Belarus and Russia on the brink of new trade conflicts

Russian Association Rosagromash sent an open letter to Vladimir Putin to stop subsidies and preferential leasing for foreign equipment, including Belarusian machinery.

With Russia’s WTO accession in August 2012 competition in the Russian market significantly increased. Given the slowdown in the Russian economy, measures to support Russian producers could be increased, as well as administrative constraints for producers from the CU countries. In these circumstances, direct conflicts between Russia and Belarus, concerning a wide range of products, could take place.

On August 22^nd, 2012 Russia officially joined the WTO. Since that date, duties on some imported goods have been significantly reduced, pork and farm machinery in particular. As a result, prices on the Russian market substantially dropped, as well as sales volumes by both Russian and Belarusian producers. In early 2013, Belarus’ pork exports decreased by 46% compared with early 2012 and harvesting machinery by 26%.

Russia’s economy is slowing down. According to European Commission forecast, published on May 3^rd, 2013 Russia’s GDP growth in 2013 was revised downwards from 3.7% to 3.3%. Russian Economic Development Ministry predicts 2.4% GDP growth rate in 2013. Under these conditions, agricultural machinery manufacturers addressed the Russian Government with a request to stop subsidizing foreign technology, including Belarusian. Russian tobacco industry accused Belarus of growth in illegal shipments of tobacco products. Additional claims may come from alcohol, sugar, dairy producers. Russia announced plans to support domestic pig breeding.

Despite the existence of certain obligations to provide free access of goods to the CU markets, there are certain administrative measures restricting mutual competition. Rostselmash representatives were not able to sell a single grain harvester combine to Belarus over the past three years. Indirect recommendations about the assortment of goods in grocery shops give priority to Belarusian goods. When oil prices were high and Russian economy was developing at a good pace, such restrictions were “let away with” to Belarus. However, during the economic slowdown the issue of equal competition might be raised, resulting in mutual claims of non-compliances with agreements on free access of goods to partners’ markets.

Therefore, strengthening crisis in the Russian economy results in growing problems in the Belarusian economy and increasing number of mutual claims concerning various product groups. Full-scale conflicts should not be anticipated, but Russia might increase protective measures for Russian producers and implement greater control over agreed supply volumes, primarily for sugar and dairy.