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The meeting focussed on the development of Russian business and making it more competitive on the global market in the context of Russia’s membership in the World Trade Organisation.

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Excerpts from transcript of State Council meeting

President of Russia Vladimir Putin: Good afternoon, colleagues,

Today we will discuss a number of issues on how to make Russia’s economy more competitive.

Ever since the start of the century Russia has been demonstrating good macroeconomic results. Making use of the favourable situation in the global market and introducing certain structural changes made it possible to launch internal sources of economic growth. Although we kept hearing criticism to the effect that these structural changes were insufficient – nothing is ever enough when you wish to do more – however, we have to admit that certain structural changes have been introduced over the years.

We have done a lot to improve the business climate. I have to single out here the persistent efforts of the relevant ministries: the Finance Ministry and the Ministry for Economic Development. Later on we began working even more actively with the business community and set up the Agency for Strategic Initiatives, which joined the work alongside the ministries and the business community. As we joined the World Trade Organisation, we confirmed yet again that we are actively creating an open economy and are ready to closely cooperate with our partners the world over.

”The limitations introduced against our country are nothing but a violation by some of our partners of the basic principles of the WTO. The principle of equal access for all countries involved in economic activity to the markets of goods and services is being violated; the most favoured nation treatment in trade and the principle of fair and free competition is being ignored. All this is politicised, there is no adherence to the generally recognised rules of the WTO.“

It is also obvious that as Russia joined the World Trade Organisation in 2012, the requirements to its national competitiveness increased significantly. We not only started trading in line with common rules and got the opportunity to more efficiently protect the interests of Russian companies, but also undertook obligations to reduce the level of our tariff protection and limit support for certain key sectors of the economy.

We all remember the complicated national discussion on whether we should join the WTO or not, what we gain from it and what we lose. We considered this very seriously before joining the WTO. I would like to remind you that the negotiations lasted 16 years. Overall, I believe we have managed to get our partners to accept such terms for joining the WTO that met our interests, and though certain sectors of the economy had a price to pay, overall we managed to obtain acceptable terms.

However, in the past months the situation has changed. The limitations introduced against our country are nothing but a violation by some of our partners of the basic principles of the WTO. The principle of equal access for all countries involved in economic activity to the markets of goods and services is being violated; the most favoured nation treatment in trade and the principle of fair and free competition is being ignored. All this is politicised, there is no adherence to the generally recognised rules of the World Trade Organisation that I have just mentioned. A number of countries have actually unilaterally deleted these and some other WTO principles for Russia, which is one of the six largest economies in the world.

In response, we took protective measures, and I would like to stress that they are protective; they are not the result of our desire to punish any of our partners or influence their decision in any way. We fully understand that there are things that seem more important for our partners than the normal state of the global economy. It is their business; this is their decision. However, as we take retaliation measures we are primarily concerned with our own interests, our development targets, with protecting our own producers and our own markets from unfair competition.

Our main goal is to make use of one of Russia’s greatest competitive edges – its vast home market, to fill it with high quality goods produced by the real sectors of the national economy, maintaining, naturally, stability and balance within the market and the economy as a whole, and bearing in mind, of course, the consumers’ interests – this is something we should never forget. We are actually trying to develop such an economic policy, such a strategy that would ensure that all the efforts of the federal and regional authorities are directed at the development of the real sectors of the economy.

”We took protective measures, and I would like to stress that they are protective; they are not the result of our desire to punish any of our partners. We fully understand that there are things that seem more important for our partners than the normal state of the global economy. However, as we take retaliation measures we are primarily concerned with our own interests, our development targets, with protecting our own producers and our own markets from unfair competition.“

The measures I consider to be of top priority. Firstly, we need to make loans accessible and create new conditions for funding businesses that would be internationally competitive. We are all aware of this and we have spoken of it on many occasions, this is a key issue for us, even outside the context of any sanctions – interest rates on loans often exceed the profitability of projects, thus actually pushing economic entities outside the boundaries of economic common sense.

The Government and the Bank of Russia have been instructed to analyse these issues, to consider lowering interest rates on loans for industrial enterprises, including through project financing. I know that this mechanism has been developed, the Bank of Russia is implementing it and the ministries and agencies are working on it as well. I would like Economic Development Minister Mr Ulyukayev to report on the progress made, to tell us if you find it feasible to continue along this path, and what is being done to improve work in this area.

Secondly, we need to develop our infrastructure – something we also constantly discuss. We will consider this in detail at the State Council Presidium meeting scheduled for October.

Obviously, given certain budget constraints in developing the infrastructure – and this usually means capital-intensive projects – we need to make maximum use of partnerships between the state and the private sector both at federal and regional levels.

The third important area of activity is training skilled professionals for the real sector of the economy. I know that this work is being actively carried out in such regions of the Russian Federation as Tatarstan, Belgorod and Kaluga regions among others. I expect the heads of these regions to share their positive experience today.

I would also like to note here that, in line with our previous decisions, the National Council for Professional Qualifications has commenced its work. It has already approved or submitted for approval over 130 professional standards. Corresponding councils are being set up in various industries to accompany the application of these standards, to accredit training programmes and workers’ qualification certifications, with the maximum involvement of the employers, trade unions and communities. As we have agreed, we will encourage employers to set up professional training organisations where people will acquire both theoretical knowledge and practical skills.

Obviously, the competitiveness of Russian enterprises will directly depend on whether they would be able to produce enough goods that are of equal quality and cost with their foreign counterparts. The number of such enterprises in certain industries is constantly growing. Thus, petrochemical production and plastic goods production has grown many-fold in the past years; there has been a noticeable increase in the production of automobile parts, of certain types of construction and other materials. The produce of Russia’s military-industrial complex is in high demand on the global arms market; in the area of high technology, we are confidently in the lead in the export of nuclear reactors and peaceful nuclear technology, as well as radars and navigation equipment. We maintain a steady supply of Russian made heavy duty trucks to the domestic market, to say nothing of our services in terms of space exploration.

In agriculture, we almost completely supply ourselves with potatoes and grain; the import of pork has gone down by almost a quarter in the past five years, by 24.6 percent to be exact, that of poultry has decreased 2.3 times, while the import of vegetable oil is down six times.

”Our main goal is to make use of one of Russia’s greatest competitive edges – its vast home market, to fill it with high quality goods produced by the real sectors of the national economy, maintaining, naturally, stability and balance within the market and the economy as a whole, and bearing in mind, of course, the consumers’ interests. We are actually trying to develop such an economic policy, such a strategy that would ensure that all the efforts of the federal and regional authorities are directed at the development of the real sectors of the economy.“

However, such positive dynamics are not a universal trend. I would like to remind you that at the May 14 meeting instructions were issued regarding additional measures to stimulate economic growth. Thus, the Government has been instructed to develop and approve plans to encourage import replacement in the industry and agriculture for 2014–2015. The deadline was October 1. However, I believe that already now many of those present have something to say, specifically regarding the instructions dealing with balancing the regional markets.

We need to have a clear idea of what is going on in the regions of the Federation in terms of import replacement, which instruments have proved to be better than others. I would also like to hear what else needs to be done to support business and make it more competitive in these new conditions. We should of course ensure the delivery to the global markets of competitive products and increase the export of not only raw materials, but of the end products of machine building, machine tool building and other industries. I am aware that the Government attaches great importance to the support of exports and intends to allocate budget funds for the purpose. They should be spent efficiently to provide real returns and strengthen our positions on the global markets.

In conclusion, I would like to stress that in the next 18 to 24 months we need to make a real breakthrough in making the Russian real sector more competitive, something that in the past would have taken us years. Obviously, the achievement of all these goals lies not only in the efforts of the Government, but of everyone here, of all the regions of the Russian Federation. I am certain that the heads of regions will do everything possible to ensure their precise and efficient implementation.

Thank you for your attention.

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The budget is certainly one of the instruments of our economic policy, and this year’s work on the budget has not been easy. I met with the Government just yesterday, and my colleagues reported on what has been done. A great deal of work has been carried out. I want to repeat, and I have said this many times, the budget is always subject to compromise.

I want to address the heads of parliamentary parties. Naturally, there will be discussion in the Parliament on all these topics. I am asking you to treat this matter with great care, because our situation requires heightened financial and budgetary discipline from you, improving the structure of expenditures. This demands utmost diligence with regard to budgetary funding, reducing ineffective expenditures, and increasing the efficacy of budgetary economy regulation overall.

”In the next 18 to 24 months we need to make a real breakthrough in making the Russian real sector more competitive, something that in the past would have taken us years“.

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In conclusion, I would like to say that the Government and I will certainly take into account our discussion today. We will analyse the suggestions made. Naturally, as it often happens, many issues are under debate, but nevertheless, it is good that they are being brought up – for example, the use of Central Bank instruments for road and housing construction. We have long been talking about the need to reduce interest rates on loans, including the key interest rate, and we are always referencing the interest rate levels in certain other nations, in the EU for example. But if we look at the level of inflation on the one hand and the interest rates on the other, then certain things become more clear. We then immediately have the problem with reducing inflation. If we consider it a key problem, which it is, then it gives rise tothe need for certain economic actions. Overall, this is a fairly difficult and major set of issues that we are all taking into account and we will act to address this.

Can we and should we change the excise duty rate and others, and make other changes to our tax legislation? This is also subject to a special, very thorough analysis and all this requires very careful treatment. Any tax-related actions should be clear and transparent, and our entire tax policy must be aimed towards the needs of the economy and businesses. Everything must be calculated within the development plans of specific companies; here we need to show care and stability, which we will strive to do.

In any event, I want to thank the State Council working group for the work it has done and once again stress that we will take today’s discussion into account and will use it in our practical work.

Thank you very much.