September 22, 2010 / 3:33 PM / 9 years ago

Analysis: Putin's industry plans cloud Russian WTO drive

MOSCOW (Reuters) - Prime Minister Vladimir Putin’s drive to revive Russian industry with the help of handouts and protectionist measures is casting doubt on Moscow’s push to join the World Trade Organization in the near future.

Russia has declared its commitment to completing a 17-year bid to join the WTO, with backing from the United States. But liberals in the Russian cabinet appear to be in retreat along with their policies that resist state investment.

“It looks like Russia is consciously trying to postpone the WTO accession, and is trying instead to experiment with different methods of industrial policy,” said Erik Reinert, professor at Tallinn University of Technology in Estonia.

Russia, the largest economy outside the 153-nation body which sets rules to encourage free trade and discourage unfair state aid, resumed accession talks on Tuesday. A senior U.S. official said the bid was charged with momentum and “a lot of energy on Russia’s part.”

Presidents Barack Obama and Dmitry Medvedev publicly urged negotiators in June to tackle the remaining hurdles swiftly, U.S. and Russian representatives met in Moscow this month and a senior White House official may visit this year.

However, Putin said on Tuesday that Russia is unlikely to join this year and experts say swift WTO accession contradicts Putin’s goal of re-industrializing Russia.

“Russia is not ready to join the WTO,” said Reinert. He urged Moscow to look at how other major developing economies such as India, Brazil and China have managed to avoid negative impact from WTO membership on their economies.

Putin — who took charge of the economy as prime minister after stepping down as president in 2008 but is still seen as Russia’s most powerful leader — has radically shifted gear on economic policy during two years of crisis management.

PRAGMATIC CALCULATIONS

During Russia’s deep recession, Putin’s cabinet identified promising sectors such as petrochemicals, the motor industry, shipbuilding, aerospace and agriculture, and moved to support them with the mix of handouts and protectionist measures.

Generous state support has helped to push car production up 88 percent so far in 2010. Output at struggling Soviet-era firm AvtoVAZ, in which Renault has a 25 percent stake, has risen 56 percent.

“I am convinced that time will show that the path we have chosen — a formation of strong competitive industrial production in the auto, aviation and shipbuilding industries — is the right one,” Putin said in a speech last week.

Putin, who hinted he may run for president again in 2012, is keen to ride an industrial renaissance that would appeal to voters nostalgic about the industrial might of the Soviet Union.

Putin’s trips to industrial area across Russia and government meetings on selected sectors suggest a policy aimed at creating “Made in Russia” production chains where natural resources can be processed into value-added products.

DEAD-END

In his speech in the car-making city of Nizhny Novgorod last week, Putin criticized advisers for suggesting that inefficient factories should be allowed to fail during the economic crisis.

“I am deeply convinced that the de-industrialization of Russia is a dead-end,” Putin told his United Russia party. This conviction was the product “not of our ambitions but ... of pragmatic calculations,” he said.

Without developed industry, Russia’s heavy reliance on natural resources would increase further, he warned.

Putin’s industrial policy is designed by Deputy Prime Minister Igor Sechin and head of Russian Technologies conglomerate Sergei Chemezov, longtime Putin associates known for advocating support for domestic companies.

The cabinet liberals led by Finance Minister Alexei Kudrin, a vocal supporter of WTO membership, have found their fiscal and monetary policies resisting state investment in the economy coming in for heavy criticism.

Putin said that growth in the motor industry should be a model for other sectors. Leading global car makers have opened assembly lines in Russia and are gradually increasing the share of components made locally.

Under WTO rules Russia will have to coordinate its trade policy with other members — a condition seen by architects of Russia’s industrial policy burdensome. Industry strategy papers see trade barriers in place for several years.

Russia is facing criticism over its protectionist policies from other G20 nations. But more such measures are on their way, such as a 25 percent import duty on handheld devices not able to communicate with the country’s new satellite navigation system.

Jomo Kwame Sundaram, a Malaysian economist and the U.N. assistant secretary general for economic development, said slower movement toward WTO membership would buy Russia time for developing industries in which it has competitive advantage.

“You don’t want your famous aviation industry to die,” he told Reuters.

Writing by Gleb Bryanski; editing by David Stamp

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