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. Last Updated: 07/27/2016

New Trade Quotas Worry Economists







A flurry of recent government actions designed to protect domestic industries is raising fears that Russia is moving away from its commitment to liberalize foreign trade.


This week alone, a government commission approved a draft resolution recommending limited quotas on European Union textiles imports, and President Boris Yeltsin signed a decree strengthening state control over imported alcohol and tobacco products. The government also is considering measures to shield Russia's automotive, light manufacturing and food industries.


"If it goes much further, this would be a major reversal. It's clearly a major worry," said one senior Western economist, who asked not to be identified. "The tendency to think about greater protection and closing off Russia to the rest of the world is one of the major worries concerning the reform process."


Economics Minister Yevgeny Yasin insisted Friday that the government was not adopting a protectionist course as advocated by some industrial lobbies.


"These are reasonable measures aimed at supporting structural reform in the Russian economy," Yasin said after a government meeting. But he added that exports, which have driven much of the country's recent recovery, were flattening and that as much as half of all goods on the domestic market were imports.


"This is a disturbing factor and forces us to take measures to support domestic producers," he said.


Yasin emphasized that any import quotas would fall within rules of the World Trade Organization, to which Russia applied for membership last summer. Few expect Moscow to be admitted this year, but Russian officials have said they are anxious for membership as soon as possible.


Yasin also noted that Yeltsin last year decreed slashes in export tariffs on a number of products, although some of the levies remain in effect pending formal measures to implement them.


Some experts said they doubted that the recent signs point to a shift toward protectionism.


"This is not a trend," said Sergei Pavlenko of the government's Working Center for Economic Reform. "It's a fluctuation in Russian economic policy. The policy of the Russian government is to have an open economy, and such measures are, of course, the result of lobbying."


Indeed, foreign trade officials insist that any hikes in import tariffs will be minor. Alexander Daniltsev, deputy head of the Foreign Trade Ministry's department for regulating foreign economic activity, told Interfax this week that import tariffs, currently an average 14 percent, will rise less than 1 percent. He said, however, that Russian producers have been lobbying to get them hiked by "several times."


Pavlenko said the threatened textile quotas are more symbolic than serious, and may be related simply to politicking before June's presidential elections.


"The recent steps of the government allow one to conclude that the role of the state in foreign trade is strengthening and that the program of liberalizing foreign economic activity, which had been carried out earlier, is drifting into the background," said Vladimir Kuvshinov, an expert with the economic reform committee of the State Duma, the parliament's lower house, in an interview with the newspaper Kapital.


Others worry that these moves signal a cardinal change in Russian foreign trade policy.


Some observers see last month's appointment of Vladimir Kadannikov, head of troubled automaker AvtoVAZ, to replace Anatoly Chubais as economics tsar as a sign that a fundamental reorientation in trade policy is in the offing. Immediately following his appointment as first deputy prime minister, Kadannikov, who formerly headed Russia's Industrial Policy Council, spoke of the "need to protect and strengthen domestic goods production."


"I think that Mr. Kadannikov, in contrast to Mr. Chubais, is a representative of circles that want to defend our so-called national industry," said Sergei Prikhodko, head of the foreign trade department at the Institute for the Economy in Transition. "And I think that the alcohol industry and others -- especially the auto industry -- will be protected in various ways, first of all by an increase in import tariffs."


"Unfortunately for us, we will be forced to buy Zhigulis," he said, referring to the small cars made by AvtoVAZ.


On Tuesday, a government commission for protective measures in foreign trade, chaired by Foreign Trade Minister Oleg Davydov, approved a draft resolution recommending limited quotas on textiles imports from the European Union.


If approved, the resolution reportedly would take effect in mid-May and set a quota of $140 million to $150 million on EU textile imports this year.


Russia contends that the 15-member EU discriminates against textile imports from Russia, restricting them to 140 million european currency units (about $113 million), while Western Europe exports 580 million ecu worth of textiles to Russia.


"This is flagrant discrimination," said Maxim Medvedkov, deputy chairman of the Foreign Trade Ministry's multilateral cooperation department, in remarks reported Friday by Interfax. "Protectionist measures will be justified juridically and morally."


The EU, for its part, argues that the Russian textiles industry must sort itself out.


"We understand that the Russian government has been under strong pressure for some protectionism from the textiles industry," said Andreas Papadopoulos, a counselor with the European Commission's delegation in Moscow. "But we do not think that the reason for the problems in the textiles industry lies in the competition from the European Union."


Papadopoulos added that the EU is "in touch with the Russians, trying to find a solution."


Food and alcohol are another area where the government perceives a damaging tide of imports. Acting Agriculture Minister Alexander Zaveryukha on Wednesday decried chicken imports from the United States, known as "Bush legs" after former U.S. president George Bush, saying they were "destroying our poultry market, because they're three times cheaper than our own chickens."


Meanwhile, the collective-farm lobby's campaign to protect domestic food producers has been gaining ground. Last week, the State Duma passed a resolution to improve measures for providing Russians with domestically produced goods


The Duma is working on legislation which, experts believe, will include measures protecting domestic agriculture and food production.


Also this week, Yeltsin signed a decree requiring liquor retailers and wholesalers to comply with tighter reporting requirements on imported liquor. The move came on the heels of a government decision at the end of last month to limit alcohol imports to around 20 percent of the Russian market for alcoholic drinks, down from the current 50 percent. The government will determine who will be allowed to import tobacco and alcohol products through special auctions.


In addition, the government has decided on a more generalized limitation on the importation of "light industry products" this year, the newspaper Moskovsky Komsomolets reported Friday, citing a top official in the State Committee for Industrial Policy. "In the near future, cheap Chinese and Turkish consumer products may disappear from trade," the newspaper wrot