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08 january, 2007 | By Elena Shishkunova

The Tastier Our Pie, the More People Want Some of It (16262)

 

Maksim Medvedkov, director of the trade talks department at the Ministry for Economic Development and Trade, is head of Russia's delegation for World Trade Organization (WTO) negotiations.

 

Izvestia: It's getting embarrassing to ask "When will we join the WTO?" - so let's try a different question: what's preventing us from doing so?

 

Maksim Medvedkov: We still haven't entirely solved the problem of protecting intellectual property. Everyone acknowledges that we have made substantial progress, but they also note that it clearly hasn't been sufficient to do away with piracy completely. Our partners understand, of course, that this problem can't be solved overnight, but they would still like us to be more effective. This question has become particularly acute against the backdrop of China. China undertook certain obligations to protect intellectual

property rights, and the Americans maintain that it hasn't fulfilled them. And now they've started seeing us through glasses tinted by the China case, arguing that since China hasn't kept its promises, Russia ought to undertake even stricter obligations. Actually,

this might not be all that bad for us, since we're one of the few countries that actually produce intellectual products.

 

There's also a problem with veterinary and food safety measures. The point is that our inspection system, largely inherited from the Soviet era, turns out to be stricter than

systems used in many other countries.

 

Iz.: Well, of course it would be - it was designed to compensate for the slackness of Soviet-era personnel. If they implemented even 20 percent of it, that was considered a good result.

 

MM: You know, the economics of the situation are somewhat different in other countries. If weak veterinary monitoring makes it necessary to kill some poultry somewhere, no one will go bankrupt because of it, since everything is insured. Farmers have insurance, their harvests are insured. All losses will be compensated. But if an epidemic flares up here in Russia, which God forbid, the situation would be quite lamentable. And it's precisely because of these risks that we have to maintain fairly

strict regulations. That's why Russia actually has a reasonably good food safety and epidemiological situation, in comparison to our neighbors. But we do need to explain that such protection is justified and within WTO standards. This is a lengthy process, but

we're approaching completion.

 

Iz.: You clearly don't have a plan to complete negotiations by any particular date. We'll join the WTO only when we have reached agreement on everything, and if our partners don't make concessions, it's their fault. Is that the right psychological approach?   

 

MM: Almost so. The finer points are these. The richer we grow, the tastier our pie becomes, the greater the desire to bite off a large piece of it. Looking at all the WTO accessions over the past 15 years, we can see a pattern: the richer the country, the

harsher the entry terms. Georgia had no problems joining the WTO, and Kyrgyzstan was most welcome, but when it came to China, that was a different matter. As China's economy stabilized, the WTO's appetites grew. Something similar is happening in our case. We can afford to continue negotiating for another year, or two or three years, but it will cost us.    

 

Iz.: But why hurry? Do we really need WTO membership?    

 

MM: The greatest risk is systemic. If our policy of diversifying the economy is correct, we will come up against the fact that we do need the WTO instrument - and not only

for our manufacturing industries, which face substantial barriers when they try to gain access to foreign markets. The services sector needs the WTO as well, and so does our aviation industry. I'll give you an example: in order for a new aircraft design to be profitable, the producer needs to build an average of 400-500 aircraft. Our domestic market can't digest that many. We need access to export markets. But they are protected by barriers that we're unlikely to surmount without joining the WTO. They protect their markets.

 

Here's another example: it took over a decade to get a Russian-made helicopter certified in one particular country. Each time, the fuel tank construction was found to be slightly wrong. It was rebuilt, but found to be wrong again. Everyone knows how this is done. And there are many such examples. Our investors are kept out - but they want to move into foreign markets, since there are interesting assets in Europe and in developing nations. So it's not in our interests to delay joining the WTO.

 

Iz.: With which countries are our bilateral negotiations still incomplete?

 

MM: There's only Saudi Arabia left. Riyadh sent its first enquiry to Russia last summer. They want us to make certain concessions - cutting import tariffs on goods, opening up

some services markets, making commitments on systemic issues. In general, it's mostly routine. We recently agreed that the enquiry will be revised, reducing the number of goods and services mentioned, and on that basis we shall try to complete negotiations

by end October.

 

We are prepared to seriously discuss any issues in which our partners have a real interest. That's our basic condition, so to speak. And they need a great deal. Firstly, they have a lot of money - they want to invest, so it's clear why they would be interested in Russia making commitments with regard to certain services sectors. We're glad to do so! Let them come in and develop tourism or infrastructure. They do this all over the world. Who would object if they build some three-star hotels in Moscow? Secondly, however, they only joined the WTO recently themselves, so they know how complicated the process is, and they probably wouldn't want to drag it out.

 

Iz.: What about Georgia?

 

MM: Georgia is making only one demand: legalizing customs chekpoints along the Abkhazian and South Ossetian sectors of the Russian-Georgian border. Our customs

officers are working there just like they do at any other checkpoints, with no special preferences or restrictions. There are no Georgian customs officers on the other side of the border in those sectors - for obvious reasons. Our Georgian counterparts say they would like their customs officers to work with our customs officers, on the Russian side of the border. We ask: on what basis, and what would they be doing? And they say: on the basis of WTO standards, they would work with Russian customs officers to monitor customs clearance of goods crossing the border.

 

WTO agreements make no mention of that, so there is no legal basis for these demands. What we do have is a bilateral agreement from the early 1990s, and that is what we are using in everyday operations. Besides, how would Georgia's proposal work in practice? Would a Georgian law enforcement officer stationed on Russian territory apply Georgian or Russian customs laws? If Russian laws are applied, it isn't clear why a Georgian customs officer would be necessary at all. We have invited our Georgian

counterparts to discuss this matter from the standpoint of WTO standards. We're trying to enter the WTO, after all, not a school of oratory. In order to solve the problem, we need to understand what the issues are and how they relate to trade.

 

Iz.: Can Georgia, with its customs checkpoints, block Russia's WTO accession all on its own? Do we have any instruments for influencing Georgia?

 

MM: They're Russia's customs checkpoints, not Georgia's - that's the whole problem. We have completed negotiations with about 70 WTO members. Most of them can't wait to be able to sell goods and services to Russia on attractive terms. And then along comes Georgia, with demands that are still hard to explain from the trade standpoint. Perhaps they need to sort things out amongst themselves.

 

The WTO is really a very interesting organization - it always used to follow the channels of United Nations decisions. There were many conflicts: Pakistan versus India, the United States versus Cuba. But everyone still sat down at the same table and pursued common objectives. In the case of Georgia, we still can't understand what there is to discuss or what they want from us. It's a strange situation, to say the least. We promised our Georgian counterparts that we would apply WTO standards in trade with Georgia. We will keep that promise. We're already keeping it. What more can we do?

 

Iz.: A few years ago, everyone was saying that Russian industries couldn't survive WTO accession. But a great deal has been done since then - new associations and state corporations are being established. What are Russia's prospects now? Who stands to

gain or lose from WTO membership?

 

MM: WTO membership procedures have already benefited our car-makers. We agreed to reduce duties on cars from 25 percent to 15 percent over seven years. That would still leave a fairly high rate. And what happened? This plan attracted automotive investors and provided a substantial boost to everything associated with the

car-making sector.


Some are asking what will become of AvtoVAZ. It is believed that AvtoVAZ could be competitive if it chooses the right niche. Low-budget cars that are easy to repair. After all, what's the problem with imported cars in Russia? They're impossible to repair

on the road; they need to be taken to service centers for maintenance, and the service centers are only in big cities, and the parts take several months to arrive. But Russian-made cars still have a huge advantage: spare parts for Zhiguli cars are available everywhere, and anyone can repair a Zhiguli in a field. What's so bad about that?

 

Iz.: Can our aviation industry scramble out of its decline?

 

MM: Our plan entails reducing tariffs on the largest medium-distance airliners from the current 20 percent to 12 percent after seven years. And 12 percent is a lot in terms of protecting the market. So protection is provided, but the problem is what we can

manage to produce. In current conditions, airlines prefer to import used planes and pay 20 percent import duty. They can't buy domestically as yet, because what they want isn't available, or it's available in the wrong quantities, or it can't be delivered within a timeframe that's satisfactory for the airlines.

 

Iz.: But can Russia compete with Boeing and Airbus at all?

 

MM: We could be highly competitive. Russia is one of the few countries that still retains the entire sequence required to build aircraft: from a system of specialized tertiary

education to science and technology resources. Our design engineers in Moscow are working on planes for foreign companies - so they could do the same for domestic companies. Market protection will be maintained - and as for how Russian industry will use it, that's a question for each specific sector. The opportunities for development are there.

 

Iz.: Are you also taking care to protect our agriculture? How will farmers survive in WTO conditions?

 

MM: There are two possible models. The first model is protectionist. We could increase agricultural subsidies, supporting each and every farmer, as Europe and the United States do. The second model is more aggressively liberal, so to speak. Rather than spending more ourselves, we aim to make our partners spend less. The second model is more advantageous, economically and politically. In fact, it wouldn't cost anything, apart from the salaries of administration and negotiation staff. After all, subsidies in other countries are the biggest problem for our market.

 

We are currently discussing the possibility of redistributing the funding allocated to supporting agriculture. There are different ways of providing support. We could give money to specific grain producers, but then we would have to agree with our WTO partners on the amount of such support. On the other hand, if we set about providing roads, schools, hospitals, telecommunications infrastructure, and good veterinary services - this kind of spending is not restricted at all.

 

Iz.: Your critics have said that once we join the WTO, Russia will be flooded with imported food products.

 

MM: We have made every effort to ensure that import tariff protection for food products remains as it is. So all the criticism to the effect that we're selling out Russian agriculture does sound strange. How are we selling it out? Our whole regulation system will remain the same. Our level of protection is fairly high - import duties over 20 percent, meat quotas.

 

Iz.: What kind of foodstuffs are we importing?

 

MM: We import a great deal of meat. Up to 40 percent of meat consumed in Russia is imported. We also import sugar. We're the world's leading consumers of sugar, and we can hardly expect to produce as much as we consume. Dairy products, exotic

fruits and vegetables - these are minor items.

 

Iz.: So when will we join the WTO?

 

MM: Honestly, I don't know how to answer that. We won't be able to join this year, since there's a ratification procedure that follows completion of negotiations. Even if we do everything quickly, the ratification procedure will take at least two or three months.

 

This article originally appeared in Izvestia on October 24, 2007. It is posted here on the fair use principle.


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