Russia and the international economy
Russia and the international economy
1. Russia within the International
Trade System ……………………………3
2. Regulation of External Economic
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
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
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
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
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
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
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
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
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
Export patterns within the forestry
and paper industry tended to be oriented towards raw materials in recent years
affecting the structure of currency proceeds accordingly. A third of foreign
exchange proceeds was derived from raw timber (logs) exports while
semi-finished timber (lumber) accounted for 25 percent of proceeds and
processing-intensive products brought only 32 percent.
A considerable increase in physical
volumes of exports in the countries outside the former Soviet Union as compared
with the previous year figures was reported for logs (37 percent) and cellulose
(38 percent). At the same time, average export prices of logs grew by 2.8
percent and of cellulose -- by 96.6 percent.
One of the ways to increase export
revenues is an expansion of sales markets for Russian-made weapons and military
equipment. Export volumes of military production made $ 2.6 billion in 1995,
that being by 1.7 times more than in 1994.
The share of machines and equipment in Russian
exports to countries outside the former Soviet Union contracted to 3.8 percent
as compared with 5.3 percent in 1994. Development of new competitive and
technologically-intensive products relevant to modern level of requirements on
external markets demands large investment and is time-consuming.
Table 5.2 Volumes of Russian Foreign
Trade with Countries Outside Former Soviet Union in Value Terms (without
unorganized trade, US$ billions)
Source: Ministry of Economy of RF.
In % to previous year
In % to previous year
In % to previous year
In % to previous year
Foreign trade turnover
An increase in internal productional
costs, first of all at the expense of energy and raw materials, more expensive
loans, growing transport expenses, aging production assets in extractive and
processing branches, deteriorating productional situation contributed to
diminishing effectiveness of export transactions. At present only export of
natural gas, oil, nickel, timber and lumber are profitable. Export of oil
products, ferrous and nonferrous metals, chemicals begins to bring losses.
However, due to worsening financial situation of Russian enterprises and
growing payment arrears exporters prefer to have hard currencies even at
declining or altogether negative profitability of exports.
The most dynamic and growing market
of the Russian Federation are industrialized Western countries. The largest
share of Russian exports goes to Germany (9.1 percent). The USA account for 6.9
percent, Switzerland--for 5.8 percent, Italy--for 5.6 percent, Japan--for 5.5
percent, Netherlands -- for 4.9 percent, Great Britain -- for 4.7 percent and
Finland--for 4 percent of Russian exports.
The pattern of Russian imports has
not been changed considerably. As before, machines and equipment were ranked
first and accounted for a 38 percent share of the total imports which grew by
23 percent in comparison with 1994. It was caused by a necessity to provide key
branches of the national economy with modern technologies and equipment.
A decline in agriculture followed by
deteriorating provision of the populace with domestic-made foodstuffs has led
to an expansion of food imports. Such measures as a rise of import duty rates,
introduction of excises and of value added tax, abolition of preferences
concerning import tariffs, which have been taken lately, contributed to an
increase in internal prices of imported goods thus creating prerequisites to
restrain imports. However, stabilization of ruble somewhat compensated for the
negative impact of growing import duties and excises and helped to increase
In 1995 imports grew considerably,
especially of such products as sunflower oil (a 232 percent increase), poultry
(by 70 percent more), alcoholic and non-alcoholic beverages (a 67 percent
increase), butter (an increase by 65 percent), frozen meat (by 43 percent
In the nearest future dynamics and
pattern of the country's foreign trade will be first of all determined by the
internal economic situation, i.e. whether it shows signs of business revival or
not, by changes in the structure of supply and solvent demand on the domestic
market, as well as by exchange rate policies. The regulatory mechanism of the
external economic activities may also change due to political factors.
In 1996 exports grew somewhat slower
(at about 1--3 percent rates). It was expected that export of major fuel and
energy resources would remain at the same level while such products as metals,
chemicals, timber, pulp and paper would be exported in increasing quantities.
Oil and natural gas exports remained
profitable because estimated rates of internal price growth prevailed.
Imports pattern changed impacted by
a growth of the share of technological equipment and manufactured consumer
goods. Growing imports of key foodstuffs and non-food consumer goods led to
application of certain measures aimed to tighten protectionist regime in order
to safeguard domestic industries in 1996 (import quotas introduced).
In 1995 Russian foreign trade
turnover with the CIS countries made $ 29.8 billion, increasing by 5 percent in
comparison with 1994 figures, it is due, first of all, to a price rise
concerning fuel and energy products (14 -- 28 percent on the average). Exports
made $ 13.5 billion, or by 9 percent less than in 1994 while imports reached $
16.3 billion (a 21 percent increase). The share of the CIS countries in the
Russian foreign trade turnover diminished by 2 percent as compared with the
previous year figures and made 22 percent.
For the first time in the years of
the CIS existence Russia had a negative trade balance with these countries ($
-2.8 billion) while in 1994 it had a trade surplus of $ 1.2 billion. Starting
from the end of the last year imports from the CIS grew at a fast rate while
exports gradually shrank.
The main reason determining the
import surplus is an unbalanced, owning to a crisis situation existing in
national economies, foreign trade within the CIS framework, that rendering
difficulties in settlement of the CIS countries debts, especially those due for
fuel and energy resources supply. According to current data, these debts as of
January 1, 1996, made Rb 15.6 trillion, or two times more than in 1995. It is
hardly justified to attribute Russian shrinking exports to neighboring
countries to introduction of the "currency corridor (fluctuation band)"
as their fall began as early as April while to the contrary in October some
increase in export operations was observed. On the other hand, introduction of
the "currency corridor (fluctuation band)" and stabilization of ruble
exchange rates enhanced effectiveness of operations of exporters from countries
within the former Soviet Union on the Russian market.
As before, the fuel and energy
products accounted for the bulk of exports to the CIS member countries (about
50 percent). Total volumes of oil exports diminished by 22 percent as compared
with the previous year while export of oil products shrank even more
considerably -- by 60 percent, the fact caused not only by payment arrears in
reciprocal transactions, but by growing export prices of Russian oil which
increased by 28.3 percent in comparison with the last year figures and reached
$ 74.9 per metric ton (that making roughly 70 percent of prices under export
contracts with countries outside the former Soviet Union). However, now some
CIS countries try to reduce their dependence on Russian energy supply. For
instance, Moldavia has already signed an oil import agreement with Iran while
Ukraine relies upon cooperation with countries of the Persian Gulf. At the same
time, Russian oil exports to Byelorussia grew considerably as a result of
creation of the common customs area, that allowing Byelorussian oil processing
enterprises to purchase oil at prices quoted on the Russian domestic market.
The pattern of Russian exports
somewhat changed in 1995 as compared with 1994, for instance coal exports grew
by 32 percent, iron ore exports increased twofold and export of ferrous metals
also showed signs of growth.
As concerns import operations, the
role of the CIS member countries remains an important one in terms of providing
Russia with foodstuffs. Thus, the share of white sugar imports from these
countries reached 80 percent while their volumes increased by more than two
times since the last year. There was also observed an increase in imports of
grain, meat, butter. At the same time, a trend to purchase fewer consumer goods
in countries within the former Soviet Union in connection to availability of
cheaper similar products of quality made in the West manifests itself.
The Customs Union of Russia,
Byelorussia and Kazakhstan which was established in 1995 and faces a number of
objective difficulties and contradictions caused in the first turn by
differences in levels of development and directions of reforms. The
Intergovernmental Economic Committee which at last started to perform its
functions in 1995 still lacks supranational authority; unsettled problems of
mutual payment arrears prevent activities of the Payment Union.
Prospects of foreign trade
developments within the CIS cannot be estimated in simple terms. The
Commonwealth's objective orientation towards integration faces grave political
and economic problems. It is probable that in the beginning of next year a
negative trade balance with neighboring countries will remain, in particular
due to further decline in export of fuel and energy products.
On the whole, the Commonwealth's
future, undoubtedly, will depend on the political situation in Russia. However,
the experience of the last few years demonstrates that Russia's partners within
the CIS prefer to act according to their economic interests rather than to
political rhetorics. The CIS member countries are interested in an economic
cooperation with Russia exactly because it has progressed relatively further on
the way of reforms. That is why slackening pace of the reform or a complete
stop of the transformation may damage trends towards integration to such extent
that any political declarations on closer unity and cooperation will be
Balance of Payments
The balance of payments reflecting
Russian residents' activities in the external sector reveals the following key
In 1995, the strengthening ruble did
not hold back the growth of trade surplus: exports increased at a greater rate
As during previous periods import of
services exceeded their exports, that being primarily attributed to developing
tourism to countries outside the former Soviet Union. Thus, import of tourist
services exceeded imports by $ 5366 million. As a result, current accounts
balance was by 43 percent less than the balance of foreign trade. Operations of
governmental agencies prevailed in the capital account. External debt grew due
both to new borrowing and deferments and arrears in debt servicing.
Non-state sector operations were
mostly represented by commercial loans, both in terms of merchandise exports
with deferred payments and advance payments. As concerns direct and portfolio
investment, they remained at an insignificant level.
Growing reliance of residents on
ruble was shown by somewhat decreasing amounts of cash foreign exchange.
As a rule, commercial structures
accounted for loans granted to non-residents. The main form of such loans was
export loans of enterprises.
Non-repatriation of export proceeds
became an important factor destabilizing the financial sphere. In January
through September of 1995 it reached $ 5.6 billion, as the State Customs
Committee (GTK) reports. This figure is comparable to all foreign loans drawn
by the state in the same period.
The amount of payments due to
disburse the official external debt exerted more pressure on the Federal budget
as compared with the same period of the last year. While in 9 months of 1994 96
percent of actual payments to disburse the official external debt were financed
at the expense of external sources and only $ 134 million were received from
internal sources, in 9 months of 1995 the figures made 89.5 percent and $ 590