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Information and Communications Technology: 
Reduction of Tariff Barriers on Equipment As

An Essential Step in the Global Integration of the Russian Sector 

Минсвязи России 

By
Yoanna A. Gouchtchina 

Edited By Janell Jenkins

Advisors
Geza Feketekuty
William Monning
William Arrocha 

This paper was researched and written to fulfill the M.A. project requirement for completing the Monterey Institute of International Studies’ Master of Arts in Commercial Diplomacy. It was not commissioned by any government or other organization. The views and analysis presented are those of the student alone. Names of people, corporations, businesses and governments are used only as examples in fictitious sample correspondence, statements, etc. in order to depict a realistic, albeit fictional, scenario. This does not represent any knowledge of these examples, nor does it in any way represent an endorsement by an individual, corporation, business or government.

 

TABLE OF CONTENTS                                                                     

SCENARIO

TERMINOLOGY

EXECUTIVE SUMMARY

ISSUE

BACKGROUND
INTRODUCTION
Transition Towards an Information Technology Society
International Experience 
Russia’s Approach
Overview of Tariff Barriers
RF Customs Code
Russia’s WTO Accession

(i)    Tariff Barriers Implications

(ii)  Information Technology Agreement Prognosis

COMMERCIAL BACKGROND
Current Trends in the Russian ICT sector

High-tech Science Intensive Products
Hardware
Software
ICT Attractiveness

Human Resources Potential
Demand for High-Performance Equipment
Internet-Related
ICT Infrastructure-Related
Russian Telecommunications Infrastructure in Rural Sector
Packaged Software Sales and Outsourcing
Overview

ECONOMIC BACKGROUND
Employment
GDP vs. ICT Trade
Research and Development 
Foreign Direct Investment
                                          

POLITICAL BACKGROUND – STAKEHOLDERS 
Executive Branch
Legislative Branch
Non-Governmental Organizations, Labor Unions, and Industry Associations
Academics and Think-Tanks
International Stakeholders Governments
Transnational Corporations
Non-GovernmentalOrganizations, Industry Associations

POLICY OVERVIEW   

LEGAL BACKGROUND

PUBLIC OPINION BACKGROUND

ANALYSIS

COMMERCIAL ANALYSIS 
What Are the Commercial Losses Estimated for the Industry?
Innovation Gap Leads to Brain Drain 
Investment Potential and International Commerce Framework
 

ECONOMIC ANALYSIS 
Economic Costs From Tariff Elimination

Economic Loss Estimate 
ICT Development Index Model 
Economic Benefits – Research and Development

Investment                                                                       

POLICY ANALYSIS

ICT Development and Global Integration 
Expansion of the Internet/Communications Infrastructure in the Most Cost-Effective and Time-Efficient Way to Cover Vast Territories of the RF
Closing the Innovation Gap of Russia 
WTO Accession – What Price is Russia Willing to Pay?
Attraction of Capital Investment Into The ICT Sector – What Approach Should Be Taken?
                                                                       

POLITICAL STAKEHOLDER ANALYSIS 
RF Executive and Legislative – In Favor 
RF Executive and Legislative – Neutral
Other Domestic Stakeholders – In Favor
Other Domestic Stakeholders – Neutral

International Stakeholders 
Market Access, Competition, Commercial Development Support
Institutional Development Support                                                                                                

LEGAL ANALYSIS
Russia:  What Has Been Done?

1.      Strategy Of Formation of Tariff Offers For Market Access For Goods In the Framework of Russia’s WTO Accession Process

2.     Decree on Tariff Reduction – No 366, 1 July 2002

3.     Import Tariff Reform – Resolution No 886, 1 January 2001

4.     Federal Law No. 5003-1 of 21 May 1993 “On Customs Tariff (as amended 7 August, 25 November and 27 December 1995, 5 February 1997, 19 February 1999, 4 May 1999 and 27 May 2000)

5.     The Constitution of The RF (Investment)

International Legal Framework
GATT/WTO – A Level-Playing Field
     1.     Article VI, para 6(a)
    2.     Article III (4) 
    3.     Article XXIV (Territorial Application) 
Information Technology Agreement (ITA) – Is This the Best Solution For the ICT Tariff Transparency?
Asian Pacific Economic Cooperation (APEC) – Will the Momentum Continue?
Legal Policy Options
 

MEDIA ANALYSIS                                                                       

RECOMMENDED ACTIONS FOR THE GOVERNMENT OF THE RF 

COMPREHENSIVE STRATEGY PAPER
Domestic Strategy

  
Political Strategy – Coalition Building
  
Legislative Strategy
  
Institutional Strategy
International Strategy
  

COALITION BUILDING STRATEGY 

LEGISLATIVE STRATEGY 

INSTITUTIONAL STRATEGY  

INTERNATIONAL STRATEGY
Russia-United States/European Union/Japan Negotiations
Correspondence Following Negotiations
 

TIMETABLE                                                                       

MEDIA/PUBLIC RELATIONS STRATEGY 
Objective
Target Audience
Coalition in Media Strategy
                                                                       

ANNEX 
Stakeholders

List of Media Sources-Trade Publications on ICT
Infrastructure for ICT Industry Production and Research and Development
Facilities
Draft Reduction Schedule for the Russian Federation for the Time Period
From 2994-2010
Draft Tariff Reduction Schedule for the Russian
Federation
Negotiations Interest Char
t

Sample White Paper
Regional ICT Industries
Chart of RF Representatives
Additional Technical Barriers to ICT Trade
Additional Stakeholders
Additional Tables and Charts

REFERENCES


SCENARIO

 

For the purpose of this project, I will assume a role of the President of CommanDa[1] and will act as an adviser to the Minister of Communications and Informatization, Mr. Reiman.  The purpose of this project is a reduction of tariff barriers on Information and Communications Technology (ICT) equipment imports and exports, as a step towards a gradual liberalization of the ICT trade.  It is expected that ICT trade liberalization will promote development of the Russian ICT sector, by attracting foreign and domestic investment into technological production and R&D, and a creation of the fair competition environment in Russia’s domestic market.  Furthermore, any legislative changes made towards tariff liberalization on the domestic front should be consistent with international trade rules, as Russia is preparing to enter the World Trade Organization (WTO).  An implementation strategy of ICT sector trade tariff liberalization is proposed in this project.  

 


TERMINOLOGY

 

 

ITA - Information Technology Agreement  

Tariff barriers – tariffs, duties, tariff quotas, tariff exemptions 

Information and Communications Technology (ICT) Product Categories[2]:

 

 

q      Computers (including computer systems and laptops as well as the components such as CPUs, keyboards, printers, monitors, scanners, hard disk drives, power supplies, etc.)

q      Telecom equipment (including telephone sets, videophones, fax machines, switching apparatus, modems, and parts thereof, telephone handsets, answering machines, radio-broadcasting and television transmission and reception apparatus, and pagers.  Fiber optics are also included.)

q      Semiconductors (including chips, wafers, etc... of various sizes and capacities.)

q      Semiconductor manufacturing equipment (includes a wide variety of equipment and testing apparatus used to produce semiconductors such as vapor deposition apparatus, spin dryers, etching and stripping apparatus, laser cutters, sawing and dicing machines, deposition machines, spinners, encapsulation machines, furnaces and heaters, ion implanters, microscopes, handling and transport apparatus, measuring and checking instruments, and parts and accessories.)

q      Software (contained in diskettes, magnetic tapes, CD-ROMs, etc.)

q      Scientific instruments (include measuring and checking devices, chromatographs, spectrometers, optical radiation devices, and electrophoresis equipment.) Additionally, other main products of interest such as word processors, certain static converters, indicator panels, capacitors, resistors, printed circuits, certain electronic switches, certain connection devices, certain electric conductors, optical fiber cables, certain photocopiers, computer network equipment (LAN & WAN equipment), flat panel displays, plotters, and multimedia upgrade kits.


EXECUTIVE SUMMARY 

Vision 

The vision that the government put forth is the further growth of the ICT sector and ICT trade, as well as the utilization of assets that the Russian Federation (RF) has to promote such growth, which are the large potential market and highly developed R&D and scientific sector.  However, it is recognized that in order to promote growth, an extensive investment into the communications infrastructure is needed. 

The most important goals of the government’s vision in developing the ICT sector are: 

Ø     Development of infrastructure and connectivity rate growth, which will create a more level-playing field through the dissemination of information; 

Ø     Creation of opportunities to export high-tech intensive products and services; 

Ø     Further expansion of the ICT trade and industry and flows of capital investment; 

Ø     Reduction of engineering brain-drain through stimulation of efficient applications within Russia, limiting the stimulus for emigration; 

Ø     Becoming a leading player in the global ICT market and Russia’s integration into the global information society. 

However, there are still issues that stand in the way of the implementation of this vision. One that has not gained adequate attention, but will have a considerable impact on further development of the ICT sector, is tariff reform.  As the ICT sector has the potential to become one of the key elements in the Russian economy, a revised strategy is necessary.

 

Current Reality 

While the growth of the ICT sector in Russia has been tremendous, indicating a strong future development potential, there are still some differences between current and envisioned reality.   

One positive trend is that the ICT sector has been enjoying considerable growth.  In 2001, the ICT market in Russia grew by 18 percent[i], contributing to a long list of indicators for Russia’s economic revival.  The 2001 projected revenues of the total market of ICT in Russia, including hardware, software, ICT services, data communication services, and voice telecommunications, amounted to $12.553 billion.  This figure is forecasted to reach $20.0 billion by 2005[ii].  Taking into account Russia’s improving economy, growing purchasing power, and interest and openness to current foreign affairs, conditions for enlargement of Russia’s ICT market appear to be favorable.  

However, some components are lacking for ICT sector growth and investment attraction .  Most critical are: 

Ø               Engineering management know-how, leading to difficulties Russian engineers face with translation of ideas to implementation.  Therefore, the lack of know-how results in inefficient production.   Experience that Russia has up to date comes from production of military equipment, which was bulky and inefficient.  Now the RF is faced with the task of how to manage efficient utilization of production, utilize scientific resources and produce sophisticated products that will be able to compete with global technological developments.   

Ø               Sophistication of Russian production is not yet up to world quality standards.  In order to overcome these production inefficiencies Russia has to become more integrated into the world trade market and supply parts and components that are globally competitive.  As mentioned before, to boost quality of production, considerable investment into the ICT sector is needed.   Furthermore, another need is the supply of parts and components at low cost for domestic assembly, which is a recent trend in the Russian market.  However, in order for Russian producers to be able to make competitive products, they need to bring in parts and components from abroad, at the lowest cost possible.   

Therefore, tariff reform appears to be necessary, for the following reasons: 

Ø     The RF will not be able to export successfully without getting cost-competitive inputs for domestic assembly; 

Ø     If the RF is able to implement these changes it will be able to attract foreign direct investment (FDI) for infrastructure and increase production of competitive products;

Ø     Removal of import barriers is a way to overcome shortcomings on the management side, which will enable the RF to become a producer of sophisticated high-tech products;

Ø     Furthermore, since customs collections are very inefficient and result in corruption and bribery, it is feasible to cut duty in order to eliminate corruption. 

However, there is a concern about how this reform will benefit not only ICT-intensive regions, but also small provinces.  In this regard, it should be realized that the benefit comes from the RF intellectual potential of its people, who are only lacking the “translation” of their knowledge to world standards.  In order to overcome this hurdle, people need:

1)     A functioning telecommunications system;

2)     A new-components-based information system;

3)     The ability to produce these components. 

The best way to overcome this “translation gap” is to bring foreign specialists into the country for purposes of education on their know-how.  Reform of the ICT sector, using foreign expertise, will be more efficient, economic, and timely, in regard to the development of domestic production.  Furthermore, it will allow Russia to utilize its information technology to achieve international competitiveness in the industry. 


Recent Progress 

It is important to note, that tremendous progress has already been made. The government of the RF has initiated and completed a number of adjustments to boost investment and trade opportunities for the Russian Information and Communication Technology (ICT) industries, such as revisions to the Customs Code addressing technical barriers, the approval of a “National Technology Base” Program which includes guidelines for structure and financing.  In addition to legislative undertakings: 

Ø     Educational standards are consistently kept high, which gives Russia a competitive advantage in the engineering labor force;

Ø     Russian R&D capability is rated highest by world standards. 

In addition, the government has developed fundamental policies for launching the Russian ICT sector global integration program such as: 

Ø     Closing the innovation gap and implementing science-based regulatory requirements, so external market access is regularly gained;

Ø     Timely accession to the international trading system within the WTO context;

Ø     Expansion of the Internet/Communications infrastructure in the most cost-effective and time-efficient way to cover vast territories of the RF by enhancing market access for computer and telecommunication products and bringing down the price of products; and,

Ø     Attraction of capital investment into the ICT sector, by taking a non-differentiating approach of sources of investment.  

Therefore, the only problem that remains is to develop an efficient production chain.
   

What Is the Solution? 

The underlying concept is to follow the global trend of specialization.  Therefore, the RF should specialize in what it does best: domestic production with high-tech applications.

In order to achieve this, the RF needs to remove additional barriers to investment and trade, bring in know-how, and increase efficiency and therefore exports.  To achieve this, the RF requires imported inputs for domestic productions at the lowest cost possible, so it can produce quality products which are price competitive and enhanced by domestic high-tech applications.  This is not to imply that protection will be completely eliminated and can be further maintained by other means, primarily the exchange rate, among others.  However, it is critical for Russia to obtain the needed know-how and to attract investment – one critical approach is the elimination of trade tariff barriers.   

Suggested actions in institutional and legislative areas of importance for launching ICT sector liberalization reform that the Ministry of Communications and Informatization (The Ministry) may use to stimulate urgently needed capital investment into the ICT sector to assist further development, are identified in the following order: 

Ø     Action1:  Initiation of a draft legislation for the ITA accession with tariff reduction schedules by 2010; 

Ø     Action 2:  Amendment of the Strategy of Formation of Tariff Offers for Market Access For Goods In the Framework of Russia’s WTO accession process, within a framework of the ICT sector liberalization; 

Ø     Action 3:  Amendment of Decree No 366 “On Tariff Reduction” to include reductions of telecommunications equipment; 

Ø     Action 4: Creation of a “Russian ICT Sector Global Integration Program” Task Force, for implementation of a consolidated Program; 

Ø     Action 5: Creation of a committee within a “Russian ICT Sector Global Integration Program” Task Force for high-technology export promotion within the Ministry of Communications and Informatization; 

Ø     Action 6:  The draft legislation for “Creation of Special Economic Zones”, and evaluation of a category of products destined for such zones to be exempt from duties; 

Ø     Action 7:  Drafting a legislation on “Investment Insurance and Financial Stimulation” to cover concerns of the investors into the R&D facilities. 

It is proposed that the above actions to address tariff liberalization should be regarded as an important part of the “Russian ICT Global Integration Program”, which is recommended to become a centerpiece of President Putin’s campaign in 2004.  This implies the need to increase the civil awareness and enhance a public vision on the importance and criticality of the ICT sector development for the benefit of every citizen.  It is common logic that the longer the action is postponed, the slower the transformation of Russia is going to be towards becoming a competitive player in the global ICT market.  Concrete suggestions to enhance a dynamic upward transformation of the Russian ICT sector and its global integration are the ultimate goals of this project.


ISSUE

 

An outstanding issue is the establishment of sound import and export policies aimed at liberalizing the ICT market. 

The most recent Russian legislative development, which is the adoption on 1 July 2002 of the President’s Decree N366 in the area of tariffs reductions, excluded a considerable number of ICT equipment assembly parts. Furthermore, action is needed for amending the Strategy of Formation of Tariff Offers for Market Access for Goods in the Framework of Russia’s WTO accession process, which sets as a goal the initiation of tariff reductions on ICT products for 3-4 years following Russia’s accession to the WTO.  An alternative approach, the Information Technology Agreement (ITA) accession, should be considered.


BACKGROUND

 

INTRODUCTION:  Transition Towards an Information Technology Society 

International Experience  

International experience illustrates that every nation finds a unique approach to transform itself and become a part of a global information society, depending on its political, socio-economic, and cultural conditions.   

Developed nations and many developing nations have acknowledged advantages that come with the ability to create and disseminate information and communication technologies.  They realized that the movement towards an information society is a way to a harmonious global society.  Precisely this concept was captured in the Okinawa Charter Of Global Information Society[iii], which was signed by the G-8, inter alia, President Putin, July 2002, in Okinawa, and laid the foundation for the transformation of the RF to a globally acknowledged information society.   

Following this summit, the signatory countries started to develop programs towards an information technology sector development.  Every State is developing a distinct program to contribute to the creation of a more transparent and advanced global information system[iv], based on the individually applicable internal conditions of information technology sectors, such as the level of development of telecommunications infrastructure, the stage of the information technology industry, legislative and legal structure, and the political situation.  Analysis of a variety of programs and conceptual framework is helpful in the identification of key ingredients for success of the information society, such as: 

·       The information society program must address the needs of and find a balance between the government, society, entrepreneurship and the individual.  If harmony is found on the national level, it will translate to a harmonious entrance into the global information society, led by a government that is willing and able to address and protect the interests of its society; 

·       The aforementioned conceptual framework should not exclude anyone from the information society because it would create a situation where within a nation there is a separation between individuals who have access to information and those who do not. 

In overview, there remains a clear and continuous imbalance in the world’s access to information technologies.  Russia, among others, is unfortunately faced with a need to ‘catch-up’ with developed countries in order to become an equal player in the information society.
   

Russia’s Approach 

For Russia the completion of a pre-industrial phase of modernization and transformation to a post-industrial information society[v] is a condition not only for survival and prosperity but an illustration of its independence in the contemporary world.  Russia’s main goal in its transformation to the information society should be the development of a civil society and democratic traditions through leveling out inequality among its citizens in access to information.  Free access to global information is directly related to basic human rights and the individual rights of information access, and is an obligation by the government to make information available to the public.  

The evolution of the information technology sector should be seen and already is seen by some, as a necessary condition for sustainable development and Russia’s reintegration into the world economy.  In this regard, a number of legal base documents were recently adopted, such as “A Law of Informatization” that addressed the need for increasing distribution of information in the RF; “The Doctrine of Information Security of the RF” that deals with security of internet information transfer; and “Conceptual Framework of the Unified Information Space of The RF” that focuses on a common network for information sharing[vi], and a number of others.  These and other documents led to the creation of the doctrine entitled, “Conceptual Framework of Forming an Information Society in the RF” approved by the Connectivity and Informatization Commission of the RF in May 1999.  In addition, specific programs were approved, such as a conceptual strategic framework for transformation of Moscow, Saint Petersburg, and Ekaterinburg into the information society; a ‘white book’ of information technologies, “Informatization and Russia 2001” and a conceptual framework of a program “Electronic Russia” for 2002-2010 were published.  All these initiatives came following a realization by the Russian Administration that a constructive approach is required in order to minimize a gap between Russia and the already developed world in the information technology sector through utilization of its potential in the sector and effective dissemination of information technology products.  
In order to succeed, however, in this long-term goal of fulfilling the country’s internal needs while making it consistent with the world’s information society, the Administration’s goal is to make certain that the Russian information technology sector is competitive. For this very reason, there is a great need to open the domestic market to foreign competition, taking the least harmful and most beneficial approach for the domestic industry. 

The information technology segment is among a few that can contribute to Russia’s overall share of high-tech productions valued in the world market.  At the same time, it is the most commercial sector that is not directly related to strategic production, such as military or nuclear, and therefore has the most potential for clear-cut commercial utilization in relation to trade and development.  Products and related services which could be beneficially traded and are already available within Russia today, are, inter alia, new technological materials such as fiber optics, software and related services, and many others.  While the integration of the ICT segment into the world market is clearly possible, it is baffling to accept the continuous lack of such integration, especially when recognizing its contribution to the entire ICT sector’s sustainable development in Russia and the rise of the domestic information technology industry. 

Having potential translates into having prestige and security.  For Russia, in its transformation into an information society, this potential lies in having available the industry with an already solid base but with the need for a further boost.  A fit approach for Russia is making the information technology industry more competitive, through trade liberalization and transparent investment policy, which will eventually result in a highly desired empowerment, achieved through becoming an equal partner in the world information society.
   

Overview of Tariff Barriers

Since the mid-1990s Russia has not had quantitative barriers to trade in place and tariffs are the only trade barriers. Tariffs are imposed on both imports and exports. The level of import tariffs throughout the second half of the 1990s was less than 30 percent for most goods. The tariff rates structure was extremely complicated until early 2002, when Russia undertook a major effort to unify tariffs. Currently, commodities are divided into four subgroups with marginal tariff rates of 5, 10, 15, and 20 percent, respectively[vii].   However, as provided by Goscomstat, collection has been poor and in 1999 the amount actually collected was about half of what should have been amassed.

However, Russia is still distant from ICT sector liberalization, based on tariffs that it retains concerning trade of ICT goods.  Of concern are considerably high tariffs and duties on ICT equipment.  While the Government has lowered tariffs in 2002, varying now from 5 to 20 percent, major burden lies on imported components that are considered competitive with products made in Russia.  Major types of components that carry a burden of high import duties[viii] are reviewed in the following table: 

 

TABLE 1.

Name

Code

Duty (%)

VAT (%)

Static converters for … telecommunication apparatus

8504 40

15

20

Fixed Capacitors

8532 29

10

20

Variable Resistors

8533 29

15

20

Diodes

8541 10

10

20

Transistors (excluding phototransistors)

8541 29

10

20

Fuses

8535 10

10

20

Integral and Monolithic Chips

8542 21

10

20

Controlling Chips

8542 29

10

20

Other electric conductors,..., fitted with connectors, of a kind used for telecommunications

8544 41

20

20

Electric conductors not fitted with connectors of a kind used for telecommunications

8544 49

15

20

Optical Fibre Cables

8544 70

15

20

Source:  BISNIS

Average tariffs on imported ICT goods remain high, about 15 percent.  Furthermore, importers are required to pay on average 20 percent VAT, and while it is eventually reimbursed, reimbursements are made with considerable delays. 

While these tariff barriers continue to be in place, there is a significant manufacturing potential in Russia that is not being utilized due to lack of competitiveness.  It may be determined from commercial and economic indicators that Russia has a clear potential of increasing its ICT trade with, inter alia, the U.S. and establishing its firm position in the global ICT market.  However, Russia’s ultimate goal of becoming globally competitive is not sufficient without identification of a clear and consistent policy framework that underlies economic and commercial trends.  As there is still a significant number of domestic policies that contribute to ICT market regulations, they need to be examined and modified in order to back the plan of the ICT sector transformation towards a more liberal and developed sector, providing significant gains for Russia’s economic growth.

RF Customs Code
The Customs Code covers any change in tariffs and duties of the RF and, therefore, customs procedures are highly inter-related with any changes in tariffs.  Russia continuously maintains its domestic Customs Legislation consistent with international standards.  This logic is justified by the fact that t
he RF had been an active member of the World Customs Organization (WCO) even before gaining full membership to it on 8 July 1993 and had also joined the International Convention on the Harmonized Commodity Description and Coding System on 1 January 1997.  The domestic legislation, which is the Federal Law No. 5003-1 of 21 May 1993 "On Customs Tariff" (as amended 7 August, 25 November and 27 December 1995, 5 February 1997, 10 February 1999, 4 May 1999 and 27 May 2000) and the Customs Code currently constitute the legal framework for the customs regime of the RF.  The new draft of the Customs Code and draft Chapter 27 of the Tax Code contains procedures for valuation for customs purposes, envisaged with the notion that the primary basis for customs value is the value of the transaction.  This chapter also includes provisions on customs procedures and the customs administration system which is in full conformity with the relevant WTO Agreements.  However, tariff schedules, among others, on ICT equipment, are yet to be addressed.

On January 1, 2001, the Russian government unification of import duty rates on 11,032 commodities[ix] took effect in Russia, based on government resolution no. 886 signed on 1 December 2000. The new import tariff structure standardizes and unifies Russian customs tariffs into four base rates of 5 percent, 10 percent, 15 percent, and 20 percent. It also lowers the maximum tariff rate ceiling by 10 percent, from 30 percent to 20 percent.  These changes were aimed at liberalization of imports of modern technologies and machinery into the RF, countering illegal practices at customs and improving the effectiveness of customs payment collection[x].

While this is a positive trend in the duties reduction, there are continuous concerns about future improvements, related not only to tariff barriers, but also non-tariff customs barriers closely associated with movement of ICT goods across the border.
 

Russia’s WTO Accession 

“Russia must learn of how to protect its market within the frame of the WTO so no sectors are injured …”

Maxim Medvedkov, 16 October 2002 

Significantly high tariff barriers that exist in Russia have become a timely issue in the context of the Putin Administration’s serious attempts at Russia’s membership in the WTO , which was put as one of the priority issue of the Putin’s Administration.  

As a result of Russia’s current WTO accession process, most of Russia’s domestic trade-related policies are being redesigned to fit the rules of the WTO.  Improving and bringing domestic legislation into compliance with international norms and WTO provisions is a major goal in the creation of a framework for foreign trade in goods.  

 In the WTO Working Group’s most recent report on Russia’s accession posted on 28 November 2002, it was expected that “the RF would guarantee that no restrictions would be maintained on the right to trade in goods except as would be consistent with WTO provisions and that all laws and regulations relating to trading rights would be applied in a manner consistent with relevant WTO obligations[xi]”.  Specifically, the RF is expected to confirm that no restrictions would be maintained on the rights of individuals and enterprises, including those with foreign participation, to import and export goods into the customs territory of the RF except as would be consistent with provisions of the WTO Agreement. As this standard pertains to tariff and non-tariff barriers, RF should ensure that any laws and regulations relating to the right to trade in goods would not restrict imports of goods and should not discriminate against imported goods in violation of the non-discriminatory provisions under Article III:4 of GATT 1994.  Specifically in relation to tariff-barriers, it is expected from Russia that “any associated fees, taxes and charges should also be limited to the approximate cost of services rendered and their application should not lead to discrimination in favor of like domestic products.”[xii]  This will be applied to domestic products of the ICT equipment as soon as Russia is a member of the WTO.   

However, as of today, there is still considerable work that needs to be done with the WTO.  A brief view from the RF perspective on tariff barriers implications is provided in the following section. 

(i)        Tariffs Barriers Implications - WTO 

In joining the WTO, countries commit to reduce and lock in, or “bind”, their tariffs. “Binding” a tariff is a legal commitment not to raise it above a specific rate.  A member can raise tariffs above bound rates only by payment of compensation to those WTO members affected.[xiii]  Regarding tariffs on ICT equipment, Russia must first reduce its tariffs, before it locks them.  Concerning Russia’s accession and tariffs regarding ICT, RF has an opportunity to take an alternative approach: negotiation of tariff schedules under general accession or through the ITA agreement and then, upon its accession, harmonization of this schedule to the WTO schedules.  ITA is a sectoral initiative, under which tariffs on information technology products gradually are reduced to zero[xiv].   

(ii)            Information Technology Agreement Prognosis  

“The impact of [the] world’s citizens should not be underestimated.  The computers, semiconductors, telecoms hardware and computer software that are included in the ITA are the conduit for the delivery of information.  By making such products more affordable, we move one step closer to the vision of a telephone in every village of the world.  The ramifications of such achievement to the health [and] education of those in the poorest countries are obvious.”

 

Mr. Renato Ruggiero, WTO Director General (1997)[xv] 

The ITA is usually seen as a tool to bring a country’s ICT sector in line with international standards, as related primarily to tariff barriers, and furthermore, to technical requirements.  ITA is one of the sectoral agreements that emerged with the creation of the WTO and as it is not mandatory, countries that apply for WTO membership are encouraged to consider the ITA in application to their ICT trade.  As of March 2000, 51 states have signed the agreement.  All together these states account for 93 percent of the $  680 billion[xvi] annual world trade in information technology products.   

Benefits that emerge from accession to the ITA and a commitment to phase out tariffs are extensive.  This step is usually considered as the demonstration of a country’s commitment to integration into the global communications society, and, moreover, illustrates a will to becoming increasingly transparent and adhering to WTO rules.  Timely accession and liberalization commitments made in the context of WTO are likely to allay investors’ fears and make a country more attractive to global capital.

At the same time, upon accession to ITA a country can still take several years (the latest estimate being 5-7 years) for a transition of the tariffs covered in schedules on ICT sector trade liberalization. In the case of Russia, a good estimate would be 2010, along with completion of the “Electronic Russia” project.


[1]A fictitious non-profit consulting agency, ComanDa, which will provide the government of the RF with services of commercial (trade) diplomacy, targeting development of the commercial sector in Russia and attraction of foreign direct investment. This body will consist of highly qualified professionals with commercial diplomacy training, who will provide solutions for the government on commercial issues that arise with Russian market integration into the world economy.  Interests of domestic industries, as well as those of foreign stakeholders will be addressed.  The board of this organization will consist of government officials, who will oversee the work of ComanDa, and supply the team with issues of concern that require close evaluation and solutions. 

 

[2] ICT may refer to a wide variety of products related to consumer electronics.  For the purpose of this project, focus will be maintained on products related to information and communications equipment.  The project will not address consumer electronics.  Source:  ITA, www.wto.org



[i] “Russia:  The Country of Vast Expanses”, publication of RIA Novosti on order of the Economic Development and Trade Ministry of the RF, limited publication. 

[ii] Ernst and Young, www.ey.com  

[iii] M.S. Vershynin, “Political Communications in Information Society”, Izdatelstvo Michaylova, 2001. 

[iv] IBID. 

[v] IBID. 

[vi] IBID. 

[viii] Maria Chernobrovkina, “Customs Procedures for Importing Electronic Components into Russia”, 10 September 2002, www.bisnis.doc.gov 

[ix] James Stamps, “Russia’s WTO Accession: Many Hurdles Remain”, International Economic Review, July/August 2001, www.usitc.gov. 

[x] Maria Chernobrovkina, “Customs Procedures for Importing Electronic Components into Russia”, 10 September 2002, www.bisnis.doc.gov. 

[xi] Draft Report of The Working Party On the Accession Of The RF to the World Trade Organization, Inside U.S. Trade, 19 November 2002. 

[xii] IBID. 

[xiii] “Tariffs: More Bindings and Closer to Zero,” http://www.wto.org/english/thewto_whatis_e/tif_e/agrm2.htm 

[xiv]IBID 

[xv] Elimination of Tariffs On Computer Products By the Year 2000 Agreed”, March 1997, No. 17, Information Technology Edition. 

 

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