Russia Foreign Economic Relations
Sources: The Library of Congress Country Studies; CIA World Factbook
Integrating the Russian economy with the rest of the world through commerce and expanded foreign investment has been a high priority of Russian economic reform. Russia has joined the IMF and the World Bank and has applied to join the World Trade Organization (WTO--see Glossary) and the OECD. It also has been included in some functions of the Group of Seven (G-7; see Glossary).
By the end of 1993, the Russian government had liberalized much of its import regime. It eliminated nontariff customs barriers on most imports, although it still requires some licenses for health and safety reasons. In mid-1992 the government took control of imports of some critical goods, including industrial equipment and food items, which it sold to end users at subsidized prices. In the early 1990s, government-controlled imports constituted about 40 percent of total Russian imports, but by 1996 most such controls had been phased out.
Russia also established a two-column tariff regime in harmony with the United States and other members of the General Agreement on Tariffs and Trade (GATT), which in January 1995 became the WTO. Russia differentiates between those trade partners that receive most-favored-nation trade treatment and, therefore, relatively low tariffs, and those that do not.
Although Russia has eliminated many nontariff import barriers, it still maintains high tariffs and other duties on imports of goods to raise revenue and protect domestic producers. All imports are subject to a 3 percent special tax in addition to import tariffs that vary with the category of goods. Some of the high tariffs include those of 40 to 50 percent on automobiles and aircraft and 100 percent on alcoholic beverages. Excise taxes ranging between 35 and 250 percent are applied to certain luxury goods that include automobiles, jewelry, alcohol, and cigarettes.
The Government has used licensing and quotas to restrict the export of certain key commodities, such as oil and oil products, to ease the effect of price differentials between controlled domestic prices and world market prices. Without such restrictions, Russian policy makers have argued, the domestic market would experience shortages of critical materials. The government finally eliminated quotas on oil exports in 1995 and export taxes on oil in 1996. In addition to customs restrictions, the government imposes other costs on exporters. It charges a 20 percent VAT on most cash-transaction exports and a 30 percent VAT on barter transactions. It applies additional tariffs on the exports of industrial raw materials. By the mid-1990s, much of Russia's foreign trade, even that with the former communist countries of Central Europe, was conducted on the basis of market-determined prices. Immediately after the dissolution of the Soviet-dominated Comecon in 1991, the Soviet Union sought to maintain commercial relations in Central Europe through bilateral agreements. But as market economies developed in those countries, their governments lost control over trade flows. Since 1993 Russian trade with former Comecon member countries has been at world prices and in hard currencies.
In the mid-1990s, Russia still maintained hybrid trade regimes with the other former Soviet states, reflecting the web of economic interdependence that had dominated commercial relations within the Soviet Union. The sharp decrease in central economic control that occurred just before and after the breakup of the Soviet Union virtually destroyed distribution channels between suppliers and producers and between producers and consumers throughout the region. Many of the non-Russian republics were dependent on Russian oil and natural gas, timber, and other raw materials. Russia bought food and other consumer goods from some of the other Soviet republics. To ease the effects of the transition, Russia concluded bilateral agreements with the other former Soviet states to maintain the flow of goods. But, as in the case of the Central European agreements, such arrangements proved impractical; by the mid-1990s, they covered only a small range of goods. Russia now conducts trade with former Soviet states under various regimes, including free-trade arrangements and most-favored-nation trading status.
The volume of Russia's foreign trade has generally declined since the beginning of the economic transition. Trade volume peaked in 1990 and then declined sharply in 1991 and 1992. Between 1992 and 1995, however, exports rose from US$39.7 billion to US$77.8 billion, and imports rose from US$34.7 billion to US$57.9 billion. Many factors contributed to the decline of the early 1990s: the collapse of Comecon and trade relations with Eastern/Central Europe; the rapid decline of the domestic demand for imports; contraction in foreign currency reserves; a decline in the real exchange value of the ruble; the Government's imposition of high tariffs, VATs, and excess taxes on imports; and the reduction of state subsidies on some key imports. Russia's declining production of crude oil, a key export, also has contributed significantly. Until 1994 Russia's arms exports declined sharply because the military-industrial complex's production fell and international sanctions were placed on large-scale customers such as Iraq and Libya (see Foreign Arms Sales, ch. 9).
The geographical distribution of Russian foreign trade changed radically in the first half of the 1990s (see table 21; table 22, Appendix). In 1985 some 55 percent of Soviet exports and 54 percent of Soviet imports were with the Comecon countries. By contrast, 26 percent of Soviet exports and 28 percent of Soviet imports were with the fully developed market economies of Western Europe, Japan, the United States, and Canada. By the end of 1991, Russia and its former allies of Central Europe were actively seeking new markets. In 1991 only 23 percent of Russian exports and 24 percent of Russian imports were with the former Comecon member states. In 1994 some 27 percent of Russian imports and 22 percent of exports involved partners from Central Europe, with Poland, Hungary, and the Czech Republic generating the largest volume in both directions. Western Europe's share of Russian trade continued to grow, and in 1994 some 35 percent of Russia's imports and 36 percent of its exports were with countries in that region. Germany was by far the West European leader in exports and imports, and Switzerland and Britain were other large export customers. In 1994 the United States accounted for US$2.1 billion (5.3 percent) of imports and US$3.7 billion (5.9 percent) of exports; however, United States purchases of Russian goods had increased by more than 500 percent between 1992 and 1994. The total value of trade with the United States in 1995 was US$7 billion; trade for the first half of 1996 proceeded at virtually the same rate (see table 23, Appendix).
Russian trade with the so-called near abroad--the other former Soviet states--has greatly deteriorated. This trend began before the final collapse of the Soviet Union as Russian producers sought hard-currency markets for raw materials and other exportables. As Russia raised fuel prices closer to world market levels, the other republics found it increasingly difficult to pay for Russian oil and natural gas. The RCB extended credits to these countries to permit some shipments, but eventually the accumulation of large arrearages forced the Russian government to curtail shipments. At the end of 1995, Russian trade with the near abroad accounted for 17 percent of total Russian trade, down from 59 percent in 1991. Belarus, Kazakstan, and Ukraine remained Russia's largest partners, as they had been in the Soviet era. The failure to restore inter-republic trade was an important factor in the economic collapse that gripped the region around 1990.
Raw materials, especially oil, natural gas, metals, and minerals, have dominated Russia's exports, accounting for 65 percent of total exports in 1993. Exports as a whole are heavily concentrated in a few product categories. In 1995 ten commodities, all of which are raw materials, accounted for 70 percent of Russian exports. By contrast, for the United States the top ten export commodities account for only 37 percent of its exports.
The lack of diversity in Russian exports is a legacy of the Soviet period, when the central planning regime called for production of manufactured goods for domestic consumption with little consideration for the export market. Given this priority, most of the Soviet Union's consumer goods were of low quality by world standards. Post-Soviet concentration of Russian exportables in a few categories restricts Russia's potential sources of foreign currency to a few markets. And the frequent price fluctuations typical of world raw materials markets also make Russia's export revenues vulnerable to unforeseen change.
Manufactured goods dominate Russian imports, accounting for 68 percent of total imports in 1992. The largest categories of imported manufactured goods are machinery and equipment (29 percent of the total); foods, 16 percent; and textiles and shoes, 13 percent.
Data as of July 1996
NOTE: The information regarding Russia on this page is re-published from The Library of Congress Country Studies and the CIA World Factbook. No claims are made regarding the accuracy of Russia Foreign Economic Relations information contained here. All suggestions for corrections of any errors about Russia Foreign Economic Relations should be addressed to the Library of Congress and the CIA.