Russia Economic Overview

An Expert's View about Business Environment in Russia

Posted on: 29 Nov 2011

Recent developments
•The Russian economy, buoyed by the sustained energy and commodity prices, has been fast recovering from the staggering contraction in 2009. 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 the country’s road to robust recovery. In all, Russia is forecast to see growth of 4.3% in 2011 and 4.1% in 2012.
•Hong Kong's total exports to Russia surged by 32% to US$1,433 million in the first ten months of 2011, while imports from Russia slid by 33% to US$542 million.

Current economic situation

Russia has been fast pulling itself out of the doldrums after the 7.8% contraction in 2009, ending last year with a 4% GDP growth. Domestic consumption in Russia, thanks to the coming down of joblessness, has rebounded strongly, while investment activity has buoyed by a low interest rate environment. On the external front, with oil and gas accounting for two thirds of its export receipts, the Russian economy has received a boost from still-high prices of oil and other non-energy commodities. Meanwhile, countercyclical fiscal and monetary policies such as tax and interest rate cuts have also been introduced to underpin domestic spending and support the exchange rate of rubles.

Looking ahead, 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. In the process, impaired credit flows due to banks’ balance sheet correction, along with the lingering sovereign debt crisis across Europe, would remain a stumbling block on Russia’s road to robust recovery, not to mention the accelerating inflationary pressures and the attendant tightening of monetary policy. Taken together, Russia is forecast to see growth of 4.3% in 2011 and 4.1% 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, Russia’s WTO accession will likely be approved during the WTO Ministerial Conference (MC8) set for 15-17 December 2011. The expected WTO entry in the second half of 2012 will set to have a bearing on Russia’s import regime. Among other commitments, Russia’s tariff ceiling would be cut to 7.8%, compared with a 2011 average of 10% for all products, with the average tariff ceiling for manufactured goods reducing to 7.3% (lower than the current average of 9.5%) and final tariffs on information technology (ITA) products to zero from the current applied tariff of 5.4%. 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 and customs procedures.

Russia has put forward Eurasian integration and created a customs union (CU) with Belarus and Kazakhstan, scrapping interstates customs tariffs and attempting to establish a "Eurasian Schengen" (free movement of people among the three countries, built on the example of the European Union) by 2015. On 18 October 2011, a new FTA deal was further signed by Russia, Ukraine, Belarus, Kazakhstan, Armenia, Kyrgyzstan, Moldova and Tajikistan, aiming to establish a free trade zone that will end export and import tariffs on certain goods.

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Posted: 29 November 2011

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