The New Times: Russia in WTO means catastrophe for Belarus

Moscow and Minsk are on the verge of rupture.

The relations between Vladimir Putin and Alyaksandr Lukashenka have never been very warm, but a new conflict can outmatch all previous trade and oil wars. Russia's WTO accession brings the Belarusian economy on the brink of a real catastrophe, journalist Maksim Shveits writes for The New Times (Russia).

Neighbours don't behave like that

Belarus's economy is doomed to go to pieces in the nearest time, this winter or spring, Belarusian independent experts suppose.  Economist Leanid Zaika, the head of Strategy analytical centre, gives some facts to confirm this thought. Firstly, incomes of public sector employees rose by 15-20%, while the GDP increased only by 2.5%. Belarusians spent “spare” money on buying foreign cash. High demand caused shortages of foreign currency that in turn trigger panic among people. Secondly, the Belarusian government is reported to have plans to cut budget spending on education and healthcare sectors in 2013. Schools will have to get ready for teacher layoffs and hospitals should be prepared to admit less patients that they do today.

The authorities also want to raise utility rates several times. Public transport fees were already increased by 13% in Minsk in September.

The main source of problems is Russia,which share in Belarus's exports amounts to 50%. Moreover, the eastern neighbour allows Minsk to earn on re-selling petroleum products to Europe. Russia's partner in the Customs Union will inevitably face serious problems after Russia's WTO accession.

Price of union

Russia is expected soon to cancel some of its anticrisis duties imposed on certain groups of goods in 2009 to protect domestic manufacturers. Being Russia's partner in the Customs Union and having the Common Economic Space with it, Belarus will have to harmonize a part of customs tariffs and duties with Russia. It means that even not being a WTO member, Belarus must decrease the tariff shelter from 10.7% to 8% in the nearest years, experts say. According to the information from the Belarusian MFA, Russia's customs duties should be reduced on more than 1000 commodity items by 7–15% in relation to the Common Customs Tariff rates. Fifty commodity items are very sensitive for Belarus. Belarus and Russia will also have to reduce customs duties by 4-6.5%. on other 1500 commodity items, 160 of which are important for Belarus.

Belarus has always protected the country's domestic market giving an opportunity to state-run enterprises teetering on the edge of profitability to survive for many years. Russia's WTO accession threatens the collapse of several key economic sectors of Belarus – from light industry to production of alcoholic beverages and industrial sector. The “WTO effect” will firstly strike Belarusian truck manufacturers. The turn for pharmacy, fridge and TV set manufacturers will come next in the foreseeable future. It won't be a one-time reduction of duties: the process will be gradual taking from two to seven years.

Duties on agricultural equipment will go down by an average of 5-10%. Independent experts say Belarus may lose the Russian market of farm machinery. As Russia does not have the right to impede supplies from other countries and Belarus's products are non-competitive, the sector will meet a decrease in export earnings. It may lead to bankruptcy of agricultural machinery manufacturers in Belarus.

The Belarusian Ministry of Trade terminated issuing one-time licenses for import of alcoholic beverages on August 22. It simplified the order of importing Russian products to the country. The Ministry of Trade does not hide this step was caused by Russia's entry into the WTO and a decision of the Customs Union Commission. A sharp increase in imports of alcoholic products is expected in the nearest time. Russian beer already began to drive local beer out of the Belarusian market.

Meat and dairy sector should also be prepared for working in new conditions. Russia took on obligations to restrict state financing for agriculture. The country will strive to impose similar restrictions for its partner in the Common Economic Space, otherwise Russia will have to protect its market from Belarusian products by setting quotas for supplies.

New crisis

Economist Leanid Zaika is confident the effect of Russia's membership in the WTO will not be fully visible during the first six or twelve months. “Main changes will be seen in 1.5--2 years. Competitive ability of our agricultural, garment and other enterprises will fall due to inflow of cheaper goods to Russia. It may lead to bankruptcy of Belarusian manufacturers,” the economist says.  

Independent economist Leanid Zlotnikau has the same opinion: “The Belarusian economy is less competitive than that of Russia and Kazakhstan. We have higher taxes and worse conditions for economic activity. For example, sole proprietors can employ only close relatives. Russia and Kazakhstan do not have such restrictions. Our products will be forced out of the Russian market. It won't happen at once, but foreign goods will drive out our products within the next two or three years.”

Experts do not rule out Belarus may leave the Customs Union with Russia soon. Of course, if the Kremlin “permits” it...