SPECIAL REPORT ATTITUDES TOWARD THE WTO IN RUSSIA'S REGIONS
EastWest Institute Russian Regional Report correspondents, working together with Ekspert magazine, recently polled business people across the country to determine their attitudes about Russia's upcoming entry into the World Trade Organization (WTO). Here is a summary of their findings.
Reaction of Russian Citizens: Indifference, Tinged by Vague Fears
"As long as there is no thunder, a Russian man does not cross himself." This Russian proverb sums up how most Russians citizens feel about their country's entry into the WTO: It is simply a topic that is not high on their agenda. Many college students in the Far Eastern city of Khabarovsk thought that the acronym WTO stood for the "World Theater Organization" or "World Tourist Organization."
Those who are aware of the WTO often see it as something vaguely "scary and threatening," according to observers in Irkutsk. However, few are actually worried about it. The Russian organization "Russia Against the WTO" could only gather 1,000 signatures in that Siberian region for a petition against Russia's quick entry into the international trading body.
Regional businessmen view the WTO through their usual perceptions of Moscow and Russian politics in general. Representatives of big and medium-sized enterprises in Khabarovsk were convinced that if Moscow initiated the process of joining the WTO, it would lead to nothing good for them in the provinces.
Lack of Knowledge Among Businessmen, Officials
Most business representatives simply have no idea how the WTO will affect their enterprises. When asked about the expected impact or what they would recommend that Russia's government do about the WTO, most businessmen answer "I don't know" or "I'm not informed on this issue." Regional governments often do not have the resources to conduct detailed research on the WTO. In most cases, regional enterprises have little understanding of the threats that they are facing and even less of an understanding of how to prepare for them.
The media in places like Smolensk devote very little attention to issues surrounding the WTO. Discussions of this issue are characterized by "dilettantism in the worst sense of the word," according to a local observer.
Factory Directors, Regional Officials Suffer from Old Thinking
Many factory directors still think in terms of the planned socialist economy and believe that Moscow will some how solve all of their problems and bail them out. These managers fail to think in market terms. A key task in many regions is to improve the way that people think about the WTO and economics in general.
General Sense of Support for WTO Entry
Most informed observers in the regions generally support the idea of joining the WTO. They believe that Russia must integrate itself into the world economy and that such integration is a necessary condition for the modernization of Russian industry and its future development. While Putin has demonstrated the political will to join the organization, the readiness of the regions for actual membership remains an open question, though.
Fears of Negative Social Consequences
Many enterprise directors who follow the issue closely are deeply concerned that joining the WTO will make it hard for Russia to take into account the specific regional features of its vast territory. Many fear that joining the WTO will force numerous large enterprises that cannot compete out of business, creating new armies of unemployed people and raising social tensions. The federal government will not have sufficient resources to help these people.
One of Russians' main complaints is that entering the WTO will force the country to raise energy prices for industrial and residential consumers. There are extensive fears that such price hikes, combined with Russia's low standard of living and slow economic growth, will exacerbate social tensions in the country. Russia has no plan to deal with these issues.
Fear That WTO Entry Will Deprive Russia of its Advantages
Since Russia boasts abundant and cheap energy sources, many Russians believe that low energy prices are one of its international comparative advantages. By holding down energy prices, all of its products are cheaper and more competitive. Many Russians believe that forcing Russia to raise its energy prices as the European Union is demanding in order to secure WTO entry will make it even harder for the country to compete on the international market.
Fear that the WTO will not Produce Promised Benefits
A representative of the World Bank visiting Khabarovsk tried to counter these fears by pointing out that entering the WTO would exert strong pressure on local manufacturers to improve the quality of their products. However, Oleg Burov, the commercial director of the large Far East cable manufacturer Amurkabel, said "It is hard to say that entering the WTO will improve the quality of our products. Even without entering the WTO, we already feel enormous pressure to improve quality."
Fear of Continued Discrimination Against Russia
Businessmen in Bashkortostan fear that the West will discriminate against Russian producers, who have lower labor costs than Western competitors, even after Russia joins the WTO. They believe that unless the state defends their interests abroad, they will not be able to compete with Western businessmen.
Representatives of small and medium businesses in the republic believe that they lack the resources to actively market and advertise their products and do not have sufficient knowledge about how to do business in the West. They also fear language and cultural barriers and are concerned about their overall lack of business experience.
Absence of High Quality Exports
Since more than 90 percent of Russia's exports are raw materials, many fear that it will not have any high value-added products to sell to the rest of the world. The businessmen believe that state support will help them overcome these difficulties. In particular, they want the state to take some responsibility for increasing the quality of local products.
Frequent Demands for Greater State Protection
Beyond taking steps to improve product quality, representatives of Russian business frequently argue that the Russian state should protect certain industries from full international competition. They point out that this is how many Western countries, including the US, initially developed. Advocates of protective measures are particularly seeking help for firms in the following sectors: small business, food processing, agriculture, automobile manufacturers, and aircraft producers, among others.
Expected Reduction in Corruption
Ironically, while many businessmen seek more state aid, the Russian state is now one of their main enemies. Small and medium-sized exporters now face considerable problems from Russian border guards who extract considerable bribes to let goods in and out of the country. Such problems are a particular curse for small, innovative businesses of the kind that Russia is seeking to foster. Some businessmen believe that entering the WTO will force the Russian state to root out some of the most egregious forms of corruption that flourish today.
Business Community Divided
Economically developed regions will have a number of firms that benefit from entry into the WTO and a number of firms that lose out. Thus, the business community in relatively rich regions like Irkutsk is divided on the wisdom of Russia's quick entry into the WTO.
Sectoral Losers
-- Aluminum companies will suffer significantly because entry into the WTO will force Russia to raise the price it charges for energy to world levels. Ninety percent of the cost of producing aluminum is energy. Irkutsk has two giant aluminum smelters and benefits from cheap electricity generated by its hydroelectric dams. WTO entry will drive up the price of the electricity, making the oblast's aluminum uncompetitive. Such problems will particularly affect the interests of aluminum magnates like Oleg Deripaska.
-- Irkutsk Cable, which produces $50 million a year in cable products, will lose out because it will not be able to compete on the domestic market with companies like Alcatel, which has factories in China and Turkey. The USSR adopted its own standards for cable production and now Russian firms will have great difficulty meeting commonly-accepted international standards.
-- Makers of consumer products like computers, paper plates, and toys in regions such as Smolensk fear that their products simply will not be able to compete with the foreign goods expected to flood the Russian market. They assume that WTO entry will bankrupt them.
-- Russian banks will likely lose out as foreign banks come into the market and transfer money collected on the Russian market abroad. However, a well-thought out Central Bank policy could prevent this outcome, according to Arschi General Director Valerii Burlutkin (Arschi is a leather processing firm based in Kalmykiya whose products were included on the list of the 100 best in Russia). Other observers in Kalmykiya agreed that if foreign banks played a role in the country, they would not have an interest in destabilizing the country's financial system. Moreover, they argued that being a member of the WTO would give Russia access to international law-based protections and dispute resolution procedures.
-- Automobile producers are divided on the WTO's impact on their industry. Car manufacturing now makes up about 9 percent of the country's industrial output. It employs more than 10 percent of the working population. The industry is also geographically concentrated since more than 80 percent of Russian cars are produced in the Volga Federal Okrug (especially Samara, Nizhnii Novgorod, and Ulyanovsk oblasts). Therefore the problems associated with WTO accession are both political and economic.
Representatives of different factories view the WTO differently. The Nizhnii Novgorod-based Gorkii Automobile Factory opposed Russia's WTO entry last year. At the same time, the head of the Severstal Analytical Center Yevgennii Chernyakov said that no foreign firm would be a competitor for the Ulyanovsk Automobile Factory, which Severstal owns (Birzha, no. 19, 2001). While Russia continues to have bad roads, the firm expects its jeeps to benefit from high demand. Samara's AvtoVAZ also does not oppose WTO entry since there are few foreign counterparts to the relatively inexpensive cars that it produces. Most imported cars are in the middle range and would compete directly with GAZ's cars, hence the high level of concern in that factory.
-- It is widely believed that Russian food processing firms and agricultural producers will suffer in the WTO.
Sectoral Winners
-- Oil and natural gas companies will benefit from WTO entry because they can compete on world markets and will be better placed to attract investment once Russia is a member.
-- The forestry industry will also benefit. Irkutsk is Russia's leading forestry products exporter. Regions in the northwest (Karelia, Komi) likewise will gain. Currently, the industry is extremely corrupt, with most wood exported illegally.
-- Irkutsk's export-oriented chemical industry will also benefit from the WTO.
-- Enterprises seeking investment capital at reasonable interest rates. Aleksandr Fedorovskii, the general director of Tver's PeLaKron-plus factory (which makes bottle caps and labels) believes that the entry of foreign banks to the Russian market will make it easier for Russian firms to secure long-term, low-interest loans. He claims that if Russian firms have access to such loans before the country opens its borders to more imported consumer goods, they will be able to restructure themselves sufficiently so that they will be able to compete effectively.
This summary was compiled from reports prepared by the EastWest Institute's Russian Regional Report correspondents, including Yekaterina Vyrupaeva (Teleinform, Irkutsk), Igor Rabinovich (Ufa), Yurii Rozhkov (Khabarovsk), Vladimir Volgin (Elista), Tatyana Bikmetova and Rustam Bikhmetov (Nizhnii Novgorod), Dmitrii Bordin (Tver), and Arsentii Ledovskoi (Smolensk).