According to the Economist Intelligence Unit Corporate Network, Russia now holds the 12th place among the largest retail market of the world. In foreign trade, this country has been experiencing steady growth along the recent years. Among the countries Russia sells massive quantities of natural gas and oil are the Europe, China and Japan. Other major trading partners are the US, countries of the former Soviet Union, Italy, Germany, and other members of the EU. Russia is the largest energy exporter and it enjoys a large trade surplus due to its vast natural resources, like gas, timber, oil, precious metals, etc.
The list of most important legal sources of Russia’s foreign trade regulation include: Law on principles of state regulation of foreign trade activity (21.11.2003), Custom’s Code (28.05.2003), Law on currency regulation and currency control (10.12.2003) and Law on export control (18.07.1999).
There basically are four major methods of state regulation, including customs tariff regulation, non-tariff regulation (establishing quotas and licensing), foreign trade restrictions and currency control. In Russia, all the methods are being used to some extent, they all aiming at the domestic market protection and economic development. But at the same time these methods are considered to be barriers with respect to imports.
It is widely known that Russia is in the process of negotiating terms of accession to the WTO (World Trade Organization). Russia’s WTO accession largely depends on the elimination (or bringing to conformity with the internationally accepted trade policy) of these discriminating measures (high tariffs and tariff-rate quotas, discriminatory and prohibitive charges and fees, and discriminatory certification regimes, licensing, and registration).
Tariffs
The import tariff, a protective measure of the average 15%, is charged ad valorem, assessed on the CIF value (Incoterms 2000) at the point of crossing the Russian border.
It is usually of 3 major types: the basic rate (applied for the goods from the countries which are granted Most Favored Nation treatment), the special rate (applied for the goods from countries enjoying preferential tariff (75% of the basic rate)), and the rate for the goods from countries which are not granted Most Favored Nation treatment, and for the goods of unknown origin (200% of the basic rate). The tariffs are constantly revised and are subject to change without notice, which often complicates the import quite seriously.
Since 1995, Russian import tariffs have generally ranged from five percent to 30 percent. Under a major revision of the Russian tariff system that took effect as of January 1, 2001, tariffs were consolidated into major product groups (raw materials, semi-finished goods, foodstuffs and finished products) with tariffs ranging from five to twenty percent for nearly all tariff categories. There is, however, one notion that complicates the case with the import tariffs – it is the alternative minimum rate.
The tariff unification that took place in recent years generally lowered the tariff rates. In addition, there are limited exceptions to the rate scheme, including higher rates for automobiles (25 percent), and higher tariffs on some used goods.
Excessively high tariffs and discriminatory tariff policies are being imposed in such sectors as: forest products, sugar, distilled spirits, wine, fruit, processed food and motorcycles, etc.
Russian import tariffs on automobiles, aircraft, and aircraft parts all restrain the U.S. exports to Russia. In the case of automobiles, combined tariffs, VAT and engine displacement-weighted excise duties can increase import prices by 70 percent for larger U.S.-made passenger cars and sport utility vehicles. In addition, in 2003 the Russian government passed a law that increased customs duties to 25 percent of the customs value for used cars between three and seven years old.
The Russian government has also declared protection of the domestic aircraft through the introduction of the 20 percent import tariff on aircraft. Summing the import tariff, the VAT and other customs handling fees, would reveal that over 40 percent of total taxes were paid on the importation of foreign aircraft in 2004.
Quotas
Quantitative restrictions on export and import are not carried out under the Law export and import, but are possible in regulation of exceptional cases (safeguarding national security, protecting the domestic market, etc). For example, beef, poultry and pork are subject to import quotas and tariffs. The imposition of a quota for poultry and tariff-rate quotas for pork and beef took place in January 2003, with the quotas becoming effective in April and May 2003.
These quotes permit 430,000 tonnes of beef (including frozen beef), 1,000,050 tonnes of poultry and 450,000 tonnes of pork with a 15% tariff. Beyond these quota limits, a higher tariff rate applies (40% for beef and 80% cent for pork). In 2004 Russia introduced country allocation quotas for each of these products dividing the quote between the US, the European Union, Paraguay and the rest of the world. Despite this, total imports of fresh and chilled beef in the first half of 2005 were 421,000 tonnes and worth US$589.8 million.
Taxation
A value-added tax (VAT) is applied to virtually all imports, while excise taxes are applied to a small list of goods. As of January 1, 2004, the VAT, which is applied to the price of the imported good plus its tariff, was reduced to 18 percent, and its further value is under discussion.
Starting from 2002 preferred goods like pharmaceuticals and printed matter (that were exempt from the VAT), and some food products and items for children (e.g., diapers) hat were taxed at a lower VAT rate of 10 percent, were eliminated from the “preference” list.
By introducing taxation and overpricing, the government is trying to perform latent protectionist policy – in order to protect the factories and businesses from foreign competition. Both excessive competition and overprotection are harmful for the economy, thus the rational trade policy is a sensible combination of the two.
Bibliography: Australian trade commission. Russia profile. 26 Oct. 2006. <http://www.austrade.gov.au/australia/layout/0,,0_s2-1_CLNTXID0019-2_-3_PWB199948-4_doingbusiness-5_-6_-7_,00.html#customstariffs>; Ostrovsky, Simon “Foreign Used Car Prices May Rise Again”, The Moscow Times, Tuesday, Apr. 22, 2003. Page 7, 26 Oct. 2006. <http://www.themoscowtimes.com/stories/2003/04/22/043.html>; The United States Trade representative report. Russia. 26 Oct. 2006. <http://www.ustr.gov/assets/Document_Library/Reports_Publications/2005/2005_NTE_Report/asset_upload_file889_7496.pdf>.