NEWS,22.08.2012

Russia finally joins WTO

After 18 years of negotiation, Russia on Wednesday entered the World Trade Organization, which restricts import duties and subsidies in an attempt to create a level playing field for international trade.Analysts and politicians hope that Russia, which has long proven a formidable market to foreign investors because of its byzantine bureaucracy and protectionist tariffs, would be transformed by its entry into the WTO. Russia is one of the last major global economies to enter the group, which has long included other developing nations like China.While consumers here will benefit from the lower cost of imported goods, some worry that struggling industries long coddled by state subsidies, such as agriculture or the automobile industry, will suffer from foreign competition.Russians often complain about the burdensome cost of Western-imported consumer products, which range from refrigerators to jeans. With its entry into the WTO, the country will cut its average import tariff by 5.9%, making those imports cheaper.M. Video, one of Russia's largest electronics retailers whose shelves are packed with foreign-made CD players and American movies, said Russia's entry into the WTO would bring more customers into their stores."We believe that (entry into the WTO) is going to be a very good decision for our customers in the future, because they will be able to purchase goods with prices harmonized with other economies," said Enrique Fernandez, chief commercial officer of the company.But uncompetitive domestic goods, which have long been propped up by Soviet-style subsidies, could be threatened by the invasion of higher-quality imports. Nearly 100 major business leaders and industry groups including dairy and meat producers signed a petition earlier this summer addressed to the ruling United Russia party, asking that its deputies vote against ratification of the WTO treaty.Agriculture, the automobile industry, and Soviet-style "Monogorods," or towns which revolve around a single factory or industry, are bound to suffer next to foreign competition unless they can reform quickly. These industries are based in regions that have often displayed the most support for President Vladimir Putin, but could easily turn into a hotbed for protest if already fragile industries were to collapse.At a car dealership in Moscow, 63-year-old engineer Alexei Tarakanov said he doubted that low-quality Russian cars could win on an open market."I already have a negative attitude towards our (Russian) cars," said Tarakanov, who was buying a Renault. "I doubt that they can win the preference of the modern buyer."Because state-subsidized industries proved such a pivotal issue in Russia's WTO negotiations, financial aid to struggling sectors will be gradually phased out, rather than abruptly cut off,over the course of seven years."The industry will not collapse immediately, (major Russian car-maker) AvtoVaz is going to continue steadily producing its 700 000 cars per year," said Ovanes Oganisyan, an analyst at the Moscow-based investment bank Troika Dialog. "But eventually there's going to be more competition, and if AvtoVaz doesn't change in seven years it will have to go out of business."In addition to the challenges faced by unreformed industries, the Russian government expects to take a short-term financial hit from the loss of income from import duties and taxes. But the government emphasizes long-term gains, and the World Bank has estimated that WTO membership could increase Russia's GDP by an extra 3.3% a year in the next three years.While the WTO will significantly open up the Russian market to foreign producers, the U.S. faces the threat of paying higher tariff rates than other WTO members to sell goods in Russia, leaving American producers at a competitive disadvantage compared to European or Asian industries.The reason for the disparity is the Jackson-Vanik Amendment, a law passed by Congress during Soviet times that denies Russia normal trade relations with the U.S.The U.S. president has been granting Russia annual waivers since 1992, but Moscow insists it will not lower its tariffs for the U.S. as much as for other countries until the law is scrapped."The last thing that America needs right now is for foreign companies to have lower tariff rates than American companies," said Andrew Somers, President and CEO of the American Chamber of Commerce.Vice President Joe Biden lobbied for the repeal of Jackson-Vanik in 2011, as have previous presidential administrations, but Congress has so far proven intransigent to executive pleas.Congress has increasingly taken fire at the Russian administration for its human rights record. In June, the U.S. House of Representatives passed the Justice for Sergei Magnitsky Act, a bill named for a Russian lawyer who died in a Russian prison last year after allegedly being abused at the hands of Russian authorities.This week, President Barack Obama expressed his disappointment after the three participants of Pussy Riot, a punk band who sang an anti-Putin prayer in Moscow's Cathedral of Christ the Savior, were convicted to two years in prison."Business hates uncertainty," said Somers, "If the Jackson-Vanik Amendment remains on the books and the U.S. continues not to have normal trade relations with Russia, who knows what will happen."

Israeli minister wants Palestinian leader's ouster

Israel's foreign minister urged the international community to help oust Palestinian President Mahmoud Abbas whose policies he called "an obstacle to peace" in a letter released Wednesday.Foreign Minister Avigdor Lieberman wrote to the Quartet of Mideast mediators  the U.S., the U.N., the EU and Russia this week calling for new elections in the Palestinian Authority in order to replace Abbas, accusing the Palestinian Authority of being "a despotic government riddled with corruption.""Despite Mr. Abbas' delays, general elections in the Palestinian Authority should be held and a new, legitimate, hopefully realistic leadership should be elected" he wrote. "Only such a leadership can bring progress with Israel. We must maximize the holding of new elections in the PA alongside the tremendous changes in the Arab world, in order to bring a serious change between Israel and the Palestinians."Abbas' spokesman, Nabil Abu Rdeneh, rejected Lieberman's statement, calling it an "incitement to violence" that "doesn't contribute in any way to an atmosphere of peace." He urged Israel and the international community to condemn the letter.Elections for new Palestinian leadership were scheduled for 2010, but have repeatedly been delayed because of the bitter dispute between Abbas' Fatah and the militant Hamas, bitter rivals who had a violent falling out in 2007 and now separately govern the West Bank and Gaza Strip respectively.Israeli Prime Minister Benjamin Netanyahu also sought to quickly disassociate himself from the letter. An official in the prime minister's office, who spoke on condition of anonymity because of the sensitivity of the issue, said the letter does not represent the government's position."While Abbas has created difficulties for restarting negotiations, the government of Israel remains committed to continuing efforts to restart a dialogue with the Palestinians,"he said.Lieberman, who leads a hardline party in Israel, is known for inflammatory rhetoric that has at times agitated his partners in government.He embarrassed Netanyahu in the past by expressing skepticism over the chances of reaching peace with the Palestinians. In a high-profile speech at the United Nations General Assembly in 2010, he contradicted a goal set by President Barack Obama of reaching a final peace deal in the coming year.Lieberman wrote that Abbas should be replaced so that peace talks that collapsed in 2008 could be revived.Abbas has refused to resume talks as long as Israel refuses to stop settlement construction in the West Bank and east Jerusalem, areas Palestinians want as part of their future state. Israel rejects the calls for a halt to settlement building, and instead has called for peace talks to resume, saying that the settlement issue should be resolved along with other core disputes through negotiations.Lieberman listed in his letter a number of gestures Israel recently has made to the Palestinians  including agreeing for an additional 5,000 Palestinians to work in Israel and reducing the number of roadblocks and accused Abbas in return of "encouraging a culture of hatred, praising terrorists, encouraging sanctions and boycotts and calling into question the legitimacy of the state.” Due to Abbas' weak standing, and his policy of not renewing the negotiations, which is an obstacle to peace, the time has come to consider a creative solution in order to strengthen the Palestinian leadership," Lieberman said In Washington, U.S. State Department spokeswoman Victoria Nuland said the U.S. has "a good working relationship with President Abbas. And so we expect to be able to continue to work well with him."She also noted that Netanyahu had "clarified that the foreign minister's letter doesn't reflect his position and that he (Netanyahu) has responsibility for these issues." 
 

Ailing Egypt seeks $4.8 billion IMF loan

Egypt formally asked the International Monetary Fund for a $4.8 billion loan on Wednesday, seeking a desperately needed rescue package for its faltering economy but raising the possibility of painful restructuring in a country still reeling since its revolution more than 18 months ago.The loan deal, which Egypt says it will reach by the end of the year, presents a major test to the Muslim Brotherhood-rooted president, Mohammed Morsi, the country's first ever freely elected leader, brought to power after the fall of Hosni Mubarak.The IMF has avoided making specific conditions for a loan but it seeks a cohesive government plan for restarting economic growth and reducing a deficit that has grown to $23.6 billion, some 8.7 percent of gross domestic product.A key part of that will likely be reducing subsidies that suck up a third of the government budget every year. Touching those subsidies, however, could bring social upheaval, since they keep commodities like fuel and bread cheap for a population of around 82 million, some 40 percent of whom live near or below the poverty line."The government will have to take urgent measures, at the top of them cutting energy subsidies," said Mohammed Abu Basha, a Cairo-based economist at investment bank EFG-Hermes Holding SAE. The biggest subsidies are those on fuel including gasoline and cooking gas costing the government some $16 billion a year.Egypt's upheaval since the 18-day uprising that led to Mubarak's ouster on Feb. 11, 2011, has pushed its economy toward the brink. Amid near constant instability since, foreign investment has dried up. Revenues from tourism one of the country's biggest money makers and employers fell 30 percent to $9 billion in 2011 and the industry is only making a meager recovery.Meanwhile, the government has been burning through its foreign currency reserves, which have plummeted by more than half, to prop up the Egyptian pound and prevent a devaluation that could spur inflation.The government also faces mounting demands to increase salaries for the millions of civil servants and public sector workers and boost social spending. Infrastructure has crumbled, with electricity and water outages pervasive this summer, bringing angry complaints, some directed at Morsi.Egypt's hope is that the IMF package its first loan from the organization in nearly 20 years would provide not only a cash boost but, more importantly, a seal of approval that will bring back international investment.Morsi, his Prime Minister Hesham Kandil and other Egyptian officials met Wednesday with IMF chief Christine Lagarde in Cairo. State TV said Egypt requested a $4.8 billion loan, up from the $3.2 billion proposal discussed earlier this year. Finance Minister Momtaz el-Said told the state-run Al-Ahram newspaper that the increase was needed because the deficit had grown with the drop in income from investment and tourism.Lagarde's visit "gives a positive message to Egypt and the whole world that Egypt is stabilizing and that the economy is heading to a recovery," Kandil said. He said he expects a final agreement by December.Kandil said his government has drawn up a comprehensive economic recovery plan for the IMF that includes strategies to counter the deficit, encourage investment and ensure that subsidies reach those most in need. He did not provide details.Lagarde said "Egypt faces considerable challenges." An IMF team would start talks in September with the government over its recovery plan and the loan, she said."Getting the country's economy back on track and raising the living standards for all will not be an easy task," she said. "The Egyptian people have legitimate expectations for a better life aAbdel-Hafiz el-Sawy, a chief economist with the Muslim Brotherhood who met with earlier delegations from IMF, acknowledged that "the government is facing a mountain of problems, and whenever it gets out of one trap to fall in the next.""The IMF loan is small but its impact is in the fact that it gives Egypt a certificate that improves the country's economic prospects," he said.Initial talks over a $3.2 billion loan stalled earlier this year amid wrangling between the military generals who ruled the country since Mubarak's ouster and Islamists who won the majority in the now-dissolved parliament. The Brotherhood had opposed letting the interim, military-appointed government sign a deal putting financial burdens on the next government. The IMF insisted on political consensus before approving the loan.Since then, Morsi was inaugurated in late June and a month later formed the Kandil-led Cabinet, and the military handed over authority.The plan presented to the IMF appears to be more or less similar to the previous government's plan, which the Islamist-led parliament had opposed, according to el-Said, the finance minister who also served in the former government, in an interview with el-Shorouk daily.Now Morsi faces the tough task of economic reform. Already, the government has reduced fuel subsidies to energy-intensive factories which were seen as giving a bonus to the wealthy and increased taxes on Egyptians whose income exceeds 10 million a year.But still remaining is the question of how to deal with subsidies that keep prices dirt cheap for gasoline and for butane fuel that many rely on for cooking. The gasoline subsidies are widely seen as inefficient because wealthier drivers benefit from them as much as or more than the poor.The government is studying alternatives, such as distributing to the poor coupons for gas and fuel, while restructuring the tax system.El-Said, the finance minister, also ruled out a devaluation of the pound suggesting that the government hopes that an IMF will bring enough local liquidity to keep the currency strong without infusions from the state's reserves.The IMF loan will not be enough to cover all Egypt's financing needs. IMF officials said earlier that the country needs a total of $10 billion to $12 billion in outside funding over the next 12 to 15 months.Qatar has delivered around $500 million of $2 billion it has promised Egypt. Saudi Arabia promised to deposit $1.5 billion in Egypt's Central Bank. But other aid packages from the European Union, the oil-rich Arab Gulf states and other sources will heavily depend on Cairo's ability to secure the IMF loan.