Russia - Overview

An Expert's View about Business Environment in Russia

Posted on: 30 Jul 2012

Recent developments
•The Russian economy, buoyed by the high energy and commodity prices, has been fast recovering in the past two years. Thanks to the improving labour market and a low interest rate environment, growth in consumer spending and investment activity has both contributed strongly to the recovery, although the lingering sovereign debt crisis across Europe would remain a stumbling block on international oil and gas demand and subsequently the country’s road to further economic growth and diversification. In all, Russia is forecast to see growth of 3-4% in 2012.
•Hong Kong's total exports to Russia surged by 30% to US$778 million in the first five months of 2012, while imports from Russia soared by 92% to US$498 million.

Current economic situation

Russia has been fast pulling itself out of the economic doldrums in 2009, ending last two years with 4.3% GDP growth. With oil and gas accounting for the bulk of its export receipts, the Russian economy received a strong boost from the high demand for oil and gas and other non-energy commodities upon the revival of global industrial activities seen in the past two years. On the domestic front, consumption in Russia, thanks to the coming down of joblessness, has rebounded strongly, while investment activity has been buoyed by a low interest rate environment. Meanwhile, countercyclical fiscal and monetary policies, such as tax and interest rate cuts, have also underpinned domestic spending and supported the exchange rate of rubles.

Looking ahead, despite a slower demand for oil and commodities in light of the slackening European economy, the
current loose stance on monetary policy in most developed economies will continue to underpin the prices for Russia’s oil and commodity exports and therefore the country’s economic growth. However, impaired credit flows due to banks’ balance sheet correction and investors’ cautiousness, along with the lingering sovereign debt crisis across Europe, would remain a stumbling block on Russia’s road to further economic growth and diversification. Taken together, Russia is forecast to see growth of 3-4% in 2012.

Trade policy

The Russian business and trade regime has been liberalised considerably, especially during the process of negotiation for membership in the World Trade Organization (WTO). In contrast to the previous tightly-controlled situation, all enterprises and individuals are now allowed to trade without special registration. They are free to import nearly all products. Import licensing and other controls only apply to a few items, including some strategic products which are of very little interest to Hong Kong.

The Russian customs tariff classification is based on the Harmonised Commodity Description and Coding System (HS). All goods carried across the country’s customs border have to be declared to customs authorities of the Russia Federation. A customs declaration should be submitted within 15 days after the goods are presented to customs authorities. Customs duties, if any, should be paid to the authorities when the goods cross the Russia border.

Import and export duties are calculated as a percentage of the customs value of the goods (ad valorem) or in euros per unit of measurement of the goods, and/or as a combination of these two rates. In most cases, however, ad valorem customs duties are levied as a percentage of the customs value of the goods. For most Hong Kong-type consumer products like garments, household hardware, consumer electronics, timepieces and jewellery, current tariff rates stand at 5%-20%. On the other hand, export duties are set for a few commodities like oil products, copper, nickel and goods made of these materials. Meanwhile, anti-dumping proceedings against Hong Kong have been scarce, and there is only one measure against Hong Kong origin bearings currently in force. However, there is no apparent trade implication as Hong Kong does not have any export or re-export of bearings to Russia.

Aside from import tariffs, most imported products, as well as services, are subject to a value-added tax (VAT). The standard VAT rate has been reduced from 20% to 18% with effect from January 2004. On the other hand, the regional sales tax has been abolished completely. Meanwhile, a lower VAT rate of 10% applies to basic foods and children’s items, while certain items and services, such as certain financial services and goods for re-exports, are exempt from the VAT.

Most imports, including consumer goods, are required to comply with appropriate Russian safety standards. The most common certificate that is required by customs border is the GOST R Certificate of Conformity (CoC) issued by the Gosstandart (GOST) of Russia Federation or its authorised agencies.

Looking forward, having secured the final, green light for membership in December 2011, Russia’s imminent accession to the WTO is expected to have a bearing on its import regime. Among other commitments, Russia is to lower its tariffs on a wide range of products, bringing the overall tariff ceiling (the “bound tariff rate” or maximum rate of tariff allowed by the WTO to any member state for imports from another member state) down to 7.8% from an average of 10% as from 2011. Of particular interest to Hong Kong traders, information technology products like computer hardware and peripherals, telecommunications equipment, semiconductor manufacturing equipment, certain semiconductors and electronic components, will be granted duty-free access seven years after accession.

Apart from cutting tariffs, Russia has also agreed to enhance its trading and regulatory environment, e.g. on the aspect of intellectual property rights (IPR) protection by implementing the WTO Agreement on trade-related aspects of intellectual property rights (TRIPs). It is also to publish – as from the date of accession – all legislation affecting trade in goods, services, or intellectual property rights, prior to their adoption and allow no less than 30 days before that, for members’ comments. The move should greatly enhance the transparency and predictability of the country’s regulatory regime and enforcement procedures.

As for services trade, there’s a general agreement to further open Russian services markets to foreign providers. For instance, Russia will lift the foreign equity limitation of 49% on telecom companies four years after accession, while allowing foreign insurers, bankers and distributors to have better and fuller access to the 140 million-strong Russian market.

On the other hand, following the signing of a package of agreements in November 2009 to establish a Customs Union (CU), Russia, Belarus and Kazakhstan began using common external tariffs (CET) in early July 2010 and launched the common economic space on 1 January 2012, enabling free movement of goods, services, capital workforce between the three member states.

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Posted: 30 July 2012

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