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Sino-Russian Oil Pipeline Pending

Sino-Russian economic and trade relations are expected to drive into the fast lane in the near future, as the neighboring nations try to enhance energy co-operation and improve the bilateral trade environment, suggest analysts.

Chinese Premier Wen Jiabao last Friday said the nations agreed to enhance co-operation on oil and gas issues, even though the Russian Government did not announce its final decision on the oil pipeline route.

Wen visited Russia last week and discussed a range of issues including oil and gas projects, the proposed pipeline and Russia's likely membership in the World Trade Organization (WTO).

Wen said Russian leaders promised to select the pipeline's route, in the Far East, based on a feasibility study, and that they will consider running the pipeline into China, regardless of the route selected.

The countries did agree, however, to increase oil trade by rail.

Oil deliveries from Russia to China by railroad are expected to reach 10 million tons next year, and 15 million tons in 2006, said Russian Prime Minister Mikhail Fradkov.

Russia will work with China to solve current oil-trade problems, to cement previously reached agreements, Fradkov said.

Wen said both sides agreed to explore natural gas as soon as possible.

"The Russian Government has taken the energy issues into full consideration when fleshing out foreign policies and economic strategies,” said Lu Nanquan, deputy director of the research center on Russia under the Chinese Academy of Social Sciences.

"Russia does not want to lose such a huge, and stable, market as China for its rich energy resources," Lu told China Business Weekly.

China and Russia have been discussing the proposed oil pipeline, and especially its route, for more than a decade.

The countries last year signed a framework agreement to build a pipeline linking Russia's Angarsk to China's Daqing.

However, Russia began wavering about the route after Japan proposed the pipeline bypass China and stretch to Russia's Far East port of Nakhodka.

Another possible route has been mentioned: A pipeline to transport crude oil from Russia's vast Siberian reserves to the Asia-Pacific region, essentially a pipeline to Nakhodka with a branch line to China.

In March, Russia's state-owned oil transport company, Transneft, proposed a route from Taishet, about 500 kilometers northwest of Angarsk, to Nakhodka" with a branch line to China.

Russia has yet to select a route.

During his foreign trip last week, Wen visited Kyrgyzstan, attended the third meeting of the prime ministers of the Shanghai Co-operation Organization member states in Bishkek, and participated in the ninth regular meeting, in Moscow, of the prime ministers of China and Russia.

In a historic development, Wen and Fradkov last Friday concluded bilateral market-access negotiations for Russia's WTO accession.

That agreement paves the way for the document signing ceremony next month when Russian President Vladimir Putin visits Beijing.

Also during Wen's visit, the Chinese Ministry of Commerce (MOFCOM) and Russia's Ministry of Trade and Industry signed a memorandum of understanding on the standardization of Sino-Russian trade procedures.

"These efforts are expected to greatly improve the bilateral trade environment ... and pave the way for Sino-Russian economic co-operation on large projects,” Lu said.

"WTO accession is likely to help Russia build an international rules-based trading system. It may enhance openness, transparency and predictability, which are keys to attracting foreign investment and providing a foundation for improved economic governance.”

During the past five years, Sino-Russian trade has grown an average 20 per cent annually.

Russia is China's eighth-largest trade partner, and China is Russia's fourth-largest trader.

MOFCOM's statistics indicated bilateral trade, last year, was worth US$15.76 billion, up 32.1 year-on-year.

Two-way trade reached US$11.1 billion in the year's first seven months. It is expected to top US$20 billion this year, rather than next year as previously predicted by the nations" leaders.

Wen said the countries should strive to expand their trade volume to US$60-80 billion by 2010.

He called for strengthened co-operation in space, telecommunications, energy, nuclear power, electronics and high-technology.

"There have been few large co-operative investment projects between the two countries," said Liu Huaqin, a researcher with the Chinese Academy of International Trade and Economic Co-operation, a think-tank affiliated with MOFCOM.

Chinese investment in Russia is less than US$600 million, and Russian investment in China is below US$400 million, China Business Post reported last week.

"Large investment projects usually can multiply bilateral trade. But many Chinese investors are hampered by Russia's not-well-established investment and financial rules," Liu told China Business Weekly.

"I hope the efforts taken by the two governments will embolden Chinese enterprises when they are considering investing in Russia in the near future," Liu said.

Said Lu: "Resorting to the WTO trade rules could also help prevent 'gray customs clearance' in Russia.

"If there are international rules to comply with, and tariffs become lower, Chinese business people will not take the risk to go through 'gray customs clearance.'"

Commodities entering Russia through "gray customs clearance” make up about 30 per cent of the private trade volume between China and Russia, indicate Russian Customs" statistics.

Many Chinese business people often go to the "customs clearance companies" in Russia to cut costs and to improve efficiency.

These companies provide one-stop services that cover both transportation and customs clearance procedures.

Chinese business people only have to pay duties on a small percentage of their commodities.

However, they normally do not receive customs clearance manifests.

These business people, lacking proper customs documents, are often subject to inspections by Russian police, and their commodities are usually confiscated.

Russia and the European Union in May signed an agreement that concluded bilateral market access negotiations for Russia's WTO entry.

Russia is currently conducting negotiations with other WTO members including the United States, Japan, Canada and Australia.

(China Daily October 4, 2004)

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