WTO as soon as possible.
In March 2002, the WTO acknowledged that the tariffs imposed by the U.S. on the imports of iron and steel constituted a protective duty and was therefore a violation of WTO regulations. At that time, the U.S. had set what was effectively a blockade tariff of 30% on metal products imported from such countries as Russia, Ukraine, Japan, China, the ROK, Brazil, France and Germany. Under the banner of the WTO, EU countries raised vehement complaints about the unjustifiable measures of the U.S. Then, as a countermeasure, they gave the U.S. notice that they would reciprocate by setting similar high import tariffs.
Back in the U.S., while the manipulation of import volumes by means of such high tariffs was operating in the domestic iron and steel market, prices rose by more than 50%. By grace of this, many iron and steel makers were not only able to stave off bankruptcy, but their share in the domestic market also recovered and actually grew further to reach 89%.
After many twists and turns when there was a conflict of between the interests of both parties concerning trade, the U.S. has reached an agreement with the countries concerned, including Russia, except for some types of special iron and steel. In March 2003, the import tariff was reduced to 24%.
With this as a turning point, WTO experts began to carry out anti-dumping inspections, and iron- and steel-producing countries affiliated to the WTO could once again enter the U.S. market. In addition, this sequence of moves was largely welcomed not only by countries exporting to the U.S., but also by such domestic users as automobile manufacturers, who had slated the sudden rise in the price of metal products in the U.S. (However, the White House has announced that it will not abolish tariff barriers until the end of 2003, as there is much domestic opposition to the WTO decision.)
It can be said that Russia has gained firsthand knowledge of the significance of joining the WTO, witnessing this series of moves, as well as being one of the parties concerned. That is to say, Russia believes that the U.S. iron and steel manufacturers would have continued their infringement of the rules of trade against such countries as Russia, Ukraine, China and South Africa for as long as it suited them, had the WTO not made its ruling. In July this year, the U.S. iron and steel manufacturers appealed to the international trade committee to permit the maintenance of the barriers for the next five years. Data show that the exporting countries featured on the list could only supply less than 1.5% of U.S. iron and steel demand, were this request to be accepted. In this regard, China, which has already acceded to the WTO, is able to object to the U.S. measures directly from the WTO platform; this is in contrast to Russia, which currently has no means of countering these measures. Russia is now acutely aware of this.
I raised just one example, but a new problem is emerging, which started when the EU announced on 12th June this year that it would impose tariffs on imports of silicon metal from Russia. The tariff was set at 25% for six months; it was calculated that of silicon metal manufacturers and exporters in Russia would lose more than $20 million in the same period as a result. If one recalls that, in the autumn of 2002, the U.S. closed its markets to imports of Russian silicon, one would have to conclude that Russia is being forced into an unfair trade position once again.
“The status of a market economy, which our country acquired last year, seems not to be so useful in reality. Only accession to the WTO is likely actually to protect our country.” These are the words of an official from the Russian Ministry of Economic Development and Trade.
As I mentioned above, there is no room for argument regarding Russia’s accession to the WTO. However, in reality, the nature of the WTO has only been understood by a few people in the government, who have been involved in the negotiations; the rest, including the officials of ministries and agencies dealing with the economy and those who actually conduct trade, are almost apathetic about its significance. Given such circumstances, the Japan Center (Japan Education Center for Business Management) is preparing to hold a WTO seminar within the year, in order to provide Russians involved with economic matters with an understanding of what the WTO is.
[Translated by ERINA]