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.
