Opening the Market, Carefully

During the pre-reform Soviet Union days, there was a joke that the slogan "Enjoy Coca-Cola" had been thought up especially for the world's socialist countries because with all of the shortages -- of carbonated beverages in particular -- the slogan "Drink Coca Cola" would come across as derisive. However, we have since grown accustomed to Coke, Mercedes and the presence of foreign businesses in general.


Sometimes our foreign friends get it into their heads to talk with Russian government or business representatives about Russia's place in the future of the world -- their role in the "globalization process," as it has come to be called. As a rule, the Russians are usually not prepared for these conversations. Perhaps this is the result of the country's decades-long isolation from the rest of what we now call the civilized world. Or perhaps it's due to the extreme economic difficulties caused by dismantling an ineffective but pervasive, and therefore entrenched, economic system. Most likely, though, it's because every Russian politician and businessman is asking himself the question: "Does the outside world need a strong Russia with more than just raw materials to offer? A Russia respected by its neighbors for a powerfully competitive economy, not its arsenal of nuclear warheads?"


Opposition forces are also playing a role in the formation of this world outlook by accusing the government's pro-Western members of selling out the motherland and collaborating with foreign money. However, they aren't the only ones. There are many, even among those familiar with the theories behind transition economies, who are convinced that the United States, Europe and Southeast Asia want to see Russia as a nonaggressive beggar rather than a huge solvent market. Moreover, the very concept of globalization means that new markets are so badly needed that serious competition is developing, with the most effective of foreign businessmen willing to endure Russia's tax system, to take head-strong communist governors to court and so forth in order to be the first into a grand new market.


Foreign business in Russia is neither a matter of charity nor of economic aid. Its presence here is simply a sign of the times. Russia is one of the final world markets to open up. And right now, there is probably more capital on the Russian market from Germany than from any other nation. This is easily explained by geography -- Germany's proximity makes transport costs lower -- and by the fact that Germany is Russia's primary creditor.


Also, I think German businessmen understand perfectly well that the Mercedes buses being assembled at Golitsino on the outskirts of Moscow could just as easily be from Toyota or General Motors.


In the face of market globalization, no one is doing anyone any favors. Everything becomes clear when taken from a moral standpoint. What is stopping Russia from joining the process of global economic integration? The answer is protectionism. Any talk of the formation of Russian national business cannot begin until import duties replace export tariffs as the subject of conversation between business and government.


Considering Russia's substantial import tariffs, one might say this phase has already begun: In our northern latitudes, after all, one must allow a plant to gather strength in a greenhouse before it is planted in the open ground. However, protectionism is also a global phenomenon. How else can one explain the strict limits imposed by the European Union on Russian textiles? These are extremely low compared to the amount that travels in the opposite direction from Europe into Russia. The Europeans assure us that every single textile duty has been calculated and carefully thought out, just as was done earlier with the introduction of massive duties on Russian seamless pipe imports. To tell the truth, there are very few people who really believe this. It's more likely that the foreigners are just too pragmatic and afraid of growing competition from Russian businesses.


Be that as it may, the time for Russia's entry into the society of civilized markets is approaching. And there isn't all that much left to do.


Negotiations for Russia's acceptance into the Paris Club of governmental creditors are expected to be completed at the end of September. Debt to the London Club of commercial lenders is expected to be restructured by the end of the year. By that time, Russia will likely announce the start of negotiations for its entry into the World Trade Organization. And if it coincides with the introduction of all new customs duties, things could get quite complicated where WTO member-nations are concerned.


Many Russian businessmen are of the opinion that only a small number of the country's businesses can compete on a global market. Of course, this doesn't include natural resource exporters such as Gazprom, which isn't at all afraid of competition. But this is probably Russia's only transnational corporation, and things will be worse for the rest.


Negotiations for entry into the WTO are usually conducted by foreign trade ministers who are accustomed to the duty of defending exporters' interests only. Because of this, bankers will be left to fend for themselves. And while the banking sector is somewhat protected by a decree limiting foreign credit institutions to 12 percent participation in a Russian bank's total capital, the insurance market, for example, is wide open to global competition. The government and the Duma cannot stand by and allow foreign behemoths to swallow up and replace domestic companies on the Russian insurance market. Russia is used to being a superpower and will not be able to give up that role quickly, in spite of the number of monetarists that remain inside the government. Contradictions like these in Russia's relations with the rest of the world will begin to add up if the Russian market does open up.


I'm not saying that it's too early for the country to be opened up. Right now may be the only time such an opportunity will present itself. But it has to be done very carefully.





This is Irina Yasina's final column.