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By John Helmer in Moscow

The two dominant Australian vices are not indigenous.

Envy came with the Irish Catholics, who were at first the convict, then the indentured, and finally the working class. Hypocrisy came with the English Protestants, who began their economic enterprise in the country by declaring the land unoccupied (“terra nullius” was the pseudo-legal expression), the property of noone, and hence the right of the Crown and the colonial administration to distribute. That began one of the nineteenth century’s first and most methodical genocides of an indigenous people: their exit provides Australian farmers and miners today with their most under-valued asset, land. Whenever Australians preach to Europeans about state subsidization of their agriculture, they forget that, just two centuries ago, they obtained their farmland at zero-cost by killing the owners; and at marginal extra cost by employing prisoners to clear and tend the land thus acquired. It takes English hypocrisy to forget that; and Irish envy to claim that the resulting rural productivity is superior to Europe’s.

Last week, in a fit of both, a former jackeroo and rural property speculator, currently Australia’s Minister of Trade, Mark Vaile, claimed that, although Australia supports Russia’s accession to the World Trade Organization (WTO), Australia is unsatisfied with its access to Russian markets. Indeed, Australia is one of the last four WTO member-states whose refusal to sign bilateral agreements blocks formal Russian accession. The other three are the US, Colombia, and Switzerland. By the end of last week’s Hong Kong round of WTO ministerial meetings, all 149 WTO members had agreed to accession, save these four.

What makes Australia’s position of interest to the international mining community is the repeated claim by Vaile’s ministry that Russian must grant access to Australian “mining-related services.” Australia’s international mining peers – Canada and South Africa, for example – have already negotiated their accession terms with Moscow, but without referring to “mining-related services”. Although US demands for access to the Russian services market are considerable, and financial services such as insurance and banking are the crux of the argument, mining services aren’t at stake for the Americans.

A year ago, a Canberra statement on the Russian WTO negotiations – which first began in 1995 – referred to the fact that “Australia is seeking commitments from Russia to guarantee levels of access to a number of sectors such as mining-related services”. In a more recent ministry paper entitled Russia Country Brief, it is claimed that “Australian mining and mining services companies are interested in prospects in the Russian far east, particularly Sakhalin Island’s oil and gas projects.” The only example of such a service trade referred to in the Brief is the sale of software by Mincom to Norilsk Nickel. But its principal mines are in northwestern Russia, not the fareast, and they are hard-rock, not oil and gas.

The dominant trade item in Australia’s relationship with Russia is alumina, produced by Comalco and others in Queensland, and sold to the Russian Aluminium (Rusal) group of Moscow, owned by Oleg Deripaska. Deripaska’s only bauxite mine is at Achinsk, in western Siberia.

The alumina trade has traditionally taken such a large proportion of Australia’s export aggregate to Russia – about US200 million in 2004-05 — that a precise figure is not cited in the trade statistics. Rusal is also referred to in the government’s trade papers as the dominant Russian investor in Australia – with the 20% shareholding stake it acquired last year from Kaiser in the Queensland Alumina refinery. Ever since then, Australian trade and provincial government officials have been falling over themselves to ingratiate Rusal.

If there is to be a market in “mining-related services” produced by Australian companies, the likelihood is that its principal Russian clientele includes Deripaska; the owners of Norilsk Nickel; and other resource giants of the Russian economy. With putative clients like these, it is understandable perhaps that Vaile’s brief on Russia hints at regret at losing a potential client in Mikhail Khodorkovsky, the fraudster whose Yukos oil company has been taken over by the state. But it was not commercial operators like Yukos, which had any interest in the capital-intensive projects of Sakhalin. There, state-controlled Russian oil companies are partners with such western majors as Shell and Exxon.

Understandable also that Vaile’s brief omits to refer to the biggest Australian investment loss in Russia. That occurred in 1997, when the Star Mining group’s right to mine the Sukhoi Log gold deposit was revoked, and its shareholding stake in local partner Lenzoloto diluted to non-significance. The current beneficiary of that misfortune is Mincom’s client, Norilsk Nickel.

Five years ago, when Vaile’s predecessor Tim Fischer was negotiating the terms Canberra wanted to see for Russian accession to the WTO, not a word was said about the ill-fated Star and its investors. The emphasis was clearly on agricultural products. Australia insisted that, after the collapse of the Soviet Union and the bankruptcy of the Kremlin treasury through the 1990s, Russia should commit to supporting its agricultural sector by the average budget value of the years, 1995-97. In fact, as Canberra acknowledged, so sharply had state funds (for energy, fuel, seeds, fertilizer, commodity price supports) fallen at the time, the Producer Subsidy Equivalent for Russia had become negative – minus 26% in 1993, minus 9% in 1994. That means the state was taking more money out of farming than it was putting in! Not even Australia could match that fiscal performance. Russian officials argued that those were exceptional years, and proposed the last years of the USSR, 1989-91, as the baseline, when the Producer Subsidy equivalent for Russia was 75%.

Of course, that was communism. The rural political party, which Vaile currently heads in Australia’s governing coalition, has made a career of winning votes on the basis of hating communists for their ideology, but catering to their appetites – especially for wheat, wool, meat, and sugar. It was, in fact, the Soviet system’s capacity to import Australian commodities, on which Vaile’s farm constituents all depended for their well-being. When the Soviet Union fell, the Australian government was left holding enormous bills for wheat and wool; huge unsellable stockpiles; and falling prices.

Today, Australia is far too marginal in the international meat and sugar trade to be in a position to hold up Russian accession to the WTO on behalf of beef offal and frozen lamb. As for sugar, Vaile’s ministry is on record as favouring the total dismantling of beet sugar production in the cold-climate countries of Europe, so as to allow cane sugar producers in the hot territories to prosper. And so, Vaile has become the miner’s friend, a unique canary whose warning of market access problems was apparently sung at Russian trade negotiators last week in Hong Kong.

They responded with uncharacteristic bluntness. Russia is “skeptical”, reported RIA-Novosti, a state news agency, that “Australia regards itself as a protector of moral standards in the WTO”. “Nobody asked it to play this role”, reported an “informed source in the Russian delegation.” Australian demands in the bilateral negotiation with Russia are “rather unfair”, the source is reported as thinking.

Russia’s import business has been such a hugely corrupt sector since Boris Yeltsin saw to the dismantling of the Soviet state, it has been impossible for Russia’s trade negotiators to represent anything like the national interest, let alone balance impoverished consumers against powerful traders, or vested producer interests. For one thing, for the entire decade of WTO negotiations, the Russian government has produced no detailed White Paper weighing accession’s benefits against its costs, and identifying those Russian sectors likely to gain, or likely to lose. The government has not encouraged a public debate on trade policy. Nor has federal parliament taken the initiative to legislate the kind of trade supports and conditionalities, which are a feature of democracies like Australia and the US. Russia has been targeted for countless anti-dumping penalties in the international steel industry, but it has never retaliated.

But so dominant and powerful has Russia become as a global energy supplier, there is considerable sentiment in the domestic business community, as well as in the Kremlin, to suggest there may be little value in joining the WTO – at least not at the price demanded by the hold-out member-states.

And so, what exactly is Australia demanding of the commodity and resource playing-field on which it likes to play?

When asked by Mineweb to explain what he is after in the Russian market for “mining-related services”, and what Russian obstacles he would like to dismantle, Vaile refused to say. Instead, a spokeswoman claimed: “Unfortunately a number of the questions you raise relate to issues that are the subject of continuing bilateral negotiations
between Australia and Russia as part of Russia’s WTO accession commitments,
and we do not wish to comment on them at this time.” John Larkin, who heads a WTO negotiations section in the Australian Embassy in Geneva, also refused to be specific, either as to the Australian claim, or the Russian response.

Russian goldminers told Mineweb they had heard nothing of the Australian demand. A source close to the federal ministry in charge of licensing mining projects said the ministry had not been consulted on this issue, and could scarcely imagine what the Australians have in mind. Russian geologists and other mining professionals currently work with international mining consultancies, as well as western mining companies, to meet Russian regulatory and statutory requirements for mining projects. Bateman of South Africa has operated a Moscow office for years, as have Canadian and other international consultancies. According to a Natural Resource Ministry source, the market in feasibility study work is a professionally competitive one, and hardly the subject for foreign trade demands.

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