In 1993, Russia submitted its application for joining the World Trade Organization (WTO) and made a breakthrough in the negotiations on its accession to the WTO in 2005. Currently, Russia is engaging in the critical negotiations on the reduction of import tariffs on agricultural and industrial products and on the liberalization of its requirements for access to labor markets. Russia is expected to become a full member of the WTO in 2006. Upon accession to the WTO, Russia is to make adjustments in its tax policies in compliance with the principles of MFN treatment and national treatment, and cut its customs duties progressively.

2.1 Legislation on trade and investment

2.1.1 Legislation on trade administration

Russia's laws and regulations related to the trade administration of mainly include the Customs Code of the Russian Federation, the Law on Tariff Schedule, the Law on Technical Regulation, Federal law On the Fundamentals of State Regulation of Foreign Trade Activity, the Law on State Regulation of Foreign Trade Activity, the Federal Law on Special Safeguards, Anti-dumping and Countervailing Measures Applied to Imports, the Law on the Regulation and Surveillance of Foreign Exchange, the Law on Measures for the Protection of State Economic Benefits in Foreign Trade. Besides, there are some other important laws, which include the Law on Leasing, the Law on the Inspection of Certificates for Products and Services, the Law on the Labeling of Products and Services and Names of Places of Origin of Goods, the Law on Export Controls, the Federal Programmes for Export Development, the List of Products for Foreign Trade and Tariff Schedule, the Federal Law on Special Permits, the Law on Electronic and Digital Signature, the Regulations on the Surveillance of Dual-use Commodities and Technologies to be Exported from the Russian Federation, the Regulations on the Adjustment of Meat Imports.

In June 2005, Russia promulgated the Regulations on the Licensing System for Foreign Trade in Commodities and on the Incorporation of Licensed Banks as a substitute for the earlier Regulations on Licences for Imports and Exports of Commodities (Services). The new regulations specify the measures for the application of the licence system, announce the categories of licences to be granted, and list the reasons for refusal to grant licences.

In July 2005, the Regulations on the Import and Export of Pharmaceuticals were promulgated to replace the Law on the Import and Export of Pharmaceuticals issued in 1998. The new regulations stipulate that the applications submitted to the Ministry of Economic Development and Trade for import licences for pharmaceuticals should be based on the feasibility conclusion on the granting of import licences made by the Russian Federal Health-care and Social Development Agency as to.

In September 2005, the Russian Government issued the Regulations on Imposition of Supervision over Customs Houses in Respect of the Implementation of the Relevant Laws and Regulations on the Calculation and Collection of Customs Duties and on the Determination of Customs Values. As stipulated in the Regulations, the Ministry of Economic Development and Trade and the Ministry of Finance are to supervise and monitor Customs Houses in order to prevent any violation and poor enforcement of laws in the process of calculating and collecting customs duties and in the process of determining customs values, and an inter- ministerial-agency supervising body is to be established so as to solve problems which may arise in this regard.

2.1.2 Legislation on investment administration

Russian laws governing the administration of investment include the Foreign Investment Law, the Law Governing Agreements on Product Distribution, the Land Code, the Law on Circulation of Farming Land, the Law on the Limited Liability Company, the Law on Joint Stock Company, the Law on Advertising, the Law on the Interest Protection of Legal Entities and Individual Proprietors in the Implementation of State Surveillance, the Law on Control of Currencies and Foreign Exchanges, the Law on the State Registration of Legal Entities, and the Law on the State Registration of the Rights of Immovable Properties and Related Transactions.

In March 2005, Russia's new version of the Draft Law on Hidden Resources was reviewed at government meetings, all the principal provisions of which were approved. The draft law has been proposed to be ratified in 2006. The proposed law requires that (1) the competent federal agencies' administrative power over mineral resources augmented in terms of coverage and function; (2) specific agreements be signed to regulate the relations between the State and the users of mineral resources so as to improve the transparency with respect to investment; (3) the procedures for transfer of the right to use natural resources be streamlined through a clear definition of contractual relationships; and (4) a mechanism of guarantee be introduced on the right to use hidden resources.

In July 2005, the Russian Government promulgated the Federal Law on Special Economic Zones. The Law stipulates that both domestic and foreign enterprises should have the right to establish two types of special economic zones (SEZ): SEZ for industrial production (each limited to an area of 10 square kilometers) and SEZ for technological dissemination (each limited to an area of 2 square kilometers). The life of the SEZs is 20 years only and no extension will be entertained. Within the SEZ, a customs system for free trade is to be adopted, and this means that both imports of foreign enterprises and exports of domestic enterprises are exempted from customs duties. In an industrial production zone, the validity of the agreement on higher value-added processing is 10 years, and the total amount of capital involved should not be less than €10 million with the lowest amount of investment for the first year being € 1 million. And there will be no restrictions on investment in a technological dissemination zone. The Russian government is now considering making an amendment to this law and intends to include harbor-type SEZ and tourism and recreation SEZ.

Promulgated together with “Federal Law On Amending Certain Russian Laws in Connection with the Adoption of the Federal Law on Special Economic Zones in the Russian Federation”, in which it is specified that simplified procedures shall be applied to the calculation of the expenses of scientific research and design testing and the calculation of the depreciation of the fixed assets of those enterprises registered in industrial production zones, and that the requirement for an enterprise to limit the transfer of its loss to the next tax year by only 30 percent shall be eliminated. According to the Amendments, enterprises registered in technological dissemination zones shall be subject to a uniform social tax of 14 percent and enterprises in SEZs shall be exempted from property taxes and land taxes within 5 years of establishment.

2.2 Trade regime

2.2.1 Tariff system

According to the Russian Tariff Schedule, Russia Customs applies the base rate to imports from countries enjoying MFNT, but imports from other countries are subject to a tariff rate twice the level of the base rate. Imports from the members of the Commonwealth of Independent States (hereinafter referred to as CIS) that have signed free trade agreements with Russia and imports from the least developed countries are exempted from import customs duties. Customs duties on imports from countries under the Generalized System of Preferences are levied at 75 percent of the base rate and China is among those countries.

Currently, Russia' average valid import tariff rates remain at 10 percent-11 percent, and ad valorem tariffs are applied to the vast majority of imports while specific tariffs and compound tariffs to a limited number of imports. During the recent years, the variety of the goods subject to compound duties has been gradually increasing. In addition, Russia applies higher tariff rates to bulk imports, such as agricultural products including foodstuffs, medical items, household electric appliances, automobiles and related parts and accessories, and alcoholics.

Russia eliminated its overall export duties in July 1996, but restored imposition of interim(provisional?) export duties in January 1999 on the following products: coal, petroleum, natural gas, processed oil, non-denatured alcohol, certain chemicals, non-ferrous metals, timbers, leathers, soybeans, rapeseeds, sunflower seeds, etc. As stipulated in the Federal Customs Code, imports and exports are subject to import and export customs duties, VATs and excise taxes are applied to import goods (except those otherwise specified). According to the provisions in the Tax Code, imports such as certain foodstuffs and articles for children are subject to a VAT of 10 percent, and other imports are subject to a VAT of 18 percent; imports subject to an excise tax include raw material alcohol and articles thereof, edible alcohol and articles thereof, manufactured tobacco, cars and motorcycles with an engine capacity exceeding 112.5 kilowatts, gasoline, fuel diesel, engine oil and direct distilled gasoline.

In addition, some imports are also subject to special customs duties, anti-dumping duties, or compensation duties, the rates of which are separately specified. Customs controls in Russia usually takes place by examining documents or certificates and the contents; making oral inquiries; obtaining written explanations; conducting customs surveillance; inspecting cargos and the transporting tools; checking personal identity; examining special labeling and identification codes; and making inspection tours to customs facilities or around customs territories.

2.2.2 Import administration

2.2.2.1 Import quotas and licences

The Law on Quotas and Licences for Imports and Exports requires that applications should be submitted to the Ministry of Economic Development and Trade for licences for the import of products affecting national security and national health such as chemical insecticides, industrial waste, pharmaceutical materials and manufactures, anesthetics, poisons, food raw materials, edible alcohol, military equipment or weapons, nuclear technologies, radio-active substances, etc.

2.2.2.2 Product Labeling and Certification

Russia prohibits the sale of imports without Russian instructions in its territory. Russia also prohibits the sale of alcoholic products, audio-visual products and computer equipment without anti- fake labels or bar codes for bar code labels in its territory.

Biochemical preparations, radio-active substances, industrial wastes, and some first time imported goods, especially foodstuffs, are subject to national registration before importation, and health and quarantine certificates must be provided for the import of goods to be used for industry, agriculture and civil engineering construction. The List of Imports for Compulsory Certification issued by the Federal Customs in January 2005 mainly includes animals and plants and their products, foodstuffs, alcoholic and non-alcoholic beverages, textile materials and textile goods, machinery and mechanic equipment, and audio-visual apparatus.

2.2.2.3 Foreign exchange controls over imports

Russia requires that importers open accounts in authorized banks and the amount of freely convertible currency remit outside territory be equivalent to the amount of ruble, and subject to a maximal banking charge at 0.15 percent of their contract value.

2.2.3 Export administration

Russia exercises its export administration mainly by issuing export quotas and licences.

2.2.3.1 Export quotas and licences

Russsia imposes export quotas and licences on three categories of products, and they are products subject to quantitative restrictions under international agreements, special products affecting the interests of the state, and products in relatively large demand in the domestic market. Export quotas are distributed mainly through tendering and auctioning. Where there are surplus quotas after distribution, they may be granted on the basis of export performance.

2.2.3.2 Export controls on products for military-and-civil purposes

Export licences must be obtained for the export of dual- use products and technologies, while the issuance of such licences is based on whether the exportation is in conformity with international obligations that Russia is committed to.

2.2.3.3 Unified certificate inspection on exports

Russia applies a unified certificate inspection system over the quantity, quality and price of exports. However, the application of the system is no longer compulsory since March 1996. Currently, the system is applicable only to such products as petroleum, processed oil, natural gas, coal, ferrous and non-ferrous metals, timbers, and mineral fertilizers.

2.3 Investment Regime

Russia's Foreign Investment Law definitely stipulates that the statutory treatment accorded to foreign investors in the territory of the Russian Federation should not be less favourable to that accorded to domestic investors, unless otherwise specified in Russian law. According to the Article 9.2 of the Law, foreign investors and foreign- funded commercial establishments are entitled to special favourable treatment and legal safeguards so that their investment environment can be stabilized and are not to be affected by any changes in Russian laws and regulations over a certain period of time.

The Law of the Russian Federation on the Circulation of Farming Land provides that foreign citizens or legal entities holding more than 50 percent of the statutory capital can lease farming land for a period of less than 49 years.

According to The Federal Tax Code, as of July 2007, the profit tax rate will be cut to 24 percent and VAT rate to 18 percent, and a variety of social security fees (medical insurance, unemployment insurance, pension insurance) will be consolidated into a unified social tax, the rate of which will be reduced to 35 percent from a level of 40 percent of an enterprise's payroll.

2.4 Competent authorities

2.4.1 Governmental Bodies

In Russia, the following governmental authorities responsible for the administration of trade and investment include the Ministry of Economic Development and Trade, the Ministry of Finance, the Commission on Safeguards for Foreign Trade and Tariff Policies, the Russian Federal Assets Foundation, the Federal Registration Service of the Ministry of Justice, the Federal Customs Service, the Advisory Committee on Foreign Investment of the Federal Government, and the Supreme Court of Arbitration.

The following two agencies are playing an increasingly important role in Russia's foreign economic and trade activities:

2.4.1.1 Federal Customs Service

Under the Ministry of Economic Development and Trade, the Federal Customs Administration is made up regional customs authorities and a customs house directly subordinate to the central government, the chief officials of which are appointed by the Federal Government based on the nomination of the Minister of Economic Development and Trade. The Administration is mainly responsible for supervising customs procedures for imports and exports, exercising control over foreign exchanges, and combating illegal activities such as smuggling.

2.4.1.2 Advisory Commission on Foreign Investment of the Federal Government

This Commission was formed in 1994 to improve the investment environment in Russia, attract and utilize foreign investments. Subordinate to the Federal Government, the Commission is headed by a deputy prime minister of the Federal Government. The chief members on the Commission include representatives from large-sized foreign-funded enterprises in Russia, the European Development and Reconstruction Bank, the World Bank, the Ministry of Economic Development and Trade, the Ministry of Finance, the Central Bank and tax authorities of Russia. In September 2004, working groups were set up within the framework of the Commission, and the Ministry of Economic Development and Trade is responsible for the coordination between the Committee and its working parties. Currently, the findings of the routine meetings of the Commission as well as proposals have constituted an important basis for the Federal Government in formulating and adjusting its economic policies.

2.4.2 Non-governmental organizations

The Chamber of Industry and Commerce of the Russian Federation is an independent non-governmental non-profit organization established under the Constitution of Russia and the Act on the Chamber of Industry and Commerce of the Russian Federation, with branches throughout the country. Its aims are to cooperate with chambers of industry and commerce in all the parts of Russia so as to promote the economic development of Russia and Russia's participation in the global economic integration and to enhance the economic, trade, and scientific and technological relations between enterprises of Russia and other countries. This organization has and exercises the right of arbitration, and has a affiliated bureau of registration which is responsible for approving the applications for registration submitted by representative offices of foreign companies, conducting personnel registration for such offices, issuing permanent residence permits, and handling formalities involved in the extension of the validity of visas and the duration of residence.