Publication: Monitor Volume: 7 Issue: 150

Sources in Russia’s Ministry for Economic Development and Trade have told the state’s RIA-Novosti news agency that they expect in September an initial response from the United States to a draft bilateral memorandum recognizing Russia’s status as a market economy. Late last month, the Russian government handed the document over to an official U.S. delegation visiting Moscow that included U.S. Treasury Secretary Paul O’Neill and U.S. Commerce Secretary Don Evans. During the visit, Evans said that the Russian government’s “talented economic reform team” and “a cooperative working relationship” had, among other things, “improved the prospects for further reform.” He also said that Russia had made progress in bringing its legislation in line with the rules governing the World Trade Organization and that Washington would support Russia’s bid to enter the organization. Russian officials told the visiting U.S. delegation that they were seeking Washington’s unconditional recognition of Russia as a market economy, and demanded that Russia be exempted from legislation restricting U.S. trade with communist countries. Russia is hoping to join the WTO by 2002 or 2003, but that timeframe may be optimistic, given that it has yet to take steps such as cutting tariffs, eliminating agricultural subsidies and defending intellectual property (Deutsche Presse-Agentur, July 27; AFP, July 27, 30;, August 3; see also the Fortnight in Review, August 3).

Indeed, despite Washington’s new inclination to look at the Russian cup as being half full–perhaps part of an effort to hand Moscow a few carrots in exchange for an agreement to drop objections to a U.S. national missile defense system–some observers remain skeptical about Russia’s qualifications for WTO membership. Peter Naray, a former Hungarian ambassador to the World Trade Organization, said in June that economic reform would not be enough for Russian membership in the WTO, arguing that without “substantial change in the institutions of the state, especially the legal system and the way it behaves, Russia can hardly become a truly functioning market economy.” The combined legacy of the Soviet system and Russian history, Naray argued, had “conspired to create a market-alien environment that will be difficult to eliminate” (Reuters, June 25). Among the measures the State Duma passed before it went into summer recess was legislation aimed at reforming Russia’s legal-judicial system. However, a number of key reforms in this area, such as transferring the power to issue search and arrest warrants and the use of jury trials throughout the country, will be phased in only gradually, and some critics have warned that the reforms will simply give the executive branch power over judges rather than make them truly independent.

In the meantime, some observers see a new trend in the economy that seems at variance with the free-market ideal: the emergence of large monopolistic industrial holdings like Russian Aluminum, the company formed last year by Sibneft’s Roman Abramovich–who is also Chukotka governor–and Siberian Aluminum’s Oleg Deripaska. Russian Aluminum and its principals have expanded into other sectors of the economy, with Deripaska taking control of the Gorky Automobile Factory (GAZ) and “structures” close to Sibneft reportedly acquiring a quarter of Aeroflot, Russia’s state airline (see the Monitor, May 8). Last year, Russia’s Anti-Monopoly Ministry gave the green light to 94 percent of such mergers and acquisitions (, August 3).

It is also worth noting that the Washington-based Heritage Foundation, in its index of economic freedom for 2001, which was released last November, rated Russia 127 out of the 155 countries ranked, putting it in the “Mostly Unfree” category. Heritage ranked Russia as less free than Rwanda, Ethiopia, Kyrgyzstan and Romania, tied with the Republic of Congo and Mauritania, and as more free than Kazakhstan, Togo, Bangladesh and India (see the Monitor, November 3, 2000). For its part, the Washington-based Cato Institute, in its Economic Freedom of the World 2001 Annual Report, which rated countries based on their performance as of 1999, put Russia 117 out of 123. The institute ranked Myanmar, Algeria, the Democratic Republic of Congo, Guinea-Bissau and Sierra Leone, among others, as having less economic freedom than Russia, while among those rated more free than Russia were Mexico (62), China (81), India (92) and Brazil (96) (, April 19).