In 1701 an unusual cargo arrived from the Netherlands in the Spanish port of Cadiz. Documents indicated it was chocolate for the head of the Society of Jesus, a powerful and secretive organization in Catholic Spain. The cargo was so heavy that a customs officer decided to inspect it. Inside, he found closely packed bars of chocolate. Suspicion aroused, he began to scrape at the chocolate, until he discovered, beneath a finger-thick layer, pure gold. The cargo for the Jesuits was smuggled bullion. Public exposure of their secret was so embarrassing, they claimed to know nothing about the precious comestible. And so, the gold was taken by the King of Spain, and the chocolate eaten by the port’s stevedores.
Russia’s negotiations for accession to the World Trade Organization (WTO) are like the chocolate shipment. If you believe the declarations, they are one thing. If you dig below the surface, you find something secret.
The official in charge of the negotiations in Moscow is Maxim Medvedkov, the government’s chief trade negotiator and deputy minister of economic development and trade. He reports to the minister, German Gref. Gref has made fast accession to the WTO a test of his reputation. It may also be his insurance policy against sacking by President Vladimir Putin.
Neither man’s performances have encouraged much belief in what they have had to say in public. After months of negotiations with the European Commission in Brussels on the terms for a steel trade agreement, Medvedkov claimed success, encouraging Russian media to report that a deal had been struck that would grant Russian steelmakers a larger volume of exports to the European Union than they had been allowed under last year’s quota regime.
What Medvedkov and the steelmakers knew perfectly well was that he had swallowed a last-minute change in the terms. It’s true this provided a modest increase in the export-import quota for the same range of steel products that were traded under the old agreement. But the Europeans also added a new category of alloy-steel that had been freely traded last year, but must now be subject to quota limits. In sum, there was no improvement in the export volume.
Gref claimed to have won concessions from Washington on steel trade limits; as well as on the rules the United States uses to judge anti-dumping complaints. They won’t say so publicly, but few of Russia’s major industrial ex-porters believe these claims. How then to assess what Medvedkov and Gref have delivered on the conditions Russia must meet before entering the WTO?
Have they landed gold camouflaged as dross? And if so, who stands to benefit inside the Russian economy? It is especially difficult to answer these questions, because so far the two trade officials are concealing the concessions they have offered in Geneva, in order to convey the idea that everyone gains.
In their public statements, the officials are keen to portray Russia’s accession to the WTO as a kind of velvet revolution. Call this the liberal reform theory of accession, and you will find hints that the objective is nothing short of the final defeat of the leftovers of Yeltsin rule – the oligarchs whose acquisition of most of Russia’s industrial and resource assets have given them the power to countermand and overrule Putin.
According to the liberal accessionists, the restructuring of the economy required by WTO rules will give the Kremlin the leverage it needs to put the oligarchs down. At the same time, the demands of the WTO members provide a platform for a new round of privatizations of state-owned property that may be at least as lucrative for insiders as those under Yeltsin. The dismantling of the state energy monopolies in gas and electricity could create an entirely new class of owners and corporate competitors.
But just as certainly, the process could concentrate wealth in the same hands as emerged out of the Yeltsin period. Thus, the Russian oil majors could become energy conglomerates, controlling gas and electricity sources, as well as oil and refined petroleum products. Russia’s two large aluminium producers could acquire cheap electricity, passing on the added cost of power to consumers.
Exporters of steel, other metals, oil products, and coal could capture all the benefit of the reform the WTO is demanding in the Russian transport sector. The privatization of farm land, and the dismantling of state agricultural supports, which the WTO’s most powerful food exporters have been demanding, is already leading to a program of state-sponsored agribusiness handouts, in which bread, sugar, and other staples are passing into the hands of oligarchs whose qualification is that they have the ready cash. Thus, Vladimir Potanin adds grain processing and bread to the Interros assets, at the same time as his Norilsk Nickel mining company is positioning itself to dominate the trade in platinum group metals. Other single-product monopolists like Alrosa, the diamond miner, are just as keen to see similar WTO pressure lead to the dismantling of government regulation of the diamond market to its advantage.
So far Medvedkov and Gref haven’t disclosed how they see the benefits of WTO accession being distributed inside Russia. It’s possible they don’t know. It’s also possible that what they know, they don’t dare to acknowledge, so long as the Kremlin is silent on this point. If the ministers are uncertain of themselves, little wonder the oligarchs and the rest of us aren’t able to assess whether what is under way is a new revolution, or a repeat of the old one.
Oleg Deripaska, one of the controlling shareholders of Russian Aluminum, and the prime mover behind a program of acquisitions in the automotive, insurance, and paper and pulp sectors, has made clear where he stands.
He is certain his interests would be better served if Gref comes clean on the terms in negotiation with the WTO. Deripaska has made clear his opposition to fast accession, and to Gref personally. He too finds that beneath the layer of chocolate, there is gold. He too believes the gold is meant for private profiteering, and not for the commonwealth. Gref is motivated by personal ambition, Deripaska claims; he is protecting his minister’s seat from the next round of Cabinet changes, possibly in the autumn.
Clearly, Deripaska’s group would be hurt in the automotive sector if some of the rumored demands of WTO members are agreed to by Gref. The aluminum side of his business might benefit, however, depending on who ends up setting the price of electricity and rail tariffs. Deripaska has decided he would be better off if the accession process is slowed down, at least until after elections have reshaped the political landscape, perhaps leaving Putin weaker. The fact that Deripaska and Gref are at loggerheads at the moment isn’t convincing evidence that WTO accession is a Kremlin move to dismantle the oligarchic elements of the Russian economy. Others, like Potanin, as well as Anatoly Chubais of UES, Vagit Alekperov of LUKoil and Mikhail Khodorkovsky of Yukos, can afford to stay silent for as long as the accession terms promise advantages.
If they remain silent, and if Medvedkov and Gref continue to be secretive and misleading, then it is up to the president to spell out exactly what he wants to achieve. With elections approaching, it would be remarkable if he does.