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In September 2008, the average world price of Urals amounted to 97 USD per barrel, dropping 11.1% by comparison with August 2008, although increasing by 1.3 times on September 2007. Over the first 9 months of 2008, the average world prices of Urals increased by 1.7 times on the same period of 2007.

By comparison with August 2008, in September prices for practically all basic non-ferrous metals except zinc went down. The biggest drop was in prices for aluminum, copper and tin by 8.6 %, 8.% and 8.3 % respectively.

2000 2001 2002 2003 2004 2005 2006 2007 Sources: RF Central Bank Fig 1. Main indices of Russian external trade (billions USD) Table Average monthly world prices in September of each year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Oil (Brent), USD/barrel 13.1 22.6 32.15 26.18 28.26 27.1 42.68 61.7 62.1 75.9 104.Natural gas USD/1m BTU 1.858 2.62 5.118 2.204 3.625 4.678 5.483 6.75 8.41 6.46 7.Gasoline USD/gallon 0.421 0.683 0.941 0.757 0.797 0.832 1.26 1.958 1.596 2.03 2.Copper, USD/t 1676.4 1876.8 2037.5 1452.9 1498.3 1816.4 2892.6 3858.0 7602 7656.5 6990.Aluminum, USD/t 1391.3 1493.6 1600.2 1342.6 1294.7 1415.0 1726.0 1840.0 2473 2392.9 2525.Nickel, USD/t 4229.8 6932 8654.3 5040.9 6592.5 9996.1 13298 14228 30131 29605 Source: calculations are based on data published by the London Metal Exchange and the International Petroleum Exchange (London) Table 2.

Behavior of the average world prices for some agricultural commodities 2005 2006 2007 June July August September Wheat, USD/t Canadian, CWRS 197.6 216.8 300.4 431.8 400.7 400.8 369.American, HRW 152.4 192.0 255.2 348.6 328.2 329.3 294. American, SRW 135.7 159.0 159.0 254.7 245.4 255.4 223.American corn, USD/t 98.7 122.0 163.0 287.1 265.3 235.0 233.Barley, USD/kg 95.0 117.0 172.0 241.0 248.1 212.3 189.Soya beans, USD/kg 274.4 268.4 384.0 639.0 634.0 556.0 508.Soya oil, USD/kg 545.1 598.6 881.0 1537.0 1511.0 1322.0 1227.Source: World Bank.

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In September 2008, there was a decline in world prices practically for all agricultural and food commodities, mainly related to a favorable forecast for major crops and to the strengthening of the USD against the rest of world currencies.

The decline in prices is starting to increasingly affect the behavior of Russian exports. In August 2008, oil was the only major Russian export commodity to demonstrate a downturn in contract prices, while in September the drop in export prices involved a much wider range of commodities. Thus, according to customs statistics, in September the drop in export prices by comparison with August, as displayed by a number of commodities, was as follows: oil - 13.2 %, petroleum products - 9.8 %, natural gas - 10.8 %, copper - 9.4 %, aluminum - 1.2 %, timber in the rough 3 %, converted timber - 3.%, and ferrous metals - 8.4 %.

On the whole, over the first 9 months of 2008 the external trade turnover amounted to 593.2 bn USD, which exceeded the results of the whole year 2007 by 2.6 %. According to the Bank of Russia, in January September 2008 exports amounted to 375 bn USD, which meant a 1.5-times rise on the corresponding period of the previous year (in January - September 2007 it grew by 9.5 % ).

The overall rise in exports was generally determined, first of all, by the 1.7 times increase in oil prices against the background of a fall in the physical volumes by 5.6%, and also by a considerable growth in the value of exported petroleum products and natural gas caused by rising prices (in 1.7 and 1.5 times respectively) and by an increase in the physical volumes of shipments (by 6.6% and 10.8% respectively). However, it can already be expected that in the next few months the growth rates of raw materials exports will inevitably decline, due to contraction of world demand for raw materials and fuel.

The physical volume of exports continued to grow at an outstripping rate in some categories of products of machine-building by comparison with export of major fuel and raw commodities. Thus, in January - September 2008, export of tractors, passenger cars and buses rose by 19.7 %, 15.2 % and 12.3 % respectively, by comparison with the first nine months of 2007. Whether or not the rate of growth of engineering exports remains high in the short-term perspective will depend on the state of the near abroad countries economies.

In January - September 2008, imports grew to 218 bn USD, or by 1.4 times on the corresponding period of the previous year (in January - September 2007 it grew by 37).

The growth trends of imports did not change, and growth in internal demand remained significant, although its internal component was weakening (the growth rate of investments in fixed assets was on the decline); and growth in the real disposable income of the population became relatively weaker by comparison with the previous year. In January - September 2008, real disposable income increased 7.% from the corresponding period of 2007. However, this was well below the figures for last January September (10.4 %) mostly due to a higher level of inflation in 2008. Under conditions of a considerable contraction of financial resources, enterprises have already begun reducing the purchases of products supplied through intermediate and investment imports, while the behavior of consumer imports so far has not been affected by the financial crisis.

The next round of consultations on the issue of Russias accession to the World Trade Organization (WTO) took place in Geneva on 24 November 2008. The Working Group discussed yet another version of the report on Russias accession to this organization.

Still unresolved are the three following issues: the level of export duties for timber, the conditions for the functioning of Russian state enterprises, and subsidies to agriculture. Russia continues to insist that the volume of state support to agriculture be capped at 9.2 bn USD (at present its volume is below 3 bn USD). In their turn, the WTOs members are convinced that 3 bn will be enough. They consider that the main aim of all the state controlled enterprises (and not only Gazprom and Russian Railways) should be making profit.

European countries insist that Russia should abstain from increasing its duties for round timber, which have already been raised over the past two years from 2.5 to 15 euro / cubic meter and, according to plans, are going to soar to 50 euro / cubic meter from 1 January 2009.

Prohibitive duties were always considered to be the sine qua non of guaranteeing the inflow of large scale investments into the timber industrial complex. To provide an additional stimulus, duties for products even in the first stage of processing were zeroed, and timber companies were granted privileges for the period of the construction of timber - processing facilities. In first half-year 2008, raw timber exports dropped by 23 % - to 20.1 million tones (according to the Strategy of Development of the Timber Industrial Complex, by the year 2020 it should decline to 5 million tones / year). By the end of Summer 2008, the RF Ministry of Industry and Trade had accumulated more than 200 investment projects worth 1.1 trillion rubles.

The reduction in the volumes of timber exports has destabilized the paper industry of the Scandinavian countries, placing it on the brink of bankruptcy. But the rise in duties also resulted in the emergence of internal problems in the Russian timber industrial complex. Most affected were the regional logging enterprises with no pulp and paper mills of their own, and those of them whose plants were too small. The ports and transport companies also became hostage to the situation, because by Q 2008 shipments of timber cargos had dropped almost two-fold.

After the meeting between the Prime Ministers of Russia and Finland on 12 November 2008, the RF Government promised to postpone, for 9 - 10 months, the imposition of the new customs duties for round timber, explaining this decision by Russias desire to help the crisis-stricken Finnish timber merchants. As for now, the information concerning the abolishment of export duties for raw timber should be considered only as a hypothesis. A rise in duties is envisaged by the Decree of the Government of the Russian Federation, of 5 February 2007, No 75, which is still in force. The postponement of another rise in duties will become reality only after the relevant alterations are introduced into this decree (which should also be done by a government decree).

Nevertheless, in the future the rise in duties will take place as a measure designed to increase the scope of domestic timber processing. But the schedule of increasing export customs duties for round timber should be optimized by adjusting it to the growth in processing facilities within the country.

The main objection raised by Georgia with regard to Russias accession to the WTO is that Russia should not accept trade documents of Abkhazias two customs posts. The Georgian demands concerning the customs posts in South Osetia also remain in force. However, it appears likely that Georgia will not be able to block Russias accession to the World Trade Organization, if agreements are reached on the existing systemic issues with all the other members of this organization.

Ukraine, which joined the working group considering Russias accession to the WTO only this year, is not going to raise any special issues. The Ukrainian representative has announced that it would suit the Ukrainians better if the existing problems are resolved on the basis of bilateral negotiations.

On 26 November 2008, the Council of the Federation approved the Law On the Introduction of Alterations into Article 3 of the Law On the Customs Tariff. The State Duma had approved the draft in the first reading and in general on 21 November 2008. In order to ensure a more operative and flexible implementation of the measures pertaining to customs-tariff regulation and state support to the oil industry, the Draft Law envisages that from 15 October 2008, the price of Urals crude oil on world markets should be monitored during the periods from the 15th day of every calendar month through the 14th day of the next calendar month. The period of validity of the rates of export customs duties for crude oil and some petroleum products is shortened - from two calendar months to one. The decision of the RF Government with regard to the changing of these rates should be published no later than one day before its entry into force (previously no later than ten days before the event).

By the new calculation methodology, from 1 December 2008, export duty for Russian crude oil is to be slashed from 287.3 USD / t to 141.8 USD /t, while that for dark petroleum products - from 110.USD / t to 76.4 USD / t.

Budgetary and Tax Policy . Kirillov In the current circumstances the Russian Government is trying to take extra measures to mitigate the negative impact of the global financial crisis. At the X-th Congress of the United Russia party the vast scale of major anti-crisis measures taken by the Government recently was highlighted once again. In the budgetary sphere the major ones include changes to tax legislation and additional programs on budget expenditures.

The Government of the Russian Federation in the context of the global financial crisis is trying to take further measures to stabilize the Russian economy. But now it is clear that the Russian budget for 2009 will be profitless, and most likely deficient, although a month earlier the RF federal budget draft was discussed in the State Duma and no amendments were made to macroeconomic indicators. Under the new circumstances, the Government is planning to re-assess the economic growth rate and adjust estimates of the budget revenues.

At the tenth congress of the United Russia party on November 20, the new initiatives to be implemented shortly were announced:

Mr. Putin said that the income tax will be decreased by 4 percentage points17. According to A.

Kudrin, the economic effect of the tax reduction is estimated at RUR 400 billion. Financing tax innovations will be implemented from the Reserve Fund, rather than due at the expense of federal budget. Assessing the tax innovations proposed by A. Kudrin, the Prime Minister of Russia has highlighted, that they are proposed timely, and it is necessary to make use of the reserve fund to overcome challenges of the difficult years".

It is planned to increase the depreciation refund from 10 per cent to 30 per cent, which would provide RUR 100-150 billion more to the Russian companies per year.

The RF Government will provide further assistance to the Russian regions, which are losing significant amounts of revenues as a result of the crisis. This assistance will be also provided from the reserve fund.

It is proposed an increase the maximum rate of unemployment benefits by 1500 rubles, up to rubles from 1 January 2009. Total expenditures for unemployment benefits in Russia in 2009 will make about RUR 30 billion.

The government intends to purchase from the developers more than 40 thousand standard apartments and is going to allocate additional RUR 83 billion for such purpose.

In addition to the funds, allocated earlier, the government will address several hundred billion rubles more in the coming months to overcome the effects of the global financial crisis. Overall, the Russian government allocates for this purpose up to RUR 5 trillion.

The federal budget expenditures for 2009 will not be reduced. In the medium term, the Government looks forward to restoring economic growth rates and the subsequent increase in tax revenues to the federal budget.

Alexey Kudrin, Vice Prime Minister of Finance predicts that the peak of the global financial crisis will be in 2009 and it will be the most difficult in the recent 10 years, and in 2010 the situation will getting improved. Namely in 2009, the demand for Russian products: oil, gas, metals, machinery, grain, chemistry products will get reduced.

Amendments were introduced in the procedure of some major taxes payments:

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