The Bucharest University of Economic Studies

International Business and Economics Faculty

RUSSIA

Year II, group 942

Ana Maria-Irina

Bucharest,
2012

Russia, also officially known as the Russian Federation is a country in

northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal
subjects. From northwest to southeast, Russia shares orders with Norway, Finland,
Estonia, Latvia,Lithuania and Poland (both via Kaliningrad Oblast), Belarus, Ukraine,
Georgia, Azerbaijan, Kazakhstan, China, Mongolia, and North Korea. It also
has maritime borders with Japan by the Sea of Okhotsk, and the U.S. state
of Alaska across the Bering Strait. Russia is also the world's ninth most populous
nation with 143 million people as of 2012.
Russia has the 10th largest economy in the world by nominal GDP and
the 6th largest by purchasing power parity (PPP). Since the turn of the 21st century,
higher domestic consumption and greater political stability have bolstered economic
growth in Russia. The country ended 2008 with its ninth straight year of growth,
averaging 7% annually between 2000 and 2008. Real GDP per capita, PPP (current
international $) was 19,840 in 2010. Growth was primarily driven by non-traded services
and goods for the domestic market, as opposed to oil or mineral extraction and exports.

GDP (PPP)
- Total
- Per capita

2011 estimate
$3.015 trillion (6th)
$21,247

GDP (nominal)
- Total
- Per capita

2011 estimate
$1.857 trillion (9th)
$13,089

The macroeconomic policy under Finance Minister Alexei Kudrin was prudent
and sound, with excess income being stored in the Stabilization Fund of Russia. In 2006,
Russia repaid most of its formerly massive debts, leaving it with one of the lowest foreign
debts among major economies. The Stabilization Fund helped Russia to come out of
the global financial crisis in a much better state than many experts had expected. The
economic development of the country has been uneven geographically with the Moscow
region contributing a very large share of the country's GDP. 1

http://en.wikipedia.org/wiki/Russia accessed November, 23rd 2012

Russia participates in a lot of international organizations (APEC, Arctic Council,

ARF, ASEAN (dialogue partner), BIS, BRICS, BSEC, CBSS, CD, CE, CERN (observer),
CICA, CIS, CSTO, EAEC, EAPC, EAS, EBRD, FAO, FATF, G-20, G-8, GCTU, IAEA,
IBRD, ICAO, ICC, ICRM, IDA, IFC, IFRCS, IHO, ILO, IMF, IMO, IMSO, Interpol,
IOC, IOM (observer), IPU, ISO, ITSO, ITU, ITUC, LAIA (observer), MIGA,
MINURSO, MONUSCO, NAM (observer), NSG, OAS (observer), OECD (accession
state), OIC (observer), OPCW, OSCE, Paris Club, PCA, PFP, SCO, UN, UNCTAD,
UNESCO, UNHCR, UNIDO, UNISFA, UNITAR, UNMIL, UNMISS, UNOCI, UNSC
(permanent), UNTSO, UNWTO, UPU, WCO, WFTU, WHO, WIPO, WMO, WTO
(observer), ZC2) and it is member in 91 trade agreemenents, like for example APEC (Asia
Pacific Economic Cooperation), a forum to facilitate economic growth, cooperation trade
and investment in the Asia Pacific region. There are no treaty obligations and decisions
are reached by consensus, whereas commitments are undertaken on a voluntary basis.
Objectives of the forum are free and open trade and investment, as well as a safe and
efficient movement of goods, services and people across borders in the region or
Commonwealth of Independent States (CIS) an association for political and economic cooperation, including trade integration. A CIS-wide customs union is envisaged. At
present a sub-set of five countries, Republic of Belarus, Republic of Kazakstan, Kyrgyz
Republic, Russian Federation, and Republic of Tajikistan, have constituted a customs
union.

So far, despite

a high degree of integration on paper, Belarus and Russia, for example, have different
systems of both tariff and non-tariff regulation, different currency legislations, principles
of certain protectionist measures, ways of regulating the economy customs mechanisms,
etc. Harmonization of trade policy and trade legislation with the neighboring countries is
one of the most important challenges for Russia in the near future. 3
With the overwhelming majority of countries, Russia signed agreements on
mutual most-favored nation regime. With many countries Russia also signed bilateral
general trade agreements on cooperation in various trade-related areas and the maximum
benefits clause, in accordance with which, imported goods enjoy lower tariffs. With some
2

https://www.cia.gov/library/publications/the-world-factbook/geos/rs.html accessed November, 23rd 2012

http://www.gurn.info/en/topics/bilateral-and-regional-trade-agreements/bilateral-and-regional-tradeagreements-1/background/introductory-paper-the-spread-of-bilateral-trade-agreements-draft accessed
November, 23rd 2012
3

countries there are bilateral preferential trade agreements, such as: free trade agreements
on economic cooperation, on collecting indirect taxes in mutual trade, protocols on
phasing out exemptions from the free trade regime. Similar agreements have been
concluded with most of the former republics Soviet Union: Azerbaijan, Armenia,
Kyrgyzstan, Moldova, Tajikistan, Uzbekistan, Ukraine, as well as part of Serbia and
Montenegro (limited range of products). 4
There is also a trade agreement between Russia and the EU. The Partnership and
Cooperation Agreement between the EU and Russia has been the framework of the EURussia relations since 1997 and regulates the political and economic relations between
the two parties. One of the main objectives of this agreement is the promotion of trade
and investment as well as the development of harmonious economic relations between
the EU and Russia. Russia is the third trading partner of the EU and the EU the first
trading partner of Russia. Trade between the two economies showed steep growth rates
until mid-2008 when the trend was interrupted by the economic crisis and unilateral
measures adopted by Russia that affected EU-Russia trade. Since 2010 mutual trade has
resumed its growth reaching record levels in 2011. The new EU-Russia Agreement currently under negotiation - should provide a comprehensive framework for bilateral
relations with stable, predictable and balanced rules for bilateral trade and investment
relations. It will focus on improving the regulatory environment by building upon the
WTO rules and strengthen bilateral trade relations.5
Since 1993, Russia is participating in the U.S. General System of Trade
Preferences and supplies to the USA markets duty-free ferrochrome, caprolactam (and
black caviar until its supplies were banned internationally). Within this framework some
products are supplied with quantitative restrictions: forge titanium raw materials,
aluminum, hydrocarbons and vanadium. The involvement of Russia in this system, which
supports developing and especially least developed countries, is gradually declining. The
US Administration keeps on imposing new restrictions commenting quite logically that it
is no good combining the G8 membership with the participation in the General System
of Trade Preferences.
4

A. Makeeva, A. Chaplygina - Russian Trade Policy, December 2008, available at

http://trade.ecoaccord.org/2008/trade_policy_engl.pdf accessed November, 23rd 2012
5
http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/russia/ accessed November,
23rd 2012

Russia is also a member of the Generalized System of Preferences, providing in

the framework of its national system of preferences a more favorable regime for products
from developing countries and duty-free import of products from the least developed
countries.
Russia faces important trade-offs in building a system to support a modern trade
policy within an ever more complex structure of trade and investment6 and its main
trading partners are: European Union (Germany, Italy, France), China and Ukraine.
Exports - major partners

Netherlands 12.2%, Italy 7.8%, Germany 7.5%, Turkey

5.2%, Belarus 5%, Ukraine 4.7%, China 4.5% (2007)

Imports - major partners

Germany 13.3%, China 12.2%, Ukraine 6.7%, Japan

6.4%, US 4.8%, Belarus 4.4%, South Korea 4.4%, Italy 4.3% (2007)
The late 20th early 21st century witnessed some dramatic changes in the
Russian Federations trade policy. Alongside with the countrys economic set-up and
business environment, the role and principles of its trade policy have changed.
The two characteristic features of the Soviet Unions trade policy are known to
have been rigid protectionism and state monopoly on foreign trade. Together with pegged
domestic prices, the overvalued rouble, whose rate had hardly changed over the last three
decades of the USSR, and strict prescriptions as to goods and capital to be
imported/exported, it made Soviet economy virtually insusceptible to external influence,
either negative or positive.
Up until the beginning of perestroika, practically the only channel of global
market influence on Soviet economy was oil price, which determined the states income
from this mineral stock. In other respects, the Soviet republics markets were hardly
affected by global pricing environment due to the strictly observed isolation regime.
Following the 1998 crisis, domestic production in Russia started to grow, which
soon resulted in yet another transformation of the countrys trade policy pattern,
characterized by an increased role of the state and a growing trend towards import
substitution. The main reason behind such changes was a sharp and considerable
6

http://siteresources.worldbank.org/INTRANETTRADE/Resources/WBITraining/London_Conference_Proceedings.pdf accessed November, 23rd 2012

devaluation of the rouble against the U.S. dollar, which increased the competitive power
of Russian goods in both domestic and outer markets. Since the early 2000s, this
tendency was encouraged by the growth of global prices for key Russian export goods
as well as the gradual strengthening of the national currency.
The general economic upturn gave a boost to the countrys external economic
activity that covered both goods and services; in a short period of time, Russia merged
into global economy, while the Government started to make use of the wide range of
existing trade and political instruments. The adjustment of Russian laws to WTO
standards played a great role in this process, which went on almost simultaneously with
the sophistication of Russias trade and political armory and the integration of many
WTO rules into national legislation.
The liberalization of Russias external economic activity in the 1990s resulted in
the removal of barriers impeding the entrance of national manufacturers to foreign
markets and the penetration of imported goods and foreign investment into the domestic
market. This led to a substantial increase in external turnover. Since the earliest 1990s,
Russian exports and imports were growing. After a temporary reduction in 19971998
due to the financial crisis (which, at the same time, increased the competitiveness of
Russian goods), there was a new upsurge in the countrys external turnover.
Rapid exports growth was primarily driven by a significant increase in world
prices for raw commodities. During the 2000s, oil prices continued to make record gains,
with a historical peak in the summer of 2008. Slightly behind timewise, natural gas prices
were going up at the same pace. A $1 per barrel raise in oil prices has been estimated to
increase the value of Russian exports by about $2.22.3 bln. Another factor to stimulate
exports was the weakening of state regulation mechanisms, which was particularly true
for the 1990s. For example, in 1993, 77% of all exports of commodities were licensed
trade, while by 1996 this figure was reduced to 12%. In 1996, the abolition of export
duties also took place.
Almost in step with exports, imports grew in the 1990s, this growth stemming
from the liberalization of trade and the opening of the previously closed Soviet/Russian
market. In the 2000s, imports lagged behind exports in terms of dynamics but still
continued to grow, which should be attributed to both disposable incomes growth and the

strengthening of the rouble. In the future, exports are expected to fall due to reduction
and stabilization of oil prices, while imports are predicted to keep growing, subject
to Central Banks consistent monetary policy.
The growth of imports from countries outside CIS and the gradual loss of
competitive power by CIS goods were determined by their increasing production costs,
due to rising prices for imported primary resources, and the insufficient quality of CISproduced goods. The current leader in terms of foreign trade turnover with Russia is the
EU, although its share is starting to shrink. The second place belongs to Asia-Pacific
Economic Cooperation (APEC) countries: in 2007, Russias foreign trade turnover with
this group increased by 37% compared to 2006, with exports going up by 16% and
imports more than 1.5 times. According to customs statistics, external turnover with CIS
countries also shows steady growth. Over the specified period of time, it increased
by almost 30%, with exports rise exceeding 20% and imports going up by over 40%.
Thus, the share of APEC, CIS and other countries in the structure of Russian
exports increased, with a simultaneous decrease in EU states share. In the imports
structure, the share of APEC grew while those of CIS and the EU reduced. The
commodity structure of Russian exports reflects the primary goods orientation of the
countrys economy. The absolute exports leader among industries is the mineral raw
materials sector, and particularly the energy sector, their positions constantly
strengthening and exports volumes going up. While in 1995 the industry accounted for
slightly over 40% of exports structure, its share reached 65% by 2007.
The second largest group of exported Russian goods is metals and metal
products. Although many countries restrict the access of Russian metalware to their
markets by placing strong antidumping barriers, it remains highly competitive, even if
referred to as goods in process (on the other hand, it is no longer a raw material, which
is already a good thing). In 2006, metals and metalware accounted for over 15% of
Russian exports, which is 10% less than in 1995. This drop should be attributed primarily
to the restrictions on imports of Russian metal products, imposed by a number of
countries. The second reason was the decrease in shipments to East and South-East Asia
due to the growing share of China-made rolled metal on their respective markets (as well
as on other regional markets).

Other important Russian export items are chemicals (primarily mineral fertilizers)
and machinery (with about 50% of all exported machinery and equipment going to CIS
countries), but these categories respective shares in export shipments are also decreasing.
In my opinion, as it might be seen from the figures, Russias specialization on oil, gas and
mineral raw materials producer did not transform the economic activity into a more
developed one overseas, so they are quite unable to expand into international markets.
By contrast, the share of processed goods in the commodity structure of Russian
imports is quite large. The top import item is machinery and equipment, whose share has
been growing at the same pace as world prices for exported oil, gas and metals during the

Source: Russian Trade Policy (by A. Makeeva, A. Chaplygina, December 2008,

ECO-Accord: Center for Environment and Sustainable Development), available at:
http://trade.ecoaccord.org/2008/trade_policy_engl.pdf, accessed November 23rd, 2012

last three years. Like many other exporters of raw materials, Russia spends its respective
proceeds on high-technology machinery and equipment (produced mainly by those very
countries it sells raw materials to). The current import duties on equipment are not liberal
enough and thus unfavorable to the development of Russian economy.
So, the contemporary trade policy of Russia, that relies on export-oriented
economy, results in a situation when patterns of Russia's participation in international
trade exchanges facilitate some processes in the national economy, that if allowed to
develop further might endanger future economic growth and undermine the country's
transition to sustainable development. Growing export of predominantly basic
communities (oil, gas, fertilisers and timber) and growing import of finished industrial
goods provoke a heavier structure of industrial production. Shares of mining and
8

primary processing industries in the overall industrial production grow, while shares of
engineering and consumer goods industries gradually decrease.7
Current account balance by percentage of GDP

4.8% of GDP (2011 estimate)

Exports as percent of GDP (goods&services)

30% (2010)

Source: Russian Trade Policy (by A. Makeeva, A. Chaplygina, December 2008,

ECO-Accord: Center for Environment and Sustainable Development), available at:
http://trade.ecoaccord.org/2008/trade_policy_engl.pdf, accessed November 23rd, 2012

On 22 August 2012 Russia joined the WTO. However, the Working Party on the
Accession of the Russian Federation was established on 16 June 1993. The Working
Party completed its mandate on 10 November 2011, under the chairmanship of
Ambassador Stefn Jhannesson (Iceland). The Eighth Ministerial Conference formally
approved the Accession Package of the Russian Federation on 16 December 2011 and
finally, on 22 August 2012, the WTO welcomed the Russian Federation as its 156th
member.This is good news as it will bring down the level of Russia's import duties to a
more reasonable level, thereby improving market access for EU businesses, including
service providers, it will facilitate investment through a more predictable legislative
framework. It will also have a gradual positive impact on Russian business as it will

A. Makeeva, A. Chaplygina - Russian Trade Policy, December 2008, available at

http://trade.ecoaccord.org/2008/trade_policy_engl.pdf accessed November, 23rd 2012

improve investment conditions and competition on the Russian market. Russian

consumers will gain from both lower prices and increased competition.8
Some analysts estimate that WTO membership could bring the Russian economy
a bounce of up to 3 per cent annually. Russia ranks the second most corrupt country in
Europe (after Ukraine), according to the Corruption Perceptions Index. The NorwegianRussian Chamber of Commerce also states that "[c]orruption is one of the biggest
problems both Russian and international companies have to deal with.9
In conclusion, in order to make Russian trade policies work for the country to
have sustainable development, the global competitivness of Russian economy must be
diversified and strengthened. Russia must adapt to the new worldwide values ot the
economy, to become more modern and therefore to facilitate access to technology and
advanced equipments, to reduce duties on raw materials and equipment for the
production of exports (and maybe to increase them for finished goods), to increase
incentives for cooperation with foreign companies especially within the production
process and to create, gradually, a more competitive domestic market of services:
banking, insurance, tourism etc
Moreover, a very important aspect is Russias involvement in the regional
integration process, especially when we are speaking about Eurasian Economic
Community as this will provide pricing benefits in the markets of the participating
countries against third countries who do not enjoy preferential treatment. This will
require adaptation of the customs and tariff policy instruments to the requirements of the
customs union and duty free zones;
Last, but not least, the Russian people should not forget about transparency and
stability in the application of customs and tariff regulations.

http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/russia/ accessed at November

23rd 2012
9

http://en.wikipedia.org/wiki/Russia accessed at November, 23rd 2012

10

References:

A. Makeeva, A. Chaplygina - Russian Trade Policy, December 2008, available at

http://trade.ecoaccord.org/2008/trade_policy_engl.pdf

http://ec.europa.eu/world/agreements/prepareCreateTreatiesWorkspace/treatiesGe
neralData.do?step=0&redirect=true&treatyId=625

http://siteresources.worldbank.org/INTRANETTRADE/Resources/WBITraining/London_Conference_Proceedings.pdf

https://www.cia.gov/library/publications/the-world-factbook/geos/rs.html

http://www.gurn.info/en/topics/bilateral-and-regional-trade-agreements/bilateraland-regional-trade-agreements-1/background/introductory-paper-the-spread-ofbilateral-trade-agreements-draft

http://en.wikipedia.org/wiki/Russia

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