Reformers in the Russian government seem to be finding that nationalists make useful election buddies but terrible policy partners. A week before the presidential run-off, Russia's liberal economics minister, Yevgeny Yasin, publicly announced that he did not favor restrictions on food imports into Russia. "We cannot close the Russian economy," he said. "We need to stimulate competition."
Keeping Yasin's statement in mind, a Russian cabinet resolution circulating in Moscow over the weekend looked ominous. "Problems regarding the quality of imported consumer products have recently become serious," the document said. And in a direct reference to food imports, it continued: "Many imported consumer products fail to comply with sanitary requirements, which makes them dangerous." This "leaked" statement suggests a proliferation of non-tariff barriers will apply to Western food imports into Russia over the coming year. And once non-tariff barriers are in place, it is only a short step to hikes in tariffs on food imports, or even unadulterated quantity restrictions -- that is, food import quotas.
Although nationalists moan about the "snickerization" of the Russian economy, total non-CIS imports into Russia are still below pre-reform levels. But official statistics show that imports amounted to 45 percent of Russia's food consumption last year, even more in metropolitan areas. It is difficult to judge the accuracy of this figure. On one hand, the importance of home-grown vegetables in Russia, and of the informal economy in general, means the total food intake is understated -- this implies recorded food imports are less than 45 percent of the total. On the other hand, unrecorded "shuttle" imports extend to food as well, which means the proportion of imports could be even higher.
Whatever the real numbers, the weekend resolution states that over the next two months, regulations will be prepared requiring all food imports to carry exclusively Russian labels -- as well as expiration dates, information will be required on nutritional value, food preparation and storage instructions. The cabinet has also ordered various bureaucratic machines to stand ready: the Committee for Standardization and Certification as well as the State Sanitary-Epidemiological Inspectorate.
The State Trade Inspectorate, meanwhile, has been told to form a network of local laboratories to test imported consumer goods. Presumably, these testing centers will be set up in out-of-the-way locations increasing food importers' logistic hassles and cutting into their profits.
These impending non-tariff barriers will be superimposed upon a food-importing environment which is already rather restrictive. Import duties of between 80 and 100 percent currently apply to relatively simply foods such as fruit juices, canned meat and sunflower oil. And on the most basic foods, a 25 percent duty is levied.
The mood is that higher non-tariff barriers will soon give way to even higher quotas. Certainly Deputy Prime Minister Alexander Zaveryukha has been hinting that food import quotas will be implemented to aid the farming sector. Another reason the quotas may come soon concerns elections to the Federation Council, the upper house of Russia's parliament. As long as the Communists maintain their majority in the Duma, control of the Federation Council is central to President Yeltsin's ability to prevent the Communists passing reactionary law.
The Federation Council is made up of regional political heavyweights, many with a sizeable agrarian lobby. After much constitutional wrangling, it appears that non-elected Federation Council officials must face election before the end of the year. Implicit support to the farmers prior to local elections could bring support for the president.
Increased food import quotas would be nothing short of awful economy policy. Quotas would push up prices directly, as well as via the quantity side: lower profits would reduce import availability. Both effects would feed into inflation. As Russia's grain production has fallen steadily -- from 107 million tons in 1992, to less than 65 million tons last year -- drastically reduced food imports could bring back the days of food shortages, queues and black markets.
It is certain that Russian food manufacturers would be unable to increase production in the short-term. And the most likely medium-term outcome is that domestic food producers would react to reduced import competition by lowering quality and raising their own prices even more. In fact, if almost half of recorded food consumption is currently imported, quotas would act as an immediate direct tax on food. And because low-income households spend proportionately more on food, the fallout of import quotas would fall squarely on the shoulders of the poor.
Does this policy make any economic sense? In fact, some. The reasoning behind last weekend's non-tariff warning shot has more to do with Russia's stance toward the World Trade Organization than it does with rising nationalism, the agrarian lobby or the Russian constitution. Trade lobbyists from the United States and Europe claim that Russian goods are not exported to the West, but are "dumped." This prevents Russian exporters from selling their goods, in turn, protecting producers in the West.
Over the next five years, Russia should emerge from the post-communist wreckage as a member of a new "Group of Eight." G-8 membership will be pre-empted by inclusion in the World Trade Organization -- the successor to the General Agreement on Tariffs and Trade within which countries negotiate trade. It is one of the world's most influential talking shops. Representing a big country at the WTO is like talking suicide victims off window ledges for a living.
If Russia comes to the WTO with an open trading regime, with no import duties or non-tariff barriers, it will have no bargaining chips to play. If the government squeezes food imports too hard, the political backlash may be intolerable. But whatever happens to the specific case of food quotas, Russia's trading regime will become more protectionist over the next five years. The political rhetoric is Slavic nationalism, but impending WTO membership dictates Russia come to the Western table with a loaded deck.
This is Liam Halligan's final "Invisible Hand" column.
Keeping Yasin's statement in mind, a Russian cabinet resolution circulating in Moscow over the weekend looked ominous. "Problems regarding the quality of imported consumer products have recently become serious," the document said. And in a direct reference to food imports, it continued: "Many imported consumer products fail to comply with sanitary requirements, which makes them dangerous." This "leaked" statement suggests a proliferation of non-tariff barriers will apply to Western food imports into Russia over the coming year. And once non-tariff barriers are in place, it is only a short step to hikes in tariffs on food imports, or even unadulterated quantity restrictions -- that is, food import quotas.
Although nationalists moan about the "snickerization" of the Russian economy, total non-CIS imports into Russia are still below pre-reform levels. But official statistics show that imports amounted to 45 percent of Russia's food consumption last year, even more in metropolitan areas. It is difficult to judge the accuracy of this figure. On one hand, the importance of home-grown vegetables in Russia, and of the informal economy in general, means the total food intake is understated -- this implies recorded food imports are less than 45 percent of the total. On the other hand, unrecorded "shuttle" imports extend to food as well, which means the proportion of imports could be even higher.
Whatever the real numbers, the weekend resolution states that over the next two months, regulations will be prepared requiring all food imports to carry exclusively Russian labels -- as well as expiration dates, information will be required on nutritional value, food preparation and storage instructions. The cabinet has also ordered various bureaucratic machines to stand ready: the Committee for Standardization and Certification as well as the State Sanitary-Epidemiological Inspectorate.
The State Trade Inspectorate, meanwhile, has been told to form a network of local laboratories to test imported consumer goods. Presumably, these testing centers will be set up in out-of-the-way locations increasing food importers' logistic hassles and cutting into their profits.
These impending non-tariff barriers will be superimposed upon a food-importing environment which is already rather restrictive. Import duties of between 80 and 100 percent currently apply to relatively simply foods such as fruit juices, canned meat and sunflower oil. And on the most basic foods, a 25 percent duty is levied.
The mood is that higher non-tariff barriers will soon give way to even higher quotas. Certainly Deputy Prime Minister Alexander Zaveryukha has been hinting that food import quotas will be implemented to aid the farming sector. Another reason the quotas may come soon concerns elections to the Federation Council, the upper house of Russia's parliament. As long as the Communists maintain their majority in the Duma, control of the Federation Council is central to President Yeltsin's ability to prevent the Communists passing reactionary law.
The Federation Council is made up of regional political heavyweights, many with a sizeable agrarian lobby. After much constitutional wrangling, it appears that non-elected Federation Council officials must face election before the end of the year. Implicit support to the farmers prior to local elections could bring support for the president.
Increased food import quotas would be nothing short of awful economy policy. Quotas would push up prices directly, as well as via the quantity side: lower profits would reduce import availability. Both effects would feed into inflation. As Russia's grain production has fallen steadily -- from 107 million tons in 1992, to less than 65 million tons last year -- drastically reduced food imports could bring back the days of food shortages, queues and black markets.
It is certain that Russian food manufacturers would be unable to increase production in the short-term. And the most likely medium-term outcome is that domestic food producers would react to reduced import competition by lowering quality and raising their own prices even more. In fact, if almost half of recorded food consumption is currently imported, quotas would act as an immediate direct tax on food. And because low-income households spend proportionately more on food, the fallout of import quotas would fall squarely on the shoulders of the poor.
Does this policy make any economic sense? In fact, some. The reasoning behind last weekend's non-tariff warning shot has more to do with Russia's stance toward the World Trade Organization than it does with rising nationalism, the agrarian lobby or the Russian constitution. Trade lobbyists from the United States and Europe claim that Russian goods are not exported to the West, but are "dumped." This prevents Russian exporters from selling their goods, in turn, protecting producers in the West.
Over the next five years, Russia should emerge from the post-communist wreckage as a member of a new "Group of Eight." G-8 membership will be pre-empted by inclusion in the World Trade Organization -- the successor to the General Agreement on Tariffs and Trade within which countries negotiate trade. It is one of the world's most influential talking shops. Representing a big country at the WTO is like talking suicide victims off window ledges for a living.
If Russia comes to the WTO with an open trading regime, with no import duties or non-tariff barriers, it will have no bargaining chips to play. If the government squeezes food imports too hard, the political backlash may be intolerable. But whatever happens to the specific case of food quotas, Russia's trading regime will become more protectionist over the next five years. The political rhetoric is Slavic nationalism, but impending WTO membership dictates Russia come to the Western table with a loaded deck.
This is Liam Halligan's final "Invisible Hand" column.
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