Tariffs Could Stall Reform, Analysts Say

Western and Russian analysts criticized Tuesday the decision to double import tariffs, not so much because they were too large but because they could backfire on the government and, in the long-term, prolong Russia's industrial recession.


Observers said the new tariffs would protect industries badly in need of major restructuring and possibly forestall reforms.


"Protecting the economy with high tariffs is just not consistent with the process of reform that has to take place here," said one Western diplomat. "It's dismaying that they use protectionism before there's any real indication of adjusting."


Import tariffs, which took effect Tuesday, now average between 13 and 15 percent, compared with a previous average of 5 to 7 percent. Particularly hard hit were foreign cars, which jumped to 46 percent for some models, and imported foods, which had previously been exempt from taxes but now face a 15 percent levy.


The tariffs had been opposed by reformers who left the government in January. They were enacted after strong lobbying by Russia's industrialists from the automotive and agricultural sectors and other large enterprises.


The approval came initially from an increasingly powerful committee headed by Oleg Soskovets, a former factory director who was appointed first deputy prime minister in January.


The taxes took effect as the Russian Foreign Trade Ministry reported further growth in the country's trade surplus. The surplus during the first two months of the year grew to $3.2 billion from $2.08 billion.


Led by the growing exports of oil and natural resources, exports totaled $5.6 billion in January and February, compared with imports of $2.4 billion.


During the same two-month period, Russia's industrial output fell 23.6 percent.


The new tariffs, coming at a time when the ruble is once again losing value and makes imports more expensive, could exacerbate the Russian trade surplus.


But the wealthy Western European countries are not as concerned by the gap as they would have been had it come from a significant trading partner such as the United States.


Trade with Russia has generally been growing with most Western European nations but still does not represent a significant percentage of any one country's total.


For example, Russia's 1993 two-way trade with Germany totaled about 10 billion Deutsche marks ($5.9 billion). While this made Germany Russia's largest trading partner, it represented less than 1 percent of Germany's total trade last year.


"The people who can afford foreign products can afford an extra 10 to 15 percent," said a German diplomat in Moscow.


In addition, tariffs were lowered for some machine tools and spare parts, which are Germany's most significant exports to Russia.


Still, the German diplomat was critical of the measure because he said it would reduce competition and keep industry from modernizing.


In the short-term, however, the measure could save jobs in inefficient industries and could be politically popular.


The diplomat added that Russia was erecting protective import barriers against products Russia does not even produce.


"To protect against things which you do not make yourself is rubbish," the diplomat said.


Another concern is the impact the tariffs will have on producers and consumers. Alexander Daniltsev, head of the tariff department at the Russian Foreign Trade Ministry, was specifically critical of the increase of import tariffs on wool, to 25 percent, and sugar, to 20 percent.


Daniltsev said Russian sugar and wool output does not meet domestic demand and the higher import duties will result in higher prices in Russia, he said Monday according to Interfax.


He said the textile industry, which also received favorable tariff barriers, would suffer because Russian-made wools do not satisfy industry demands.


The ministry had recommended abolishing the sugar tariffs and keeping wool duties below 5 percent.