Sunday, 20 December 2009

Kudrin urges cut in tariffs

Russia's controversial high tariffs could be set for the chop after Finance Minister Alexei Kudrin said they were creating a barrier to technological innovation and holding back the economy.
Kudrin bemoaned Russia's average import duty of 11.5 per cent at a conference on Tuesday, RIA Novosti reported. Russia's tariffs are much higher than rates in the European Union and the United States, where tariffs tend to average 3 per cent to 4 per cent, Kudrin said.
"We must not become closed," Kudrin said. "While creating a new product, we must import the best technologies. If we develop them only on our own, we'll most likely fall behind and therefore we need openness."
Russia has sought to protect domestic producers during the crisis as it attempts to rebuild its industry following a 16.5 per cent year-on-year collapse.
Experts say that while this can help businesses in the short term, the country is already falling below its competitors thanks to its low capital base.
"This is a fundamental problem for the economy," said Vladimir Tikhomirov, chief economist at UralSib. "In the short term it helps the economy but in the long term it is a major drag because the economy is becoming less and less efficient."
Import tariffs also create a burden for consumers who have to fork out more for foreign goods or put up with the shoddy products that need protecting.
"If a country needs to import equipment or whatever is subject to tariffs, they are going to be cheaper if you get rid of the tariffs," said Martin Gilman, a former head of the IMF in Russia who is a professor at Moscow's Higher School of Economics. "That has to be good for consumer choice and industrial production."
Some tariffs have already met with vociferous opposition, particularly against duties on imported cars which shot up to a minimum of 30 per cent in January 2009.
The higher import duty prompted demonstrations in Vladivostok, where many people make their living selling cars imported from Japan. Protesters took to the streets again in October following the government's decision to extend the tariff until June 2010.
The number of imported cars slumped almost 90 per cent in the first nine months of the year compared to the same period in 2008, and although Russia's car industry is still on a collision course with bankruptcy, import tariffs on new cars are thought to be helping.
"It should have helped [Gaz and Avtovaz] a lot but because of the crisis they have still suffered a lot," said Elena Sakhnova, an auto industry analyst at VTB.
Gilman argued that these tariffs encouraged companies to "keep producing sloppy goods behind a tariff wall."
"It means that Russian competitors against those imports face greater competition, which is actually a good thing because it forces restructuring and innovation," said Gilman.
Duties on new cars have encouraged producers to switch production to Russia, helping protect domestic jobs. But the country's main domestic producers are still being outperformed by their international rivals.
"The government needs to decide whether they want the Russian car industry to be just assembly, because it is going that way," said Sakhnova. "Or whether they want strong domestic producers in which case they need to insert huge amount of barriers to imports and huge amounts of cash."
Russia's tariff system is facing rapid changes, upwards and downwards. In December, some duties on steel products were raised 5 per cent, while others were lowered or removed.
While full employment remains high on the government's list of concerns, political decisions and influence also seem to be affecting the customs decisions. "The level of tariffs depends very much on the lobbying power of the industry, so if they have access to people in power or they are large employers ... they can make sure tariffs are high," said Tikhomirov.

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