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Interview by Andrei Slepnev, EEC Minster of Trade, to the Izvestia newspaper “Accession to the WTO won’t reduce consumer prices”

Interview by Andrei Slepnev, EEC Minster of Trade, to the Izvestia newspaper “Accession to the WTO won’t reduce consumer prices”

8/23/2012
This week Russia has officially become a member of the World Trade Organization (WTO). Our country has been pursuing this goal for about twenty years amidst continuing criticism. Anastasia Dulenkova, a correspondent of the Izvestia newspaper shared with Mr. Slepnev complaints of national businesses and listened to his comments.
 
— How will the accession to the WTO affect Russia?
 
— Accession to the WTO incorporates Russia into the system of international multi-lateral trade, which currently unites more that 97% of the global trade and about 80% of the countries. As for Russian and foreign investors, the accession means that Russian production will enjoy legal protection around the globe. And if previously foreign investors entered our market relying on domestic demand, now they are able to establish export-oriented production – increase volumes through Russia and CU Member-States, which stand for resources, cheaper energy, qualified personnel and such other advantages.

 Our accession will stimulate competition owing to lower duties on foreign goods assessed in accordance with international rules precluding the use of discretional methods of access control.

— But will the accession have positive effect in every sector? I guess some might need help.

 — There are a number of sectors requiring comprehensive WTO-adaptation measures, for example agricultural machine building, where import regime has changed dramatically. Woodworking industry will also require additional adaptation measures.

 

— Meat market participants anticipate losses as due to import inflows small producers may lose profitability. To your mind, what effect will the WTO have on domestic pork production?
— The terms of accession related to agricultural trade are unprecedentedly favorable for Russia. Usually, accession to the WTO means liberalization of access to the agricultural market in the form of supply quotas, lower duties and reduced state support. In Russia, meat quotas were not increased but reduced, including those for pork. Meat duties and support remained unchanged. These are favorable conditions.

 

There is a matter of concern in pig breeding related to live stock supplies. Actually, such supplies were banned for veterinary reasons, but if we observe a sharp growth of pork imports we may apply various WTO-approved mechanisms of addressing contingent fluctuations.

 

— During transition to the new version of the Unified Customs Tariff, the weighted average import duty will go down from 9.6% to 7.8%. Will the prices follow the trend?
 
— Tariffs have decreased by 2% while the US dollar has strengthened by 8-10% since spring. We pay for imported goods in US dollars, and exchange rate fluctuations are four times the change of the customs tariff, therefore general market-wide currency fluctuations have by far stronger effect than changes in customs duties. It is more correctly to review each product group. Significant decrease in tariff rates is likely to be followed by gradual decline in prices.
However, decrease in duties does not necessarily lead to decrease in consumer prices for goods. For example, wine import duties decrease by approximately 7.5%: on the one hand, additional margin resulting from such decrease may be collected by the seller since he is not obliged to reduce shelf prices, on the other hand – retail prices depend on the state plan establishing excise taxes.

 

— But will there be any growth in prices?
— We don’t intend to create any prerequisites.
 
— What about pharmaceuticals industry? About 77% of medications are imported with import duties cut twofold.
— Pharmaceutical market is quite different. To my mind, one of the important victories of Russian negotiators is the absence of any binding obligations in respect of the access to the state procurements. Russia may provide preferences to the CU domestic manufacturers. The share of state contracts in pharmaceuticals industry is big – over a half. Such a mechanism helps to avoid investor shocks in medications production in Russia through guaranteed state contracts. Decrease in duties will result in cheapening unique imported medicines. 

 

— And will the end user benefit from the Russia’s accession to the WTO?
— The accession doesn’t produce any immediate effect for end users, either positive or negative. Eventually, it may happen that they won’t benefit from prices as they rather depend on currency exchange and excise rates than on customs duties, but they will for sure have a better choice of products of a better quality due to the raising competition and new producers on the CU markets.

 

— Among measures to be applied to protect markets upon the WTO accession you’ve mentioned antidumping investigations and specific protective measures. And while we have understanding of the antidumping investigations, what about specific protective measures? 
 
— Antidumping investigations are conducted against a group of countries whose producers import goods at prices lower than those on the domestic market. Specific protective measures are taken against particular products supplied by all importers if such import appears unexpected, harsh and substantially damaging the national industry. Therefore, specific protective measures stipulate establishment of customs duties to protect national producers when import surpasses reasonable thresholds.

 

— Are there any industries where such measures may be taken in the near future?

— We commenced investigations on harvesters. We observe growth of harvesters supplies, assembled or in major blocks, which may increase with the customs duties reduced.

— How many years will it take us to "digest" the WTO?

— Our transitional periods last from 3 to 7 years, e.g. it will take us 3-5 years to interpret the opportunities provided by the WTO. During this time, we may hold negotiations with a number of priority countries. Now we are drafting a system of criteria to determine priorities in such negotiations.

 
— Kirghizia applied for the CU accession. Is the economy of this country ready for joining the “trio”? How may the expansion affect the Union?
— It is the time for consultations; we exchange documents and perform works related to the Kirghizia’s application. It is not yet time to draw conclusions.. 

 

— Is the Customs Union ready for the expansion?

— Officially, there are no obstacles. We had no precedents; we have to develop approaches and regulations in this respect.. 

 

— Will the list of goals be extended?

— To my mind, the Customs Union is facing by far more important challenge – improvement of the structure, which is not yet rendered habitable. First, we have to strengthen it, but we are not going to repel the seekers. However, I haven’t heard the command for extension.​