Sun August 19, 2012
Joining WTO, Russian Aims For Brighter Future
Originally published on Thu August 23, 2012 6:16 pm
LINDA WERTHEIMER, HOST:
This is WEEKEND EDITION from NPR News. I'm Linda Wertheimer. This Thursday, Russia will become an official member of the World Trade Organization, a move that commits it to play by the same trade rules as the United States and 154 other countries. Supporters of WTO membership say it will make Russia more attractive to foreign investment and propel a boom like that in China, which joined the trade organization more than ten years. But analysts warn that Russia will have to overcome serious problems, including corruption and chronic inefficiency, or its industries could collapse in the face of foreign competition. NPR's Corey Flintoff reports from Moscow.
COREY FLINTOFF, BYLINE: When Russia officially becomes part of the WTO, the first effects could be felt at places like M-Video, a major chain of electronic stores. It's comparable to chains like Best Buy in the U.S., with rows of flat-screen televisions pulsing along the walls and aisles lined with gleaming appliances. The store carries mostly foreign brands, such as Sony and Samsung, and they're expensive, because the Russian government charges hefty tariffs when they're brought into the country. Those tariffs have helped protect Russian manufacturers from competition with cheaper foreign goods.
CHRIS WEAFER: But from next Thursday, M-Video will be able to import, you know, German washing machines and Japanese TVs a lot easier and with a lower tariff, which means they'll be able to lower the prices to those goods on their shelves.
FLINTOFF: That's Chris Weafer, chief strategist at the Russia-based investment bank Troika Dialog. Other than a modest improvement in some consumer prices, Weafer cautions that the immediate effect of Russia's membership in the WTO won't be huge. That's because Russia's tariffs and other trade barriers will be phased out over a period of eight years. Weafer says the first really significant effects will begin to be felt in around 2015, when some protections are removed from sectors such as agriculture, manufacturing and insurance.
WEAFER: That's when companies in Russia that are inefficient or are high-cost producers or are low-quality producers, that's when they're going to see more competition from imported goods. In about three years' time is when you start to see the effect.
FLINTOFF: There are a lot of companies in Russia that fit that description. They, and the jobs that go with them, could be in desperate shape once their protections are taken away. The problem is especially acute in some places, because of a system that was put in place in Soviet times. Entire cities were devoted to the manufacture of just one kind of product. They're called mono-cities, and economist Natalya Volchkova says there are about 450 of them in Russia. She says about half those cities are considered to be at high risk, because the industries they depend on may not be able to compete against international rivals.
NATALYA VOLCHKOVA: They will definitely experience substantial damage and there will be loss of jobs. There will be substantial increase at municipal level in unemployment in those places.
FLINTOFF: Volchkova, a professor at the New Economic School in Moscow, says the government will have to help workers in the effected industries by providing retraining, education and relocation if necessary. Both analysts say Russia's WTO membership will bring opportunities to foreign investors down the road. Chris Weafer says he believes the Russian government understands the need to bring the country's antiquated farm sector into the modern world.
WEAFER: That's where you're going to make the best returns in Russia. Agriculture is the new oil. It is absolutely of preeminent social, economic political importance. I think we'll see a lot of state support political money going into it and a lot of foreign participation as well.
FLINTOFF: Volchkova adds that there will also be investment opportunities in chemical manufacturing and pharmaceuticals. On reason economists think President Vladimir Putin is committed to modernizing agriculture and manufacturing is that his base of support is strongest among farming and industrial workers outside of Moscow and St. Petersburg. They think the government can't afford to see significant job losses in those sectors. Volchkova says there are still problems for foreign investors in Russia. Unless the Russian government tackles corruption and its own inefficiency, she says, the country won't see the full benefits of joining the world trade organization. Corey Flintoff, NPR News, Moscow. Transcript provided by NPR, Copyright National Public Radio.