RESTRICTED
WORLD TRADE WT/ACC/SPEC/RUS/3
1October 1996
ORGANIZATION(96-3931)
Original: English
ACCESSION OFTHE RUSSIAN FEDERATION
Background Information ontheCondition ofAgriculture intheRussian Federation
andAssessment ofitsDomestic Measure ofSupport
Theeconomy oftheRussian Federation, including itsagricultural sector, isliving through
asevere structural crisis, withbothproduction andmarketing mechanisms andalsotheforms ofbusiness
management organization undergoing rapidchange. Asthistransition isbeing effected tomarket-based
relations, aneweconomic system isbeing forged, including asystem ofsupport foragricultural
producers.
Agricultural restructuring isproceeding amid unfavourable macroeconomic conditions. The
Russian economy isstillcharacterized byfinancial instability, alarge government budget deficit, and
acrisis ofpayment defaults. Itisimpossible inthegiven economic environment tospeak ofanysteady
support foragricultural enterprises andprivate farms. Thedramatic, across-the-board curtailment of
domestic support programs inthewake oftheradical economic reform launched in1992 hasbeen
forced dueprimarily tothebreakdown ofthefinancial system infailing tokeeppacewiththeeconomy 's
requirements. These aresome ofthemore significant reasons whydataforrecent years cannot be
seenasrepresentativeorprovidinganadequateassessmentofthatlevelofdomesticsupportcommitments
foragricultural production which isobjectively required, orwhich would correspond totheconditions
andregularities ofamore mature market economy.
Theprinciple ofcomparability should underlie anydetermination ofarepresentative levelof
support. Inother words, theamounts ofpublic expenditures andthelossorgainwithrespect to
agriculture indifferent countries should becomparable.
When identifying thepointofdeparture inmaking commitments toscaledown domestic support
foragricultural producers, itislikewise imperative totakeintoaccount thespecific trends inchanges
inoutput levels. InRussia, unlike many Central andEastEuropean countries, theproduction slump
iscontinuing across theentire national economy, including agriculture. Compared with1990, farming
output in1995 shrank byathird. Inthefirsthalfof1996, itcame to93percent ofthecomparable
figure inthesame period ofjusttheprior year. Inother words, thedownturn inRussian agriculture
hasstilltobesteadied.
Thelackofstability andconsistency inagricultural production hasbeen compounded by
producers 'grave financial positions which havetended toworsen eversincepriceliberalization. More
thanhalfofallenterprises areloss-makers. Asizable share arelow-profit operations which areunable
tocontinue eveninmere reproduction (seeTable 1).WT/ACC/SPEC/RUS/3
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Table 1
Financial Performance Results ofAgricultural Enterprises
1991 1992 1993 1994 1995
Profit level(profits tocosts ratio) across theentire
range offinancial andbusiness operations, in
percent43 68 49 -1.1 2.3
Share ofloss-making farms, inpercent 5 5 10 59 57
Source: Russian Ministry ofAgriculture andFood Production
Thesolvency ofagricultural ventures hasdeteriorated aswell. Thesituation intheagrarian sector is
much worse thaninother industries (seeTable 2).
Table 2
Movements inAgricultural Enterprises 'Solvency
1January
19941July
19941January
19951April
19951May
1995
Total forindustry, agriculture,
transport, andconstruction
sector52.3 25.1 18.0 24.6 23.5
separately foragriculture 19.4 20.1 16.8 12.1 12.0
Source: Russian State Statistics Committee
Agriculture isgrappling withachronic lackofcurrent assets, asitdoesnothaveenough cash
ofitsowntoreplenish them. According todatafrom theRussian Ministry ofAgriculture andFood
Production, theworking capital ofagricultural enterprises onOctober 1[1995] consisted of35percent
oftheirownresources, 30percent ofbank loans, and35percent ofliabilities tosuppliers andto
employees (inwage arrears). With anagricultural credit system stillnotinplace andloans from
commercial banks being unaffordable, therearenogrounds forconcluding thatthereisanypossibility
ofexpanded production.
Overdue debts inagriculture asofDecember 1,1995, amounted toRub14.7trillion, including
20percent inpayables tothegovernment budget andnon-budgetary public funds. Overdue receivables
were much smaller atRub4.9trillion, including 8.7percent inliabilities ofgovernment customers
forsupplied products.
Actual datademonstrates thatdespite acertain enhancement ofdomestic support forproducers
in1995 byrescheduling commodity credit debts until1998 andbypostponing theservicing and
repayment ofcentralized instalment credits until2005, theproblems havebeenstayed, butagricultural
enterprises remain heavily indebted.
Thesituation canonlyberadically improved bychanging themacroeconomic situation and
makingagriculturalproductionaprofitablelineofbusiness.Thisnaturallycallsforrestoringgovernment
support programs foragriculture tothose levels which would besufficient toensure itssteady
development inacompetitive market environment.WT/ACC/SPEC/RUS/3
Page3
Under existing tends, andconsidering thefinancial plight ofthevastmajority ofagricultural
enterprises andthelowlevelofgovernment budget appropriations foragriculture in1992-1995, there
isnosubstantiation tobefound atthisstage formaking commitments toreduce domestic support for
theagricultural sector.
These sameapplies toexport subsidies. TheGovernment oftheRussian Federation, likemany
other developed countries, inprinciple agrees withselective support foragricultural product exports.
Itissued, forinstance, anexecutive order providing forpreferential transport ratestobeestablished
forexport-oriented grain shipments. Thebudget deficit, however, hasprevented theplanfrombeing
implemented inpractice. Other comparable selective arrangements arenotbeing invoked forsimilar
reasons.
Inresponse totherequest oftheChairman oftheWorking Party fortheaccession oftheRussian
Federation, anon-paper ondomestic support inagriculture iscirculated totheMembers oftheWorking
Party. Anon-paper containing supporting tables andanexplanatory noteondomestic support for
agriculture hasbeen prepared intheformat recommended bytheSecretariat 'stechnical noteon
information tobeprovided ondomestic support andexport subsidies inagriculture, WT/ACC/4
(18March 1996).
TheRussian Federation recognizes thatonlytheterms ofitsprotocol ofaccession willlegally
determine theextent oftheapplication oftheWTO obligations. Theinformation submitted herein
willtherefore havenolegalforce oraffect ontheRussian Federation ’sschedule ofcommitments nor
relevant supporting tables, which remain tobenegotiated. TheRussian Federation emphasizes that
thedata,contained inthesupporting tables, should notbeconsidered asanindication ofanyobligation
under theWTO Agreement onAgriculture. TheRussian Federation 'sposition isthattheformulation
ofsuchobligations, covering allcomponents oftheAgreement onAgriculture (i.e.market access,
domestic support andexport competition commitments), willbethesubject matter ofnegotiations within
theframework oftheworking party withdueregard fortheeconomic situation ofRussia, the
development levels ofitsagricultural sector, similar obligations assumed byother WTO member
countries, andtheoverall progress ofthenegotiations.
Inaddition tothisdocument, information onthecurrent condition ofagriculture intheRussian
Federation,andinformationonnon-tariffmeasuresonproductsclassifiedundertheHarmonizedSystem,
Chapters 1-24, andonproducts listed inAnnex 1oftheWTO Agreement onAgriculture, hasalso
beensubmitted totheWTO Secretariat forthecirculation among Members oftheWorking Party.