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Looming WTO entry breeds controversy in Russia

Eleonore Dermy
World Trade Organization Director-General Pascal Lamy (Far R) talks to Russian First Deputy Prime Minister Igor Shuvalov (Far L) prior to a WTO ministerial meeting in December. Russia's upcoming entry into the WTO is hailed by its leadership and global trade chiefs as a long overdue integration into the world economy over 20 years after the collapse of the Soviet Union

Russia's upcoming entry into the WTO is hailed by its leadership and global trade chiefs as a long overdue integration into the world economy over 20 years after the collapse of the Soviet Union.

But Oleg Podoyma, head of a poultry firm in the main Siberian city of Novossibirsk, is not so sure.

"We are not expecting a bright future," he sighed. With customs duties set to be slashed on imported goods after membership "there will be competition not just with national producers but with the importers."

"For the moment 90 percent of the poultry consumed in Russia is produced in Russia and just 10 percent imported," he said. But Podoyma fears that after WTO membership the market will be flooded by US, Brazilian and European produce.

Russia is due to finally join the WTO later this summer, ending a sometimes torturous saga that required 18 years of negotiations and was marked by frequent snags and mutual recriminations.

After the World Trade Organisation's (WTO) 153 members gave their final approval to Russian membership in December, the Russian parliament now just needs to ratify the accession documents, a move expected in late July.

Even with the process apparently over, WTO membership is controversial in Russia with some companies fearing they risk being destroyed by sudden exposure to foreign competition and others seeing it as a crucial step in modernisation.

Podoyma has invested large sums in modernising his firm's machinery over the last years and fears he will not be able to repay loans if his market share drops after WTO membership.

Meanwhile he fears that the many Russian firms who have failed to modernise will not manage to survive and there will be "bankruptcies and a consolidation in the industry."

Konstatin Babkin, president of the Rosagromash association which groups together producers of Russian agricultural machinery, fears that millions of jobs will be lost in the sector.

"We have already 40 million hectares of abandoned agricultural land. After we enter the WTO, huge numbers of villages are just going to die."

Babkin, whose group has emerged as one the loudest voices opposing WTO membership, slammed the conditions negotiated by Moscow with other members of the global trade body.

"Russia will not have the right to subsidise its agriculture by more than $4.4 billion a year. But Europe is spending $126 billion, that's 30 times more than Russia."

The authorities, who over the last years have launched a massive drive aimed at properly realising Russia's under-exploited agricultural potential, also appear aware of the potential problems.

A source told the Vedomosti business daily that government members were holding meetings every week on the issue.

However not all small and medium-sized enterprises in Russia are so dubious. Anton Titov, head of Russian Shoes, a shoemaking firm also based in Novossibirsk, is more optimistic.

His sector has been under a WTO regime since 2006 when customs tariffs on shoe imports from abroad were reduced to the same level as for other WTO members even before the accession agreement was made.

Since then, the market "has changed a lot in terms of quality. It became more transparent and predictable, more understandable for the investors."

Titov's firm, which sold about one million pairs of shoes in 2011, has to import the leather and the plastic they need because the production of these primary materials is limited in Russia.

As a result, the reduction in customs duties on these products will be a boon for his business.

In a report published in March, the World Bank said the reduction in customs duties would allow Russian firms to buy intermediate goods and technologies which are often produced abroad more cheaply.

It said that in the long term, the improvement in productivity for firms would win Russia gains worth 11 percent of GDP or $162 billion.