In 1995, the United States trade deficit with Russia was $1.2 billion, $552
million greater than it was in 1994. U.S. merchandise exports to Russia were
$2.8 billion, $247 million or about ten percent greater than in 1994. Russia was
the United States' thirty-fourth largest export market in 1995. U.S. imports
from Russia totaled $4 billion in 1995, up $800 million from 1994.
Trade relations between the United States and Russia are governed by the
U.S.-Russia trade agreement, signed in June, 1990 with the USSR and approved by
the U.S. Congress in November, 1991. The USSR ceased to exist before
ratification of the agreement, but the United States offered the agreement (with
minor technical changes) to each of the emerging states of the former Soviet
Union. Russia's parliament approved the agreement, making it possible for the
United States to extend most-favored-nation status to Russia on June 17, 1992.
Russia is now in the process of acceding to the WTO.
Russia's bank for foreign economic relations (VEB) continues to owe about
$220 million to U.S. companies,a debt that accumulated in the early part of the
decade. The For the past several years, a source of friction has been the
failure of Soviet/Russian enterprises to pay their debts; since 1990
approximately 70 U.S. companies have reported to the Commerce Department that
they were owed over $220 million total. In addition to the arrears problem,
Russia's Bank for Foreign Economic Relations stopped payment on its letters of
credit and froze all hard currency accounts in late 1991. The Government
promised to begin covering VEB debts beginning in 1994, but no funds were
allocated in either the 1994 or 1995 budgets for this purpose. The Department of
Commerce is currently trying to coordinate an effort to form a U.S. creditors
group to facilitate negotiations on this effort with the Russian Government.
The combination of high import duties, a 20 percent value-added tax charged
on imported goods, and excise taxes assessed on certain imported goods
(automobiles, cigarettes, alcoholic beverages, aircraft) depresses demand for
imports. Frequent changes in customs regulations without warning have created
problems for foreign and domestic traders and investors. The government has
raised import duties several times since 1992. In mid-1995, under the advice of
the IMF, the government rationalized its duties, establishing rates of 5 to 30
percent on most goods.
Russia has recently announced moves to quantitatively restrict imports such
as vodka and textiles. However, these efforts are contravened by commitments
made by the Government of Russia to liberalize trade under the IMF Extended Fund
In early 1996, the Russian government took a series of actions which
effectively banned U.S. poultry exports which account for 20 percent of all U.S.
exports to Russia. As a result of stricter sanitary standards, the government
refused to issue import licenses for U.S. poultry. In addition, the Russians
raised the tariff on poultry and implemented a minimum reference price, both of
which negatively impact on U.S. exports. The U.S. is working with the Russian
government to reopen the Russian market to U.S. poultry.
STANDARDS, TESTING, LABELING AND CERTIFICATION
Russia's July 1993 Consumer Protection Law stipulates official certification
(by GOSSTANDART) of imported products for conformity to Russian technical,
safety, and quality standards. Certification is based on a combination of
international (notably European Union) and Russian standards. All food items
imported into Russia are subject to food quality and safety standards and
require a certificate for each shipment. Manufactured items can receive
certificates allowing import of a good over a three–year period. Import licenses
are required on the normal range of dangerous and harmful materials and goods.
U.S. companies have complained of costly procedures and arbitrary certification
requirements. Due to the many difficulties experienced by American companies in
this area, the American Chamber of Commerce in Moscow recently named standards
and certification as one of four main obstacles to increased American trade and
investment in Russia.
Russia is establishing reciprocal standardization with the U.S. and other
countries and acceptance of foreign certification by accredited institutions. A
joint Russia–U.S. communique of December 1993 pledges cooperation on improving
and simplifying certification, testing and quality assurance of U.S. and Russian
products in each others' markets. A February 1994 Memorandum of Understanding
between the U.S. Food and Drug Administration and the Russian Ministry of Health
and Medical Industry established a framework for cooperation and exchange of
information on drugs and biological products in order to speed their
Under a new protocol for fresh pork, signed in late 1995 by the Russian
veterinary department and USDA's Food Safety and Inspection Service, fresh U.S.
pork is entering Russia for the first time. Cooperative agreements on food
safety being worked out between the U.S. Food and Drug Administration and the
Russian State Committee on Sanitation and Epidemiological oversight
(Goskomsanepidnadzor) will facilitate trade in fresh fruits and vegetables and
other food products.
The Russian Government has virtually eliminated the Soviet practice of
centralized imports through state- owned foreign trading companies, but an
organized system of government procurement with standardized regulations and
procedures does not yet exist. Some large-scale trade deals "for state needs"
(such as oil-for- sugar barter deals between Russia and Cuba) still take place.
Typically, however, the government awards the right to implement such deals on
its behalf to private or quasi-private trading houses.
Russian ministries and government agencies are frequent purchasers of
equipment, goods and services for their own needs or for the needs of various
domestic organizations or groups (ie, the military, regional health
organizations, or population centers located in remote areas). However, these
purchases are done on an ad hoc as-needed basis, are not subject to uniform
procedures or supervision, and are usually accomplished through direct
negotiations with selected potential suppliers rather than through publicly
announced competitive tenders. While domestic suppliers are not accorded any
official advantages or privileges in competing for such procurement, the Russian
government's strong political bias toward supporting domestic industries
probably works in favor of Russian suppliers.
The Government has announced plans to introduce a system of support for
exports in 1996. Discussion to date indicates that it will have very limited
budgetary funding and be aimed at stimulating exports of manufactured goods.
Russia has no explicit export subsidies on agricultural products, although from
time to time subsidies for specific commodities may have the effect of spurring
temporary increases in exports of those commodities.
LACK OF INTELLECTUAL PROPERTY PROTECTION
The Russian government has made considerable progress in putting into place
the legal framework to bring the country up to world standards in the area of
intellectual property protection. Meaningful criminal penalties for IPR
infringement are still needed. The U.S.-Russia bilateral trade agreement also
requires Russia to provide protection for intellectual property. In 1992,
acceptable laws on trademarks and appellations of origins, patents, and
protection of semiconductor chips and computer software were enacted. A law on
copyright was approved by the Supreme Soviet in July 1993. Since 1994, Russia
has been a member of the Paris Convention, the Universal Copyright Convention
and other major multilateral intellectual property conventions. In 1995 Russia
began to adhere to the Berne and Geneva Conventions.
Even though Russia has passed laws that generally meet world standards,
enforcement of those laws to date has been limited. There is currently extensive
piracy of U.S. video cassettes, films, music, recordings, books, and computer
software in Russia. Administrative and judicial review bodies will have to be
created and their personnel trained. The United States will continue to monitor
IPR enforcement carefully and will provide assistance to help the Russian
Federation improve enforcement.
Discriminatory measures against foreign providers of non-financial services
are not so much the result of federal laws as abuse of power, sub-national
regulations, or practices that may even violate Russian law. For example,
foreign providers of services have sometimes noted discrimination in obtaining
licenses from local authorities, often having to pay several times the fees paid
by domestic companies.
A Bilateral Investment Treaty (BIT) was signed between the United States and
Russia in June 1992. It has been approved by the U.S. Senate, but it will not
enter into force until approved by the Russian Duma.
Survey data generally indicate that fear of political instability tops the
list of impediments to investment in most emerging markets such as Russia.
According to a survey by the Russian/EU Center for Economic Performance between
February and May 1995, foreign investors in Russia indicated their greatest
concern to be the legal system. They were particularly concerned about
shareholders' rights and weak contract law. Foreign investors must seek approval
for their projects on the federal, regional and local level. The vagueness of
existing laws can lead to differing interpretations and conflicting requirements
on the different levels. Much of the legal system is being rewritten, a
naturally slow process further complicated by the unsettled political situation
in Russia. Ownership of real property, particularly land, is highly
controversial. The land code is still under consideration in the Duma, having
passed only the first of three readings necessary for passage. However, on March
7, 1996, Russian President Boris Yeltsin signed a land decree guaranteeing
individuals the right to own and trade property.
Economic disincentives were ranked second by foreign investors, with
particular concern about inflation and the incoherence of the tax system. The
government has made significant progress on inflation through greater fiscal and
monetary discipline in 1995, but the tax system remains a major disincentive to
investors. Crime and corruption in commercial transactions are also an
inhibiting factor; in 1995 the government undertook highly publicized efforts to
reduce corruption in the police force.
The primary political concern of foreign investors surveyed in late spring of
1995 was expressed as skepticism about a lasting commitment to reform. Recent
government decisions affecting foreign investment have been mixed. In January
1994 the government expanded the rights of foreigners to participate in the
privatization process (admitting foreigners to voucher auctions without prior
approval), thus improving prospects for foreign investment. In February 1994,
the government began to allow foreigners to purchase up to 10 percent of each
month's issue of government securities, a market previously off limits to
foreigners. The commercial banking law passed in December 1995 allowed the
moratorium on foreign and joint-venture banks to expire on January 1, 1996, but
it contains potentially troublesome clauses on reciprocity and other potential
limitations which could put foreign banks at a disadvantage. Foreign banks
entering as branches may open only one branch, and the capital of all foreign
banks cannot exceed 12 percent of the capital of the entire banking sector. The
law on production sharing agreements for the oil, gas and minerals sector was
also passed at the end of 1995, but it fell short of what most foreign investors
were seeking. Some concern about the government's commitment to reform will
remain a substantial barrier to investment even after the outcome of the June
1996 presidential elections is known.
Regarding purely financial disincentives, most foreign investors list
concerns about profit repatriation. There are no longer any legal barriers to
profit repatriation, but dividends must be paid into special accounts. These
funds can then be converted to hard currency and repatriated, but investors
perceive themselves vulnerable to changes in the currency and banking
regulations which might impose limits on the right of repatriation. Investors
have also expressed concern about their inability to get accurate information
about potential business partners.
In an effort to curtail capital flight accomplished through export and import
operations, the Russian government has instituted a "passport" system for
exports and imports. An additional requirement may be instituted in 1996 that
exports and imports be evaluated by an independent agent to certify that the
value listed on invoices is accurate. Such additional bureaucratic steps could
potentially add time and cost to the process.
Russia raised its tariffs on imported aircraft from 15 to 50 percent in March
1994. Although these tariffs were lowered to 30 percent in 1995, they were still
at a prohibitive level. There are also concerns about non-tariff barriers
protecting the Russian domestic market while Russia supports its
well-established domestic aircraft industry.
On January 30, 1996, Vice President Gore and Russian Prime Minister
Chernomyrdin concluded a Joint Memorandum of Understanding (MOU) that addresses
U.S. concerns about barriers to access to the Russian civil aircraft market and
the application of international trade rules to the Russian aircraft sector. The
joint MOU ensures that U.S. aircraft manufacturers will be able to participate
in the Russian market and to share in its growth. The MOU also makes clear that
the Russian aircraft industry will in time be fully integrated into the
international economy and will be subject to the same international trade
disciplines as are U.S. and most other aircraft manufacturers. Russia has
confirmed that it will eventually become a signatory to the Agreement on Trade
in Civil Aircraft, which together with the WTO, establish the basic
international rules governing trade in the aircraft sector.
In the interim before Russia accepts full international trade obligations,
the MOU commits Russia to provide fair and reasonable access to its market. The
Russians will take steps, such as the granting of tariff waivers, to enable
their airlines to meet their needs for U.S. and other non-Russian aircraft on a
non-discriminatory basis. As the Russian economy and the demand for aircraft
strengthen, the granting of tariff waivers will increase. Russian tariffs on
aircraft will be steadily reduced.