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Financial Times (UK)
27 March 2002
Putin's bid to join WTO splits business community
By Robert Cottrell and Stefan Wagstyl
Russian President Vladimir Putin's bid to take his country into the World Trade Organisation as early as next year has split the country's business community.
While few business leaders dare to openly criticise the president, a strong lobby has formed seeking to delay accession to give Russian industry more time to prepare for international competition.
The Russian Union of Industrialists and Entrepreneurs, which represents most big business leaders or oligarchs, has officially come out in favour of rapid accession. It argues membership would increase foreign investment, trade and growth. Alexey Mordashov, chairman of the union's WTO committee, says "Russia should join the WTO as fast as possible" as long as the conditions are right.
But Mr Mordashov, who also heads the Severstal steel group, admits that a significant number of his union's members argue that Russia is not yet ready for membership. The sceptics are led by Oleg Deripaska, boss of the Siberian Aluminium and Russian Aluminium groups, who also controls GAZ, the country's second-largest carmaker, and several bus factories. He seems most interested in protecting his vehicle manufacturing interests. Other industries with strong lobbies include aerospace, furniture-making, financial services, telecommunications and agriculture.
Konstantin Remchukov, a Russian MP and adviser to Mr Deripaska, says the government worries too much about WTO accession as an end in itself and too little about developing an industrial policy. "WTO entry has been wrongly positioned on the agenda as the number one issue. It should be on the agenda but at number 26 or 27," he said.
The argument is hotting up as international negotiations about Russia's entry gather pace.
Russia, which originally applied to join the WTO's predecessor - Gatt - in 1995, accelerated its efforts last year at the behest of Mr Putin. He sees membership as a further step towards Russian integration into the world economy. Russia's official policy is to be "ready" for WTO membership in 2003.
"There is no official deadline for accession," says Andrei Kushnirenko, head of tariff policy at Russia's Ministry of Economic Development and Trade. But the matter could be settled at the WTO ministerial meeting in September-October 2003, he says. Negotiations will enter a new phase next month, Russian officials say, with the presentation draft report listing the market-opening measures that WTO members want Russia to implement as preconditions for entry.
In advance of these talks, the Russian motor industry has persuaded the government to raise duties on older imported second-hand cars, which compete on price with new cars produced in Russia. Analysts say that this proposed increase in the level of protection could prompt Russia's trading partners to demand concessions in other sectors.
Among the toughest battles will be over agriculture.
The US and EU see Russia as an important export market. But Russia wants to develop its own farms. It is telling its WTO partners it wants the right to subsidise agriculture heavily, as it used to do in Soviet times. That means entry terms allowing annual farm subsidies of up to $13.8bn (£9.7bn, E15.6bn) even though actual aid last year amounted to less than $1.5bn.
Mr Kushnirenko says "it would be difficult for us to explain to our farm workers why we were waiving the right" to subsidise. But others say Russia has set the figure high so it can be negotiated down in exchange for favourable concessions elsewhere.
Russian officials are also considering maintaining restrictions on foreign companies' access to financial services, especially insurance, on the grounds that these activities are still in their infancy.
The accession talks cover general topics such as the harmonisation of Russian standards to world norms. Alexei Portanski, director of the government-linked WTO information office, says Russia is ready to discuss all standard WTO conditions. But he says it is resisting attempts by trade partners to broaden the negotiations to include issues not covered by WTO rules - such as Russia's low energy prices.
The sceptics say the government is not ready to make WTO-related decisions, having commissioned an independent report on the potential gains and losses from WTO membership only a month ago.
Last week's decision on car tariffs may indicate that the government is more willing than before to consider the possible disadvantages of accession.
Another sign is the recent appointment as an adviser to Mikhail Kasyanov, the prime minister, of Mikhail Delyagin, a leading conservative economist. He got the job shortly after saying it would be a "huge mistake" for Russia to join the WTO in 2003.
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