Russia and the international economy
OUTLIINE
1. Russia
within the International Trade System ……………………………3
2. Regulation
of External Economic Activities………………………………..4
3.
Foreign Trade Pattern……………………………………………………….6
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).
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.
|
1992
|
1993
|
1994
|
1995
|
|
$ billion
|
In % to previous year
|
$ billion
|
In % to previous
year
|
$ billion
|
In % to previous
year
|
$ billion
|
In % to previous
year
|
Foreign trade
turnover
|
79.4
|
83.2
|
71.1
|
89.5
|
79.8
|
112.2
|
97.6
|
122.3
|
42.4
|
83.3
|
44.3
|
104.5
|
51.5
|
116.1
|
64.3
|
125.1
|
Imports
|
37.0
|
83.1
|
26.8
|
72.4
|
28.3
|
105.7
|
33.3
|
117.4
|
Balance
|
5.4
|
87.1
|
17.5
|
324.0
|
23.2
|
132.0
|
31.0
|
133.0
|
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 imports.
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 more).
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 overweighed.
Balance of Payments
The
balance of payments reflecting Russian residents' activities in the external
sector reveals the following key facts.
In 1995,
the strengthening ruble did not hold back the growth of trade surplus: exports
increased at a greater rate than imports.
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 million accordingly.