Banning the export of raw hides - a reply10 February 2001
The introduction of a ban on the export of leather raw materials from Russia in the short term will lead to a reduction in internal prices for hide. There would also be a substantial increase in raw materials supply for domestic leather industry and the lowering of production costs in domestically produced leather. However, in the opinion of the Russian Leather Network, the negative consequences of export banning will outweigh the positive ones. The most evident negative reasons are: la ban will cause serious changes in the established system of leather procurement and supply. Although agreeing with criticism of this system by the Union of Russian Leather Manufacturers (URLM), the old procurement system exists no longer, and the new system is more orientated towards export anyway. A reduction of production costs for the leather industry will be achieved at the expense of diminishing profits for the farmers and hide procurers. There are serious doubts with regard to the URLM statement on the ability of leather industry to considerably increase volumes of leather output in a short period of time. With increasing production output, the leather industry will inevitably face limited demand for their finished leathers. Many consumers have long ago ceased to use domestically manufactured leather because of its poor quality. It is not likely that the excess leathers would be exported as Russian made leather is not competitive on the world market, except for some semi-finished articles. Therefore, procurers and suppliers of raw hides will face a non-payment crisis - a situation very familiar to the enterprises in other industries. This, in turn, will not promote the strengthening, development and improvement of the system of raw hides procurement. * strict measures on non-tariff (administrative) regulation of external trade taken by the State will hardly promote an increase of investment in the Russian economy or, in particular, in the leather industry. Investors do not trust the government, whose behaviour is unpredictable. Moreover, the WTO doors will be closed to Russia, because such measures are contrary to international obligations concerning external trade liberalisation. The EU may introduce external trade sanctions against Russia, who cannot afford to go back to the self-isolationist policies and 'iron curtain' mentality. * the 100% protection of home manufacturers against competition from abroad will lead to the preservation of the existing backwardness in the Russian leather industry. A competitive economic environment is necessary for innovation and technical progress in the industry. As regards the statement for planned increases in competitiveness of Russian hides, it needs to be noted that competitiveness is made up of two components: the price of the goods and its quality. Foreign produced hides have their niche in the Russian market - for expensive quality leathers. To secure its place in this niche, Russian manufacturers must not only reduce the cost of the raw materials. New technologies are needed, a new quality of management is needed and serious investment is needed to improve the outdated assets. High quality raw hides go for export not because procurers like foreign buyers better, but because our manufacturers are not ready to pay the price asked for them. Existing market prices are not affordable for our manufacturers because of outdated technology as compared with foreign competitors. * Despite the above, we agree with the statement that the state support of leather industry is necessary. It should be based on the following principles: - maximum, but not barrier, taxes for exporting raw materials and a minimum, but not zero, exports duties for finished products. This will increase investment in the industry from the viewpoint of foreign and home companies and will ensure protection of the home manufacturer. The taxes should be lowered as the manufacturers become stronger. - maximum, but not barrier, import taxes for finished products and a minimum but not zero import duties for raw hides, technologies, and equipment. The duties are to be lowered as the manufacturers acquire strength. * tax and other reasonable benefits for investors. Creating necessary guarantees for investors. The revival of the industry is impossible without serious investments. * distribution of state funds directed for investment projects in the industry through open and just tenders. Support for promising projects only. * state support for science organizations within the industry. Creating conditions for the development of applied sciences within the leather industry. * predictable, stable and just tax legislation. * consistent improvement in the economic and political environment, in which participants of the Russian market act.