14.4 Russia and global integration processes

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The place and role of any country in global market depend on many factors. Basic of them are:

level and dynamics of national economic development;

openness degree of the national economy;

character of its participation in the international economic relations;

progressiveness and development of foreign economic rela­tions;

«flexibility» of the national economy (its possibility to adapt to the conditions of the international market and simultaneously to influence on these conditions in the desirable way);

presence of the necessary legislative conditions for the foreign investments;

presence of the international (transnational) corporations.

The basis of the integration process develops at a micro-level as mutually advantageous cooperation of the concrete companies, banks, financial and industrial groups, their joint investment projects, creation of the transnational enterprises.

The historical and economic analysis shows, that Russia (USSR) went through five stages in its interaction with global economy. These stages have the following economic features:

Stage 1. 1917-1945. Political and economic isolation. The economic and political situation in Europe at that time was characterized by the several tendencies:

The activization of the «national movements» in the Slavic countries started after the First World War.

USA, Great Britain and France had strengthened their positions, they have accepted the basic rules of the Agreement on Collective Safety.

Revolution in Russia (1917), Civil War (1917-1920), creation of the Soviet Union (1921). The Russian contacts with other foreign countries are minimal. Russia is in isolation.

The economic cooperation and development of the foreign trade relations in not the priority for the Soviet government.

The power of Soviets is absolute. The Soviets try to create the «country of a new type». The country is «closed», the collectivization and industrialization plus the «military and

communist terror» let to saturate the interior with all the

necessary products and services. 6. Such autonomy became one of the factors of our victory in the

Second World War. Stage 2. 1945—1985. Cooperation with other socialist countries («socialist camp»):

Political expansion to the developing countries.

After the Second World War USSR has surrounded itself with the countries with the socialist and soviet political regimes (Eastern Europe). It allowed to realize the socialist model of the international trade relations.

The opposition with USA and North Atlantic Treaty Organization (NATO). The «Iron Curtain».

There was created the Council for Mutual Economic Assistance (CMEA) that has resulted in creation of the system of redistribution of the production and services among participating countries.

The new economic system was actually created with the priority of the political principles. It has resulted in decrease of the economic efficiency and competitive advantages, that became one of the reasons of destruction of this system.

Stage 3. 1985—1991. Disappearance of socialism as political system.

Destroy of the Soviet political system.

Liquidation of the CMEA.

Gorbatchev and new economic and external policy («Perest-royka»).

The termination of the opposition with USA and NATO.

The decrease of the competitiveness in the international markets. The economic crisis was caused by the structural factors. Import had sharply decreased (45 % in 1989—1990). Export decreased on 27 % during 8 months in 1989, mainly because of the recession in oil production and low oil prices.

The investment activity has decreased. Total investments volume decreased in 1991 on 20 %. The budget investments volume had especially sharply decreased.

The incomes of the national budget decreased because of the recession of manufacture, decreasing of foreign trade.

The gold and foreign currency reserves decreased.

Result — the deficiency of the USSR budget in 1991 — more than $100 bin..

Stage 4. 1991-2000. «Building the capitalism».

Destroy of the Soviet Union.

Creation of the CIS.

The «shock therapy» policy in economic.

Privatization.

Uncontrollable production and export of natural resources, absence of the government control and legislation. Oligarchs.

The prevailing principle of «personal enrichment» among the directors of the government enterprises has resulted in economic decreasing, in the further weakening of the Russian positions on the global market.

Financial crisis in 1998. Default of Russian economy and devaluation of Russian currency.

Stage 5. 2000 — present time. The economic pragmatism.

The attempt of the political stabilization and consolidation of the Russian society.

The favourable conjuncture of the international market for the major Russian export products.

The attempt of rehabilitation in global economy, the offers of constructive and mutually advantageous economic partnership.

The struggle with the international terrorism.

EU and WTO.

Today the successful integration of our country to the global market depends on the several factors:

the results of the Government activity on improvement of the national economy, its structural reorganization and transition to the market conditions;

the creation of the effective legislative, organizational and technical preconditions for the economic development.

In the 1990s Russia was in the extremely difficult situation. As a result of the radical economic reforms the country was rejected on some decades back, while the majority of other countries quickly advanced. If USSR occupied the 2nd place after USA on GDP, in 1998 Russia was on the 12th place, after, for example, China, India, Brasil and Mexico.

Today Russia is deeply involved in the global economy. The share of export in its GDP is about 27 %, even more than in Germany, France and Italy. Russia already became the country

with the open economy. But the Russian export consists of energy resources and raw material. Due to the orientation on the external market these branches (oil, gas and metals) remained competitive, while other branches, especially machinery production, decreased in 2—3 times.

The status of the high-developed country in the modern integrated world is impossible without the structural changes in the Russian business. The national economy should be based on the powerful integrated corporate structures, first of all financial and industrial structures, capable to compete on internal and global markets with the leading transnational corporations.

Within the framework of the complex integrate strategy of TNC the capital flows (direct investments) and trade come together. There are diverse connections in production sphere: between the headquarter company and its foreign branches, between different branches of the corporation, between various TNCs and their branches or any other companies. The international trade becomes the reflection, the consequence and the stimulus of these connections.

Such new scheme has a number of differences from the former scheme of international trade. According the former scheme, the production was focused within the national economy, and then the  ' products went abroad to the external markets, where they competed with the products from other countries.

Nowadays this situation changed, there is the competition of the j TNCs on the global market.

Europe was always one of the major priorities for Russian integration. It is caused by a great number of reasons: historical, political, economic. Europe was always the main source of the foreign investments to Russia, Russia always used the newest science and engineering achievements from Europe. For this reason in the Russia external policy in 1990s the role of European direction has essentially increased.

European Union today is one of the three main industrial, financial and trade centers of the world. It is especially important for the European part of Russia, where basic part of the population and manufacture are concentrated.

EU is the basic trade partner of Russia. Its share in Russian trade turnover is 35 %. Up to 60 % of all foreign investments come to Russia from the EU. Though the share of Russia in the EU foreign

trade is only 3,5 %, Russia provides up to 20 % of gas and 16 % of oil to EU. Also Russia is the main importer of the European agricultural products.

The long-term development strategy of the EU-Russia relations includes the cooperation in such spheres, as:

structural and industrial policy;

conversion of military manufacture;

environment protection;

scientific potential;

information technologies.

In 1997 was submitted the Agreement on Partnership and Cooperation (APC) between Russian Federation and European Union. This Agreement is directed on creation of the necessary conditions for gradual Russian participation in the European cooperation.The Agreement determines:

) trade regime for goods and services;

) the conditions of the business activity, capitals and labour

migration;

) the basic directions of the economic cooperation;

) the general legal frameworks of cooperation in various industries,

including raw and mining, energy supply, agriculture, construction, standardization and certification, the realization of the concrete industrial projects.

At the same time, this Agreement has the negative restrictive regime for Russian export on a number of important commodity groups (ferrous metals, textiles, nuclear fuel, agricultural production).

Because of the EU expansion and integration to the EU of East European and Baltic countries the Russian export to the traditional for our country markets can decrease (in particular, export of mineral fertilizers, chemical products, agriculture products). There is still the practice of antidumping procedures for Russian products.

Russian export to EU includes oil, gas, raw materials and other low-processed products.

The important stimulus for the development of the mutually advantageous cooperation between Russia and EU is the creation of the legal environment by the unification and rapproachement of the Russian and European legislations. The legislation of EU meets the international requirements, in particular, WTO rules. The rapproachement of the legislations will push the Russian businessmen to the necessity of the flexibility and fast adaptation to the conditions of the European market.

Also it will speed up th -• structural reorganization of the Russian economy.

Alongside with the development of the trade relations Russia supports the close connections with the European financial markets, with banks and other credit organizations. There are Paris and London Credit Clubs, and Russia participates them, and also there is the European Bank for Reconstruction and Development. The West-European investors are active enough on the Russian market.

The relations with the CIS countries are the special problem for Russian integration processes. Last years the traditional trade relations with the CIS countries weakened because of the orientation of the Russian trade flows to the West Europe and USA.

In the beginning of the 1990s the share of the East European and CIS countries in Russian export was 60 %, in import — 40 %. In the middle of the 1990s their share decreased to 15,4 % in export and 16 % in import. The main reason of this decrease was the aspiration of Russian businessmen to export their production to the West Europe and USA and to get the hard currency. At that time the contract prices with CIS countries remained much below the global prices.

The markets of CIS countries is the traditional zone of influence for Russia and more favorable conditions for the competition with western producers. And also for the CIS countries Russia is a very attractive trade partner. It is determined by the significant economic potential of our country, cheaper mineral resources, the high level of industrial and trade integration, technological interdependence of the enterprises.

The integration process in the frameworks of CIS started in 1993 with the Agreement on creation of the Economic Union. This Agreement provides the legislative base for the gradual deepening of the integration process through a number of stages:

creation of free trade association;

customs union;

common market of the goods, services, capitals and labour. The Economic Union assumes:

free moving of the production factors;

coordinated credit, budget, tax, price, external, customs and currency policy;

the national legal regime to the businessmen of the participating countries;

the assistance to their direct economic relations;

the creation of the joint enterprises, transnational associations;

the coordinated investment policy, including the joint capital investments and attraction of the foreign investments and credits.

In 1995 was submitted the governmental program on deepening of economic integration with the CIS countries. This program determined the main directions of the economic interaction with CIS:

trade;

the currency and credit policy;

joint activity, including joint investment programs;

the activity of the interstate economic structures.

Nowadays there is the active process of the construction on the basis of CIS the economic and trade union of four countries: Russia, Belarus, Ukraine and Kazakhstan. It is supposed:

to create the organization of regional integration on the basis of the free trade union;

to unify the budget and tax policies, and also other branches of economic legislation.

The creation of this union will:

facilitate the trade process between the participating countries;

increase the competitiveness of the national producers on the common integrated market;

allow to unify the foreign trade legislation;

form the economic basis for closer interaction of the participating countries on the EU example.

Another way of the development of integration process in the frameworks of CIS is the creation of the united state of Russia and Belarus. The free trade regime between these countries was established in 1992. On the basis of the Agreement on Customs Union there was created the customs regime which assumes both free trade regime and joint protection of national economies. The development program also includes the development of custom infrastructure. It is very important for Russia, because the western borders of Belarus will be the customs border of Russian Federation with EU. Unfortunately, in the last 2 years the Russia-Belarus integration process stopped because of the political and economic reasons.

East Europe is also very important region for Russia. These countries are the former members of the Council for Mutual Economic Assistance (CMEA) — Czech Republic, Bulgaria, Hungary, Poland, Romania,

Slovakia. The share of these countries in the Russian foreign trade decreased from 38,7 % in 1990 to 15 % in 2005.

This decrease of the foreign trade is followed by the deterioration of its commodity structure. The share of oil, wood, aluminium and chemical products increase. The significant part of import from these countries is agricultural products, though the share of machinery and equipment in import from Hungary, Slovakia, Czech Republic is 40 %.

Today the East European countries lost their role of the main Russian economic and trade partners. However the revival of the economic cooperation between Russia and the East European countries meets the interests of both sides. In future Russia can become the significant investor to the economy of the East European countries.

Also there is the interest from East European countries to invest in Russia. And of course Russia has a great capacious market and a great potential for the development of trade relations with East Europe.

Questions for self-control

What are the major directions of Russian trade specialization on the global market?

What are the basic positive and negative aspects of the Russian accession to WTO?

What are the main stages of Russian integration to the global economy ?