IV. Communicative practice. Situations

1.Why does the composition of EC trade and Japanese trade differ?

2. ‘A country with uniformly low productivity can only lose by allowing foreign competition’. Discuss this assertion in detail.

3. Stereos, wine, steel sheeting: which of these do you think will have a high index of intra-industry trade? Why?

4. Making TVs has economies of scale. Is this a good argument for imposing a tariff on TV imports?

5. To preserve its national heritage, society bans exports of art. (a) Is this better than an export tax? (b) Who gains and who loses from the export ban? (c) Will this measure encourage young domestic artists?

6. Show why the following statements are incorrect. (a) Russian producers are rapidly becoming uncompetitive in every commodity. (b) Free trade is always the best policy. (c) Tariffs simply transfer money from consumers to producers and the government. (d) Buy Russian and help Russia.

Russian Experience

1. Think and say:

a) Would you like to go in for import/export business?

b) Is it profitable? What does profit depend on?

c) Are excise rates high in Russia? What effect does it have on consumers and manufacturers?

2. Read the text and make a report “State Regulations of Foreign Trade in Russia”.

Higher Excise on Imports

The changes in state regulation of foreign trade over the last few months comply, on the whole, with the government’s proclaimed policy of protecting domestic manufacturers and denial of all kinds of foreign-trade privilege.

The latest version of the Law on Excise Duties is aimed directly at protecting domestic manufacturers. However, it was amended specifically to level out excise rates on Russian and foreign goods (which was one of the main requirements stipulated in the provisional trade agreement between Russia and the European Union).

In theory, this aim has been achieved. Excise duties on Russian and imported goods will be collected according to uniform rates and calculated according to a single formula.

In practice, however, the amended law has led to an entirely different result: it puts Russian manufacturers in a more favourable position than their foreign counterparts, even though it reduces the excise rates on many imported items. This is because the basis for calculating excise duties on imports, as well as the calculation formula, were altered.

Formerly, excise duties were charged only on the customs value of imports. Now, they will be charged on the customs value of imports and on import duties and customs clearance fees. The broadening of the tax base for goods subject to ad valorem excise duties (those on the state value of the goods) has led to an increase in the aggregate customs payment. (The tax base has not been altered for goods on which excise duties are calculated in rubles per unit of commodity).

Here is an example. The excise duty on all cars (without exception) is now 5 %. Formerly, the excise duty on foreign-made cars ranged from 10 % to 25 %, depending on engine power, while the rate on Russian cars remained unchanged. The new system of calculating excise duty on foreign-made cars yields an almost 10 % saving on importing expensive models, but increases excise payments when importing cheap, second-hand cars.

In other words, importers of second-hand, foreign-made cars stand to lose; such cars were the main competitors of the latest VAZ models.

The new excise duties on tobacco (here there is no calculating problem: the rate is set in rubles per thousand cigarettes) are also advantageous to domestic manufacturers. The excise duty on top grade Russian cigarettes is 14 rubles per 1,000 and on foreign-made cigarettes it is 21 rubles). Obviously, importers will have to pay more than domestic producers.

Importers of alcoholic beverages (especially strong liquor such as vodka, cognac, gin and rum) will also face a problem. The excise duty on these products is set at 45 rubles per liter of ethyl alcohol. For example, the duty on 80 proof vodka will be 18 rubles. Determining the alcohol content will be a problem of importers.

Customs officials will have the right to doubt the indicated alcohol content of the beverages and ask importers to have the beverages analyzed. A source at the State Customs Committee said that all importers will have to undergo this procedure at first.

The procedure will presumably oblige importers to determine the alcohol content from samples of imported beverages. If a person or a company imports one and the same beverage all the time, and the customs officials are sure of their honesty, a one-time analysis of the beverage will suffice. If an importer brings in different kinds of alcohol or a single consignment of a certain type of beverage each time, the products will be subject to an analysis each time.

However, these are only draft rules, and they are subject to modification.

Key terms.

1. Comparative advantage

2. Absolute advantage

3. Gains from trade

4. Factor endowments

5. Intra-industry trade

6. Commercial policy

7. Import tariff

8. Export subsidy

9. Optimal tariff

g It has been a common habit of men throughout history to romanticise the institutions of foreign nations in order to initiate reforms in their native land. Many times, however, those distant institutions which they had aspired for themselves never existed in the pure form which they had imagined; in other words, attractive textbook theory never actually manifested itself in reality. This is Russia’s dilemma as she casts desperate eyes to the West for answers to her deepening economic crisis. The question remains: “How do you accept the successful parts of a foreign model, while rejecting those elements which may be detrimental for your cultural heritage?” Implementing western economic principles may not be, as many now fear, in the best interest of the Russian people. Nevertheless, dangerous illusions about ‘the Western way’ are continuing to be delivered by top-ranking officials who should better understand the difference between fiction and reality.

While most would agree that Russia has much to learn in the coming years, it must not be forgotten that she also has much to teach. In a world blinded with consumption, at a great cost to culture and integrity, Russia remains fiercely dedicated to her national treasures. The greatest of these treasures are her people who continue to influence the world with there intelligence, culture and artistic energy. While these assets are difficult to monitor by a stock market, or an economic barometer, they are, nevertheless, the greatest resources of any country. With this in mind, Russia can choose an economic path which demands that corporations never forget their responsibility to the people and culture they serve.

Robert Bridge.