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Tuesday, September 25, 2012

Russia Has Joined International Commerce.  Finally.


After 18 years of negotiations Russia joined the World Trade Organization on August 22, but there was barely a whisper about it throughout Cornbelt agriculture, which has a lot to gain or lose.  Maybe it was one of those stale issues that time forgets, but that certainly was not the case 25-30 years ago, when it was at the top of many farmer’s minds and addressed in every organizational policy meeting.  So what does it all mean today?


As a fledgling farm broadcaster in the early 1980’s I ventured to Russia to find out what MFN,  PNTR, Jackson-Vanik, and all of the explosive terminology really meant.  In meetings with Russians, all the way from managers of state farms to mid-level bureaucrats, they were adept at tapping their finger on your chest and blaming you for the poor agricultural economy in Russia.  Of course their harvesting machinery with the latest wooden bearings, and irrigation equipment that could not be turned on in the drought that year because the five-year plan would not permit it, had nothing to do with their problems, at least in their eyes.  Their problems stemmed from the US refusing to grant Most Favored Nation (MFN) trade relations to Russia.  They wanted PNTR (permanent normal trade relations) and for the US to abolish the Jackson-Vanik Act which restricted trade with Communist nations.


All of that rhetoric is now in the history books and memory crevices with the membership that has been granted to Russia to join the World Trade Organization, and become one of the “big boys,” since it was the world’s largest economy which had not been a part of the 153 nations that were WTO members.  While the political issue had always been at the forefront of  Russia not being able to join the General Agreement on Tariffs and Trade (the WTO predecessor), the evolution of Russia into world trade still took a long time after Gorbachev’s glasnost and Yeltsin’s successful battle with the former Communist powers.


While the 18 years of negotiations is somewhat moot at this point, the impact of Russian agricultural trade with the US is now in the future for both US and Russian farmers.   Those issues are outlined by William Cooper of the Congressional Research Service in his report to Congress just a month before the formal papers were signed and vodka toasts were made.  The Russian membership in the global trading community had been blocked by the US because of the political issues, as well as heavy subsidies of production agriculture and exports that would not allow US farm products to compete in the Russian marketplace.  And the requirement for the US to accept Russian food products would have put them into US grocery stores at pennies on the dollar.


Once the WTO and Russian agricultural export officials addressed the subsidies and protective tariffs, there are still some tariffs allowed that will make US products more expensive. Russia will restrict tariffs on
1) agricultural equipment, including combine harvesters and threshers, to an average bound tariff of no higher than 5.6%;

2) Dairy products to 14.9% from 19.8%;

3) Cereals to 10.0% from 15.1%;

4) oilseeds, fats, and oils to 7.1% from 9.0%



Russia will allow US pork up to 400,000 tons, poultry up to 350,000 tons, and beef up to 530,000 tons.  Those limits, known as the tariff rate quota (TRQ) will allow higher tariffs beyond those limits.
5) Beef at 15% within the TRQ and 55% outside the TRQ;

6) pork at 0% within the TRQ and 65% outside the TRQ (and would replace the TRQ with a flat 25% tariff on January 1, 2020);

7) Selected poultry products at 25% within the TRQ and 80% outside the TRQ;



While these tariffs will allow more US exports to enter Russian markets than previously, there will still be some added expense to the products once in the food system.  Whether the Russian consumer will pay extra depends on the Russian economy at the time and whether they want to purchase a higher quality product from the US in some cases.



Additionally, Russia wanted permission for $9 billion in agricultural export subsidies, to keep its products competitive with foreign products.  The WTO allowed $9 billion for the next 6 years, then $4.4 billion after that.



Since the Cold War trade between Russia and the US has increased annually.  Cooper says, “Between 2000 and 2008, U.S. exports rose 343%, from $2.1 billion to $9.3 billion, but declined in 2009 in the wake of the global recession. U.S. exports span a range of products, including meat, machinery parts, and aircraft parts. U.S. imports increased more than 244%, from $7.8 billion to $26.8 billion from 2000 to 2008, but declined in 2009.”  And he says, “U.S.-Russia bilateral trade increased in 2010 and 2011 as both countries showed signs of recovery.”  At this point Russia is well behind other US trading partners in terms of volume.  Russia accounted for 1.6% of U.S. imports and 0.6% of U.S. exports in 2010, and the United States accounted for 3.3% of Russian exports and 5.3% of Russian imports. Russia was the 31st -largest export market and 14th-largest source of imports for the United States in 2011, while the United States was the 10th-largest export market for Russia and its 5th-largest source of imports.



With Russia’s accession to the WTO, the US will be treating it as it does the other members, so the Russians no long can poke their finger at you and complain the lack of MFN and PNTR is hurting their agricultural economy.  But that transition was the longest of any WTO member.




Russia has been admitted to the World Trade Organization, which limits its import restrictions and export subsidies to a level that US farm products will be welcomed by the Russian consumer at prices that will not be restrictive.  Cornbelt commodities, including grains, meats, dairy, and farm equipment will benefit from the agreement, and provide added opportunities for higher prices from increased demand.



Posted by Stu Ellis on 09/25 at 08:16 PM | Permalink

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