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. Last Updated: 07/27/2016

High Import Tariffs Likely to Continue

Western exporters with a memory of more than a few months are now wondering whether the Russian government will honor a promise made six months ago to hold a review of its system of import tariffs.

The promise was made to calm public opposition to a round of import tax increases that almost overnight turned Russia into a high tariff country, raising the price on a whole range of imported goods.

In the initial blush of Russian reform, the Gaidar government had pursued a free trade policy. For the whole of 1992, imports attracted only low tariffs and were even excluded from value-added tax.

But various sectoral lobbies started pushing for tariff protection around the middle of 1993, soon after the ruble exchange rate began to stabilize and imports starting coming into the country.

The two industrialist deputy prime ministers, Alexander Zaveryukha for the agriculture lobby and Oleg Soskovets for manufacturing, argued that Russian agriculture, cars, computers, vodka, and a host of other Russian industries needed protection from foreign competition to help them adjust to the new free market. The few free marketeers in the government argued that high tariffs often work in the opposite direction. When tariffs are high, firms will have no reason to work better because they know they face no competition and they know they will always be able to rely on more help from the government.

They also argued that Russia is still only receiving a trickle of imports and it continues to enjoy a very positive balance of payments.

Nevertheless, after a drawn-out cabinet battle, the higher tariffs for food, automobiles and hundreds of other goods finally came into effect from July 1. These increases reportedly pushed up the average tariff level from 7 percent to 13 percent.

Officials within the Foreign Trade Ministry say they are now working out what if any changes they will seek in Russia's tariff system under the upcoming review.

The ministry, which has the difficult task of selling Russian trade policy to the world, has been the most vocal advocate of lower tariffs.

The ministry would like to reduce the highest tariffs, those over 30 percent, largely because these barriers are embarrassing to Russia in its efforts to join the General Agreement on Tariffs and Trade.

The foreign economic relations minister, Oleg Davydov, has also proposed a couple of other superficial changes to the tariff structure. For example, he would like to offer lower tariffs on imported components for companies that set up local assembly plants in Russia.

But foreign companies selling to Russia should probably not expect a move to much lower tariffs. It is always easier to introduce tariffs than to get rid of them.

This is especially true in Russia, which has a long tradition of isolationism and where there is hardly any political constituency for free trade.

The Russian industrial lobbies who want protection are organized, but Russian consumers, who pay for protectionism in the form of higher prices, are not.

The mayors of Russia's three biggest cities have made a few attempts to mobilize consumer opinion against higher tariffs on imported food, but they have not shown any signs of renewing the battle.

The government itself is now more or less committed to tariffs because they have grown into a small but significant slice of the budget income.

Strangely, even many importers do not object too strongly to import tariffs. Food imports, for example, continue despite the high tariffs because in most cases Russia's Sovietized food industries simply cannot meet the demand for packaged, quality goods.

International pressure could perhaps encourage Russia to open up its domestic markets but, because of the Zhirinovsky factor, few foreign governments want to appear to be pushing Russia around. Besides, at the moment, the Russian market is just not that important.

Geoff Winestock is a Moscow-based correspondent for the Journal of Commerce. John Lloyd, who usually contributes The Big Picture, is on vacation.