1. Russia and the international trade system
According to a medium-term forecast for developments in the area of the international economy, business revival is cumulating momentum after the recession it experienced in early 1990s. It had a relevant effect on the world trade. In 1994 the average international trade turnover showed a 9.5 percent growth being a record figure in the last 20 years and by 3 times exceeding the increase in the international production. In 1995 the World Trade Organization estimated 8 percent increase in trade turnover as compared with a 3 percent growth in the world production. World Bank experts think that in the next 10 years an average increase in foreign trade will make 6 percent annually.
An economic run-up in most industrialized countries was followed by a growing demand for many products and a consecutive price hike on international markets.
Oil markets showed a balance of demand and supply in 1995. Average prices of Dubai oil were at $ 123 per metric ton, by 14.9 percent exceeding 1994 averages. Owning to small increase in the world oil consumption and practically unchanged supply situation no perceptible change of prices is expected.
A trend of natural gas prices on markets in Western Europe was practically the same as the oil price dynamics. In 1995 average prices were by 13.4 percent higher as compared with 1994.
Prices of nonferrous metals have risen dramatically. In 1995 average world prices were as follows: aluminum -- $ 1806 per metric ton (20.3 percent rise in comparison with 1994), copper -- $ 2933 (higher by 23.3 percent), nickel -- $ 8063 (19.3 percent growth).
As a result of the 1994-95 record price surge in the whole period after the World War II cellulose joined the leaders with a 50 percent price hike (up to more than $ 1000 per metric ton). According to a middle-range outlook price stabilization accompanied by a slight price rise is expected.
As market relations develop, process of internal price structure formation continues in Russia and it gradually closes to the price system existing on world markets. In 1995 contract prices grew perceptibly, however, prices of a majority of energy resources lagged behind those on the world trade markets in terms of rates of increase. The outcome was a worsening balance between contract and world prices.
An important role in development of the international trade is played by the GATT/WTO which for 48 years tried to work out the fundamentals of a future world trade basing on principles of observance of the Agreement's general regulations aimed to keep up non-discrimination of individual states and to a gradual elimination of barriers slowing down mutual exchange of commodities. Since 1950 the world trade turnover has increased by 13 times and eight rounds of multilateral trade negotiations held under the GATT's auspices have led to a ten-fold cut of average customs duties. At present it makes a bit less than 4 percent.
Russia's accession to the WTO will make it possible to tap all measures existing within the framework of this organization in order to protect Russia's economic interests. At present direct or concealed discrimination of Russian producers and traders on markets of certain countries is among factors affecting Russian exports dynamics. Thus, only the ban on Russian uranium exports to the USA has led to losses for Russia, as estimated by some experts, at $170 million a year. The total number of anti-dumping procedures imposed upon Russia has reached 41. More than a half of them (22) are qualified as openly discriminatory cases or unjustified claims by the Ministry of Foreign Economic Relations.
In the summer of 1995 the first round of negotiations between the Russian delegation and the WTO's Working Group on Russia took place in Geneva. Members of the Working Group apprised information on foreign trade regulations stated in the Russian Memorandum as exhaustive enough.
An outcome of the second round taking place from December 4 to 7 of 1995 was the completion of discussion of the Russian Memorandum on the foreign trade regime as concerns trade in goods. Besides, the first discussion on special annexes to the Memorandum embracing protection of intellectual property rights, trade in services and trade-related investment measures was held. At the same time, the WTO member countries have reserved the right to revert to a detailed discussion on three key issues: if state-owned trade organizations exist in Russia (Moscow denies this); import licensing; subsidizing of external operations. However, even now they agree in principle that the Russian legislation is in accordance with the WTO's rules and norms in these areas of the foreign trade regulation.
There are no apparent opponents to Russia's accession to the WTO, since the world trade, especially in the area of trade in raw materials, cannot be regulated without participation of Russia. However, the admission of Russia may be surrounded by a number of additional obligations not directly following from the WTO requirements. Bilateral consultations held in Geneva have shown that Russia will face some complications in the course of tariff negotiations.
On the whole, the outcome of the second round of Geneva talks has been successful for Russia.
2. Regulation of External Economic Activities
In 1995 certain changes were introduced to the mechanism of the state regulation of the foreign trade. In the first half of 1995 the state regulation of oil exports was substantially amended: quotas and licenses in oil exports were abolished alongside with preferences (with exclusion of supply pursuant to intergovernmental agreements) while export duties on oil and oil products were significantly reduced; certain oil products were excluded from the list of strategically important commodities. Producers' access to channels allowing transportation of oil to other countries (pipelines and terminals in sea ports) became a natural restraint on exports.
The list of strategically important raw commodities was shortened and the institution of special exporters was abolished altogether. The system of contracts' registration became the main instrument of control over exports. Individual preferences granted to participants of external economic activities were abolished, excluding those issued in accordance with the laws of the Russian Federation.
The law "On State Regulation of Foreign Trade" adopted in July came into force in October. The law stipulated what authority in this area shall be with the President, the Government and the Ministry of Foreign Economic Relations. The exclusiveness of the MFER's position was emphasized by the fact that only it was vested with the right to license import and export transactions subject to quantitative restrictions or to approval procedures.
As pursuant to the law, the Russian Government shall submit a program of foreign trade development together with a draft of the Federal budget for the Parliament's approval. Alongside with other provisions this program shall embrace customs tariff rates planned for the year in question as well as the band of their possible fluctuation, thus making the foreign trade more predictable. The Government has the right to introduce export and import quantitative restrictions on national security grounds, to comply with international agreements or to protect the domestic market, however, these measures shall be announced not less than 3 months prior to their actual introduction. The law envisages a possibility to introduce state monopoly for trade in certain products. In this case a special procedure of licensing import and export operations exclusively to state-owned enterprises shall be applied.
As the above mentioned law was effectuated, the Commission of the RF Government on Safeguard Measures in Foreign Trade became fully legitimate and in December it received "Procedures of Investigation Prior to Application of Safeguard Measures" approved by the MFER (Russ.abbr. MVES). A possibility to apply safeguard measures against competitive imported products complies with usual practices applicable in the world trade. In this area Russia is late in working out and application of such measures, especially taking into account that Russian exports are often and in most cases unjustifiably subject to discrimination on foreign markets. So, the RF import regime loses its exceptional liberalism which has been characteristic of it until recently.
Tariff regulation. From September through December export duties levels were gradually lowered until their complete abolition since January 1, 1996, with an exception of a small group of goods including oil, natural gas and some other raw commodities.
In June and in October, 1996 import duty rates were changed. On the whole, changes were made in direction of an increase in tariffs. Earlier goods taxable at 1 percent have constituted a rather significant part of the list, at present this rate is only applicable to certain goods within Group 10 of the External Economic Activity commodity nomenclature (grain) and 1701 (cane sugar, beet firm sugar and sucrose). A 10 percent tariff is now applied to medicines which earlier have been exempt from duties while fish and fish products are subject to a double rise of duties (from 5 to 10 percent) and duties on vegetables were tripled (from 5 to 15 percent). For foodstuffs earlier exempted from duties new tariffs made 5 percent on bananas and citrus fruits, 10 percent on tee and coffee, 15 percent on fresh cucumbers, however, rates of import duties in Russia still remain considerably lower than in the EU countries (16 percent against 21 percent). There were effectuated provisions stipulating a 30 percent duty on goods such as luxuries, tobacco products, alcoholic beverages and weapons.
Tax regulation. As before, close attention was paid to products subject to excise taxation. In July and in December, 1996 a price difference between excise stamps and special stamps designated for imported tobacco and alcohol products were adjusted. There were created equal conditions for importers of these products both from countries within and outside of the former Soviet Union (ECU 0.1 per unit of an alcohol beverage and ECU 0.01 per unit of a tobacco product). In December the rate of excise tax on tobacco products was increased from ECU 1.2 to ECU 2 per 1000 pieces.
In June the list of products subject to a preferential 10 percent value added tax was shortened; it was again examined in detail in November and some new products were added to it. In December works and services, both produced domestically and purchased, being exported to countries outside the CIS alongside with services concerning the transit of foreign cargo through Russian territory were exempted from the value added tax.
Preferences in External Economic Activities. In October, 1996 the Government abolished previously applicable preferential taxation of alcoholic beverages imported from abroad by certain legal entities which were exempt from customs duties (for instance, the National Fund of Sports and the All-Russian Society of Invalids). Since December, pursuant to the Presidential Decree "On Customs Preferences" of November 30, 1995, it is inadmissible for Federal agencies to adopt decisions which would provide prolongation of preferences in terms of customs duty exempts and receipts of additional compensations.
In August, 1996 the control mechanism over incoming export proceeds denominated in foreign exchange was adjusted. All proceeds in foreign currencies shall be entered into accounts with authorized banks--that became a requirement of the customs regime. Customs service now enjoys the right to control all capital flows and apply relevant sanctions if necessary.
In September, 1996 the control over exports and imports of military-purposed products, works and services, subject to licensing, was tightened.
In December the set of instruments of the state control mechanism over imports was supplemented. The system of foreign exchange control over imports introduced on January 1, 1996, is basing on the same principles as the export control existing since 1994 and envisages the same chain of relations: an importer--an authorized bank--customs. The key document fundamental for the whole control system is a registration certificate for import transactions.
3. Foreign Trade Pattern
In 1995 Russian foreign trade was influenced by differently directed factors. A favorable state of the world market and the governmental policy of stimulating exports via regular lowering of export duties provided for a further increase in volumes of trade with countries outside the former Soviet Union and a stable active balance of the foreign trade.
Estimating Russian foreign trade the following adverse factors shall be taken into account: a decline in production, small amounts of investment, rather high inflation rates, insufficient level of state assistance for development of the country's export potential, poor competitiveness of many Russian-made manufactured products, especially of machines and equipment, lack of positive shifts in development of Russia's external relations with countries of the former CMEA, huge external debt, discriminatory barriers banning a number of Russian-made products from external markets. In connection with accession of Finland, Sweden and Austria to the EU Russia automatically became subject to anti-dumping and quantitative restrictions concerning trade with these countries in steel, textiles, mineral fertilizers, uranium.
Introduction of the "ruble corridor (fluctuation band)" alongside with a relatively high internal price dynamics caused deterioration of export transactions' effectiveness. However, due to liberalization of energy resources exports, the export sector reacted to the introduction of the "corridor" slower and not so sharply as critics of a fixed exchange rate had believed. At the same time, stabilization of ruble exchange rate created a sufficiently favorable transaction climate for importers allowing them to compensate a part of the loss inflicted by an increase in import tariffs.
Goskomstat reports that the Russian foreign trade turnover, unorganized trade including, made $ 135.7 billion in 1995, or by 16 percent more in comparison with 1994 figures. Exports were at $ 77.8 billion (a 18 percent increase) and imports at $ 57.9 billion (by 15 percent more).
The results of external economic activities in 1992 through 1995 are indicative of the fact that Russia re-oriented its trade towards industrialized countries and that the share of countries outside the former Soviet Union in the total foreign trade turnover has grown. In 1995 countries outside the former USSR accounted for 78 percent of it. In 1992 through 1995 exports to these countries increased at a record rate in the last 20 years with exports showing a 25 percent growth ($ 64.3 billion) and imports (together with unorganized trade) increasing by 12 percent ($ 41.6 billion).
In 1995 growth rates slowed down considerably. Thus, while in the first quarter exports grew by 45 percent as compared with the same period in the last year, in the second quarter it made only 29 percent and showed a modest 15 percent increase in the third quarter. Undoubtedly, export growth rates were affected by the "currency corridor (fluctuation band)" introduced in the second half of the year.
As before, the bulk of Russian exports consists of raw materials. Fuel and energy resources account for the biggest share (41 percent) of exports, while the Fuel-and-Energy Complex production (oil, natural gas, oil products) becomes more and more oriented towards external markets.
In 1995 a decline in export growth rates in real terms was observed as natural gas exports increased by 11 percent (14 percent in 1994), oil products grew by 8 percent (11 percent), oil--by only 1 percent (11 percent).
Growth of exports as calculated in value terms was primarily caused by a favorable situation on the world market. Average contract oil prices of exports in the countries outside the former Soviet Union increased by about 7 percent as compared with 1994 figures, natural gas exports grew by 10 percent while oil products showed a 6.6 percent increase.
Metal exports accounted for a 20 percent share in the Russian exports. Nickel and ferrous metals exports grew most rapidly at 37 and 26 percent accordingly. Average export prices of key metals surged, thus, price of nickel increased by 33.1 percent, of aluminum--by 36.9 percent, of copper--by 24.2 percent, of ferrous alloys--by 24.7 percent, of pig iron--by 14.6 percent. The pattern of metal exports has somewhat changed. Customs statistics reveal a growing number of contracts on export of finished metal articles, however, their share in the total export volumes is still insignificant. These articles are being made according to designs of foreign companies (mostly in aircraft and engineering industries) under a binding condition that they shall be manufactured in accordance with the West European standards and certified by a foreign firm. It is too early to suggest the end of an age of raw exports conducted in their most primitive form, however, the Russian metal industry is given an opportunity to participate in the international division of labor on equal basis and to reach a qualitatively new level of production.
The share of chemicals made 9.6 percent. Mineral fertilizers still remain a key export item in the industry. Export volumes of mineral fertilizers increased by 14 percent in comparison with 1994 figures. Simultaneously, average contract prices also grew (by 24 percent).