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Nevertheless, the next few years are likely to see some positive side effects from membership, which the World Bank estimates will bring the economy about $49 billion a year, or over 3 percent of gross domestic product at 2010 prices. The initial benefits will come from the reforms Russia has to implement as a WTO member that will make trade procedures more transparent and ease operations for foreign companies. Lilit Gevorgyan, a Russia and CIS analyst at IHS Global Insight in London, said increased competition from foreign players, particularly on the consumer market, will lower prices and force Russian businesses to work more transparently. “Many Russian businesses will have to compete with cheaper foreign imported goods in coming years, but if the business environment is riddled with corruption and administrative constraints, this will further undermine their competitiveness,” Gevorgyan wrote in a research note. “The hope is that there will be a bottom-up process whereby the business community will put more pressure on the government to work better and create an environment in which they can operate more productively.” Ordinary Russians are also likely to notice a drop in the cost of consumer goods due to increased competition, and an increase in real wage levels, as has occurred in other new member countries. This could be an important factor for Putin’s long-term popularity, given that a Levada Center poll conducted ahead of December’s State Duma elections found the high cost of living to be the biggest concern among voting Russians. However, to take full advantage of WTO membership, analysts argue, Russian authorities will have to take the initiative and crack down on corruption, red tape and low legal protection – the three factors that investors say most deter them from investing in the country. “The WTO is a great instrument if a country wants to change its institutional environment or the structure of the economy,” Natalia Orlova, chief economist at Alfa Bank, told The Moscow News. “It is good that Russia has this instrument, but the WTO is not the driving force that will put pressure on the Cabinet to accelerate reform.” Studies by the World Bank show that the changes required for WTO entry alone contribute only a small part of the long-term gains to economies. David Tarr, a former World Bank economist who was involved in Russia’s WTO negotiations, said in a recent research note published by Troika Dialog that the long-term gains for Russia – adjusted to take in the potential positive impact on the country’s investment climate – could add up to the equivalent of 11 percent of GDP a year. In his campaigning for the presidential election earlier this year, Putin put forward a number of proposed reforms to the Russian economy that would work alongside the WTO to significantly improve the investment climate. To date, however, very little action has been taken toward putting his words into practice. Speaking to investors earlier this year, Putin set the aim for Russia to leap 100 places up the World Bank’s Doing Business Index from the current 120th place, a feat that neighboring Georgia achieved after it had joined the WTO by implementing a thorough crackdown on corruption. Such a policy in Russia, combined with WTO membership, would clearly have a huge impact on the country’s long-term economic prospects, and thereby Putin’s popularity ratings. But Weafer cautioned that even if the authorities do play their cards right, the benefits are unlikely to be felt any time soon. “WTO membership will neither be a positive nor a negative for the economy, nor affect the level of popular support for the government, for many years,” Weafer said. “The impact of events in the Middle East and the growth in U.S. Shale/ Tight Oil on the level of oil and gas revenues in the budget will have more of an impact for most of this presidential term.” Sub-committee on least-developed countries Members encouraged by high trade growth of least-developed countries At the meeting of the Sub-Committee of Least-Developed Countries on 10 October 2012, many members said they were encouraged by a WTO Secretariat report that the value of LDCs’ total exports (goods and commercial services) grew by 23.9 per cent in 2011 to reach US$229.8 billion. However, they agreed with Haiti, the LDC coordinator in the WTO, that “a lot remains to be done”. Among the findings of the Secretariat report “Market Access for Products and Services of Export Interest to Least-Developed countries” were: Major product categories which contributed to the 2011 expansion included fuels and mining products, as well as agricultural products, which experienced price hikes. LDCs’ exports of manufactured goods and commercial services expanded by 24.8 per cent and 15.6 per cent, respectively. Exports of fuels and mining products grew by 25 per cent. The LDC share in world trade (exports and imports) increased from 1.09 per cent in 2010 to 1.12 per cent in 2011. Thanks to the robust growth of commodities exports, the trade balance in goods of the LDCs narrowed down considerably in 2011 — registering a deficit of US$3.3 billion as against $26.5 billion in 2009. The last decade has witnessed a fundamental change with regard to destination markets for goods originating from LDCs. At the beginning of the decade, developed countries absorbed 53 per cent of LDC export. By 2011, their share shrank to 41 per cent. On the other hand, LDCs’ exports to developing countries had expanded more than seven-fold to account for 52 per cent of their total exports in 2011. Haiti welcomed the generally positive figures but stressed the need to also look at the situation in the field, and there poverty and hunger remain challenges for LDCs. He said the LDC share in world trade as not enough, and that a lot still needs to be done. Bangladesh said the rise in LDC exports is encouraging but this is attributable mainly to the rise in the prices of fuel and mining products. It thanked the developed and developing countries that have provided duty-free access to LDC products, and urged members that have not yet done so to grant similar access to the LDCs. Tanzania said members need to exert more effort to help LDCs come out of poverty, and urged improved market access for LDC products. China said it is encouraged by the positive progress of LDC trade and underlined their increased trade with developing countries and LDCs. It said it had continued to be the number one destination for LDC exports since 2008, adding that 98 per cent LDC goods now enter China duty-free. However, it said LDCs remain marginalized in world trade, and urged more support for them through Aid for Trade and investment. It added that the conclusion of the Doha Round would also help LDCs. India also noted the rise in LDC exports to developing countries, adding that it is the second biggest developing country export destination for LDCs. It said the share of LDCs in world trade remains abnormally low, and urged expanding Aid for Trade for LDCs. The European Union said it is encouraged by the growing preferential treatment for LDC exports. It welcomed the positive trends but deplored the fact that trade participation of LDCs remains marginal. It said that a fifth of LDC exports still face duties. It urged more Aid for Trade for LDCs. The United States said a highlight of the report is the growing South-South trade. It welcomes further discussions on how the LDCs could meet challenges they face in world trade. Pakistan expressed cautious optimism with the improvement in LDC trade, in particular against the backdrop of economic crisis. It urged further efforts to assist LDCs including through targeted Aid for Trade. Australia said it is encouraged by the sustained trade progress of the LDCs, and urged more market access and investment to LDCs. It noted that it had been applying duty-free, quota-free treatment to LDC products since 2003. Colombia said that a great deal remains to be done for the LDCs, and suggested that members start discussing deliverables for the LDCs at the Ninth Ministerial Conference in Bali. Turkey said the considerable improvement in trade performance is still far from meeting the needs of LDCs. The Solomon Islands welcomed the progress in LDC trade but said a lot remains to be done. It called for more Aid for Trade assistance for LDCs. The Chair, Ambassador Steffen Smidt (Denmark), concluded that there had been an extremely substantial debate on the Secretariat report. He said he would reflect on ways by which Members could continue the discussion on the report. On another matter, the Secretariat of the Enhanced Integrated Framework (EIF) reported on its recent activities. It said that funding pledges have reached around $240 million. It is proceeding with the implementation of projects in many LDCs, and that the EIF mid-term review is due to be completed in December 2012. Haiti underlined the need for progress in terms of more funding and in enlarging the donor base. In this regard, it urged developing countries to participate in EIF funding. Australia said the EIF plays an important institutional role in assisting LDCs. It welcomed as positive developments the EIF approval of an increased number of projects for LDCs. The European Union welcomed the EIF report, adding that it has great interest in the results of the mid-term review. The EIF is a multi-donor programme, which helps LDCs play a more active role in the global trading system. The programme has a wider goal of promoting economic growth and sustainable development and helping to lift more people out of poverty. The programme is currently helping 47 LDCs worldwide, supported by a multi-donor trust fund with a funding target of US$ 250 million. A representative of the Standards and Trade Development Facility (STDF) made a presentation to the Sub-Committee. He explained that the facility a global partnership established by the FAO, the World Organization for Animal Health (OIE), the World Bank, the WHO and the WTO. It is designed to help developing countries enhance capacity to comply with international sanitary and phytosanitary (SPS) measures. Since its inception, the STDF has devoted 47 per cent of project resources to LDCs. On another agenda item, Haiti recalled the suggested changes of the LDC Group to update the current WTO Work Programme for LDCs submitted in April this year.The chair said that he would undertake informal consultations with a view to producing an updated Work Programme by the end of 2012. Under “Other Business”, Haiti announced that the LDC delegations will hold a retreat in the weekend of 20-21 October 2012 in Montreux, Switzerland to discuss, among other things, LDC issues for the 9th Ministerial Conference in Bali. Is the WTO a sinking ship? The 18 years that Russia waited to join the World Trade Organization were dominated by comparatively free global trade, unfettered globalization and a neo-liberal consensus. By contrast, as the last major economy outside the WTO, Russia during this period kept to a policy of import substitution, high customs tariffs and an undiversified reliance on natural resources. Now is a difficult time to join the WTO, however. The group hasn’t managed to resolve any major trade disputes in the last decade, and we are now moving into a period of deeper crisis and probably a prolonged global recession. The best time for Russia to join, when lower trade tariffs could have raised the competitiveness of Russia’s non-oil and gas sectors, is arguably behind us now. The last time that the world faced such an economic crisis, the 1930s, world trade took a battering as the protectionist barriers went up, and the battle for markets and jobs took on a more sinister military aspect. Germany, the United States and Japan competed for world markets – not through gentlemanly discourse at the League of Nations, but with indiscriminate bombing, blitzkrieg tactics and repression on a vast scale that saw 60 million people killed in World War II, 26 million of them in the Soviet Union. There are warning signs for world trade now, too. While the globalization of capital and labor has probably gone too far to permit a 1930s-style collapse in global trade, there is plenty of potential for the rise of protectionism. Currently, there are a total of 200 million people unemployed globally – 25 million more than in 2000. From the collapsing eurozone to the slowdown in China and the sluggish U.S. economy, the main global economies have plenty of problems to fix, and a lack of ways to fix them. The anemic recovery the world has seen since the 2008-09 crisis is about to turn very sour – particularly as oversupply in China turns into slowdown, then contraction in real terms. And China has been keeping the world economy afloat. The WTO may be a useful instrument to resolve small- and mid-size trade disputes when the weather is fair, but such umbrella organizations are rarely much use in an economic typhoon. The Russian Federation The Russian Federation is the largest country in the world. It occupies about one-seventh of theearth’s surface. It covers the eastern part of Europe and the northern part of Asia. Its total area isabout 17 million square kilometres. The country is washed by 12 seas of 3 oceans: the Pacific, the Arctic and the Atlantic. In the southRussia borders on China, Mongolia, Korea, Kazakhstan, Georgia and Azerbaijan. In the west itborders on Norway, Finland, the Baltic States, Byelorussia and Ukraine. It also has a sea-borderwith the USA. There is hardly a country in the world where such a variety of scenery and vegetation can be found.We have steppes in the south, plains and forests in the midland, tundra and taiga in the north,highlands and deserts in the east. There are two great plains in Russia: the Great Russian Plain and the West Siberian Lowland.There are several mountain chains on the territory of the country: the Urals, the Caucasus, the Altaiand others. The largest mountain chain, the Urals, separates Europe from Asia. There are over two million rivers in Russia. Europe’s biggest river, the Volga, flows into the CaspianSea. The main Siberian rivers — the Ob, the Yenisei and the Lena — flow from the south to thenorth. The Amur in the Far East flows into Pacific Ocean. Russia is rich in beautiful lakes. The world’s deepest lake (1600 meters) is Lake Baikal. It is muchsmaller than the Baltic Sea, but there is much more water in it than in the Baltic Sea. The water inthe lake is so clear that if you look down you can count the stones on the bottom. Russia has one-sixth of the world’s forests. They are concentrated in the European north of thecountry, in Siberia and in the Far East. On the vast territory of the country there are various types of climate, from arctic in the north tosubtropical in the south. In the middle of the country the climate is temperate and continental. Russia is very rich in oil, coal, iron ore, natural gas, copper, nickel and other mineral resources. Russia is a parliamentary republic. The Head of the State is the President. The legislative powersare exercised by the Duma. The capital of Russia is Moscow. It is its largest political, scientific, cultural and industrial centre. Itis one of the oldest Russian cities. At present, the political and economic situation in the country is rather complicated. There are a lotof problems in the national economy of the Russian Federation. But in spite of the problems Russia is facing at present, there are a lot of opportunities for thiscountry to become one of the leading countries in the world. Russia's entry to WTO ends 19 years of negotiations Russia's entry into the World Trade Organisation has been a long time in coming. Negotiations began soon after the breakup of the Soviet Union and the demise of communism and have been rumbling on – with many setbacks – for the past 19 years. The accession means that the last major economic power has joined the global trading system. Russia was the only member of the G8 group not be in the WTO and the Kremlin will be hoping entry will provide the sort of boost enjoyed by China after it was admitted to the club in 2001. That looks unlikely for three reasons. The economic climate is much frostier than it was in 2001, when the global economy was about to embark on its strongest period of growth since the late 1960s and early 1970s. China's economy was much better equipped to reap the benefits of WTO membership, with a strong manufacturing base contrasting with Russia's over-reliance on oil and gas. Finally, just as it proved impossible for other EU countries to replicate Ireland's Celtic Tiger period, so China gained from being the first former communist giant to join the WTO. There are, of course, still potential benefits to Russia from WTO membership. Moscow is hoping for a surge in foreign direct investment that will help make Russian industry more efficient. Russia's exporters will gain to the tune of $1.5bn to $2bn (£950m to £1.3bn) a year from the dismantling of foreign barriers. Lower tariffs on imported goods should lead to cheaper goods in the shops, boosting the spending power of consumers. But WTO membership comes at a price. Dismantling protective barriers means that large chunks of Russian industry may struggle to compete. Already, there are doubts about the viability of the automobile sector to survive in a more open trading system. The Kremlin has sought to make the transition less painful by negotiating a phased-in opening up of markets. The WTO has agreed to this, in part because the Geneva-based body needs the accession of Russia to show that it is still functioning despite the stalling of the Doha round of trade liberalisation talks. But it does mean – given Russia's reputation for being a difficult place to do business – that foreign firms are likely to take a cautious approach to new investment. Pascal Lamy, the director-general of the WTO, says Russia's entry is not a "big bang" accession. China's accession was a pivotal moment in the history of globalisation. Russia's entry looks more like the tidying up of loose ends. Membership comes at a very real monetary cost: Economic Development Minister Andrei Belousov put a number on it, telling Duma deputies that WTO accession could mean $13 billion of lost revenues to imported competition through 2014. But the Kremlin is willing to accept this in exchange for increased competition in the marketplace that is designed to force Russian companies to modernize and work more efficiently. Where Russian owners were mainly focused on abusing their market power and/or corrupt officials to milk the system, tap state funds or charge excessively high margins in the past, now these same owners will have to use their connections in the government to push through market-leveling legislation and administrative regime changes in order to better compete with their foreign rivals. Accession should (slowly) bring about a sea change in the mindset of how owners work with the government from here on in. Well, that is the hope anyway. WTO membership only half the battle Russian companies involved in the import and export trade are appealing to the government to simplify legislation on invoice financing in a bid to boost Russia’s competitiveness as it joins the World Trade Organization. Participants of a round table organized by The Moscow News said that outdated Russian legislation puts small- and medium-sized businesses at a disadvantage to those in other exporting countries because it does not support the process of factoring, used in most other counties. Factoring is a process by which a business sells an invoice to a third party, usually a bank, at a discount to ensure the seller receives cash in advance even if the buyer does not have the means to immediately pay for it. And the fact that Russia does not have the legislation in place to support this process means businesses are likely to lose out in trade deals to those in other exporting countries, especially now that trade borders have been liberalized as part of Russia’s membership to the WTO. “Under Russia’s current legislation, money wired by a customer abroad for goods shipped to him must appear immediately on the accounts sheet of the supplier, which makes factoring impossible,” said Corneliu Robu, who heads the National Factoring Company, one of the only firms providing factoring services in Russia. After the round-table discussion, the Association of Factoring Companies (AFC), a lobby group which represents the interests of several Russian factoring agencies and banks, drew up a resolution appealing to the Russian financial authorities to create a legal infrastructure for factoring. The resolution was submitted to the government on Friday, the same day that WTO general director Pascal Lamy signed a protocol on Russia’s accession to the trade body. The AFC is also lobbying for Russia to sign the UNIDROIT convention, which sets out international standards for factoring transactions. Experts at the round table explained that facilitating factoring would help the Russian government in its aim to diversify the economy away from oil and gas, since it is a transaction that would largely benefit small companies trading in non-energy goods. “Usually supermarkets like Auchan ask for a determinant in payment, which can last from 10 to 45 days or even more,” said AFC director Dmitry Shevchenko. “For a small company, which needs cash to maintain its daily activity, such a delay can devastate monetary reserves, so factoring could help it avoid a cash flow collapse.” Shevchenko said that due to an increase in international trade (by 33 percent this year alone), the need for legislation allowing factoring is growing by around 5 percent a year. Government officials present at the round table said that Russia’s WTO membership would most likely force it to adopt legislation on factoring. “If we don’t approve such legislation, we’ll simply be fined by the WTO,” said Alexander Pak, head of the currency control information unit at the Ministry of Economic Development. Natalia Plotnikova, head of the currency control department at the Federal Financial Monitoring Service told the discussion that red tape surrounding exports and imports would be cut by June next year, clearing the way for the adpoption of new legislation that allows factoring. Russia's economy Despite not seeing double-digit economic growth for over ten years, and been hit hard by the recession in 2009, Russia has had an average annual growth rate since 2000 of over 5%. And according to the OECD, a mostly rich-country think-tank, Russia’s economy will expand by 4% this year and next. While inflation is set to be over 8% this year, high for a middle-income country, at the beginning of the 2000s, it was over 20%. The unemployment rate has followed a similar pattern and is now below the OECD average. Labour force participation rates are also high. But perhaps Russia’s most striking achievement is its fiscal performance. In contrast to persistent budget deficits in the 1990s, up until recently Russia enjoyed a series of surpluses, thanks to high and rising oil prices, economic growth, fiscal reform and prudent management. Revenues from oil and gas, which by 2008 accounted for a third of all government revenues (some $200 billion), were used to repay external debt and build up assets in a stabilization fund, which was recently used to inject a fiscal stimulus. But Russia's budget balance is dependent on the oil price. Strip oil out and its public finances have been deteriorating since 2005. Reducing the public budget’s dependence on oil revenues would further modernize its economy. The OECD would also like to see a more business-friendly environment and effective social policies to reduce income inequality. Russia: WTO accession should lower prices for consumer It is hard to find more solid proof of capitalism’s victory in Russia than the upward trajectory of its consumer market. For Russians of an older generation, this is an eye-opening experience. “If 30 years ago, we had huge shops like this, full with merchandise from all lands and for all tastes, there would have been no need for Gorbachev’s perestroika or for Yeltsin’s follies,” said Nikolai Semenovich, a 75-year old former research engineer shopping at a giant Auchan supermarket on outskirts of Moscow. “I don’t know much about WTO. But if it’s true that, once we are in, retail prices will start to drop I am for accession,” Semenovich said. “I am sick of hearing about Russia’s economic problems on television. It’s a shame they don’t say that the government’s primary goal must be to make our life less expensive and more comfortable.” If the supremacy of manufacturing is no longer recognized as the core imperative for a healthy economy, Russia can claim to be one of the world’s most advanced countries. It has now become Europe’s largest consumer market – retail trade generates a quarter of gross domestic product. In the past 10 years, personal consumption has been stubbornly overtaking production, and the gap between domestic supply and demand is increasingly being filled by imports. By all estimates, whether or not Russia joins the World Trade Organization, this gap will remain; the question, however is how the WTO will affect its size. Russia has already become a part of the global market without the membership. To see how it belongs to world economy in terms of satisfying consumer needs, it is only necessary to look at one of the best consumer market mirrors - retail hypermarkets. The rapid development of organized retail trade in Russia is an economic phenomenon that by itself proves the wonders market forces can do when they are not overregulated by red tape. The increase of personal incomes beginning in the last 1990s combined with a growth in domestic fixed capital outlays resulted in an explosion of organized retail trade, starting in Moscow and St. Petersburg and then extending to the rest of the country. In the last 10 years, retail trade in Russia has attracted over $20 billion of direct foreign investment. “Auchan strives to offer its customers locally produced merchandise and about 70 percent of goods we sell are made in Russia. However, domestic producers are not always able to supply us with high quality products in sufficient volumes,” said Maria Kurnosova, director of external communications of Auchan Russia. “For example, we encounter difficulties with fresh produce of fruits and vegetables that Russian suppliers can’t offer all year round. So we have to replace them with foreign produce in order to satisfy the steady demand of our customers.” It’s likely that with Russia’s accession to the WTO, price and availability of these imported goods will improve, to the benefit of Russian consumers. On a recent trip to the market, Auchan customers seemed more concerned with the price and accessibility of their purchases than their provenance. Potatoes from the Ryazan region, not far from Moscow were cheaper than potatoes from Israel, Egypt or Saudi Arabia, but they were also packed in a less-convenient way, which kept them on the shelves longer. The Russian garlic was offered in kilogram packs each priced at 107 rubles while more popular Chinese garlic was sold in packages of three cloves in small knitted bags for 18 rubles. Perhaps WTO access will also allow Russian suppliers to benefit from the marketing tools employed by their foreign counterparts. The Russian Federation The Russian Federation is the largest country in the world. It occupies about one seventh of theearth’s surface. It covers the eastern part of Europe and the northern part of Asia. Its total area isabout 17 million square kilometres. The country is washed by 12 seas of 3 oceans: the Pacific, the Arctic and the Atlantic. In the southRussia borders on China, Mongolia, Korea, Kazakhstan, Georgia and Azerbaijan. In the west itborders on Norway, Finland, the Baltic States, Byelorussia and Ukraine. It also has a sea-borderwith the USA. There is hardly a country in the world where such a variety of scenery and vegetation can be found.We have steppes in the south, plains and forests in the midland, tundra and taiga in the north,highlands and deserts in the east. There are two great plains in Russia: the Great Russian Plain and the West Siberian Lowland.There are several mountain chains on the territory of the country: the Urals, the Caucasus, the Altaiand others. The largest mountain chain, the Urals, separates Europe from Asia. There are over two million rivers in Russia. Europe’s biggest river, the Volga, flows into the CaspianSea. The main Siberian rivers – the Ob, the Yenisei and the Lena – flow from the south to the north. The Amur in the Far East flows into Pacific Ocean. Russia is rich in beautiful lakes. The world’s deepest lake (1600 meters) is Lake Baikal. It is muchsmaller than the Baltic Sea, but there is much more water in it than in the Baltic Sea. The water inthe lake is so clear that if you look down you can count the stones on the bottom. Russia has one –sixth of the world’s forests. They are concentrated in the European north of thecountry, in Siberia and in the Far East. On the vast territory of the country there are various types of climate, from arctic in the north tosubtropical in the south. In the middle of the country the climate is temperate and continental. Russia is very rich in oil, coal, iron ore, natural gas, copper, nickel and other mineral resources. Russia is a parliamentary republic. The Head of the State is the President. The legislative powersare exercised by the Duma. The capital of Russia is Moscow. It is its largest political, scientific, cultural and industrial centre. Itis one of the oldest Russian cities. At present, the political and economic situation in the country is rather complicated. There are a lotof problems in the national economy of the Russian Federation. But in spite of the problems Russia is facing at present, there are a lot of opportunities for thiscountry to become one of the leading countries in the world. Russia and the future of WTO Russia’s accession to the trade organization may provide much-needed impetus to the dormant Doha Round More than 19 years after it had expressed its intention to join the multilateral trading system, the Russian Federation formally became the 157th member of the World Trade Organization (WTO) last week. Although members of WTO had agreed to allow Russia to accede to the organization last year, the process of domestic ratification took several months before the sixth largest economy could join WTO. Coming as it does at a time when the future of WTO is being questioned, this development should enable all major economic powers to re-group to strengthen the basis for multilateralism in trade. Accession to WTO, at least in theory, brings with it a slew of benefits to the Russian Federation stemming, in particular, from the application of the most favoured nation (MFN) principles. The enjoyment of MFN benefits under WTO implies that other members of the trade organization will no longer use discriminatory trade measures against Russia. In other words, countries such as the US that had refused to grant normal trade relations status will now have to amend their legislation. The US has denied normal trade relations to Russia since the introduction of the Jackson-Vanik amendment in its Trade Act of 1974. This amendment, intended to alter US trade relations with countries with non-market economies that restrict freedom of emigration and other human rights, required the latter countries to comply with specific free emigration criteria for better trading ties with the US. This amendment was considered a response to the Soviet Union’s “diploma taxes” that were levied on its Jewish citizens attempting to emigrate. Repeal of this legislation seems round the corner as President Barack Obama has issued an appeal to the US Congress to do so. Like all new members of WTO, the Russian Federation has had to pay a higher entry ticket to gain membership of the organization by agreeing to a greater degree of liberalization. The real market access opportunities offered by the Russian economy as a member of WTO is in the area of services. Of the 12 broad sectors over which the General Agreement on Trade in Services (GATS) of WTO has jurisdiction, Russia has taken commitments in 11 sectors. Again, of the 161 sub-sectors included under GATS, the country has commitments to liberalize 112 sub-sectors. At the same time, Russian negotiators were able to protect the interests of their domestic firms/individuals in some important sectors, more prominently banking. Unlike most new members of WTO that had allowed liberalization of their banking sectors by setting up branches of foreign banks, Russia has agreed only to allow subsidiaries of foreign banks. While there will be no cap on foreign equity in individual banking institutions, overall foreign capital participation in the banking system of the Russian Federation will be limited to 50%, not including foreign capital invested in potentially privatized banks. Another significant bargain that the Russians have been able to secure is in their automobile programme, which imposes local content regulation and minimum production requirements on foreign investors for obtaining preferential tariff treatment on imported inputs. Although these constraints are considered violations of WTO’s Trade Related Investment Measures, Russia succeeded in obtaining a transition period of six years before it is obligated to terminate these rules. There are expectations that by the end of the six-year transition there will be a substantial increase in Russian automobile assembly and parts production, and therefore, the negotiated transition period could contribute handsomely to the consolidation of the country’s industrial sector. This is not the only concession that Russia was able to secure—its tariff commitments on goods include substantial transition periods, so that it will have to effect reductions in tariffs in several products only seven or eight years after accession. The ability of the Russian Federation to negotiate a deal, which has several positive features for its domestic sector, should encourage a vast majority of the countries that have been trying to change the rules of the game in WTO. For these countries, the Doha Round was expected to be a game changer, as it had made significant promises to introduce new disciplines in several key sectors such as agriculture that were more “development friendly”. What this, in effect, meant was strengthening the domestic capacities of developing and the least developed countries, which can enable the relatively disadvantaged small farmers and the small- and medium-enterprises to stand up to competition. It will be clear to many that at this juncture the Doha Round needs a political push and Russia’s accession to the organization may, in fact, provide the much-needed impetus. Apart from local pressure, the Russian Federation’s accession to WTO can help bring the pressure from forums such as the Group of 20 and BRICS (Brazil, Russia, India, China and South Africa). These forums have emphasized the need to break the logjam in the Doha Round to enable an early conclusion of the negotiations. What difference Russia makes to the dynamics of these forums will, therefore, be watched with immense interest. Russia and WTO. Aims and objectives of accession Currently there are 140 member countries in the WTO and in the nearest future this number will increase. This means that almost every nation aspiring to create a modern and effective economy and to participate in the world trade equally strives for WTO membership. Russia is not an exception. The WTO membership offers a range of benefits. Enjoying these benefits is, pragmatically, the goal of joining the WTO. By acceding to the WTO Russia pursues the following goals: Improvement of existing conditions for access of Russian products to foreign markets and provision of non-discriminatory treatment for Russian exporters; Access to the international dispute settlement mechanism; Creation of a more favorable climate for foreign investments as a result of legal system change in accordance with the WTO standards; Expansion of opportunities for Russian investors in the WTO member-countries, particularly, in the banking area; Creation of conditions for growth of domestic production’ quality and competitiveness as a result of increased flows of foreign goods, services and investments to the Russian market; Participation in negotiations of the international trade agreements taking into account national interests; Improvement of the image of Russia as a competent international trade participant. The objective of the accession negotiations is to achieve the most favorable conditions for Russia joining the WTO, i.e. the best balance possible between the benefits of accession and the concessions in forms of tariffs reduction and domestic market opening. According to German Gref, The Minister of Economic Development and Trade, the balance of rights and obligations of Russia during its accession to the WTO should contribute to its economic growth and not vice versa. Returning to market With Russian companies resuming equity placements in 2010 and a number lined up to go to market in 2011, Business RT spoke with Tom Blackwell from M:Communications Russia about the factors they consider and the difference between success and failure. RT: Global markets are shivering over debt issues and rating cuts. Is it not risky for Russian companies to list in such market conditions? TB: “I think certainly there is a lot of nervousness around the world, and some of that reaches into Russia.Is it risky?I think you have to look at some of these things case by case, and I think what you’ve seen is that, as you’ve said there has still been $2 billion raised so far this year.There are still companies that meet the criteria and are able to get their stories away and others have struggled and partly that is influenced by the market conditions and partly that’s influenced by more company specific aspects.” RT: Which sectors of the Russian economy are of the most interest for foreign investors and why? TB: “Well I think that if you look at how the Russian IPO market has evolved over the last few years, you have had a lot of diversification whereas previously in the early days it was more the natural resource stories that dominated the capital markets, and you moved out into the consumer area, the retail consumer goods and what have you. At this stage you have a lot of the sectors which are quite well represented, so there has been proven appetite and demand for more or less any sector of the economy that meets a certain investor criteria. If you look at the deals which are in the pipeline at the moment and coming up over the next year, you have anything from toilet paper, to shoes, to coal, to manufacturing, maybe even helicopters. You’ve got a big range, and I think within that it’s a matter of whether the companies can present the right kind of story.” RT: Are Russian IPOs a good opportunity for a foreign investor and why? What's your advice? TB: “I think there has been a lot of skepticism generally.People have looked at the performance of Russian IPOs and Russian companies that have listed and where they are trading today versus where they were at the listing date.And I think its true that if you look at where everyone, by and large, is trading, it’s not quite as impressive as you would have hoped at the times when buying into these deals.But I think that you have to add a bit of perspective into that when you are looking at the performance of Russian IPOs over the last several years.The IPO market has really only existed for about five or six years, by and large, and within that timeframe you have had some fairly major things happening in the global economy, including the worst crisis in, sort of, living memory.And that obviously, Russian stocks, like many others were hit fairly substantially, and many now are recovering and getting back into pre-crisis levels.But you have to factor that in then you look at the performance of Russian IPOs specifically.” RT: What's behind the failures of mobile phone retailer Euroset and Severstal's unit Nord Gold earlier this year? Are they asking for too much? TB: “Well I think, were they asking too much? That’s one of the questions.Valuation and price is always going to be one of the key questions investors look at.But if you look at the concerns and considerations of investors today, they are fundamentally no different than they were five or six years ago.There has always been fairly key themes that investors have looked at.One is obviously the price and that we discussed, but they also want to see a reasonable split between primary and secondary not just a case of a shareholder selling out completely, that some of the money is going into the company, they don’t mind seeing some of the money going to paying down debt, but to see it an entire debt driven story, and so on.But they have always been the criteria from the beginning and they remain so today.And perhaps there is even more scrutiny around those core areas.So if you look at the deals which didn’t happen, you would probably be able to see why those deals didn’t get away, why they didn’t get the demand, based on those criteria I mentioned.” Agriculture The physical environment and natural resources of England are more favourable to agricultural development than those of other parts of the United Kingdom. A greater proportion of the land consists of lowlands with good soils where the climate is conducive to crop growing. The majority of English farms are small, most holdings being less than 250 acres (100 hectares); nonetheless, they are highly mechanised. Wheat, the chief grain crop, is grown in the drier, sunnier counties of eastern and southern England, where new, stronger varieties have become increasingly widespread and average yields have risen significantly. Barley is grown mainly for livestock feed. The acreage under oats is gradually declining. Corn (maize) and rye are also grown. Principal potato-growing areas are the fenlands of Norfolk, Cambridgeshire, and Lincolnshire; the clay soils of Humberside; and the peats of North Yorkshire. Sugar-beet production depends heavily on government subsidy because of competition from imported cane sugar. In recent years, acreage and yield for rape have increased. Grass and its variants are grown for feeding livestock. The growing of vegetables, fruit, and flowers, known in England as market gardening, is often done in greenhouses and is found within easy trucking distance of large towns, the proximity of a market being of more consequence than climatic considerations. The fertile (clay and limestone) soil of Kent has always been conducive to fruit growing. Cultivation was first established there on a commercial scale in the 16th century. The county of Kent is a major supplier of fruits and vegetables (apples, pears, black currants, cauliflowers, and cabbages). Hereford and Worcester is noted for its plums, while Somerset and Devon specialise in cider apples. The agriculture of England is primarily concerned with livestock husbandry and, in particular, with milk production. Dairying is important in every county, though the main concentrations are in western England. The quality of dairy cattle was improved considerably after World War II. The higher-yielding dairy breeds, including the Frisian and Ayrshire, have become more numerous than the once-dominant Shorthorn. Prices and Consumer Incomes The other economic factor that consumers must consider carefully in making their purchases of goods and services is their own level of income. Most people earn their income from the work they perform, whether as physicians, carpenters, teachers, plumbers, assembly line workers, or clerks in retail stores. Some people also receive income by renting or selling land and other natural resources they own, as profit from a business or entrepreneurial venture, or from interest paid on their savings accounts or other investments. We later describe how the prices for those kinds of payments are determined; but the important points here are that: 1) in a market economy, the basic resources used to make the goods and services that satisfy consumer demands are owned by private consumers and households; and 2) the payments, or incomes, that households receive for these productive resources rise and fall — and that fluctuation has a direct influence on the amount consumers are willing to spend for the goods and services they want, and, in turn, on the output levels of the firms which sell those products. Consider, for example, a worker who has just retired, and as a result earns only about 60 percent of what she did while she was working. She will cut back on her purchases of many goods and services — especially those that were related to her job, such as transportation to and from work, and work clothes — but may increase spending on a few other kinds of products, such as books and recreational goods that require more leisure time to use, perhaps including travel to see new places and old friends. If, as in many countries today, there are rapidly growing numbers of people reaching retirement age, those changing spending patterns will affect the overall market prices and output levels for these products, and for many others which retirees tend to use more than most people, such as health care services. In response, some businesses will decide to make more products and services geared toward the particular interests and concerns of retirees — as long as it is profitable for firms to produce them. To summarize: whether consumers are young or old; male or female; rich, poor, or middle class; every dollar, peso, pound, franc, rupee, mark or yen they spend is a signal — a kind of economic vote telling producers what goods and services they want to see produced. Consumer spending represents the basic source of demand for products sold in the marketplace, which is half of what determines the market prices for goods and services. The other half is based on decisions businesses make about what to produce and how to produce it. Measuring economic activity There are a large number of statistics produced regularly on the operation of the world's major economies. The UK's economy is no exception in this respect. You will probably have noticed that often the headlines in newspapers or important items on television news programmes relate to economic data and the implications for individuals and businesses. A prime example of this occurs when interest rates are increased: the media responds by highlighting the adverse effects on businesses with debts and householders with mortgages. Data is provided on a wide range of aspects of the economy's operation. Statistics are available to show. * the level of unemployment * the level of inflation * a country's trade balance with the rest of the world * production volumes in key industries and the economy as a whole * the level of wages * raw material prices, and so forth. The main statistics illustrating the economy's behaviour relate to the level of activity in the economy. That is, they tell us whether the economy is working at full capacity using all or nearly all, available resources of labour, machinery and other factors of production or whether these resources are being under-utilized. The unemployment figures for the economy give an indicator of the level of activity. As the economy moves towards a recession and a lower level of prosperity it is likely that unemployment figures will rise. An alternative measure of the level of activity is national income statistics, which show the value of a nation's output during a year. Economists use the term Gross National Product to describe this data. Changes in the level or trends of such key data have great significance for businesses, as we shall see later. There are numerous sources of data on the economy of which we can make use. The government publishes much through the Treasury, Department of Trade and Industry, the Bank of England and the Department of Employment. The Central Statistical Office, which was established during the Second World War, publishes about half of the government's economic data. Much of this is contained in its annual publication, "The Annual Abstract of Statistics". It also publishes the equally valuable "Social Trends" annually. Additionally, private organizations, such as the banks, building societies and universities, publish figures on various aspects of the economy's performance. Economic statistics are presented in many forms, the most common being graphs and tables. Although these statistics can be valuable in assisting managers, they should be treated with some caution when predicting the future trend of the economy and thus helping the business to take effective decisions. |