Long Road to Free Trade

past year has demonstrated beyond a shadow of a doubt that it will be a long time before Russia enters the era of free trade. Regulating foreign trade remains one of the key unresolved elements of Moscow's economic policy. And the importance of trade is completely logical, increasing in the eyes of the government in direct proportion to the ineffectiveness of its domestic economic agenda.


It seems to be clear that the government will have to liberalize export regulations, since only such measures are capable of stemming the flow of capital out of the country. Moreover, Western creditors are increasingly adamant that liberalization must be undertaken before further credits will be granted. As a result, the government has been developing a policy of gradually reducing export duties and -- at long last -- has begun weaning itself from the practice of regulating exports through licenses and quotas.


All of these changes are due in large measure to the work of Foreign Trade Minister Oleg Davydov, who was recently made deputy prime minister, since the fall of 1993. At one of the very first ministry meetings that he chaired, Davydov stressed that he wanted the export regime liberalized before the end of 1994 and the liquidation of the institution of special exporters during 1995. By the beginning of 1994, at the ministry's initiative, a government order was issued which excluded heating oil and several other oil products from the list of exports subject to quotas and licenses. This partial measure signaled the direction the government was heading.


In May 1994, President Boris Yeltsin signed a decree entitled On Abolishing Export Quotas and Licenses. That decree completely liquidated the system of export quotas. At the same time, a government order was issued which essentially ended the government monopoly on the export of weapons. In short, spring 1994 marked significant progress toward liberalization of Russian exports -- the most important step forward, in fact, since Yeltsin's decree On Liberalizing the Foreign Trade of the Russian Federation, issued Nov. 15, 1991.


By summer, the government set its sights on export tariffs. On July 25, a government order came into force which reduced export duties on 28 types of exports. However, liberalization did not reach the crucial areas of oil products and non-ferrous metals (except aluminum and sodium). The government, though, continued to work slowly in the right direction, lowering export duties on copper, brass and nickel products Aug. 12.


While the situation for exporters was steadily improving last year, importers remained under an oppressive tariff regime. In the spring, their worst fears were realized when the government confirmed a new tariff regime under pressure from Russian producers. The new regime, which was set to begin on March 15 and then delayed until July 1, both expanded the list of products subject to tariffs and raised the duties themselves. In the fall, the situation was made still worse. A presidential order came into effect Sept. 1 which still further expanded the list of taxable goods and again raised the excises.


Nonetheless, it is not possible to say for certain how the government's trade policy will develop in 1995. There seem to be two completely contradictory possibilities. The first would be an intensification of administrative control over trade and the complete liquidation of the current system of non-tariff regulation. This position has some influential support in the government, which remains divided on the basic question of how open the Russian economy should be.


In resolving this matter, Davydov will no doubt play an important role. Since he was made deputy prime minister, he seems to have shed his earlier liberal views and become a strong advocate of "the interests of the state." Davydov's shift has been one of the key factors causing Western aid organizations to question the government's attitude toward trade liberalization, which in turn has held up the loans that the government is counting on to plug the budget deficit in 1995.


Davydov's position is impossible to predict. It is possible that he will try to maintain the current system of special exporters, even if it means sinking the budget. After all, living without a budget is nothing new to the government, although doing so means that the state's policies on credits and hard currency will be completely out of control. Also, in recent years the government has worked out an intricate scheme for controlling exports that bureaucrats and exporters alike have grown used to.


However, it would not be a complete disaster if the government's policy does develop along these lines. Increasing administrative control would be accompanied by efforts to join the World Trade Organization. In general, tariffs would be reduced, but -- at the same time -- new prohibitive duties would probably be imposed on groups of products considered to be a threat to the country's economic security. There could even be import quotas.


There is, though, a second possible course of development, a more liberal policy that would include an end to all quotas and export privileges, as well as the system of special exporters. Foreign trade would be regulated exclusively through tariffs. In the end, this is not just idle dreaming, but an obligation that Russia -- in various ways -- has promised international financial organizations it will fulfill.


Although tariff policy can also be used as a tool for a restrictive government trade policy, it differs fundamentally from administrative controls. The most important difference is that tariff policy does not rely on individual permissions, special registration or other methods that invite corruption. As a result, the losers of such a course would not be state interests, but government bureaucrats. Unfortunately, Russian history gives a pretty strong indication of who wins when the interests of the country and the interests of the bureaucracy conflict.





Sergei Tsekhmistrenko is a reporter for Kommersant Daily. He contributed this comment to The Moscow Times.