Financial Daily from THE HINDU group of publications
Saturday, Feb 04, 2006
`Our WTO negotiations are mainly about making Russia an equal participant in global trade'
Ranabir Ray Choudhury
Russia is on the threshold of joining the World Trade Organisation, which will materialise after it completes bilateral discussions with the existing members. The Russian Minister for Economic Development and Trade, Mr German Gref, will be engaged in discussions to this effect in New Delhi. His principal message, as indicated in his reply to questions prepared for him by Business Line, is that most of Russia's trading partners have objectively appraised its proposals and agreed that Russia's accession to the WTO will help develop mutually beneficial trade exchange.
Excerpts from the interview:
The ongoing negotiations for Russia's accession to the WTO began in 1994. Clearly, the negotiations have turned out to be tough. There is a view that WTO membership will not greatly benefit Russia principally because of its status as a major oil exporter. It is felt that this is one of the reasons why the Russians have been hard bargainers in the accession negotiations. Would you agree with this?
Let us agree to disagree. I do not think WTO membership is going to do Russia little good. We see WTO accession as a strategic objective of Russia's economic policy, and we have been working hard on it for five years now. I will not speak in detail on all advantages we think the membership will bring. What is important to us is to make Russia an equal participant in global trade. This is what our WTO negotiations are mainly about.
Another topic I could challenge you on is that Russia's negotiating position is tough. Our negotiating position is normal. It matches the balance of interests of Russian producers and consumers, the real state of our economy and its various sectors, and the general trend of the Russian economic reform. Moreover, we see the proposals on access to merchandise and services markets as evidence of Russia's considerable progress in providing foreign suppliers access to our markets.
Most of our trade partners have objectively appraised our proposals and agreed that Russia's accession to the WTO on such conditions will help develop mutually beneficial trade exchange. Our position on compliance issues is simple enough: we wish to play by the WTO rules and hope our partners will also stick to common rules. From the date of accession, Russia will honour its WTO commitments including intellectual property, veterinary and sanitary regulations without any transitional periods.
To ensure this, Russia harmonised its law, including Customs rules, with WTO requirements well before the accession. What still needs to be done is mostly on the technicalities front, and these will be done within months. In this light, we are naturally averse to seeing some of our partners trying to invent "individual" rules for Russia.
Protection of intellectual property rights has been a sore point with countries like the US, among others. Regarding IPR, what steps have been taken to control and stop altogether if that is at all feasible the counterfeiting of films, software, music, distilled spirits and pharmaceuticals?
Russia is doing a great deal to protect intellectual property on all counts as progress in this area will help our businesses and serve our interests.
Aside from this, there was a pressing economic dispute with the US, in which there was a possibility of imposing economic sanctions and ousting the Russian Federation from the Generalised System of Preferences over allegedly ineffective protection of US intellectual property rights in Russia. In the end, sanctions that could have damaged Russian exporters and the Russian economy as a whole were put off the table.
Progress on legislation includes relevant amendments to the Criminal Code, Code of Criminal Procedure, and Code of Administrative Offences, which help police to detect and prevent crime in this sphere and, importantly, establish much harsher punishments for these crimes.
We now have a Bill providing additional protection of confidential information pertaining to medicine registration against disclosure and commercial misuse.
The police have done a great deal to detect and prevent production and distribution of fake products, including a series of on-site inspections of audio/video factories, closing down those found in breach of the law, laying criminal and administrative action against the perpetrators, and confiscating pirated products found on scene. Customs has stepped up efforts to stop imports and exports of fake products. On January 31, 2006, the Organising Committee for the Drafting of Copyright Protection Measures held its first session at the Trade and Economic Development Ministry. The Committee, chaired by the Science and Education Minister Mr Andrei Fursenko, is going to work on drawing public attention to the problem of fake goods and to the need to improve our international image, especially as Russia is presiding over the G-8 in 2006, and show to the global community Russia's clear and consistent standing against copyright piracy.
What specific reforms have been effected in agriculture, telecommunications, banking, insurance and the industrial goods sector (aircraft import tariffs, etc) in pursuit of the WTO accession talks?
Though the WTO accession process has not included sectoral reforms in industry, agriculture and services, Russia has liberalised its Customs tariffs considerably (by 30 per cent) in the last decade and made substantial progress on currency regulations, taxes, and investment.
All these moves were made within the general context of the economic reform and were in fact less about WTO accession than WTO accession itself being seen as an important factor helping stabilise the economic reform in Russia. On the country level, the main thing to work on is bringing Russian law and legal practices in compliance with WTO rules and standards. This is all but done.
As far as India is concerned, what are the main points of the WTO accession agreement between Moscow and New Delhi? Specifically, what have been the demands of the Indian side and the Russian response?
Our Indian partners were mostly interested in import conditions for traditional Indian agricultural products, such as tea, tobacco, rice, fruit, nuts, and its industrial exports chemicals, pharmaceuticals, some categories of machines and equipment. In services, India is interested in more liberal working conditions for Indian specialists in Russia. On all issues, we have reached agreement within the framework of standard conditions Russia offers in all negotiations.
Russia not only agreed on Customs tariffs and market access terms but also agreed with India that some geographical names in Indian trademarks have to be protected. There is also an agreement on further cooperation on veterinary and sanitary measures. Recent events have clearly shown they are increasingly important and urgent.
These moves should send a signal that Russia cares about Indian interests and has the goodwill and commitment to advance the spirit of neighbourliness.
It is important that we complete the negotiations with India on Russia's WTO accession not only on the basis of our bilateral trade and economic relations but also understanding India's role as a leading player in a multilateral trade system. We are sure that Russia's fast WTO accession would be in India's interests, too, because Russia honouring its agreed commitments would mean better and broader access of Indian goods to Russian markets.
The Indo-Russian Defence partnership has been the foundation of strategic relationship between the two countries. What about the civilian sector? What are the plans, if any, to expand co-operation in this sector?
Foreign trade is one of the main indicators of cooperation in the civilian sector. Russian-Indian trade reached $1,988.3 million in the 10 months of 2005 (a 34.2 per cent increase over the same period in 2004). Exports amounted to $1,464.4 million (+51 per cent), and imports almost $524 million (+2.3 per cent). The trade balance, of $940.5 million, is in Russia's favour.
Let's look at the dynamics of Russian-Indian trade over the past few years. Having dropped to its lowest of $1,308 million in 2002, it started growing steadily when Russia increased imports. In the Indian Customs' estimate, in 2003 and 2004 Russian exports went up by 38 per cent and 50 per cent, respectively. It is expected to top $3 billion in 2006, if Russia starts supplies of oil and gas from the Sakhalin-1 deposit.
During the visits of the Russian President, Mr Vladimir Putin, to India, and his Indian counterpart, Mr Abdul Kalam, to Russia, the sides signed agreements on cooperation in different spheres with a view to consolidating bilateral political and economic relations. They decided to lay emphasis on the build-up of bilateral trade and investment with participation of the business, banking, and industrial quarters.
As it was rightly observed during the meetings, a dynamic growth of the economies of the two countries has opened up broad vistas for their trade and economic cooperation.
We hope that the draft memorandum on cooperation between the Russia's Ministry of Trade and Economic Development and the India's Ministry of Commerce and Trade, which is to be signed during a forthcoming visit to India, will facilitate consolidation of bilateral relations. The memo says that the ministries are united in their determination to contribute to the stable development of bilateral trade, and economic and investment cooperation. Our joint plans provide for bringing trade to $10 billion by 2010.
Cooperation in energy has been described as a "sunrise sector" in bilateral economic relations. How do you see the potential of oil and gas exploration and production developing in this sphere?
Russia's natural advantage is its geopolitical position, and possession of resources, which by far exceed those of Western countries. Today, this country is a major producer of oil on the world market (output stands at 457 million tonnes, and exports, 257 million tonnes), and the biggest gas producer (589.10 and 184 billion cu m, correspondingly).
In addition, we are implementing a number of promising transportation projects, which will allow us to supply energy to new markets, primarily North America, Asia and the Pacific.
These facts show that Russia is an economically and politically reliable strategic partner, capable of meeting the demand of the growing world economies for energy carriers.
However, export growth in 2005 was much slower than in 2004, although high prices on fuel and energy resources in 2005 were an incentive for increased exports. Concentration of supplies in Europe slowed down the growth rates of oil production in the country.
We must develop the oil-and-gas industry in order to use Russia's huge potential. To achieve this, we need to upgrade our taxation system. We have to adopt a differentiated severance tax on oil production without delay, and revise the principle of setting excise tax rates on oil products to reduce the taxation burden on the domestic oil market.
To promote long-term development of the oil industry, we have to: actively develop new deposits; make the production of existing deposits more effective; upgrade the quality of oil and oil products; create incentives for investment in advanced refining; and increase the production of light oil products.
As for differentiating severance tax on oil, the Ministry has drafted a federal law, which provides for tax breaks to companies developing new deposits, and for different severance tax rates depending on the depletion of deposits.
To create incentives for the production of higher quality fuels, we are changing the principle of setting excise rates. The better the fuel, the lower the rates.
Expensive fuel-and-energy projects require direct investment, including foreign funding.
To this end, the Russian Government passed a resolution last December, which lifted export duties on liquefied natural gas. This will serve as an incentive for advanced refining and diversification of Russian natural gas exports.
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