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At present, about 300 commodities areliable for export duties in Russia. Import duties apply, apart from oil andgas, to such actively exported goods as ferrous and non-ferrous metals andalloys, precious metals, chemical products, and products of the wood processingindustry.

The worsening situation in the worldmarkets forces the RF Government to lower and cancel exports duties. Thus, onFebruary 5, 2002 the government imposed on imported light and semi-light oildistillates and diesel fuel a duty of 25 Euro per 1000 kg (before February 4inclusive, the effective import rate had been 39 Euro).

Pursuant to Resolution #17 of the RFGovernment "On the non-application of import duties to specific commodities",dated January 14, 2002, the customs authorities are instructed to stop fromFebruary 19 collecting export duties on some types of birch wood products(until February 18, 2002 inclusive, the effective rate was 5% of the customsvalue); paper and coated, soaked or laminated paperboard, except for adhesives(prior to February 18, 2002 the effective rate was 10%); gold (5%);piezoelectric quartz (6.5%). Starting from February 1, 2002, oil and oilproducts derived from bituminous robbing are liable for an import duty of$8 per 1000 kg (before January 31, 2002, the effective rate was 23.4 Euro per1000 kg).

At the same time, some of the effectiveexport duties are performing a regulatory function and are applied to restrictthe export of goods. For instance, prohibitive duties have been imposed onhides, sunflower seeds, ferrous and non-ferrous metal scrap. The prohibitiveduties will not be lowered.

As it follows from the above mentioned, thelegal framework regulating Russia's foreign trade activities has not beenfinalized yet, and requires further development and improvement. This situationis contingent upon a number of factors, including Russia's impending accessionto the World Trade Organization (WTO).

Annex3
The results of the 2001negotiations on Russia's accession to the WTO and future prospects

In 1995 the Russian Federation initiatedofficial procedures for its accession to the World Trade Organization (WTO). Bynow Russia has largely completed the first, so-called information, stage of theaccession procedures, which involved multilateral discussions (within theframework of the Working Group for Russia's accession to the WTO) of complianceof the economic mechanisms and foreign trade regime of the Russian Federationwith the basic provisions of the Uruguay Round Agreements. At the same time,pursuant to the WTO rules and procedures, this stage, if need arises, willcontinue until Russia has become a member of said organization.

Since 1998 the Russian delegation has beeninvolved in official bilateral negotiations with the WTO member-statesconcerned on the future terms and conditions of Russia's membership (rights andobligations) in this influential multilateral economicorganization.

Following Russia's submission in 1998 ofinitial tariff proposals (at maximum rates of export duties as may be allowedfrom the moment of the country's accession to the WTO) and initial proposalsfor the agricultural sector (obligations of the Russian Federation relating tothe scope of internal support of agricultural production and subsidization ofthe export of agricultural and food products), and following the submission inOctober 1999 of proposals concerning the trade in services (a list of specificobligations pertaining to services and a list of exemptions from the mostfavored nation treatment), Russia has been involved in bilateral negotiationswith the interested Working Group member-states on the terms and conditions ofaccess to the markets of goods and services.

Thus, having submitted all of the requisitepositional documents, the Russian party has embarked on full-scale bilateralnegotiations on access to the markets of goods and services, and on the otherWTO Agreements. These negotiations will serve to define a significant portionof the terms and conditions of Russia's membership, i.e. its future rights andduties within the framework of that organization.

At present Russia is in the active stage ofaccession negotiations, which are covering the following four venues:

- tariffs, including discussions on themaximum permissible rates of import duties applicable in Russia after itsaccession to the WTO;

- agriculture, including discussions on thescope and types of state support for the Russian agriculturalsector;

- services, including discussions on theterms and conditions for the entry of foreign suppliers to the Russian servicesmarket;

- conformance of applicable Russianlegislation with the standards and rules set forth in the WTO Agreements, aswell as the terms and procedures for Russia's commitment to abide thereby.

The economic program adopted by the RFGovernment in June 2000 sets as a top priority the escalation of the WTOnegotiations. In the second half of 2000, the Russian delegation stepped up thenegotiations and by now has made considerable progress, which gives hope thatthe final stage of negotiations may commence in 2002.

On the whole, in 2001 the Russiandelegation held in Geneva five rounds of negotiations on access to commodityand services markets; a number of meetings on the specified questions werearranged in the capitals of the countries that are Russia's leading partners,i.e. USA, Canada, EU, Japan, Norway and some others; with several delegationsnegotiations were conducted in Moscow.

Bilateral tariff negotiations, whichentered into a new phase in 2001, represent an important area of theseactivities. The RF Government approved in January the third version of Russianproposals concerning its entry to the commodities market as a basic documentfor these negotiations, during which the Russian delegation discussed with thecounterparts specific chapters in the Foreign Trade Commodity>

During the past year, the Russiandelegation has carried out over a hundred bilateral negotiations andconsultations with the delegations of more than 40 countries. By this time, theRussian delegation has coordinated or has come an understanding with thepartners on approximately 70% of the tariff positions.

The second major venue of the talksconcerns access to the Russian market of services. The RF Government hasapproved the second edition of proposals on access to the market of services,which was presented to the WTO member-states in February 2001.

In the course of last year, the Russiandelegation held meetings with representatives of almost 25 countries andsucceeded in getting closer to the position of the trading partners on thematter of regulatory measures applicable to all sectors of services (theso-called horizontal section of obligations), which was instrumental forbeginning the discussions on concrete terms and conditions for the entry intothose market sectors that are of utmost interest to Russia's principalcommercial partners.

Agricultural issues constitute asignificant component of negotiations on Russia's accession to the WTO. Inaddition to the tariff aspect, they include discussions on Russia's statesupport of its agricultural sector. In the wake of the 1998-1999 negotiations,the Russian position has been adjusted in the part concerning methods used todefine the baseline period for computing the aggregate volume of internalsupport for the agricultural sector. The RF Government has approved the thirdedition of Russia's proposals on internal support measures and exportsubsidies, which were submitted to the WTO Secretariat in February2001.

The multilateral meeting in December 2001discussed the new Russian document and the future course of negotiations on theagricultural issues.

The fourth subject-matter of thesenegotiations concerns Russia's potential commitments regarding the format ofimplementation of the WTO multilateral agreements, which pertain to some orother aspects of the Russian regulatory framework in the sphere of foreigntrade and economy. During the past year, a series of multilateral consultationsand bilateral negotiations were held on sanitary and phytosanitary measures,technical barriers to trade, industrial subsidies, customs procedures, thetrade aspects of intellectual property rights, and etc.

The intermediate results of thesenegotiations have been summarized multilaterally at the formal sessions of theWorking Group, which currently includes 62 WTO member-states. Where necessary(to resolve individual issues), informal sessions of the Working Group werearranged (March, April, December).

The 12th session of the Working Group washeld on 26-27 of June, 2001. The agenda included the development of the Russianlegal framework, the "Review of the trade and political regime of the RussianFederation" submitted by the Russian party, as well as a block of otherofficial documents.

To ensure the resolution of most topicalissues and to define the accession strategy, G.Gref, Minister of EconomicDevelopment and Trade of the Russian Federation, regularly met with R.Zellik,US Trade Representative, P.Lami, ECC Commissioner, and other high-rankingrepresentatives of the WTO key member-states.

On 30 of March, 2001, the Governments ofthe Russian Federation and Sweden jointly with the European CommunityCommission, organized a summit meeting on the topic of Russia, world economyand the World Trade Organization, which was attended by WTO Director GeneralM.Moor, Chairman of the Working Group for Russia's accession to the WTO K.Brin,ECC Commissioner P.Lami, Swedish Trade Minister L.Pagrotski, and over 100 headsof Russian business associations, banks and major companies. On March 30, 2001,President of the Russian Federation V.Putin met with M.Moor and K.Brin.President Putin also met with Mike Moor at the G-8 Summit in Genoa in July 20 -22, 2001.

In November 9 - 14, 2001, the 4th Ministerial WTO Conference was heldin Doha (Qatar), which was also attended by the Russian delegation. TheConference adopted the decision to start a new round of multilateral tradenegotiations on the following issues: agriculture, services, access to themarket of non-agricultural products, some matters pertaining to the tradeaspects of intellectual property rights, the WTO rules (the application of theWTO rules in the sphere of antidumping procedures, subsidies, regional tradeagreements, and etc), the WTO dispute resolution procedures.

The intensification of the negotiationprocess does not imply that Russia is ready to join the WTO on any terms andconditions. All of the aspects of the accession conditions (tariffs,obligations in the sphere of agriculture, access to the services market, andetc.) will base on the actual state of affairs in Russian economy, ensurerequisite protection of national manufacturers and preservation of the adequatecompetitive environment.

2.7. Economic problems atthe new phase
of defensereform in Russia

The year of 2001 became the first at thenew phase of transformations in the Russian military organization and defenseeconomy: apart from some one-off accomplishments, the overall goals of theprevious phase in the defense reform were never achieved. Moreover, all hopesfor an ultimate end to the military operations in Chechnya were dashed.

That explained the reasons for the reviewof the planned military restructuring, adjusting its goals, concept andcontent. As before, the key document for the military organization planning wasnot published. For the purposes of independent analysis or civil supervision,it has to be derived from public statements by the Russian president or variousmilitary leaders. For the diagram describing the key areas of the militaryplanning and its stages, see Table 1.

Above all, the stages for the proposed workobviously remain structured around five-year cycles while the actual politicallife impacting defense reform follows election cycles and primarily that of theelection of the Russian President who is the Supreme Commander of the ArmedForces.

In contrast to the previous (failed) phasesof the defense reform, the new ones are proposed to accomplish within thelimits of the appropriated funds guaranteed by the RFGovernment, which, provided the system of earmarkedexpenditures is put to order, makes the proposed defense planning morerealistic. True, the legal status of the RF Government guarantees is not clear,and no less clear is the degree to which such plans could be implemented.

Another important deficiency in the overallset of the proposed plans is the absence of clear-cut priorities. In the veryleast, the importance and priorities of such a complex issue as staffing inRussia’s militaryorganization are non-apparent, and the measures are scattered among variousother planned activities.

In particular, the urgency of the reform inthe system of military recruitment of rank and file and junior officers is soobvious for the public that substitution of specific plans and deadlines of thereform in this area for the words improved recruitment of the army (armedforces) offered in respect of the Army only, appears extremely unconvincing.The statements to the effect that the set of measures and activities aiming toresolve this issue was to be formulated as a separate federal targeted programwere never supported by any real actions in 2001.

We believe the best way would beto incorporate the reform in the military recruitmentin Russia as part of the defense planning in a separate section whose parameters should be coordinated with the relevantparameters of the Social Security Program, with the plans for the streamlinedmilitary training and other separately developed action plans and programs.

Table 41

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

RF Government guaranteedappropriations for the defense planning and development of the militaryorganization in the Russian Federation

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