Suddenly, It's Big Business vs. Putin

Tycoons are turning up the heat against Russia's WTO entry

It was quite a meeting. At a time when criticism of the policies of Russian President Vladimir V. Putin is scarcely heard, a politburo of one-time powerbrokers gathered in the vast State Kremlin Palace on Feb. 27. Addressing hundreds of executives from Russia's heartland, speaker after speaker questioned Putin's plan to have Russia join the World Trade Organization by 2004. "WTO entry could have the same effect as the shock therapy that destroyed the nation's industry in the early '90s," said Nikolai I. Ryzhkov, a former Prime Minister who now heads the Russian Union of Manufacturers, a lobbying group that represents over a thousand companies.

This was no mere powwow of political has-beens and managers of irrelevant rust-belt companies. Political pressure against Putin's bid to speed Russia's entry into the WTO is well-organized and mounting. It's being led by a group of business barons whose holdings account for 30% of Russia's gross domestic product in sectors ranging from autos and aluminum to agriculture, banking, and insurance. Their drive to postpone WTO entry could evolve into the first real opposition to a major policy from Putin, who until now has silenced criticism by taking control of national television, cowing parliament, and forcing outspoken oligarchs Vladimir A. Gusinsky and Boris A. Berezovsky into exile.

But the big bucks at stake are making the anti-WTO crowd bold enough to take on the President. If Russia joined the WTO, it would have to slash a host of subsidies and import tariffs, opening its market to foreign producers--with dire consequences, according to Putin's opponents. The country's sputtering auto industry and inefficient farm sector could collapse in the face of large-scale imports. Influential WTO members, such as the European Union, are pushing for Russia to liberalize heavily subsidized energy prices. The resulting price hikes could wipe out the competitive advantage Russian producers enjoy in global markets.

Daunting stuff. Yet Putin still believes that the benefits of joining WTO far outweigh the drawbacks. The President argues that WTO membership will help attract more foreign investment and stimulate diversification of an economy that is too dependent on commodities. Joining the body would also help eliminate discriminatory trade measures against Russian exports such as steel that now cost Russia $4 billion in lost imports annually. To be sure, Putin wants Russia to enter the WTO with protections for some sectors, particularly agriculture. But his proposals are unlikely to go far enough to satisfy the tycoons.

Before talks with the WTO get serious, Putin wants to hammer out Russia's negotiating position at a Cabinet meeting scheduled for Mar. 14. As that date approaches, the anti-WTO business crowd is turning up the heat. On the same day as the Kremlin rally, automakers lobbied the government for higher tariffs on car imports. "Nobody can openly criticize Putin now," says Andrei Ryabov, an analyst at Moscow's Carnegie Moscow Center, an independent think tank. "But they can object by asking for conditions that would put WTO entry into doubt."

While the maneuvering started at the Kremlin Palace meeting, the main foe of WTO entry kept his distance. He is Oleg V. Deripaska, a politically wired tycoon related to former President Boris Yeltsin through his marriage to Yeltsin's step-granddaughter. He's also a kingpin in a group that controls over 70% of the nation's lucrative aluminum industry through his Russian Aluminum holding company. And he has controlling stakes in

Russia's second-largest carmaker, Gorky Avtomobilny Zavod (GAZ), as well as holdings in banking and insurance. All these industries could be hit by Russian WTO entry. A consultant hired by Deripaska's aluminum group organized the Kremlin rally.

Deripaska has shrewdly kept a low public profile while the pressure on Putin builds. But he may soon find a way to bring the anti-WTO message to the masses. He and close partners are leaders of a diverse group of business barons that is bidding for the broadcast license of TV6. The former opposition channel, which reaches 80 million viewers across Russia, will be auctioned off on Mar. 27, following a controversial bankruptcy. The well-funded Deripaska group and a rival group led by former Prime Minister Yevgeny Primakov, who also pushes a go-slow approach to WTO, are the favorites to win. Whoever nabs the station, Putin's WTO opponents could turn up the volume in this surprising debate.

By Catherine Belton in Moscow

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