Hey Ho, Hey Ho, It's Off To The WTO We Go
Being a member of the team “improves first the mood for foreign investors”, explains Franck Schauff, CEO of the Association of European Business in Moscow. “Foreign investors, especially those who come from the EU, are used to working on the WTO regime.”For the person in the street, WTO membership will bring more goods to choose from at lower prices, as removing trade barriers increases competition. On past experience, prices of imported goods should drop and domestic companies also grow quicker with foreign markets opening up. It certainly looks like Russia’s metals sector would be one of the main beneficiaries, as many importers have imposed extra tariffs on metal products,that now will be lifted. And that should have an knock-on effect as many of the heavy industries are interconnected. Better performance in metals will cause a domino effect increasing production in manufacturing.Russia’s existing processing and hi-tech business should also gain a lot, which comes due to “reduction of import fees for foreign equipment and components,” Ilya Rachenkov, Investcafe analyst explained.WTO membership may also speed up the process of Moscow becoming an international financial centre, believes Andrey Sharonov, Deputy Mayor of Moscow.“We see this step as an additional chance for Moscow to become a real international financial centre, to become a more attractive destination for foreign investors,”he said.“Goods coming in, Russia becoming more competitive, investment coming into the country – everybody benefits, particularly consumers,” concluded Roland Nash, chief investment strategist at Verno Capital, commenting to Business RT.
The Bad …
Agriculture will be among the hardest-hit sectors, but experts say the domestic automotive industry will be the one to undergo most upheaval. Ardent anti-WTO lobbyists claim that car-maker AvtoVAZ will be swept away by a flood of affordable foreign alternatives.
The troubled motor company was rescued from the brink of ruin during the economic crisis of 2008 by Prime Minister Vladmir Putin, with more than $1 billion in loans, cash and guarantees. And he even bought a car for himself to show his support for the hard-pressed domestic producer.
Avtovaz is the government’s favorite child, but not all car-makers in Russia are as cherished. Once thriving, all that now remains of the Moskvich plant is a pile of debris. Opening in 1930, its most successful years were the ‘50s and ‘60s, when hundreds of thousands of Moskvich cars flooded Soviet and foreign markets. After the collapse of the Soviet Union, Moskvich was in desperate need of money, but the government could not afford two loss-making car producers – and Moskvich was cast aside.
With global players entering the Russian market, domestic companies will be pressed to improve their own operations and restructure their businesses to efficiently compete with foreigners.
“It´s much more difficult to increase the competitiveness of domestic producers without foreign ones also coming to the Russian market,” says Clemens Grafe, chief economist at Goldman Sachs.
And The Not So Ugly
The only way to avoid the collapse of yet another industry, experts say, is to use the transition period after joining the WTO wisely.
“Firstly, entry to the WTO does not mean you instantly have to drop all customs tariffs and comply straight away,” warns Stanley Root, partner with PriceWaterhouseCoopers in Moscow.
“There is a so-called transition period – roughly seven years or so.”