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WTO working group reveals details of Russian accession – sector implications

Yesterday, the working group for Russia’s WTO membership published its report, with details on the terms of Russian accession. The average tariff is to decline to 7.8%, from the current 10% (as of June 2011). According to the report, Russia has managed to protect its most vulnerable sectors, auto producers and agriculture: transition periods of seven and eight years, respectively, have been granted

Russia joining the WTO would enhance competition and reduce the costs of imported goods, which is ultimately beneficial for Russian consumers and might promote industries to modernise. It would also spur Russia to improve its institutions, in particular customs regulations and government procurement. Clearer rules on investment and resolving trade disputes could stimulate investment in the medium term.

Steels. The most important consequence is the treatment of MFN: Russian steelmakers immediately get equal treatment, like any other global producer, in WTO member states. However, we have to consider the companies’ product mix (i.e. NLMK and Evraz are large slab exporters), and the share of exports, as the domestic market becomes more important for all Russian producers. HVA production is a beneficiary of WTO accession.

Agriculture. The government has managed to broadly defend all major protectionist measures of domestic producers.

Autos. The impact could be more noticeable in the truck segment, where the reduction in import duties could be more abrupt (from 25% to 15%). This tariff protection would be sufficient and WTO accession would not result in any sharp erosion of the market share of domestic truck producers. Downward pressure on profitability is possible.

Oil and gas. Possibly positive for Gazprom, as domestic tariff growth might speed up to reach parity with export gas prices.

Banks. Establishment of subsidiaries of foreign banks should not affect the banking system as competition is tough for those entering the market. Indirectly, WTO accession could stimulate the regulators to apply the latest standards in reporting and control, which would enhance sector transparency.

Telecoms. The industry is unlikely to see any significant impact as it is difficult for new foreign operators to enter at the current stage of market development.

Transportation. Somewhat negative for Aeroflot, largely due to the cancellation of royalties for trans-Siberian flights (particularly if earlier than 2013). FESCO and TransContainer are well positioned to benefit, since lower import duties might add impetus for import inflows.

Utilities. Capex heavy FSK, MRSKs and generation companies could save capex due to the potential decrease in import duties on energy equipment.

Alexey Moiseev, Aleksandra Evtifyeva, Dmitri Fedotkin
VTB Capital analyst


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