Russia and WTO: Independent member of international community

Russia ’s completely fading hope of entering the World Trade Organization in the near future was yesterday once again raised. Several high profile individuals on both sides of the ocean discussed the future entry as an agreed action.

Unofficially, the Big 8 summit, which will take place in St Petersburg this weekend, was named repeatedly as the date for the finalizing of a process that has lasted over a decade. However, although Russia awaits only the agreement of the USA to enter the international trade club, hopes of concluding negotiations by the allotted date quickly disappeared. There are several reasons for this: Russia ’s reluctance to allow the opening of branches of foreign banks and insurance companies, the level and means of state support for agriculture in Russia , and the lack of activity in the battle against the violation of laws on intellectual property.

Yesterday, President George Bush informed journalists that he had sent a letter to Vladimir Putin, very clearly stating the position of the USA on this matter. Now, according to his words, there are no ambiguities as to what needs to happen where admission into the market is concerned. Following the letter, the US Deputy Trade Representative Susan Schwab is arriving in Moscow today. Negotiations will last two days and in theory, they could be drawn to a close just in time for the summit, by the 13th or 14th July. Deputy Prime-Minister Alexandr Zhukov declared to reporters last night that he hopes for a successful conclusion to negotiations before the start of the summit.

Andrew Summers, president of the representation of the American Chamber of Commerce in Russia , is even more optimistic. ‘We are confident that Russia and the USA will sign an agreement during the time of the summit or a day before it begins, during a two-way meeting between the presidents of both countries,” he said at a press conference in Moscow . He admits that the American side still has unresolved issues to discuss with Russia , such as copyright protection and limitations on foreign bank business. But he assumes that it will be possible to resolve them after Russia joins the WTO. Furthermore, the concluding of negotiations, in his opinion, will facilitate this.

On the one hand, as a source from the Russian Delegation of Negotiations recalls, a similar situation arose during negotiations with the European Union. The negotiations came to a dead end several times and both sides threatened to back out, but then all the apparently insurmountable problems were solved in two hours. On the other hand, Russia has declared several times that under no circumstance will it agree to the demand of the USA to allow direct bank and insurance company branches to open. And as is well-known, not one country that Washington has negotiated with has managed to maintain its own financial system.

But it is obvious that without its acceptance into the WTO, wecannottalkof Russia ’s complete integration into world economy, without which a fast pace of economic growth is unlikely to occur in the current conditions. Yesterday, social organization Delovaya Rossiya presented its idea of economic growth. The realization of the propositions of the in-depth report entitled Economic Model of a Sovereign Democracy promises a yearly GDP growth of 10%, and furthermore, a tripling of the real incomes of citizens over the course of seven years. When presenting the report at a national business forum, Anton Danilov Danilyan, responsible for Delovaya Rossiya’s expert advice, drew attention to tax novations. According to his calculations, the tax burden on business currently exceeds 50% compared to the general level of tax collection which remains below 60%. The novations should reduce the tax burden to 35% which will lead tax collection to increase to 85%. “Delovaya Rossiya proposes to reduce VAT from 24 to 12%, but replace it in tax from sales with a rate of 10%. In addition, it proposes to reduce CST from 26 to 12%, thereby reversing the regressive scale.

However, the tax burden for citizens will have to increase. So, a return to the progressive scale of income-tax and an increase in tax on real estate is planned to be implemented by 2010. In addition, it has been proposed to restore investment tax privileges for a profit and bring in tax holidays for new enterprises. The National Organization for Economic Development will be in charge of managing the new system. In fact, the creation of this parallel government itself gave rise to considerable resentment amongst members of the cabinet of ministers who attended the forum. “Desperate courage should be accompanied by sober calculation”, declared Deputy Prime Minister Alexandr Zhukov. A radical tax reduction, in his opinion, would lead to a need to finance the growing budget expenditures using income from the oil industry, which in the case of a drop in prices, would lead to the sequestration of social expenditures. In the words of Andrei Belousov, representative of the Ministry of Economic Development, “What we are seeing is a set of reforms that is very much comparable to the shock therapy of the early 90s”.

Only the president’s head of expert management Arkadii Dvorkovich approved entirely of the section of the report concerning tax, with the exception of the increase in tax on physical persons. But as is well-known, he is an active supporter of the replacement of VAT from sales and the support of this initiative from a business can only please him. The discussion on the possibilities of tax holidays, assured Mr Dvorkovich, will begin in the next months, although not in the form presented to the business. “Tax holidays will not be set up for companies, in order to avoid stimulating tax evasion by continuous re-registration, but under concrete plans”, clarified the official.

Translated by Leila Wilmers

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Author`s name Alex Naumov