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In January 2001, the Ukrainian governmentintroduced for Ukrainian oil importers special privileges with a view toincreasing the fuel supply for agricultural needs. Besides, starting from July1, 2001, under the new RF Tax Code, Russian oil product exports will be liablefor a zero tax rate, while oil exports will still be liable for VAT and exciseduty.

Major oil companies, for instance LUKOIL,own oil refineries in Russia, and under the new conditions it would be moreprofitable for them to deliver oil products to Ukraine, rather than import andprocess crude oil in that country. That arrangement would be wittingly placingUkrainian oil product manufacturers in a losing position before oil productimporters. In this connection, the creation of a flexible quota-setting systemregarding the oil product imports is becoming a topical issue for the Ukrainianoil market.

Despite the fact that the problem of theUkrainian debt for Russian gas deliveries has not been resolved, the naturalgas exports to Ukraine are expanding. Ukraine has tried to reorientate itstrading operations towards the deliveries of Turkmen gas, but lately the scopeof these operations have nearly halved - from 80 to 50 million cubic meters perday. The dwindling transit of Turkmen gas through Ukraine is explained by thedefault by the Ukrainian Ministry of Energy on the obligation to repay the $50mil. debt to the ITERA Company, which jointly with its Kazakhstan partnersensures the transportation of oil.

In October, Russia and Ukraine signed newintergovernmental agreements on the re-structuring of Ukraine's gas debts andon the Russian gas transit arrangements. These agreements provide forincreasing cash collections for the gas transit and for fixing the amount ofcash collections annually by special intergovernmental agreements. Ukraine'sdebt amounts to $1.5 bln. and the first settlements are expected only in 2005.

In 2001, Ukraine increased the export ofother commodities to Russia almost by 50 %. On the whole, the Ukrainian importsin the eleven months of 2001 have increased by 8 %, and the commodity turnoverbetween Russia and Ukraine has amounted in the same period to $8.314 bln.,exceeding the level of the previous year by 7 %.

Thus, Russia maintains a positive balanceof trade with Ukraine within the limits of $1.26 bln.

Bilateral trade relations between Russiaand Kazakhstan are demonstrating some positive tendencies: the commodityturnover is building up, having increased by 8% over the eleven months of 2001to $4,34 bln. The Russian exports to this country have grown by 24 %, while theimports have declined by 9 %. In addition, the bilateral trading agreementssigned in 2001 in the oil-and-gas and energy sectors have been put into effect,and a coordinated transport policy is successfully being implemented.

At the end of 2000, the customs tariffreform - the most comprehensive reform in the past seven years - began. Severalattempts to revise the customs tariffs have already been undertaken, but noneof them has managed to resolve the fundamental problems.

Since January 1, 2001 new import dutieshave been in effect in Russia, at the rate of 5%, 10%, 15% and 20% of thecustoms value. The exceptions include motor cars (25%), chicken legs (25%),white sugar (30%) and spirit (30%). The maximum rate of import duty for thosecategories of goods that are liable for the maximal rate of 30% has beenreduced to 20%; and to speed up the modernization of domestic economy importduties on process equipment have also been cut down.

Before 2001, almost 25% of imported goodshad been cleared through the customs in violation of applicable rules andprocedures, and a significant portion of goods imported to the RussianFederation had been declared in violation of the commodity>

This diversity of customs rates served tocomplicate the collection of customs duties, enabled bad-faith importers toimport goods under the guise of those liable for minimal duties, depriving thebudget of relevant revenues. For example, chicken legs were imported under theguise of turkey meat (which is liable for lower customs duties), and motor carswere imported as spare parts.

Under the circumstances, the unification ofthe import duties was aimed to improve the customs administration and preventthe evasion of appropriate customs duties.

The new Customs Tariff that came intoeffect on January 1, 2001, provides for the following changes:

- the actual cancellation of the 30% rate.With respect to 883 out of 888 tariff positions liable for the 30% rate, therates were lowered to 20% (that mostly concerns consumer goods, chemicalproducts, industrial equipment, and etc.). The 30% rate will only remainregarding 5 positions, including such sensitive for the domestic industryproducts as white sugar and tobacco products liable for excise taxes (4positions);

- the reduction (from 624 to 104 tariffpositions) of groups of goods liable for 25% import duties. That reductionmeant the cancellation of the 25% customs duty for many types of imported foodproducts (i.e. fruits, vegetables, alcoholic beverages and fish products), anumber of chemical products, and some others;

- the unification of the import dutieswithin the framework of groups of homogeneous goods with similar consumerproperties and technical characteristics. The leveling of the rates was aimedto provide the transparency of custom duties for participants in foreign tradeactivities and to considerably reduce the instances of improper declaration ofimported goods and ensuing violations of the law;

- the increase of import tariffs on thecurrently duty-free goods up to 5% with respect to 33 commodity positions. Theduty-free import regime was preserved only for socially significant goods, i.e.insulin containing medicines; wheelchairs; thoroughbred animals and goods thatare liable for duty-free import under the international Agreement (theso-called Florentine Agreement).

As a result, the revision of the customsduties has affected 32% of the Foreign Trade Commodity >

On October 1, 2001 new import duties forsome 400 commodity positions were imposed for a period of 9 months. Inaddition, the term of the duties, which were reduced and unified starting fromJanuary 1, 2001, was extended in respect of 3.5 thousand commodities. Thereduction and unification of the import duties serves to cut down the number ofviolations of the customs rules and regulations, and promote the transition ofthe ever increasing number of foreign trade participants into the sphere oflegal operations.

In introducing new customs duties inOctober 1, the RF Government hoped to step up the import of technologicalequipment, which is a matter of great importance for Russia in view of the highdeterioration of the fixed assets of most Russian enterprises. For that reason,the government has reduced the import duties for a number of types oftechnological equipment. Regarding some types of such equipment, in particularthe equipment which is not manufactured in Russia but is necessary for theretrofitting of domestic enterprises, import duties have been reduced from10-15% to 5-10%. The unification of the customs duties has also affected paper,paints, chemicals, machine engineering products. Previously, various types ofthese goods were liable for a fairly wide bracket of customs duties, rangingfrom 5 up to 15%. That provoked bad-faith importers to pass off goods liablefor high import duties as goods subject for lower duties.

The unification of customs duties alsoextended to integrated circuits, transistors, resistors and other unitcomponents. The relevant customs rates used to vary between 5 and 20%, and nowa uniform rate of 10% has been imposed. All these decisions were made basing onthe monitoring results of the changes in the Russian commodity market since theyear beginning; the monitoring showed that the new duties had a positive impacton the imports dynamics and the collection of customs payments. In 2001, thecustoms authorities collected for the benefit of the federal budget 540 bln. RFRubles in customs payments. In 2001, the amount of collected customs dutiesgrew against 2000 by $4 bln. During the year, the amount of collected customspayments continued to build up: starting from May, the monthly paymentsexceeded $1.5 bln., and in December they amounted to $1.8 bln.

The new customs tariff was imposed onJanuary 1, 2002 with a view to promoting further imports legalization. Pursuantto the new customs tariff, the import duties for 140 commodity positions willbe revised. With respect to 90% of said commodity positions, the import dutieswill be cut down. The new custom tariff incorporates all the revisions of theimport duties that were introduced in 2000 and 2001 or approved by theCommission of the RF Government on protective measures in foreign trade and oncustoms tariff policies. The new custom tariff provides for the reduction from20% to 15% of import duties on audio- and video-equipment, including radio andtelevision parts and components. The imports duties will be reduced from 15% to10% for Figure tubes; two times, from 20% to 10% - for ships and other floatingvessels; from 25% to 20% - for sewing machines; from 15% to 10% - for vitamins;from 10% to 5% - for fruits and berries. At the same time, some goods will beliable for higher import duties: the customs duties will be raised from 5% to10% for rice, and from 5% to 15% for refrigerators and compressors. Thesemeasures are aimed to protect the interests of domesticmanufacturers.

As a whole, the average weighted importduties in Russia will be cut down from 10.5% to 9.8%.

Although the customs tariff served as thebasic regulating tool of foreign trade operations, a lot of countries arewidely applying non-tariff measures to protect the national manufacturer fromcompetition provided by imported goods. Said measures include quantitativerestrictions (quotas), licensing, antidumping and countervailing arrangements,and other remedies.

In 2001, the RF Government adopted a numberof decisions that considerably expanded the sphere of application of non-tariffmeasures to ensure support of domestic manufacturers.

For instance, on May 18, 2001 a specialcustoms duty was imposed for a period of 180 days on imported hard candies tothe extent of 21% of the customs value, but not less than 0.18 Euro per 1 kg(except for the goods originating from Byelorussia). The Resolution of the RFGovernment "On provisional measures to protect Russian hard-candymanufacturers" was aimed, first and foremost, to restrict the hard-candyexports from Ukraine because these goods are not liable for import duties orVAT. According to the State Customs Committee, in 1999 the imports of Ukrainianhard-candies to Russia amounted to 62,000 tons, or 96% of the total hard-candyimports and 34% of the annual Russian output.

On July 1, 2001, a 45% seasonal duty wasimposed on the sugar imports, which cannot be less than 0.16 Euro per kg (withthe base import rate of 30%).

The designed effective period of theprotective measures is six months, until the processing of domestic sugar beethas been completed. Similar seasonal duties were imposed in 2000, from June 15till December 15. At that time imported raw sugar was taxed at a rate of 40%,and white sugar was taxed at a rate of 45%, but not less than 0.15 Euro perkg.

Currently Russia manufactures about 1.5million tons of beet sugar and another 4.5 million tons from raw sugar, whereasat the beginning of the 1990-ies this ratio was quite the opposite. Before2001, the raw sugar imports were regulated by seasonal duties, but thesemeasures had not resulted in any significant reduction of the deliveries. In2001, the government decided to impose tariff quotas on raw sugar to the extentof 3.65 million tons until the year-end. Deliveries within the quota limitswere taxed at a rate of 5%, and all excessive amounts were liable for a 30%customs duty.

Starting from January 1, 2002 the customsduty for raw sugar will amount to 40% of the customs value, but not less than0.12 Euro per kg. The customs duty for white sugar will be set at 40%, but notless than 0.14 Euro per kg. From July 1 until December 31, 2002, raw sugar willagain be liable for a seasonal duty to the extent of 50% of its customs value,but not less than 0.15 Euro per kg; white sugar will be liable for a customsduty of 50%, but nor less than 0.18 Euro per kg.

Protective import duties were also imposedon starch, ranging from 10% to 30% above the existing rate. Starch imports toRussia have grown several times in the past years. As a result, the RFGovernment decided to introduce additionally for a three-year period a 30%special duty on potato flour (but not less than 0.11 Euro per kg) and a 10%duty on cornflour (but not less than 0.04 Euro per kg). Said duties will becollected on top of the effective import duty of 10%. These duties will notapply to starch imported from the Customs Union member-states.

To protect Russian leather manufacturers,an export duty of 500 Euro per ton has been introduced. This decision wasprovoked by the current situation in Europe, where the leather prices havesignificantly risen due to the spreading foot and mouth disease. However, therate of 500 Euro per ton is "an extraordinary protective measure" and cannot beregarded as a strategic arrangement. Before the year-end, the government plansto monitor the market situation and, if the need arises, go back to thesubject.

The decision of the Commission of the RFGovernment on protective measures in foreign trade and on customs tariffpolicies, dated March 16, 2001, approved the results of investigation ofsignificant damage inflicted on Russian manufacturers by the increased importsof piping and ferrous metals from the Ukraine. The RF Government has imposedfor a three-year period a special import duty on Ukrainian pipes manufacturedfrom ferrous metals. Under the document, the customs duty will amount to 40% ofthe customs value of pipes with an external diameter exceeding 406.4 mm. Theduty of 20% of the customs value will apply to pipes with an external diameterof 1420 mm and larger.

In response to the decision of the EuropeanUnion to cut quotas for the Russian steel exports, the RF Government hasintroduced a 17% import duty for metal products originating from the EUcountries. In addition, retaliatory measures have been adopted against Hungaryfor permitting market discrimination against Russian products. Said measuresinclude a 15% import duty on frozen vegetables, juices and vegetable oilimported from Hungary.

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