Russia to cut import fees

Russia will have to cut its import tariffs in line with WTO rules, as the country has finalized the terms of its membership in the organization. The WTO Working Party backed Russia's accession last week. The deal will enter the final stage of approval in mid December. As part of the agreement, the country has to reduce its tariffs on a number of imported goods, as a result the average import tariff ceiling will be 7.8 percent in comparison with the current 10 percent.
Agricultural products will see an average tariff cut of 2 percent, while manufacturing products will have a 2.2 percent reduction. Tariffs on some goods including information technology products and cotton will be scrapped completely. A third of tariff ceilings will be in place from the date of the official accession of the country to the WTO. A quarter will come into force after 3 years. Those for cars and civil aircraft will be applied no earlier than 2018.
The industrial assembly mode, which was introduced in Russia 6 years ago, has until recently been a stumbling block on the way to the country's entry to the WTO. Companies operating under these rules receive significant benefits for importing auto components. A handful of agreements including ones with KIA and Renault have been signed for the next 7- 8 years. EU officials expressed concerns over the existing system, arguing that it gives unfair advantage to companies which have been operating on the Russian market. In addition, the EU claimed that the scope of advantages for foreign carmakers do not meet WTO requirements. Finally, the sides agreed to allow a transition period of up to 7 years for the deals which have already been made.

Russia Business Report discussed the changes to Russia's import tariffs system with Yaroslav Lissovolik, chief economist at Deutsche Bank in Moscow.

Working group, which has been preparing the documents for the accession of Russia to WTO has approved the final version of the protocol. As a result, Russia may enter the organization as early as December. How realistic is this, do you think?

I think now it is pretty realistic because in a way Russia has already passed to the point of no return whereby virtually all negotiations are completed now. And I think it is very unlikely and it's certainly unprecedented that one of the countries, say, in December decides to revisit these agreements. This has not been the case in all of the history of the WTO and despite the numerous surprises that we have seen with Russia's negotiations in the past 18 years, I think, it is very unlikely that these agreements are reversed, and I think now Russia is very much on course to securing finally the WTO accession.

Russia has agreed to lower its tariffs on imports for a number of goods including agricultural products. How will the country's budget be affected by this decision?

Well, the budget is unlikely to be affected significantly because, on the one hand, indeed, you have the effect of lower import duties and that to some degree lowers the amount of revenue into the budget but, on the other hand, the overall level of trade, of import and export is likely to rise, and this is something that favors higher revenues into the budget, so it is going to be mixed bag, it is going to be a bit of ambiguous effect on the budget. But I think in the end it is probably for the better of the economy as a whole because the overall trade flows, the overall investment flows will be higher and even with relatively lower tax rates the budget should be still doing quite well.

Only one third of existing tariffs will change immediately after the accession while the rest will be cut within the next 7 to 8 years. Is this a standard procedure and what does it provide for the country's budget?

Yes, the standard procedures for there to be transition periods. I think Russia was successful in negotiating relatively long-transition periods and this is something that gives some breathing space for domestic producers and to adjust to this greater competition from abroad. So my sense is that while there will be some pressure on domestic producers coming from this greater competition, the length of these transition periods should attenuate the effects of trade liberalization.

If we talk about the transition period, what sectors will be affected the first? In other words, which will have the shortest period of transition?

Well, I think, in terms of the overall effects of WTO accession, I think already in the very short term, already in the coming years we will see the investment effects of WTO accession. And sectors, pretty much all of the sectors of the Russian economy including oil and gas will be positively affected by a greater inflow of foreign investment that we typically see accompanying WTO accession for a lot of the countries. We have seen that with China, with Ukraine and others. But then in the longer term the effects will be more differentiated on the back of this transition period and the commitments on trade liberalization. With the regard to autos I think it is likely to be a relatively long transition period of up to seven years in terms of lower import duties on cars, a relatively long transition period for insurance companies. For some of the other sectors I think transition periods are shorter but again the immediate affects are likely to be relatively favorable and mostly having to do with the investment effects, the effects of greater investments and flows.

Thank you, Yaroslav. That was Yaroslav Lissovolik, chief economist at Deutsche Bank in Moscow.

Russia's former finance minister Aleksey Kudrin says a world financial crisis is underway now, and an economic crisis is most likely to come soon. "From the viewpoint of a (safety) fuse that has already been ignited and is burning, we're entering a crisis", he says. Kudrin also thinks it is quite realistic for the euro zone to come out of the crisis with the help of an estimated 2-3 trillion dollars. Following the crisis, the number of euro zone states will likely shrink, he adds.
"The world has a chance to settle the crisis, but it is a very small chance. Most likely the crisis will spread to other world zones and the US. We'll be balancing on the brink of a very low growth rate and another recession," Kudrin says. He adds that Russia has a more advantageous position compared to other economically-developed countries, mostly due to a low state debt, which totals only 12 percent of the GDP, and considerable gold and foreign currency reserves. However, Russia may suffer difficulties if oil prices fall within the next decade, Kudrin says.
A similar pessimistic view on the current state of the world economy and its probable impact on Russia is shared by the Dr. Doom of the global economy - Nouriel Roubini, who predicted the 2008-2009 global banking crisis and worldwide recession. He says economic shock from European economies "could be much larger than from the collapse of Lehman Brothers in 2008".

Source: ruvr.ru