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3. Barriers to trade
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3.1 Tariff and tariff administrative measures

Russia's import tariffs are categorized into ad valorem duty, specific duty, and compound duty with the rates graded 0 percent, 5 percent, 10 percent, 15 percent and 20 percent.

In August 2005, Russian Foreign Trade and Tariff Rates Protection Commission declared that import duties on light industrial products and textiles were to be brought from 5 percent to 10 percent.

According to the decision approved by the Russia n government in December 2005 fixing the import duty rate on rice and articles thereof, a rate of € 0.07 per kilogram is to apply as of January 1, 2006, which replaces the previous practice to impose an import duty of 10 percent of the value of a batch of goods assessed by Russia customs, but not lower than the rate of € 30 per metric ton. The new measure will seriously hinder China's rice imports.

Meanwhile, in order to develop its national industries and control the exportation of raw materials, the Russian government has taken or plans to take measures to reduce or exempt duties on import technologies and equipment (including industrial machinery and facilities) as well as on high-tech products . According to the Federal Law on Special Economic Zones ratified by the Russian government and Duma, the VAT rate originally dutiable on Russian exporters of commodities is to be brought to 0 percent as of January 1, 2006.

Russia has repeatedly raise export duties on crude oil so as to check oil exports. On August 1, 2005, the duty rate was brought from US$ 14 per metric ton fixed in 2004 to US$140 per metric ton.

In order to protect the development of domestic forestry, the Commission on Foreign Trade and Tariffs Coordination has declared that the export duty on unprocessed timbers is to be raised to €4 per square meter with a margin of 6.5 percent as of January 1, 2006, and a further rise to €6 per square meter by 10 percent is to take place as of July 1, 2007, with a view to preventing bulky exports of timbers.

The restrictive measures described above will obstruct Chinese conventional exports to Russia and bulky imports of raw materials from Russia as well.

3.2 Import restrictions

3.2.1 Import prohibitions

As of September 2004, Russia prohibits importing meat products from China on the grounds of "insufficient knowledge about the preventions conducted in China against mouth-and- foot disease and the lack of reliable information about the actual epidemic development in that country". As the result of China's repeated strong demands, Russia lifts its import restrictions on China's aquatic products and rabbit meat, but prohibitions remain effective on other non-high-temperature treated meat products.

3.2.2 Import licensing

Russia requires that the licensing system be applied to those importers specializing in radioactive substance and products thereof, explosives and fireworks, narcotics, anesthetics and toxic substances, information protective devices (encoders and parts and modules), pharmaceuticals and medicine-making materials, epidemic-preventing medicines, polluters and derivatives, hazardous wastes, chemicals for plant protection, alcohols, distilled spirits and strong alcoholic drinks, carpets and textile carpeting (made in EU), sturgeons and products thereof (including roes), special apparatus used for collecting information secretly, etc.

3.2.3 Import quotas

Russia exercises control over meat imports (such as pork, beef, and chicken) by means of quota licenses. The volume of quotas is announced and quota tendering procedures are carried out on a yearly basis. According to authorities concerned, in 2006, Russia plan to import poultry meat 1.13 million tons with an import duty of 25 percent on quota products and 62.5 percent on non-quota products; bovine meat 435,000 tons with an import duty of 15 percent on quota products and 55 percent on non-quota products; swine meat 476,100 tons with an import duty of 15 percent on quota product and 60 percent on non-quota products.

3.3 Barriers to Customs procedures

Currently, Russia is rectifying its "grey customs clearance". In March 2005, the policemen from Russian tax authorities who are responsible for cracking down on economic crimes seized the Chinese shoes stored in the container warehouse of the flowers and birds market in Salvot. More than 100 containers of footwear owned mainly by 20 export businesses from Wenzhou, Zhejiang Province in East China were valued at over RMB 80 million. The violent seizure of the private properties of Chinese businessmen on the part of the Russian tax policemen who acted as law-enforcers is intolerable. A Sino-Russian joint working group has been set up to address the issue of "grey customs clearance", but the problems arising from this issue can only be solved through joint efforts to enhance communications between two sides, instead of such unilateral actions as unjustified confiscation.

The Russian side holds that "grey customs clearance" will lead to heavy losses of tax revenues. On April 15, 2005, the Russian Premier Mikhail Fradkov signed the Pre-shipment Inspection Regulations. In accordance with the regulation, as of 2006 all imports deemed as "risky" should undergo inspections twice, namely, frontier clearance inspection and pre-shipment inspection in the exporting country. The commodities deemed as "risky" by the Russian Ministry of Economic Development and Trade mainly include such consumer goods as garments, shoes, some foodstuffs, household appliances and computer equipment. However, on June 3 of the same year, the Russian government resolved to postpone the implementation of pre-shipment inspection. On September 16, 2005, the State Customs Committee of the Russian Federation declared that the Russian customs plan to exercise routine supervision on the importation of daily necessities and strict supervision on the identities importers.

In addition, importers are required to clearly state in the customs declaration the types of imports. On December 12, 2005, the Russian government decided to temporarily shelve the implementation of the Pre-shipment Inspection Regulation and authorized the Ministry of Economic Development and Trade to conduct reasonable additional inspection. Mr.Gref, the Minster of Economic Development and Trade, proposed to make inspection on "suspicious imports". As it has not yet decided whether pre-inspection will be brought into effect, exporters feel that the risks involved are unpredictable, and this has impeded exports to a certain degree.

Resolution No.863 issued by the Russian government in December 2004 stipulates that as of January 2005 new formalities charges are to be collected for customs clearance.

1. Clearance formalities charges ranging from 500 Rubles to 10,000 Rubles by eight grades according to the customs value shall be imposed on foreign exports- in-transit, including the transport tools, within Russian customs territories.

2. With regard to the goods being transported by rail within Russian customs territories, 500 Rubles of clearance formalities charge shall be imposed on every batch of goods under the same B/L and loaded on the same train.

3. 500 Rubles of clearance formalities charge shall be imposed on every batch of negotiable securities and equivalent foreign exchanges being delivered under the same B/L via Russian customs territories.

3.4 Discriminatory taxes and fees on imported goods

In addition to tariffs, Russia imposes an 18 percent VAT on imports and a 10 percent VAT on foodstuffs and articles for children use, and 25 percent-90 percent consumption taxes on such luxuries as alcohols, alcoholic beverages and beers, cigarettes, jewelry, automobiles, and gasoline. However, the Minister of Finance pointed out that the VAT on domestic industries would be reduced from 18 percent to 13 percent.

The Chinese side hopes that Russians will gradually remove discriminatory measures against imports.

3.5 Technical barriers to trade

Currently, Russia still maintains various mandatory decrees and departmental regulations affecting technical standards, of which many are not in conformity with international standards. In practice, the Russian technical surveillance departments are reluctant to accept the certificates or inspection results issued or provided by overseas testing institutions. Russians' refusal to recognize the China's certification has brought about unnecessary burdens on Chinese exporters concerned. The Chinese side hopes that the Russian technical surveillance departments will make consultations with Chinese counterparts on the mutual recognition of the testing results by testing institutions on both sides.

Russia's certification system has affected importation of foreign commodities. It takes 12 to 18 months to complete the all inspection procedures for telecommunications equipment. Manufacturers of pharmaceuticals and wines and alcohols have to apply for overlapped accreditation.

3.6 Sanitary and phytosanitary measures

According to Russian requirement, the official inspection certificates for Chinese meat exports to Russia issued by the competent Chinese authority will not become valid unless endorsed by Russian veterinarians. Ignoring the agreement reached by both sides that Russian veterinarians' endorsement is required only for Chinese certificates issued for pork and beef, the Russian side demands that the measure apply to other products such as other animals' meat, poultry meat, casing, etc. Russia's continued application of this measure will place Chinese exporters in difficulties.

In May 2005, the Russian quality inspection department notified the Chinese side of the problems in the packaging of Chinese fruit and vegetable exports to Russia as a subject under discussion. Crown daisy chrysanthemum is not allowed to be used as padding or wadding inside the packages. Old bamboo baskets are forbidden. Wooden packing material shall not bear barks or wormholes. Besides, the procedures involved in Russians' inspection and quarantine as well as in the Chinese exporters' application for Russian certification are extremely intricate and time-consuming. What is more, the Russian side will usually demand special testing in addition to normal testing that imports from China must be subject to. All these practices on the Russian's side have affected normal trade activities between the two countries.

3.7 Trade remedies

On October 27, 2005, Russia initiated safeguard investigations against ammonium chloride imports from China.

3.8 Export restrictions

Since early 1999, the Russian government has been imposing provisional export duties on selected principal exports. The commodities subject to export duties include energy products such as coal, petroleum, and natural gas, non-ferrous metals, timbers, leathers, soybeans, rapeseeds, sunflower seeds and some foods.

3.9 Barriers to trade in service

3.9.1 Telecommunications services

The Law on Telecommunications effective as of January 2004 contains special regulations on the intercommunication between the network of alternative operators and the network of Russian public telephones. According to the regulations, both the contracts and expenses with regard to the intercommunications are placed under the tight control of the Federal Ministry of Telecommunications. Meanwhile, according to the law, the license is valid for only 5 to 10 years, during which time the telecommunications operators are unlikely to gain returns on investment.

3.9.2 Construction Services

It is stipulated that only natural persons with Russian nationality can obtain the permit to provide architectural services. Only by jointly providing service with Russian citizens or permitted Russian commercial firms can foreigners provide architectural services.

It is also stipulated that when more than 100 employees are employed at a construction site, more than 50 percent of them should be Russian citizens.

3.9.3 Transport services

Russia has not yet opened the market for passenger and cargo transportation by railway. Meanwhile, no joint venture is allowed to engage in cargo handling, container yard operation, shipping agency, or customs clearance. No foreign business is permitted to provide maintenance service to railway transportation equipment. Moreover, certain non-national-treatment restrictions are imposed on Chinese companies that provide cross border road transportation services,

At present, Both Russian and foreign investors engaged in aviation-related research and manufacturing are granted by the Russian legislatio n some favorable treatments, including tax holiday and investment guarantee. However, foreign ownership is not allowed to be more than 25 percent of the whole share of an aviation enterprise. Moreover, directors and senior managers must be Russian citizens.

3.10 Other barriers

Russia's border procedures for the entry of Chinese service providers in Russian are intricate and costly.

In Russian firms, foreign employees can only take the following positions: general manager, deputy general manager and chief accountant. And the number of foreign candidates is under strict control. On the other hand, to recruit foreign workers in Russia, employers must hold the License for the Recruitment of Foreign Labor. Federal Migration Service (FMS of Russia) is responsible for the issuance of the license and the surveillance over the implementation thereof. The validity of the license is generally no more than one year. However, upon expiration the validity can be extended at employers' request, but the extension shall be no longer than one year. All the working visas just allow single entry. And applicants are required to register immediately after they enter the country.

In order to improve the environment for foreign investment and prevent illegal recruitment of foreigners, the Russian government drafted an amendment to the Act on the Rights and Status of Foreign Citizens in Russian Federation, which has been submitted to Duma for approval. According to the Amendment, both the living and working conditions for foreign natural persons or legal entities will be improved. The procedures involved in granting work permits to foreign natural persons are to be streamlined, and related charges brought down accordingly. Besides, the formalities foreign applicants have to take up for residence are to be simplified: the current "examination and approval approach" will be replaced by the "notification approach". The requirements are to be lifted that foreign companies have to deposit for repatriation of their foreign employees and that foreign personnel working at representative offices affiliated to foreign companies be obligated to apply for work permits.

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