Russia is getting closer to joining the World Trade Organization. During President Dmitry Medvedev’s June visit to Washington, he and U.S. President Barack Obama set a target of Sept. 30 to resolve outstanding disputes over intellectual property rights, food safety, animal and plant health, encryption technology and the behavior of Russia’s state-owned enterprises. That deadline will almost certainly slip. The State Duma, the lower house of Russia’s parliament, won’t take up the necessary legislation on intellectual property rights until the fall. But by early 2011, the last barriers to Russia’s entry into the WTO will be removed.
Russia’s WTO membership will help the U.S. by slashing tariff rates and increasing market access. Goods exports that stand to benefit include autos, aviation, chemicals and chemical production equipment, power generation machinery, security equipment, chicken and pork. Over the longer term, gains in services exports -- particularly banking, investment services and insurance -- will prove even more significant.
Medvedev is also opening the doors wider to foreign direct investment (FDI). Speaking at the St. Petersburg International Economic Forum shortly before his U.S. trip, the Russian president announced that he would slash by 80% the number of strategic firms in which the Kremlin limits FDI, along with plans to abolish capital gains taxes on long-term FDI in 2011. The aim is to reduce Russia’s economic dependence on oil, natural gas and mineral exports.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
As part of these efforts, the Russian government is collaborating with a number of foreign firms and institutions to launch a high-tech innovation cluster in the Moscow suburb of Skolkovo. Cisco, Google, Boeing and the Massachusetts Institute of Technology are among the early American collaborators on the project.
The shift toward greater Russian openness in trade and investment follows a decade-long trend toward state capitalism under former President Vladimir Putin, who is now prime minister. Signature elements of Putin’s economic policy included consolidation of national champions run by Kremlin loyalists, the reassertion of state control over natural resources, especially oil and natural gas, and lukewarm enthusiasm toward WTO accession. Medvedev has taken a more economically liberal tone, with calls to reduce the influence of state corporations. But until recently, he has been reluctant to challenge Putin directly.
That may be changing as Russia gears up for a 2012 presidential race. Putin looks increasingly determined to reclaim his old job, but Medvedev shows no sign of going quietly. Anders Åslund, senior fellow at the Peterson Institute for International Economics, categorizes the economic policy dispute between the current and former presidents as one of the most important policy disputes in Russia today. “It’s bizarre that people still argue that Putin and Medvedev still want the same thing, because it’s obvious that they have totally opposite objectives,” says Åslund.
Russia’s poor showing during the global financial crisis may have strengthened Medvedev’s hand, according to Toby Trister Gati, an assistant secretary of state in the Clinton administration and an international adviser to the law firm of Akin Gump Strauss Hauer & Feld. Most ordinary Russians didn’t think the crisis would affect them, a view Putin encouraged. That it did left many in shock. “Medvedev is reflecting what many people have been thinking,” says Gati, noting that the president’s comments give cover for other Russians to criticize government management of the economy.
For the moment, though, the odds are on a Putin election victory. He remains immensely popular and retains a strong base of support, particularly in Russia’s security services. Business leaders who might otherwise be inclined to support Medvedev are reluctant to stick their necks out. Among Putin’s most dramatic business policy moves was his crackdown on Yeltsin-era oligarchs who defied his edict to keep out of politics. It included the deliberate destruction of Yukos, at one time Russia’s largest and most successful oil company, as well as the imprisonment of its CEO, Mikhail Khodorkovsky, on tax charges.
If Putin unseats Medvedev, it’s likely the pace of economic reform will slow. But that risk alone won’t deter FDI, says Gati. “When you invest in Russia, you don’t invest because you want a good night’s sleep every night.” Even if Medvedev wins a second term, he’ll have an uphill struggle to root out endemic corruption and strengthen the rule of law.
-
Visa Is the Worst Dow Stock Wednesday. Here's WhyVisa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
-
Another Analyst Moves to the Sidelines on Tesla Stock After EarningsTesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
-
Car Prices Are Finally Coming DownThe Kiplinger Letter For the first time in years, it may be possible to snag a good deal on a new car.
-
Rising Cyber Threat of AI: The Kiplinger LetterThe Kiplinger Letter Security experts warn that generative AI brings new risks with no clear defenses. With AI's rapid adoption, businesses are vulnerable.
-
Kiplinger Special: The Long-Term Future of the U.S. EconomyThe Kiplinger Letter Kiplinger's report into what it will take the U.S. to maintain a healthy economic growth rate.
-
The Fight Against Cancer Enters a New PhaseThe Kiplinger Letter Breakthrough treatments hold promise for patients and investors.
-
After Decades of Promise, the Virtual Reality Era Has Finally ArrivedThe Kiplinger Letter VR is a paradigm shift for consumer technology. The tech has a long road ahead, but amazing hardware already puts the huge potential on full display.
-
AI to Power the Next Generation of RobotsThe Kiplinger Letter There's increasing buzz that the tech behind ChatGPT will make future industrial and humanoid robots far more capable.
-
The Robots Are Coming... But Not For a While
The Kiplinger Letter There’s excitement in the tech sector over the potential of humanoid robots, but widespread adoption is likely to be years away.
-
Farmers Face Another Tough Year As Costs Continue to Climb: The Kiplinger LetterThe Kiplinger Letter Farm income is expected to decline for a second year, while costs continue to up-end farm profitability.
