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U.S. Embassy Moscow
July 30, 1996

* Executive Summary
* Economic Trends and Outlook
* Political Environment
* Marketing U.S. Products and Services
* Leading Sectors for U.S. Exports and Investment * Trade Regulations and Standards
* Investment Climate
* Trade and Project Financing
* Business Travel
* Appendices

I. EXECUTIVE SUMMARY

This Country Commercial Guide (CCG) presents a comprehensive look at Russia's commercial environment through economic, political and market analyses. The CCGs were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. Embassies through the combined efforts of several U.S. government agencies.

Overview of Import Market

Russia, spanning 11 time zones and serving as home to about 150 million people, possesses tremendous natural and human resources. Demand today for imported consumer goods, capital equipment, and services remains remarkably strong, with imports representing an unusually large percentage of the national market. Despite outstanding long-term market potential, Russia continues to be an extremely difficult country in which to do business.

Brief Synopsis of Commercial Environment

The Russian Federation continues to pursue a program of dramatic economic, political and social transformation. Despite President Yeltsin's successful re-election campaign, continued economic reform remains subject to the influence of the communist controlled State Duma (the Russian parliament). It seems a safe assumption that Russia will be characterized by structural change and commercial uncertainty for at least the next few years. Even the most optimistic scenarios envision a protracted process as Russia continues the task of fashioning a legal foundation for commerce, rationalizing the regulatory and taxation regimes with which businesses must comply, and completing the task of creating from scratch a highly effective and consistent customs administration. The duration and final outcome of this process are still uncertain. Consequently, Russia today offers U.S. business both high risk, and potentially high rewards.

Russian Business Attitude Toward the United States

Russian firms and customers admire U.S. technology and know-how, and generally are interested in business with U.S. companies. At the same time, there is a tendency in some quarters to suppose that the United States is responsible for the changes which have occurred in Russia, especially those which have caused most hardship to individuals and to industry. This sentiment has attracted the support of some political leaders, and is given credence by a significant proportion of the populace. At the same time, a strong U.S. commercial presence is viewed in the Russian Far East as a counterbalance to other regional economic powers.

Major Business Opportunities

Most Western products and services are in demand in Russia. Of particular interest are:

* consumer goods, including poultry and meats, paper products, apparel, cosmetics, and furniture,
* industrial chemicals,
* telecommunications equipment,
* medical equipment and pharmaceuticals, * building construction equipment and materials, * food processing equipment, and
* oil & gas and mining equipment.

Major Roadblocks to Doing Business

U.S. and other foreign companies operating in this market encounter major difficulties to both trade and investment, including:

* ownership disputes,
* high taxes, and a frequently changing tax regimen, * higher operating costs than anticipated, * lack of systematic and accessible credit information, * corruption and commercial crime,
* financial illiquidity of many Russian firms, * changing requirements from regulatory bodies, * the lack of market information,
* an infant commercial legal framework,
* cultural and language differences,
* infrastructure problems (telecommunications, roads, banking system, ports, etc.)
* payments arrears and frozen accounts, and * frequent changes in government personnel.

Nature of Local and Third-Country Competition

Business in Russia is regional, and so is third country competition. In European Russia and the Urals, Western European firms, particularly those from Germany, Italy, Austria, France and the United Kingdom offer U.S. business strong competition. Surprisingly, Korean and Chinese firms have made strong progress in the Urals over the last year. In northwest Russia Scandinavian firms are active. In the Russian Far East and southern Siberia Chinese, Korean and Japanese firms are aggressive. Russian firms in all sectors offer significant, low-cost competition, particularly outside the major cities Moscow and St. Petersburg.

US&FCS Regional Services

US&FCS operations in Russia are headquartered at the U.S. Embassy in Moscow. However, US&FCS maintains office staff at the U.S. Consulates General in St. Petersburg, Vladivostok in the Russian Far East, and Yekaterinburg in the Urals to support U.S. firms. In addition, American Business Centers operate in St. Petersburg, Vladivostok, Khabarovsk, Novosibirsk, Yekaterinburg, Nizhnevartovsk, Nizhny Novgorod, Volgograd, Chelyabinsk, and Yuzhno-Sakhalinsk, offering on-site business facilitation services to firms wishing to go and evaluate market potential for themselves.

Country Commercial Guides are available on the National Trade Data Bank on CD-ROM or through the Internet. Please contact STAT-USA at 1-800-STAT-USA for more information. To locate Country Commercial Guides via the Internet, please use the following World Wide Web address: WWW.STAT-USA.GOV. CCGs can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS.

II. ECONOMIC TRENDS AND OUTLOOK

Major Trends and Outlook

On February 22, 1996, the Government and Central Bank of Russia announced a three-year economic stabilization program. The program expands on the tight fiscal policy, restrictive monetary policy, and trade and energy sector liberalization initiatives begun in 1995, and forms the basis for a three-year $10.2 billion Extended Fund Facility (EFF) credit from the IMF. Through April of this year, Russia successfully met the monthly and quarterly targets under the IMF program, although poor revenue performance has substantially compressed spending patterns and election uncertainties have driven up borrowing costs. The Russian government's tight monetary measures have led to a drop in inflation from 17.8 percent a month in January 1995 to 1.6 percent a month in May of 1996.

The 1996 Federal budget provides a strong underpinning for the government's stabilization program. Revenues as a percent of GDP are maintained at 1995 budgeted levels while expenditures are to decrease slightly. The deficit is targeted to ease to 3.85 percent of GDP from last year's budgeted level of 4.5 percent of GDP. Through the first half of 1996, poor revenue performance forced the government to contract expenditures and increase domestic and foreign borrowing (although within the limits of the IMF program). Increased borrowing on the domestic market, coupled with market jitters in the run up to the June Presidential election, has driven up borrowing costs for the government, with yields on short-term government securities approaching 190 percent (on a simple annual basis).

A currency corridor has been employed by the government since July 1995 to increase ruble stability and to help dampen inflationary expectations. By June 1996, the ruble was trading at roughly R5020/$, about where it was one year earlier. On May 16, 1996, the Central Bank and government announced that the corridor, which since January 1996 was set at R4550-R5150/$, would be replaced with a crawling band mechanism, whose parameters would shift gradually from R5000-R5600/$ on July 1, to R5500-R6100/$ by the end of 1996.

Early signs of stabilization of Gross Domestic Product (GDP) and industrial production in the last half of 1995 gave way to a slight slump in output in the first quarter of 1996, although April figures are more encouraging. Secondary indicators of economic activity such as energy output and freight haulage continue to suggest a lesser production decline than that indicated by official statistics. For the year as a whole, some experts have predicted a slight rise in real GDP for the first time since the beginning of the transition to a market economy. Real GDP trends have been buoyed by the fact that over the past three years there has been steady growth in trade and services, sectors that were admittedly underdeveloped under the centrally planned economy of the former Soviet Union.

Unemployment increased slowly in 1995, and the first part of 1996, reaching 8.6 percent of the labor force by the end of April 1996 (by ILO standards). Rates vary by region, with virtually zero unemployment in Moscow, and almost double the national unemployment rate in the Ivanovo, Pskov, Vladimir, and Yaroslav regions, to name a few. Experts estimate that the number of unemployed and underemployed, when taken together, has remained steady at 12-13 percent of the labor force since early 1995. With enterprise divestiture of social assets (including housing) far from complete, many so-called underemployed workers have kept their wage positions in order to receive social benefits, or to provide "cover" for tax purposes for income earned working in the informal economy. Average wages reached 775,000 rubles per month in April 1996 (about $160 a month at the end-April exchange rate). Real average wages (adjusted for inflation) after slumping significantly in 1995, rose 19 percent in the first four months of 1996 over the same period in 1995. Dollar average wages rose over the same period by 91 percent.

Inflation fell sharply in 1995 in line with the Central Bank's and government's commitment to monetary and fiscal discipline. Monthly inflation averaged 7.3 percent in 1995, falling from a peak of 18 percent in January to 3.2 percent in December. On an annual basis, inflation in 1995 totaled 131 percent, down from the 215 percent registered in 1994. This trend has continued in 1996. By the end of May 1996, average monthly inflation for the year had fallen to 2.7 percent, with monthly inflation for May registering a record low 1.6 percent.

The ruble has come a long way since its 22 percent one-day drop (and nearly full recovery the next day) against the dollar in October 1994. In 1995, the ruble depreciated in line with inflation until April 29, when it hit a low of 5,130 rubles to the dollar. Through May and June, the ruble reversed course and appreciated 13 percent against the dollar, with the Central Bank intervening to slow the appreciation of the ruble. Since the introduction of the ruble corridor on July 6, 1995, the ruble has depreciated slowly in nominal terms, reaching roughly R5020/$ by the end of May 1996. The ruble appreciated 40 percent in real terms in 1995, and 31 percent in the first four months of 1996 over the same period in 1995.

Persistent high, real, interest rates mean that borrowing costs in Russia remain high, and little lending takes place on terms of more than 30 days. Interbank lending rates rose sharply following an August 1995 interbank liquidity crisis (see below), and ended 1995 at 140 percent (in simple annual terms). Interbank market rates fell in the first two months of this year, but have risen slightly since, and were at 120 percent in June. The discount rate ended 1995 at 160 percent (in simple annual terms), and fell to 120 percent in February, where it has remained through the first half of 1996. Yields on government domestic securities rose sharply in the run up to the June Presidential election, with yields at primary auction for six-month T-bills hitting 188 percent in simple annual terms as of the end of May.

The Russian banking system suffered a temporary liquidity crisis on August 24, 1995. The Central Bank moved quickly to provide liquidity, and the crisis passed within one day. The liquidity pinch can be seen as an inevitable reaction to the success of the Russian government's stabilization efforts, which have tended to reduce opportunities for speculative behavior on the part of commercial banks. Over 300 of Russia's 2,600 banks had their licenses withdrawn by the Central Bank in 1995, and many analysts predict a much needed consolidation of the sector in 1996.

Balance of Payments Situation

Russia's consolidated current account (after rescheduling) was in surplus for the third year in a row in 1995 at $4.7 billion. The 1995 surplus reflected a $17.9 billion merchandise trade surplus, offset by a $13.2 deficit in non-merchandise trade. Total trade expanded by 11.5 percent in 1995 over 1994 to $159.2 billion. Russia's non-merchandise trade deficit increased in 1995 over 1994, led by an increase in net non-factor services deficit and higher net interest payments. In 1995, Russia sustained a capital account deficit of $8.3 billion, including $12.3 billion in principal payments. Net International Reserves (NIR) of the Russian monetary authorities ended 1995 at $7.7 billion, having increased markedly through the first half of the year and held steady in the second half.

Capital flight continues to plague the Russian economy, although official data suggest that the rate of capital flight has slowed significantly since its peak in 1992. Opinions vary greatly, but a realistic assessment would place total capital flight since the transition at between $45 and $50 billion. Further, it appears that little of this is related to criminal activity, but represents a desire for safe havens abroad for foreign exchange earnings.

In April 1996, the Paris Club of official creditors agreed to reschedule Russia's outstanding stock of debt (more than $40 billion and including debt inherited from the former Soviet Union) over 25 years. The agreement is subject to periodic reviews which are tied to performance under the IMF EFF program. In May of 1996, the London Club of commercial bank creditors fleshed out an agreement in principle with the Russian government reached in November 1995 to reschedule $32.5 billion in debt, which now awaits final approval. The agreement calls for principal to be repaid over 25 years, with a seven-year grace period.

Principal Growth Sectors

The rate of decline in real industrial output slowed markedly beginning in August 1994, and ended 1995 down 5 percent over 1994. Although real industrial output continued to slump in the first four months of 1996, falling 3 percent over the same period in 1995, there were signs of improvement in April over March 1996. At the sectoral level, some industries experienced far deeper declines than others over the past four years, although few are still in deep decline today. There are clear signs that the raw materials sector and even some parts of the light industry sector -- by far the most depressed sector in the Russian economy -- have experienced some mild recovery since late 1995. The overall picture suggests a flatter industrial production trend for the first half of 1996, with positive growth rates in the second half of the year.

Traditional export-oriented sectors continued to record positive, but smaller, growth rates in the first quarter of 1996 compared to the first quarter of 1995. Among those with the strongest performance thus far in 1996 are the fuel, and ferrous and non-ferrous metals industries. Other export-oriented sectors, like the chemical and petrochemical and wood-working industries, appear to have been hard hit by the real appreciation of the ruble in the second half of 1995, and are experiencing a marked slow-down in output as they adjust to increased global competition.

Trends in the industrial sector tell only part of the story in Russia. The retail/wholesale trade and service sectors, which together made up more than half of GDP (55 percent) in 1995, are thriving. Ever-more sophisticated trading establishments have emerged all over Russia's major cities, replacing in part the system of kiosks that grew up in the immediate aftermath of the Soviet break up. Likewise, the service sector, long underdeveloped under the Soviet system, is burgeoning, and not only in Russia's major metropolitan centers. Along with the introduction of major western accounting and legal firms to Russia's corporate skyline are small service providers, who with informal traders make up the bulk of the cash or "gray " economy.

Government Role in the Economy

The Russian government has made great strides in its privatization effort. According to the government, as a result of small-scale, voucher and post-voucher (cash) privatization, almost 120,000 enterprises have been privatized in whole or in part. This represents 75 percent of manufacturing enterprises and 85 percent of manufacturing output. More than 80 percent of Russia's industrial workers are now working in privatized or quasi-privatized firms. The federal government's portion of the post voucher or cash privatization program, under which the government is selling retained holdings in privatized firms as well as enterprises which have not yet been privatized, began in the Fall of 1995 after substantial delays. The loans-for-shares portion of the program has proven controversial and has been under review in 1996.

Roughly 85 percent of wholesale and retail prices were liberalized by the end of 1992. Together with a virtually unrestricted import regime, price liberalization has meant an end to the shortages of consumer goods which marked the Soviet era. A few prices remain regulated by the government, among them natural monopolies such as electricity, oil transport, natural gas, and freight transport.

III. POLITICAL ENVIRONMENT

Nature of Bilateral Relationship with the United States

U.S. relations with Moscow have evolved rapidly over the last two and a half years. At meetings in Vancouver, Hyde Park, Tokyo and Moscow, Presidents Clinton and Yeltsin laid the basis for a U.S.-Russian partnership. Since Russia's emergence as an independent state in 1991 we have made great strides forward in a number of important fields -- particularly arms control. While disagreements persist on individual issues, the U.S. and Russia now consult closely on major issues of mutual and international interest.

The United States firmly supports Russia's development into a democratic/market society, and Russia's further integration into the international community. The United States has made available substantial bilateral assistance -- and has led international aid efforts. The United States has also taken steps to clear from the books Cold War-era legislation limiting contacts with Russia. On 17 June 1992 the Agreement on Trade Relations (previously negotiated with the Soviet Union) between the United States and the Russian Federation entered into force. More recently, in the second quarter of 1996 Russia was removed from the "Proscribed Country List" of ITAR (International Traffic in Arms Regulations).

Major Political Issues Affecting Business Climate

In a country without a long history of democratic and free elections, political risk is always a factor that foreign investors need to take into consideration. The presidential election in July 1996, the first free nationwide elections in Russia's 2,000 year history, helped to reassure investors about Russia's political stability. Nevertheless, other political factors, including the legal and judicial climate, affect the business climate in Russia. Although the last Duma passed into law a Civil Code (which includes a commercial code) and a Criminal Code, key amendments are needed to improve the business environment, which will be difficult in a new Duma dominated by the Communist and other parties in opposition to the government.

Even with a statutory base provided by Russia's parliament, businesses are often frustrated by the existence of presidential decrees and government regulations that are vague, ambiguous, and contradictory. Foreign businessmen find that contracts often do not have the same authority as in the West, and find it difficult to use the nascent judicial system to resolve disputes.

Even more telling of the business climate is the wave of crime which has swept over Russia with the passing of Soviet control. Police are underpaid, outnumbered and outgunned. Individual and organized criminal elements flourish. Especially problematic is racketeering, which raises costs for local and foreign businesses alike.

Protectionist elements in the Federal Assembly have raised the possibility of retaining certain elements of Soviet policy towards foreign investors. This might take the form of limits on foreign share holdings, limitations on property ownership, or an increased tax burden on foreign businesses. This pressure for greater protectionism reflects the widespread perception that foreign business is taking advantage of the current unstable situation to make quick money, and these proposals could make foreign investors wary of further involvement.

Political System, Schedule for Elections, and Orientation of Major Political Parties

As outlined in the new constitution adopted in December 1993, the Russian Federation is governed by a political system modeled after many in the West. The federal system is composed of three branches: executive, legislative and judicial. The Federation is composed of 89 "subjects," which include regions, ethnically-based autonomous republics, territories and the cities of Moscow and St. Petersburg. These "subjects" are granted some autonomy over internal economic and political issues, but there is considerable disagreement over how much authority they are to share with Moscow.

Executive Branch: Under the constitution, the executive branch is led by the President, who is elected for a four-year term. President Yeltsin's term expires in 2000. He has the right to choose the Prime Minister (currently Viktor Chernomyrdin), with the approval of the State Duma (the lower house of the legislature). The President, upon the recommendation of the Prime Minister, appoints Ministers, who are responsible for the execution of legislation and decrees in their respective fields.

Judicial Branch: The judicial branch comprises the Constitutional Court, which reviews the constitutionality of federal legislation; the Supreme Court, which is the highest civil and criminal judiciary body; and the Supreme Arbitration Court which resolves economic disputes between subjects of the Federation. The Constitutional Court held its first session in the spring of 1995.

Legislative Branch: The legislative branch is composed of a two-chamberfederal assembly, elected for the first time on December 12, 1993. The Upper House, the Federation Council, was reformed in January 1996 and is no longer directly elected. Rather, it consists ex-officio of the heads of both the executive and legislative branches of each subject of the Russian Federation. The Federation Council passes decrees on federation disputes and reviews legislation passed by the Lower House, including the federal budget. The Lower House, or State Duma, is made up of 450 deputies, one-half selected on the basis of geographic districts and one-half on the basis of party lists. The Duma passes most federal laws. Duma members are elected to four-year terms (after an initial two-year term which began in 1994). The last legislative elections were held in December 1995.

Political Parties: There are about a dozen parties or factions represented in the Parliament. Pro-reform forces in the Federal Assembly are led by Grigoriy Yavlinskiy's "Yabloko" party, which supports free markets but is inclined to use government funds to ensure a strong social safety net. "Centrist" groups, some of which are pushing for a slower approach to reform, include "Our Home is Russia," Prime Minister Chernomyrdin's party, and "Russia's Regions," a loose grouping of centrist politicians. There is also a wide range of parties standing firmly in opposition to market reforms. The "Russian Liberal Democratic Party" is a radical right-wing nationalist party led by Vladimir Zhirinovskiy. Lapshin's "Agrarian Party" is closely allied with the communists and represents Russia's agricultural establishment and favors continued government support for the agricultural sector. The reconstituted Communist Party is headed by Gennadiy Zyuganov. The anti-government parties hold a majority on most issues.

IV. MARKETING U.S. PRODUCTS AND SERVICES

The United States is the largest investor in the Russian Federation, but ranks fourth in terms of export sales to Russia. Germany, with two and half times our sales ($6.5 billion versus $2.6 billion) has invested only one third as much as have American companies. In fact, the Russian Federation has received relatively little foreign direct investment when compared with Eastern Europe and China. Most firms have concluded that returns are simply not high enough to compensate for the level of risk they perceive. With few exceptions, U.S. firms investing in Russia describe their decision to do so as strategic.

Western Europe's share of exports to Russia is comparable to their share of direct investment in Russia: in each case they contribute around 40% of the total. The United States, on the other hand, accounts for only 8% of Russian imports but contributes 29% of direct investment. There is a clear contrast between the trade oriented policy of Western European countries vis-a-vis the Russian Federation, and the U.S. approach.

Distribution and Sales Channels

Distributors in America expect well-defined distribution channels, relentless competition, and million dollar advertising budgets. Distributors in Russia, by contrast, encounter primitive, erratic distribution, sporadic competition, and word-of-month advertising. To sell in Russia is to work in a system that differs greatly from what is seen elsewhere. Although Russia is home to increasing numbers of joint ventures and Western-style stores in major cities, most goods distribution -- particularly outside of Moscow and St. Petersburg -- takes place through less formal channels. Penetrating these channels is often the key to success or failure for an American operating in the Russian market. Each U.S. company must find its own path to the Russian consumer. Western companies that have succeeded have done so through a combination of improvisation and innovation, combined with a substantial investment of time and a tolerance for early mistakes.

Use of Agents and Distributors/Finding a Partner

To achieve success, U.S. companies must consider a variety of local and regional distribution alternatives. In a few product categories (i.e. apparel, packaged foods, and alcoholic beverages), foreign suppliers can choose from a small but growing number of existing Russian distributors. These Russian agents can help the foreign supplier by placing its products on store shelves, handling customs and transportation matters and (rarely) conducting advertising campaigns. Most recently-formed Russian distributors are small-volume operations with experience limited to the main cities of Moscow and St. Petersburg, or other regional centers.

Over the last year many foreign manufacturers of consumer appliances and durables have moved away from using official distributors. These companies typically have replaced agency agreements with their own representation in major cities. They then sell directly to Russian importers, who take possession of goods outside Russia (in Finland, for example) and import for their own account. This affords the manufacturer greater control over prices and distribution, while avoiding potential tax and customs liabilities, as well as the uncertainties of the local commercial environment.

Franchising

Franchising is widely unknown and little understood in Russia. Several early attempts at establishing franchise distribution have foundered, perhaps in part due to confusion regarding ownership and the responsibilities of the parties to a franchise agreement.

Direct Marketing

In major cities, direct marketing using fax transmissions is common and not particularly effective. Person-to-person direct marketing, on the other hand, works extremely well. Herbalife has been very successful throughout Russia direct marketing their weight reduction products. Mary Kay cosmetics has recently launched their own direct marketing program, and may meet with similar success.

Joint Ventures/Licensing

A substantial number of foreign firms have established joint ventures, usually to market finished goods, and sometimes to manufacture in Russia. Examples of products produced and distributed successfully by U.S.-Russian joint ventures include soft drinks, ice cream, cigarettes, and elevators. Some firms choose to create a joint venture to capture Russian-style cost structures, in effect running their business as a Russian would. Uncertainty regarding Russia's legal climate for foreign investment is a key factor preventing faster development of joint ventures as a form of market entry by U.S. suppliers. At present, production of U.S. products in Russia under license is relatively rare.

Steps to Establishing an Office

Foreign firms often conduct marketing activities in Russia through representative offices. Under Russian law, foreign representative offices are not considered to be Russian legal entities, although they can conduct marketing activities and sign contracts. Depending on the type of activities they conduct, foreign representative offices could be deemed to be "permanent establishments", which subjects their activities to Russian taxation. (Firms are advised to consult with an accountant and attorney.) Representative offices can be in two forms: accredited or non-accredited. Accreditation is the more time-consuming and expensive approach, and requires the foreign firm to have a Russian Government sponsor (usually the Ministry of Foreign Economic Relations or an industry-specific ministry). However, accreditation holds certain advantages in that the accrediting sponsor can issue invitations to foreign personnel visiting the representative office (which are necessary to obtain Russian business visas) and can assist the office in making business contacts.

Companies opening offices in Russia should register with the:

* U.S. Embassy or Consulate (for security and passport replacement) * City Government
* Russian Ministry of Finance (if you are making a major investment) * the local tax inspectorate of the Russian State Tax Service * Appropriate Ministry

Selling Factors/Techniques

Russia is a vast country, with a vast array of possible buyers and partners. U.S. firms generally find success by choosing their sales targets carefully. Possible candidates for export sales include:

* Russian enterprises that export for hard currency * development projects in Russia financed by Western funding sources * Russian enterprises with good domestic cash flow * regional Russian governments in natural resource rich areas * the Russian federal government
* major modernization or expansion projects by Russian enterprises * the general Russian consumer market
* the upscale "new Russian" market.

Advertising and Trade Promotion

Advertising through television, radio, print and billboard media is typical in the consumer goods and financial services markets. As one would expect, the number of western as well as Russian advertising agencies active in Russia is growing rapidly. The legal/regulatory environment for advertising in Russia is not well developed. Both foreign and domestic firms frequently advertise in commercially-oriented newspapers and journals in Russia, with the following being the most popular:

* Deloviye Lyudi (monthly journal, Russian language) * Izvestiya (daily paper, Russian language) * Kommersant (daily paper, Russian language) * Delovoy Mir (daily paper, Russian language) * Ekonomika i Zhizn (weekly paper, Russian language) * Business MN (weekly paper, Russian language) * Moscow Times (daily paper, English language) * Moscow Tribune (daily paper, English language) * Moscow Business Guide (monthly business directory, English language) * Delovoi Petersburg (daily paper, Russian language) * St. Petersburg Press (daily, English language)

Trade exhibitions in Russia help U.S. suppliers potential buyers and distributors. Moreover, U.S. consumer goods suppliers frequently make substantial off-the-floor sales at Russian trade exhibitions. Representatives of regional governments and state enterprises from remote, poorly-supplied areas of Russia often visit trade exhibitions in major cities to purchase goods for their region or enterprises.

Pricing Product

Pricing behavior is often counter-intuitive; for example, some firms price high to create a perception of exclusivity and skim the new-Russian market. In general, price competition in the large cities is muted. The ratio of retail outlets per thousand residents in Moscow and St. Petersburg is a fraction of that found in Warsaw or Budapest, which partially explains the lack of competitive pricing. Other credible influences are the likelihood of collusion, and the monopolistic instincts of organized crime. Regional markets are also characterized by few alternatives in outlets, and little competition on price. While the market for a particular imported product in Moscow or St. Petersburg may be characterized by the availability of several competing import and domestic brands, heavy advertising, good consumer awareness and widespread price competition, the market for the same product in Omsk or Tomsk may differ markedly.

Sales Service/Customer Support

After sales service and customer support is a major comparative advantage for U.S. firms entering the Russian market. Russian manufacturers (even today) are known for their almost complete lack of after sales service. Russian buyers are accustomed to buying many more of an item than they need, just in order to provide spares and backups to keep a small part of an inventory running. (For example, many Russian airports are littered with airplanes whose engines are removed to keep other aircraft running.) U.S. firms able to provide even rudimentary support for products, particularly in remote sites, will achieve a major advantage over domestic competitors.

Selling to the Government

Russian Government organizations (particularly regional and local authorities) are good potential customers for U.S. suppliers. For example, the Russian Ministry of Health and the country's more than 100 regional government administrations often buy pharmaceuticals and medical equipment to distribute to hospitals, clinics and institutes under their jurisdiction. Since local governments no longer receive subsidies from the federal government, they now make purchasing decisions based on local factors and contacts. Once again, to take advantage of opportunities at the local and regional level companies must venture beyond Moscow.

Protecting Your Product from IPR Infringement

Russia has made progress in establishing the legal basis for protection of intellectual property rights. Laws protecting patents, trademarks, integrated circuits and computer databases in Russia were adopted in late 1992, and a copyright law came into force in 1993. Russia also subscribes to major international conventions and agreements on intellectual property. However, enforcement lags legislation. Piracy in computer software, motion pictures, videos, recorded music and proprietary-label clothing is pervasive; and foreign firms have experienced significant problems with patent infringement as well. U.S. attorneys operating in Russia report that judicial resolution of IPR disputes in Russia is difficult due to inexperience in the courts and among lawyers.

Need for a Local Attorney

The Russian Parliament has passed a civil code, which includes a commercial code, and is working on a tax code. However, many commercial regulations are contained in thousands of individual presidential, governmental and ministerial decrees. Often the relationship between these decrees and existing laws is overlapping, conflicting or unclear. U.S. firms operating in Russia should use a local attorney for most legal transactions. The Consular section of the Embassy maintains and will make available upon request a list of local attorneys.

V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT

What countries sell affects how quickly their sales grow. When we consider net changes in import volumes and track them by source, it is clear that food and manufactures lead, followed by raw materials. The winners in 1995 were Russia's neighbors. The Baltic republics of Lithuania, Latvia and Estonia, the Ukraine, Kazakhstan, Finland and Poland have improved their export position with Russia more than have any other countries. Finland and the Balts are as much export platforms as exporters of their own product, and may become the commercial portal to Russia much as Hong Kong has done for China. The growth in imports from these countries represents more than half the growth in imports from all sources over 1995 ($4.1 billion v $8.0 billion).

-- $ Volume Growth Percent Growth
-- Millions $ %
Ukraine $2,213 50%
Germany $861 15%
Kazakhstan $730 37%
USA $578 28%
Finland $413 25%
Baltic Republics $384 57%
Poland $375 40%
Italy $255 16%
United Kingdom $204 23%
Turkey $141 35%

Best Prospects for Non-Agricultural Goods and Services

After decades of separation from work markets, Russia today is a tremendous potential market for most U.S. goods and services. Demand has emerged in waves. First, in the early 90's came demand for U.S. food products. Strong demand for U.S. consumer products followed. 1995 saw a surge in demand for construction materials, hotel and restaurant equipment, and furniture. Once implementing legislation and regulations are in place, we expect strong demand for U.S. made equipment and services in hard currency-earning sectors (oil and gas, mining, timber). Over the next three years, as restructured Russian industries gain financial health, Russia will become a good market for U.S. industrial equipment and components, particularly food processing equipment. Once market access and financing issues are resolved, Russia promises to become a major market for U.S. passenger and light aircraft and U.S.-made engines and avionics for Russian-made aircraft. (Russia also will eventually become a substantial market for U.S. air traffic control equipment.) Ultimately, Russia is a good potential market for travel and tourism services. (Figures are US$ millions, unless otherwise noted.)

---1 - Chemicals (ICH)

Russian trade in industrial chemical products have increased by approximately half each of the last three years. While shipments to Russia have grown dramatically, exports from Russia have as well. The strongest import growth from developed economies has been in organic chemicals, pigments and paints, plastics, resins, and "other chemicals." There are clearly strong opportunities for specialized chemical exports to Russia, as well as for investment in local production of both inorganic and organic chemicals.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 6,192 8,000 9,000
D. Total Imports 2,224 3,336 5,004
E. Total Imports from U.S. 643 965 1,445

NOTE: The above statistics are unofficial estimates.

---2 - Telecommunications Equipment (TEL)

The Russian telecommunications market suffers from a lack of installed lines, outmoded switching equipment, and inadequate revenues to finance investment. Over $1 billion of telecommunications equipment was sold to Russia in 1995, but only ten percent was of U.S. origin. The Ministry of Communications is dedicated to bringing the telecommunications infrastructure up to international norms as quickly as possible, and many multinational firms are vying for the opportunity to help in this undertaking. Undoubtedly, very large investments will be made, with much of the capital and equipment provided by foreign firms. Demand, political will and interest from foreign investors have coalesced around telecommunications, virtually ensuring that significant agreements will be reached over the next eighteen months.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 15 25 42
D. Total Imports 1,062 1,856 3,250
E. Total Imports from U.S. 104 185 325

NOTE: The above statistics are unofficial estimates.

---3 - Medical Equipment (MED)

Because domestic medical equipment production can meet only 40% of total demand, imports play a significant role in the market. Government purchases of foreign medical equipment is usually financed by foreign loans, foreign credit lines, and internationally sponsored development projects. The Ministry of Health and Medical Industry no longer makes centralized purchases; instead, regional health authorities, or hospitals whose funding is at least partially provided by local companies, are the principal buyers. In some cases large manufacturing enterprises have become active purchasers for their own hospitals, clinics, and medical units. The most promising subsectors are radiology, diagnostic equipment, laboratory equipment, dental equipment, and test kits.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 8 8 10
D. Total Imports 1,051 1,292 1,616
E. Total Imports from U.S. 93 114 149

NOTE: The above statistics are unofficial estimates.

---4 - Pharmaceuticals (DRG)

Demand for imported pharmaceuticals has grown with the collapse of local production, which is estimated to have fallen by more than 70% since 1992. According to Russian government sources, only 60 percent of demand is currently met, with the share held by imports growing consistently. Significant levels of unmet demand persist, however, due to the fall in real incomes since economic restructuring began. Joint venture production plants with firms from the United States, France, Slovenia, Germany and Israel today manufacture slightly more than one hundred drugs in the Russian Federation. Most imported drugs are from Germany, India, and Eastern Europe, despite strong activity by U.S. pharmaceutical companies.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 14 15 25
D. Total Imports 969 1,000 1,200
E. Total Imports from U.S. 13 15 48

NOTE: The above statistics are unofficial estimates.

---5 - Paper Products (PAP)

The growth in sales of consumer paper products closely parallels that of consumer products in general. Strong demand has met imports of wallpaper, paper plates and cups, napkins, paper towels, and personal hygiene products made from paper. It will be some time before local manufacture is able to meet demand for these products. Due to the typically low value-to-weight ratios for paper products, the primary beneficiaries of this demand source have been countries located near to the Russian Federation.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 1,940 4,000 6,000
D. Total Imports 806 1,612 2,224
E. Total Imports from U.S. 19 38 70

NOTE: The above statistics are unofficial estimates.

---6 - Food Processing Equipment (FPP)

Consumer demand for high quality, attractively packaged foodstuffs will make this sector one of the top prospects for the next several years. Major U.S. food companies (Pepsico, Mars, Coca-Cola, Baskin-Robbins, and others) are investing heavily in Russia, and will require U.S. equipment to establish new production sites. When the investment climate improves (a key goal of the current Russian government), investment in factories to meet consumer demand with locally produced foods should prove a bonanza for providers of food processing equipment. Promising subsectors include milling, refining, storage and transportation equipment, machinery to produce baby food, ready-to-eat foods, soft drink and beer production machinery, and dairy products packaging equipment.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 24 50 75
D. Total Imports 792 1,188 1,782
E. Total Imports from U.S. 84 126 157

NOTE: The above statistics are unofficial estimates.

---7 - Clothing (APP)

Russian clothing production has plummeted in the last three years. By the end of 1994, net output of apparel and knitwear was 40% of what it was in 1991. Russian-made apparel retains its generally poor quality and unattractive design, while producers have increased prices sharply. While production of expensive goods remained at the same level, the output of cheap knitwear, clothes, and underwear declined markedly. Up to 80% of the population prefer foreign-made apparel. While inexpensive Chinese, Turkish, and Korean products have much market share, better quality European and American women's clothing is in demand. Official statistics do not capture most apparel imports, making it particularly difficult to judge thismarket's size and growth rate. Most promising subsectors are jeanswear, jackets, parkas, men's pants and suits, women's business suits, dresses, and children's clothing.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 254 424 708
D. Total Imports 598 388 252
E. Total Imports from U.S. 16 10 40

NOTE: The above statistics are unofficial estimates.

---8 - Construction Materials (BLD)

Though the quality of Russian produced building products is substantially lower than Western products, their price is just as high. As a result, Russian firms generally prefer to buy Western products. Demand is strong, driven by urban remodeling and renovation of residential space. Commercial space, for offices, banks, department stores, hotels, and restaurants, is also a strong source of demand. Building products are sold through wholesale and retail shops. European suppliers are developing an increasing share of this market. Demand is especially high in major industrial cities, although provincial cities are already strong markets for imported construction materials. The most promising subsectors are building materials and products for interior finishing, and both door and window hardware.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 102 130 165
D. Total Imports 580 1,308 2,055
E. Total Imports from U.S. 17 38 65

NOTE: The above statistics are unofficial estimates.

---9 - Autos and Light Trucks (AUT)

Over the last few years the private sector has grown dramatically, with a commensurate increase in car ownership. Liberalization of foreign trade in the 1990s stimulated the flow of imported cars, 80% of which were used vehicles. To protect local automobile manufacturers, the Russian government has levied import duties of approximately 100%. It is likely, however, that these tariffs will gradually fall over the coming years, which would stimulate demand for imported vehicles. Light trucks are quite popular; GAZ, a local manufacturer, has seen remarkable success since introducing a new model in 1994. These trucks compete well on price (about $ 8,000), despite a relatively weak engine.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 670 724 782
D. Total Imports 483 627 816
E. Total Imports from U.S. 18 24 49

NOTE: The above statistics are unofficial estimates.

---10 - Furniture (FUR)

The demand for office furniture has been concentrated in the major cities, while demand for residential furniture is more broadly distributed throughout Russia. Italian product has been particularly successful, although France, Germany and Switzerland have earned strong market shares as well. Most imports have been of high value, high priced goods; the volume market for commodity office seating and work spaces has been neglected. Moderately priced open-plan and free-standing furniture should have good potential.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 46 54 64
D. Total Imports 483 531 584
E. Total Imports from U.S. 11 12 33

NOTE: The above statistics are unofficial estimates.

---11 - Construction equipment (CON)

Virtually all major Russian cities have embarked on major urban construction projects to modernize and upgrade both residential and commercial space. These projects supplement private sector initiatives serving the same, strong market demand. Large, new multi-story construction, remodeling and renovation, and the demolition of old buildings are commonplace in Moscow, St. Petersburg, and Nizhny Novgorod. Self-erecting and mobile cranes, backhoes and earth moving machinery, and concrete trucks and pumping equipment will continue to be much in demand. Over the next twelve months, as Moscow gears up for its 850th anniversary, strong demand will continue; thereafter it is likely that many assets will move on to regional markets, or be repatriated overseas.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 32 35 75
D. Total Imports 442 450 400
E. Total Imports from U.S. 60 61 81

NOTE: The above statistics are unofficial estimates.

---12 - Oil & Gas Equipment (OGM)

Oil and gas field machinery and services remains a promising sector in Russia. The U.S. Export-Import Bank Oil and Gas Framework Agreement, World Bank, and European Bank for Reconstruction and Development (EBRD) loans have greatly improved the market potential. U.S. firms are active in several large projects to develop oil and gas reserves in Timan Pechora, Western Siberia, and Sakhalin Island. Gazprom plans significant pipeline construction and renovation. These projects, involving billions of dollars invested by Texaco, Exxon, Amoco, Conoco, Marathon, and others, will require large procurements for oil and gas field machinery and services. Promising subsectors include hydrofracturing equipment, pumps, and design and construction management services.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 30 51 87
D. Total Imports 433 550 850
E. Total Imports from U.S. 75 95 110

NOTE: The above statistics are unofficial estimates.

---13 - Mining (MIN)

The World Bank has recently approved a $500 million loan, approximately $250 million of which will probably be used to upgrade existing mines. It is possible that EximBank will also be announcing funds available to finance U.S. exports to the Russian mining industry. Significant opportunities exist in long-wall equipment sales to the coal industry, low profile loaders and haulage vehicles, drag-line buckets and bucket wheel excavators for open-pit applications, bulldozers and loaders, as well as equipment used in heap-bleaching gold mining.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 19 24 27
D. Total Imports 322 375 400
E. Total Imports from U.S. 79 92 98

NOTE: The above statistics are unofficial estimates.

---14 - Cosmetics (COS)

American health and beauty products, as well as perfumery, are extremely popular in Russia, and compete well with French products. Brand names like Colgate-Palmolive, Proctor & Gamble, Avon, Mary Kay, and Johnson & Johnson are well known all over Russia. The market is not yet saturated, with ample room for additional brands both in major cities and smaller urban areas. Elite brands with higher-priced products typically concentrate their marketing in Moscow and St. Petersburg, while more affordably priced cosmetics are well received there and elsewhere.

Data Table
-- -- 1995 1996 1997
A. Total Market Size n/a n/a n/a
B. Total Local Production n/a n/a n/a
C. Total Exports 3 3 3
D. Total Imports 310 341 375
E. Total Imports from U.S. 14 15 17

NOTE: The above statistics are unofficial estimates.

Best Agricultural Prospects

Data for agriculture "best prospects" are scarce. For some of the best products, value data have been used. U.S. agricultural export data for FY1994 come from USDOC's Bureau of Census. Russian data sources (i.e., the Russian State Statistical Committee and the Russian Customs Committee) are unreliable, and underestimate actual trade flows.

-- Wine and Beer

Wine and beer imports into the Russian Federation grew nearly 40% last year. Catching up a bit was the growth of U.S. exports at about 50%. Still, Russia was the only market in which U.S. exporters experienced growth last year, and exports to Russia are expected to continue to grow. Beer and wine face strict hygiene quality standards, and must be analyzed by authorized Russian laboratories prior to export. They are subject to high tariffs (30%) and a 20% VAT.

Data Table
-- -- 1994 1995 1996
A. Total Market Size 1,017 1,031 1,049
B. Total Production 344 337 334
C. Total Exports 17 16 15
D. Total Imports 690 710 730
E. Imports from the U.S. 11.6 13.0 15.0

Data in 1,000 liters, except for imports from U.S., which are in US$ millions. The above statistics, except for 1994 imports from U.S., are unofficial estimates.

-- Red Meats (fresh, chilled, frozen)

Exports of fresh and frozen red meats to the Russian Federation surged in 1995, more than quadrupling over 1994. Almost half of the dollar volume is accounted for by frozen pork, which Russian processors use to make kielbasa, or Russian sausages. At this time, imports of frozen pork for retail sale are prohibited by Russian veterinary authorities, and all frozen pork must be further processed. Imports of U.S. fresh pork are also prohibited. Negotiations on developing a protocol that would satisfy Russian testing requirements for pork are ongoing. Post estimates that $50 million of U.S. frozen pork exports and $8 million of fresh pork exports will be lost this year due to Russian sanitary restrictions.

U.S. beef exports enter the Russian Federation for further processing and for retail sale. Because capacity at so many processing plants is severely under-utilized due to sharp reductions in the size of Russian livestock herds, demand for imports of U.S. beef, as well as pork, will continue to be strong over the next three years. Lower-value product currently is most in demand; however a growing tourist industry and expanding upper-middle income and upper-income classes will ensure that the demand for higher value cuts, especially cuts of beef, will continue to be strong over the next three years. European beef and pork, both fresh and frozen, are very competitive with American product, especially on price. Tariffs on red meat are 15%.

Data Table
-- -- 1994 1995 1996
A. Total Market Size 5,635 5,415 5,215
B. Total Production 4,930 4,680 4,450
C. Total Exports 5 5 5
D. Total Imports 710 740 770
E. Imports from the U.S. 141 200 250

Data in 1,000 metric tons except for imports from U.S., which are in US$ millions. The above statistics, except for 1994 imports from U.S., are unofficial estimates.

-- Poultry

Last year, U.S. exports of poultry meats to the Russian Federation more than doubled, to over $500 million. Of this amount, almost 90% was accounted for by frozen chicken leg quarters, popularly known all over Russia as "Bush legs." The extreme popularity of chicken leg quarters brought French and Dutch exporters into the market, but their exports are still very small, and competition for U.S. exporters is all but nil. Competition from the French and, to a lesser extent the Dutch, on whole birds is stronger, with French branded birds widely sold in European Russia. Early in 1996, a threatened ban on imports of U.S. poultry was averted, and a protocol was developed under which USDA certifies, on an ongoing basis, that U.S. plants and production meet Russian standards. The tariff on poultry is 30%, but not less than 0.3 ecu per kilogram, while the VAT is 10%.

Data Table
-- -- 1994 1995 1996
A. Total Market Size 1,674 1,660 1,665
B. Total Production 850 780 800
C. Total Exports 6 5 5
D. Total Imports 830 885 910
E. Imports from the U.S. 606 1,000 1,200

All data in 1,000 metric tons except imports from the U.S. in US$ millions. The above statistics, except for 1994 imports from the U.S., are unofficial estimates.

-- Apples

Given the inadequacies of the distribution system in Russian and the generally poor quality of Russian apples, Russia will continue to be obliged to import a significant quantity of apples. Opportunities for U.S. exporters exist in major cities of European Russia (e.g., Moscow, St. Petersburg, Nizhny Novgorod), Eastern Siberia, and the Russian Far East (RFE). Washington State apples are already making some headway in the RFE, although New Zealand is also vying for this market. The tariff on fresh apples is ECU 0.2 per kilogram. There is no mention in the new tariff schedule of a January through July suspension of the tariff, as had been the case previously.

Data Table
-- -- 1994 1995 1996
A. Total Market Size 1,560 1,680 1,600
B. Total Production 1,100 1,200 1,100
C. Total Exports 1 1 1
D. Total Imports 460 480 500
E. Imports from the U.S. 10 11 12

Data are in 1,000 metric tons. The above statistics, except for 1994 imports from the U.S., are unofficial estimates.

VI. TRADE REGULATIONS AND STANDARDS

Trade Barriers

Russia has raised import tariffs in several stages beginning from zero when the Soviet Union collapsed. In July 1994 import duties were raised across the board, increasing average weighted tariff to 11 percent from 7-8 percent, with some duties reaching 50 percent. In March 1995, by presidential decree, these rates were revised to raise the floor (except for a small list of zero-duty goods) to five percent and lower the ceiling (except for a few luxury goods) to 30 percent. In the Spring of 1996, the Government raised tariffs on alcoholic drinks and chicken, resulting in an average weighted tariff of 14 percent, as calculated by the IMF. Besides import tariffs, there are two other types of duties applied to imported goods: excise tax and value-added-tax (VAT). Excise tax applies to a number of luxury goods, including alcohol, cigarettes, and cars, and varies from 20 percent to 570 percent on a price exclusive basis. The VAT rate is now 20 percent, with the exception of food which is 10 percent, and is applied to the import price plus tariff plus excise tax.

Customs Valuation

Customs duties are payable on the customs value of goods in hard currency or rubles at the current exchange rate. The customs value is generally considered to be the CIF price of the goods imported. A customs processing fee of 0.15 percent of the actual cost of the goods is also levied. According to customs regulations, customs processing should take not longer than one month. If acceptance of goods is refused by Russian Customs, regulations call for the goods to be returned to the country of origin.

Import Licenses

Import licenses are required for importation of various goods, including combat and sporting weapons, self-defense articles, explosives, military and ciphering equipment, radioactive materials and waste including uranium, strong poisons and narcotics, and precious metals, alloys and stones. Most import licenses are issued by the Russian Ministry of Foreign Economic Relations (MinFER) or its regional branches, and controlled by the State Customs Committee. Import licenses for sporting weapons and self-defense articles are issued by the Ministry of Internal Affairs.

Export Controls

Before 1995, exports of "strategically important raw materials", such as oil and gas, non-ferrous metals, fertilizers, cellulose, grain, fish products, and electric power required special export licenses issued by the Russian Ministry of Foreign Economic Relations (MINFER) to a limited number of exporters. A presidential decree (Number 245, Article 2, of March 6, 1995) lifted this restriction, allowing the export of "strategically important raw materials" from Russia without special permission from MINFER. The decree also abolished the list of "special exporters." However, export of rough diamonds is still controlled through the state enterprise ROSKOMDRAGMET, and the export of oil and gas is controlled in a practical sense by the Ministry of Fuel and Energy's granting of access to the export pipeline. Also weapons, military equipment and dual-use materials and technology continue to require an export license. Exports of "strategically important raw materials" still require registration with MINFER.

Import/Export Documentation

Importers are required to complete a customs freight declaration for every item imported. The declaration form consists of 54 paragraphs and should be completed in the Russian language for presentation to Customs authorities. Certificates of origin and conformity (see "Standards" below) should also be presented at customs. Exporters are required to complete an export declaration and, if necessary, present the appropriate export license at customs. In addition, currency control authorities require the issuance of a "passport" for both exports and imports to ensure that hard currency earnings are repatriated to Russia and transfers of hard currency payments for imports is for goods actually received and properly valued.

Temporary Entry

Temporary imports by foreign companies which are accredited with Russian government authorities are exempt from customs duties. This applies to goods imported only for company use and for one year only. Companies not accredited with Russian government authorities are charged 3 percent of the total cost of the product on a monthly basis. In this case, total cost equals original product price plus all import taxes.

Labeling, Marking Requirements - No special labeling or marking requirements are in effect.

Prohibited Imports - The customs code lists no products which are prohibited from import under any circumstance.

Standards

Many products imported for sale into the Russian Federation are required to have a certificate of conformity issued by the Russian State Committee on Standards (GOSSTANDART). GOSSTANDART tests and certifies products according to Russian Government standards, rather than other widely-accepted international standards (i.e., the ISO-9000 system). GOSSTANDART and its authorized agents are the sole sources for certification in Russia.

Testing protocols from the IECEE (electrical equipment) and the IECQ (electrical components), both of which fall under the International Electrotechnical Commission, from Underwriters Laboratories, and other bodies are accepted by GOSSTANDART and help to expedite certification by the Russian agency. The certificate of conformity is valid for 3 years and must accompany every shipment. Copies of the certificate are acceptable if original seals of the U.S. company holding the original certificate accompany the copy. Russian retailers are obliged to have on hand certificates for all imported products sold in their stores; violation of this requirement can bring penalties of up to the equivalent of $10,000.

Free Trade Zones/Warehouses

There are no actual free trade zones in Russia. There are some free economic zones designed to encourage investments in specific areas, as well as free customs zones and free warehouses. Customs duties do not apply in free customs zones and free warehouses. Some production and commercial transactions can take place within these zones, but not retail sales. The storage period is not limited. Free customs zones and free warehouses are located in customs areas (airports, seaports, railway and truck terminals).

Special Import Provisions - No special import provisions apply.

Membership in Free Trade Arrangements

Russia does not participate currently in any free trade arrangements, although it is in the process of forming a customs union with members of the CIS. It has also raised the issue of a free trade association with North America, but no discussions have taken place. Russia has an association agreement with the European Union, proposes to join the GATT/WTO, and benefits currently from GSP and MFN status in the United States.

VII. INVESTMENT CLIMATE

Openness to Foreign Investment

While the policy of the Russian government is to encourage foreign investment, it has had difficulties in creating a stable and attractive investment climate. Economic and political uncertainty serve as disincentives to companies looking for investment opportunities. Although there are no significant legal barriers to doing business in Russia, the absence of sufficiently developed civil, commercial and criminal codes is a major constraint. In addition, high and unstable taxation, a rise in violent crime, capital flight and a lag in development of local long-term capital are problems for foreign (and Russian) business. Bureaucratic requirements can be confusing and burdensome to investors and bureaucratic discretion may be capricious in awarding tenders or development rights to companies. Ownership of real property is still being legislated, and violations of intellectual property are serious and on the rise. A deteriorated infrastructure adds to the difficulties of doing business -- telephones, roads and transport are all of poor quality. Corruption in commercial transactions has become a major issue in the last several years.

Despite the problems detailed in this report, most U.S. companies in Russia believe that if reforms continue, opportunities justify the risks, uncertainties and considerable bureaucratic obstacles. Few established foreign companies are leaving and many continue to demonstrate an interest in Russia's rich geological and human resources, world-class high-technology and large potential market.

Russian foreign investment regulations regarding permissible activities, prior authorization and notification requirements are confusing and contradictory. The Ministry of Finance, local authorities and/or various central government bodies all register foreign investments. Prior approval is required for investment in new enterprises using assets of existing Russian enterprises, foreign investment in defense industries (which may be prohibited in some cases), investment in the exploitation of natural resources, all investments over 50 million rubles, investment ventures in which the foreign share exceeds 50 percent, or investment to take over incomplete housing and construction projects. Additional registration requirements exist for investments exceeding 100 million rubles. Projects of foreign enterprises may also be subject to expert examination for ecological considerations or where a large-scale construction or modernization is envisaged.

The 1991 Investment Code guarantees foreign investors rights equal to those enjoyed by Russian investors. However, Russian law offers few incentives to foreign investors. Those set out in the 1991 investment law, including certain tax benefits, have never been implemented, or have been largely eliminated or superseded by subsequent laws and decrees. Russia's post-voucher or cash privatization program was adopted by presidential decree in July 1994. It has been amended or supplemented by decree several times since. The 1994 decree explicitly granted foreignersthe right to participate in cash auctions and tender competitions. Senior GOR officials have reconfirmed many times Russia's desire to attract foreign participation in privatization, but in practice the bounds of the foreign role varies by sector and region. For example, foreign participation is sharply limited in certain "strategic" sectors, a restriction which has been enforced more rigorously of late. Further, in last year's loans-for-shares privatization program, foreign investors were banned from most of the more attractive offerings, including the oil, gas, and precious metals sectors. That said, foreign investors do participate successfully in Russian privatization and have been welcomed at the federation level in certain sectors and at the regional level by some oblast and republic level officials. Foreign participants in Russian privatization programs are advised to establish contacts with local officials in the region in which they seek to invest and to work closely with appropriate federation level officials as well.

The treatment of foreign banks in Russia has improved dramatically in the last year. A November 1993 presidential decree had imposed a two-year moratorium on the operations of foreign banks in Russia. Further decrees issued in June 1994 and April 1995 confirmed that the originally-licensed foreign banks had full banking powers, though new entrants were not allowed. The new commercial banking bill, which became effective January 1996, now explicitly permits foreign banks to establish full- service subsidiaries in Russia, though gives the Central Bank of Russia (CBR) the ability to use reciprocity as a criteria for granting approval. The new bill allows the CBR to impose a ceiling on the total amount of foreign bank capital as a percentage of the aggregate banking system capital in Russia. However, foreign banks' capital is well below the current limit of 12%.

The past year has seen a number of significant changes in the Russian oil and gas sector. In April 1996 the government lowered export taxes on oil by half, from 20 ECUs to 10. Further the government has announced that it will eliminate the oil export tax by July 1, 1996 in accordance with the IMF's EFF Program. At the same time, excise taxes on oil production have been increased and a supplemental oil pipeline fee imposed to offset the revenue loss from the elimination of the export tax. The changes have been highly controversial and have led to demands by a number of prominent Russian oil companies for tax relief. At this writing, the government has said that it intends to prepare a differentiated excise tax scale that will reflect the geological conditions and other costs associated with each oil field.

In February 1995 President Yeltsin signed into law a bill amending the 1992 sub-surface resources law. The amendments make it easier to obtain and transfer oil and gas production and exploration licenses, and substitute more modest royalties for the 10 percent mineral replacement tax. On December 30, 1995, President Yeltsin signed the Law on Production Sharing Agreements (PSAs). This is an important step toward attracting upwards of $70 billion in direct foreign investment to the Russian oil and gas sector. However, Western and Russian oil companies have identified a number of provisions in the law which they believe must be amended before they can proceed beyond the preliminary stages of their PSA projects. The government and a special legislative working group are looking into the possibility of submitting to the state Duma a bill amending the PSA law. A bill to bring other existing legislation into conformity with the PSA law is also under consideration. In the meantime, a Western consortium has announced the commencement of the first phase of the Sakhalin II PSA project; other projects are close to commencement, though the final decision in those cases will depend largely on the adoption of the amendments to the PSA law.

Conversion and Transfer Policies

As of May 17, 1996, Russia introduced a crawling peg exchange rate regime which provides a trading corridor for the ruble against the dollar until December 1996. The dollar is traded freely on the Moscow Interbank Currency Exchange (MICEX) and in the off-exchange interbank market. The official central buy and sell rates are announced by the Central Bank no later than 10 am each trading day. The spread between the buy and sell rates is 0.75 percent, and the Central Bank will intervene to ensure that the ruble stays within the spread each day.

The ruble has been fully convertible within Russia and CIS countries for a number of years. On May 27, 1996, Russia announced its intention to comply fully with Article VIII of the IMF Articles of Agreement regarding full convertibility on current operations by July 1, 1996. Adherence to Article VIII would make the ruble convertible on all current operations world-wide.

There are currently no restrictions on profit repatriation, except from investment in short-term government securities. Foreign and domestic companies may acquire, hold and sell foreign exchange freely, although hard currency cash transactions for goods and services provided within Russia are prohibited. Without special permission it is illegal for Russian companies or citizens to maintain a bank account outside of Russia for purposes other than operating expenses. Licenses are required for offshore accounts and can be difficult to obtain. Non-residents can open individual and commercial ruble accounts for servicing import/export operations (referred to as "T-accounts") and for investment (referred to a "I accounts"). However, ruble balances in T-accounts may not be reconverted into hard currency.

Expropriation and Compensation

The 1991 Investment Code prohibits the nationalization of foreign investments except following legislative action and where deemed to be in the national interest. Such nationalizations may be appealed to the courts of the Russian federation, and are to be paid with prompt, adequate and effective compensation.

While the domestic political situation remains ambiguous, the current central leadership is unlikely to nationalize foreign investment or engage in expropriation. However, local government interference in several cases appears tantamount to expropriation; arbitration or legal proceedings are pending in some of these cases.
Dispute Settlement

Russia has a body of conflicting, overlapping and rapidly changing laws, decrees and regulations which has resulted in an ad hoc and unpredictable approach to doing business. Independent dispute resolution in Russia is difficult to obtain; the judicial system is poorly developed. Regional and local courts are not accustomed to adjudicating either commercial or international matters, and they (as well as courts in Moscow) are often subject to political pressure.

Most Western attorneys still refer their western clients who have investment or trade disputes in Russia to international arbitration in Stockholm or to courts abroad. However, a foreign arbitration award can only be enforced in Russia if there is a reciprocal treaty between Russia and the country where the order was made, or, if no such treaty exists, if a Russian court reviews the procedures which led to the granting of the award and agrees that it was properly made and can be enforced.

It is therefore worth considering the alternatives available in Russia. One choice is the Arbitration Court of the Russian Federation, which is part of the court system. It has special procedures for seizure of property before trial, so property cannot be disposed of before the court has heard the claim, as well as for the enforcement of financial awards through the banks. Additionally, the International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry will hear claims if both parties agree to refer disputes there. Applications can be made by parties to foreign trade agreements and by companies with foreign investments.

The weakness in the system is in enforcement of decisions. All awards and orders are enforced by the officials of the district court whose procedures have not been modernized to take account of changes in business. There is hope that a draft law on enforcement will result in more effective litigation. Russia is a member of the International Center for the Settlement of Investment Disputes and accepts binding international arbitration.

Performance Requirements

Performance requirements are not imposed by Russian law, and are not widely included as part of private contracts. However, they have appeared in the agreements of large multinational companies investing in natural resources. Investors are not required to disclose proprietary information to the Russian government as part of the regulatory process.

Right to Private Ownership and Establishment

Both foreign and domestic legal entities may establish, purchase and dispose of businesses in Russia. Investment in those sectors affecting the national security (insurance, banking, natural resources) may be limited.

Protection of Property Rights

The constitution and a presidential decree issued in 1993 give Russian citizens general rights to own, inherit, lease, mortgage, and sell real property (usually not including the land on which it stands); however, legislative gaps and ambiguities impede the general exercise of these rights. Russia does not yet have a land code to regulate land use and ownership. Thus far, Russian law and practice appear to restrict or prohibit foreigners from owning real estate. The presidential decree of 1993 gave joint ventures with foreign participants the right to own real property, and a privatization decree issued in the summer of 1994 permitted foreign owners of privatized companies to receive title to enterprise land; however, such rights have not been codified and legislation regulating land use currently being considered by the Duma would likely prohibit foreigners from owning land. The rights of Russian citizens to own and sell residential, recreational, and garden plots is clearly established with over 40 million properties of this type under private ownership. Although a presidential decree in the spring of 1996 permits the ownership and sale of land, including agricultural land, the Duma maintains that the decree is not constitutional. Uncertainty about more general rights to land title and mineral rights will persist until the Duma adopts clear and comprehensive legislation to regulate land use and ownership.

In 1992-93 Russia enacted laws strengthening the protection of patents, trademarks and appellations of origins, and copyright of semiconductors, computer programs, literary, artistic and scientific works, and audio/visual recordings.

The Patent Law, which accords with the norms of the World Intellectual Property Organization, includes a grace period, procedures for deferred examination, protection for chemical and pharmaceutical products, and national treatment for foreign patent holders. Inventions are protected for 20 years, industrial designs for 10 years, and utility models for five years. The Law on Trademarks and Appellation of Origins introduces for the first time in Russia protection of appellation of origins and provides for automatic recognition of Soviet trademarks upon presentation of the Soviet certificate of registration.

The Law on Copyright and Neighboring Rights, enacted in August 1993, protects all forms of artistic creation, including audio/visual recordings and computer programs as literary works for the lifetime of the author plus 50 years and is compatible with the Bern Convention. The September 1992 Law on Topography of Integrated Microcircuits, which also protects computer programs, protects semiconductor topographies for 10 years from the date of registration.

Russia has acceded to the Universal Copyright Convention, the Paris Convention, the Bern Convention, the Patent Cooperation Treaty, the Geneva Phonogram Convention, and the Madrid Agreement. Under the U.S.-Russian Bilateral Investment Treaty (not yet ratified by the Russian side) Russia has undertaken to protect investors' intellectual property rights. The U.S.-Russia Bilateral Trade Agreement mandates protection of the normal range of literary, scientific and artistic works through legislation and enforcement.

While the Russian government has successfully passed good laws on protection of intellectual property, enforcement of those laws has been a low priority. Russian authorities are engaged in a comprehensive revision of the Russian criminal and civil codes, including sections pertaining to intellectual property rights which would provide strengthened penalties, the establishment of specialized courts, particularly a patent court, with trained and experienced judges and attorneys, and trained police and customs officers. Until these measures become reality, however, there is widespread marketing of pirated U.S. (and other) video-cassettes, recordings, books, computer software, clothes and toys. Losses to manufacturers, authors and others are estimated to be in the hundreds of millions of dollars.

In late 1995 the Russian Government created an Interagency Commission on Intellectual Property Rights Enforcement. The lead agencies in the commission are the State Anti-Monopoly Committee and the Russian Federation Committee on Patents and Trademarks (ROSPATENT).

Regulatory System: Laws and Procedures

The legal system in Russia is in a state of flux, with various parts of government struggling to create new laws on a broad array of topics. In this environment negotiations and contracts for commercial transactions are complex and protracted. Russia has implemented only part of its new commercial code (contained within the civil code) and investors must carefully research all aspects of Russian law to ensure that each contract conforms with Russian law and embodies the basic provisions of the new, and where still valid, old codes. Contracts must likewise seek to protect the foreign partner against contingencies which often arise. Keeping up with legislative changes and presidential decrees is a daunting task. Uneven implementation of laws creates further complications; various officials, branches of government and jurisdictions interpret and apply regulations with little consistency and the decisions of one may be overruled or contested by another. In addition, while a foreign investor may win a favorable decision from a Russian court, enforcement of judgments is problematic.

Legal requirements may be less burdensome than reaching final agreement with local political and economic authorities; registration can be a lengthy, bureaucratic process, particularly where natural resources or defense production are involved. Corruption is widespread and the fears of some Russian officials that foreigners will purchase Russian assets at below-market rates can impede bureaucratic approval.

The Russian government is in the process of establishing a procurement regime. So far that regime consists of a single law passed in December 1994, which is currently being revised. Several implementing regulations are currently in preparation, with one, No. 594 having been issued in July 1995. Russian officials have sought to make the law compatible with WTO standards and note that it does not prevent market access by foreign enterprises. However, it also gives preference to domestic suppliers and allows the federal government to dictate supply in certain cases. Officials also say that Russia is considering signing the WTO procurement code as part of WTO accession.

The tax system continues to be a major complaint of foreign investors in Russia. The number of taxes, the high tax burden, instability in the tax regulatory environment, and poorly structured taxes have contributed to foreign investors' sense that the tax system in Russia is an almost insurmountable obstacle. Indeed, it is possible for a company's tax burden to exceed total profits -- a problem not confined to just foreign investors. However, a high incidence of avoidance by Russian companies has planed an even greater load on foreign companies. Due process is also weak, and although foreign firms have successfully appealed to the courts, the tax authorities have been slow to implement court decisions. Penalties for non compliance are considered confiscatory, and the tax authorities do not differentiate between criminal intent and honest mistakes when levying fines and penalties.

Some steps have been taken to address issues of overwhelming concern to the foreign investment community. The Excess Wage Tax, a 38 percent tax on wages exceeding roughly $80 per month, was eliminated starting in 1996. VAT is no longer charged on intercompany loans. A tax code, which will unify the 20-some laws that currently comprise the tax system, has been drafted and is under consideration by the Government and Duma. It is expected to be implemented in 1998, and promises to address many of the inconsistencies which currently plague Russia's investment climate.

Efficient Capital Markets and Portfolio Investment

Although undervalued Russian equities are attractive to both domestic and foreign investors, significant barriers continue to inhibit the full development of Russia's capital markets. Market capitalization at the end of 1995 was estimated at $20 billion, with roughly 50 companies traded on a regular basis. With the establishment of the recently renamed Russian Federation Commission for Securities Markets (FCSM) in November 1994, the process of regularizing the development of the capital markets began in earnest. The FCSM moved strongly in 1995 to increase oversight of Russia's capital markets. Infrastructure development, including the establishment of an independent large registrar and of an electronic over-the-counter trading system, has moved forward. Securities legislation that would create a sound legal basis for the securities market was signed into law in the spring of 1996. The federal law "On Joint Stock Companies" took effect on January 1, 1996, and introduces a number of requirements in the area of shareholders' rights, corporate governance, and shareholders' registries. In July 1995, the legal basis for the creation of mutual funds was established by Presidential decree, and the FCSM has begun issuing the first licenses to fund management companies.

Crime and Corruption

Crime has become one of the most frequently cited concerns of foreign (and Russian) business, particularly those involved with large amounts of cash and goods. While organized crime is not new to Russia, recent years have seen an increase in the range and frequency of criminal activity. Unfortunately, legal and judicial reforms have not kept pace with criminal advances. Much crime is tied to commercial activity, with many Russian entrepreneurs in a recent survey reporting that they must pay kickbacks and protection to stay in business.

U.S. firms have identified corruption as a pervasive and growing problem, both in number of instances and in the size of bribes sought. Russia has laws and regulations against bribery and other forms of corruption, but penalties are often insufficient to act as a deterrent. President Yeltsin and his government acknowledge that crime and corruption are major problems and have asked the Duma to speed adoption of needed legislation. Meanwhile, Prime Minister Chernomyrdin announced that the government will adopt tougher measures against official corruption, and the President has recently named a security chief, one of whose responsibilities is to reduce crime and corruption.

BITs

Russia inherited from the Soviet Union Bilateral Investment Treaties (BITs) with Austria, Belgium and Luxembourg, Great Britain, Germany, Italy, Spain, Canada, the People's Republic of China, Korea, the Netherlands, Finland, France, and Switzerland. Russia has since negotiated another 17 agreements, all but three of which have been ratified by the Duma. The U.S./Russia BIT is one of the three awaiting ratification.

OPIC and other Investment Insurance Programs

In an agreement ratified at the June 1992 Summit, the U.S. Overseas Private Investment Corporation (OPIC) was authorized to provide loans, loan guarantees and investment insurance against political risks to U.S. companies investing in Russia. OPIC generally insures against three political risks: expropriation, political violence and currency inconvertibility. In 1994 OPIC did not provide inconvertibility insurance in Russia, although in mid-1995 it announced that it would begin such coverage on a limited basis. In 1994, to meet the demands of larger projects in Russia (and worldwide), OPIC doubled the amount of insurance and quadrupled the amount of finance support - to $ 200 million in each case - it can commit to an individual project. Through July 1996, OPIC had committed over $ 3 billion in finance and insurance to 75 projects in Russia. In December 1994, OPIC also committed to provide up to $ 500 million to support defense conversion projects. Russia is a member of the Multilateral Investment Guarantee Agency (MIGA).

Labor

The Russian labor market continues to undergo a slow and painful transition. The majority of Russia's work force is suited to the needs of the Soviet-era command economy and ill-suited to the needs of an emerging market economy. Unemployment continues to grow steadily, averaging 8.1 percent of the work force in 1995. In addition, another five percent of the work force are underemployed, forced to work short weeks, or on extended furloughs. There is a growing problem of non-payment of workers in the public sector and in the large enterprises formerly engaged in defense related production. Although a large supply of skilled workers exists in most Russian industries, the demand for their skills is falling rapidly. On the other hand, employment is growing rapidly in banking, insurance and other business services.

Labor-management relations in Russia are strained. Economic restructuring has caused rising anxiety and unrest among Russian workers, and trade unions are generally weak and ineffective. Most of the "official" labor unions, formerly the Communist trade unions, operate in a subservient role to enterprise management, in much the same way they did in Soviet times. Workers have little confidence in trade unions and most feel powerless to challenge management. The independent unions are much more effective at the enterprise level, but because they represent a small percentage of total workers their national clout is very small.

The Russian government generally adheres to ILO conventions protecting worker rights, but enforcement is inadequate. Perhaps the most troubling worker issue in present day Russia is the abysmal state of worker safety. Employers have generally reduced spending on safety equipment and government enforcement of safety regulations is very poor.

Foreign Trade Zones/Free Ports

Russia has legislation from both the Soviet era and since 1991 creating foreign economic zones. Unfortunately, the laws and their implementation have led to a disorganized and poorly functioning regime, with only two zones officially created - in Kaliningrad and Nakhodka. The Kaliningrad zone is governed by its own law. The development of Nakhodka has beenhampered by the failure of Moscow to grant federal-level investment incentives. The Russian government and the Duma have been working for some time on new legislation to regularize and regulate free economic zones; this law passed its first reading in early June 1996, which increases the probability that it may finally clear the Duma before the end of 1996.

Capital Outflow Policy

Without permission it is illegal for a Russian legal entity or citizen to maintain a bank account outside of Russia for more than operating expenses; licenses are required for offshore accounts and can be difficult to obtain. Little legitimate outward investment is occurring; most capital outflow is the result of simple capital flight rather than a growth in criminal transactions. Capital flight is a significant problem, with an estimated $ 40-50 billion having left the country in recent years; including some $ 17 billion in 1994, when the outflow probably peaked. The only true method to curb capital flight is to stabilize the Russian economy, reduce inflation and make it a more attractive environment in which to invest -- all areas in which the Government has made progress in the last year.

Foreign Direct Investment Statistics

Estimates of the amount of foreign investment in Russia vary widely. According to GOSKOMSTAT (the Russian State Committee for Statistics), Russia had accumulated a stock of foreign direct investment of about $5.53 billion by the end of 1995, representing over 16,063 firms with foreign participation. GOSKOMSTAT puts foreign direct investment flows in 1995 at $1.9 billion. GOSKOMSTAT's net portfolio investment statistic ($30 million) by all accounts grossly underestimates actual flow. About 51 percent of 1995 foreign investment was accounted for by four sectors: trade (17.1 percent), finance (14.3 percent), food industry (10.1 percent), and fuel industry (9.3 percent). Geographic areas receiving the most foreign money included Moscow, Moscow Region, Tatarstan, and St. Petersburg.

VIII. TRADE AND PROJECT FINANCING

Brief Description of the Banking System

The Russian commercial banking system, as it is currently formulated, only started in the late 1980's. Before then the banking system was state owned and run, and banking operations were organized on a non-commercialized basis. Household deposits were funnelled to the state budget, which in turn issued credits to industry.

In 1988, however, the state bank was reorganized and subdivided. The central bank also allowed the establishment of privately- owned banks, resulting in a virtual explosion in the number of banks to 1,500 by end-1991. The state-owned banks were further split up and privatized with the collapse of the Soviet Union, and the number of banks in Russia reached a peak of over 2,500, before falling to about 2,300 in January 1996.

Russian banks remain small by world standards, with state-owned Sberbank, by far the largest bank, having a capital base of $1.3 billion (1/1/96), ranking it below the world's top 500 banks. Most Russian banks are much smaller; about 80% have capital of only $1 million or less, and only 4% have capital greater than $5 million.

The commercial banking system has been developing rapidly and the largest banks offer a full range of modern banking services. Commercial lending still remains a smaller share of business, and long-term lending (over 1 year) accounts for less than 10% of all credits. Most business is concentrated in project and trade finance, trading in various types of securities, and foreign exchange dealing. Almost 800 banks have a license to deal in foreign exchange, including 270 banks that have a general license.

The relative stability of the ruble and lower inflation have limited the commercial banks' profit-making opportunities. These, combined with inadequate capital, a continuing enterprise payment arrears problem, real estate problems, and lack of banking experience, have put strains on the banking system and prompted predictions of a major shakeout in the industry. Over 200 banks lost their licenses in 1995, and more are considered in financial difficulty in 1996.

In October 1993, Citibank and Chase Manhattan Bank became the first U.S. banks to receive general licenses to open subsidiaries in Russia. Although a November 1993 presidential decree imposed a two-year moratorium on the operations of foreign banks in Russia, further decrees issued in June 1994 and April 1995 confirmed that the originally-licensed foreign banks had full banking powers. The new commercial banking bill, which became effective January 1996, explicitly permits foreign banks to establish full-service subsidiaries in Russia, though gives the Central Bank of Russia the ability to use reciprocity as a criteria for granting approval. Republic National Bank of New York took advantage of the new law to obtain a license and will begin full-service operations in September 1996.

Currency Control and Regulation Issues

Regulations that went into effect on January 1, 1994 ban the use of foreign currency in cash transactions. Under these regulations, businesses in Russia are no longer permitted to accept cash payments in dollars or other hard currency. Non-cash transactions (e.g. credit and debit cards and checks) are not affected by the new regulations, so establishments that previously accepted payment via credit cards continue to do so. Stores that sell imported goods are still allowed to mark prices in dollars. At the time of purchase clerks convert the dollar price into rubles. Through the exchange rate they employ, merchants pass on the additional costs they will incur when they convert the rubles back into hard currency to restock inventories. Russian resident entities are still required to convert 50 percent of their foreign-currency revenues from exports of goods and services into rubles. The foreign currency must be sold through MICEX or any authorized foreign exchange dealer.

In an effort to limit the outflow of capital, the Central Bank introduced a computerized export control system to monitor the flow of goods out of the country and the flow of hard currency back in. The system, which unites for the first time banking and export controls, requires exporters to obtain a special "passport" from a commercial bank, which enters the trade in a computer database. Customs agents register the actual export of the goods in the database and the commercial bank completes the cycle by entering receipt of the payment. Strategic exports, including energy and several types of metals, were subject to the new regime as of January 1, 1994. The system took effect for all other types of goods on March 1, 1994.

Effective January 1, 1996, the Central Bank, in an effort to disrupt the use of illegitimate contracts for imports into Russia (and resulting capital flight from Russia abroad), instituted an "import passport" system in addition to the already existing export control system. The new system requires issuance of a "passport" by the importer's bank for payment against a specific import contract. The importer will have 180 days either to document the entry of the goods with the Russian Customs Service or return the hard currency issued in payment. Failure to comply with this regulation may make the importer liable for a hard currency penalty in the amount of the payment.

General Financing Availability

The financing environment in Russia continues to improve with the growing Westernization of the economy. While local Russian interest rates remain high by world standards and the Russian banking system inexperienced in project financing, a number of Western investment banks and venture funds are based locally. In addition, a number of bilateral and multilateral financing programs provide more opportunities for traders and investors.

How to Finance Exports/Methods of Payment

Companies new to exporting to Russia should insist on payment in advance for goods and services. This is, in fact, the normal procedure in Russia for most transactions. Letters of credit are issued by Russian banks only in those cases where the Russian customer can deposit the requisite funds in its account ahead of time, and Western banks generally will only confirm letters of credit on that basis as well. Once a firm has established a strong business and personal relationship with a Russian trading partner, the U.S. firm may consider extending short-term credit as a way to bolster sales volume. This should be done with caution, and after careful evaluation.

For some larger transactions, where up-front payment from Russian buyers may be impractical, financing may be provided by a bank, export credit agency, or venture fund. In those cases where lease transactions are appropriate, exporters should insist on three or four months' lease payment upon delivery.

A Partial List of Private Commercial Banks

The Russian banking system is undergoing a period of change, during which significant disruptions may occur. The Financial Institutions Development Project (FIDP), financed by loans from the World Bank and the EBRD and grants from the European Union and the Japanese Government, has as its goal the promotion of a stable and efficient banking system. The FIDP is administered by representatives of the Russian Ministry of Finance, the Central Bank of Russia, the Ministry of Economy, and the Council of Ministers.

Banks are "accredited" to the FIDP based on recommendations of the World Bank and EBRD, and an analysis of the banks' financial statements which have been prepared according to International Accounting Standards (IAS) by one of the major international accounting firms resident in Russia. While the information accumulated in the accreditation process is confidential, any foreign firm wishing to establish a banking relationship with an FIDP bank is free to request them to provide copies of their IAS financial statements.

The following banks are currently accredited by the FIDP, and should be able to provide IAS financial statements prepared by Western auditors upon request:

-Moscow Banks: Alpha Bank, Bank Vozrozhdenie, Inkombank, Konversebank, Kredit Moskva, Moscow Industrial Bank, Avtobank, Bank Imperial, Mezhkombank, Menatep, Mosbusinessbank, Oneximbank, Stolichniy Savings Bank, Toko Bank, Bank Moskovskiy Delovoi Mir, Most Bank, Neftekhimbank, Progusinessbank, Rossiskiy Kredit, Toribank.

-Regional Banks: Bank Petrovskiy (St. Petersburg), Promstroibank (St. Petersburg), Bank St. Petersburg (St. Petersburg), Dal'rybbank (Vladivostok), Dal'nevostochniy Bank (Vladivostok), Nizhnegorodskiy Bankisrskiy Dom (Nizhny Novgorod), Uralpromstroibank (Yekaterinburg), Omskpromstroibank (Omsk), Investbank (Kaliningrad), Bashprombank (Ufa), Kuzbassotzbank (Kemerovo).

IX. BUSINESS TRAVEL

Business Customs

Often the hardest part of doing business in Russia is bridging the substantial cultural gulf between Russians and Americans. The best overall piece of advice is simply to recognize that Russians business customs often differ from American customs. Russians may act or think differently, and visitors cannot expect them (overnight) to adapt to or even understand American business customs. For example:

* A Russian's sense of time may differ markedly from an American's. * Many Russians want to keep their wealth and their business dealings secret.
* Russian decision making is still highly centralized in most organizations.
* While Americans prefer to base their business relationships on legally enforceable contracts, many Russians still doubt the value of their business laws and courts.
* Most Russian business dealings are based on strong personal relationships, with the contract considered to be merely a formality. * Americans think "win-win"; most Russians think "win-lose."

Travel Advisory and Visas

The State Department issues travel advisories when political unrest warrants. Travel to the Caucasus region in the South, especially to the Republic of Chechnya, is extremely dangerous due to armed conflict and political tensions in the area. Russian armed forces remain in the neighboring republics of Ingushetia, North Ossetia, Kabardino-Balkaria, and Dagestan. Two U.S. citizens have disappeared in Chechnya and remain unaccounted for. Chechen separatists and those sympathetic to their cause, have taken hostages on several occasions.

As a result of recent terrorist incidents, including the July 1996 bombings of two public buses in Moscow, security in Moscow has been tightened, particularly in the metro (subway) system, at government facilities, and at entry and exit points from the city. U.S. citizens are advised to carry their passport and visa with them and to remain patient when delayed by security checks. While there have been no specific threats made against Americans, travelers should exercise caution because of the possibility of street demonstrations or acts of terrorism.

A passport and a Russian visa are needed to travel to Russia. This visa must be obtained before leaving the United States and the cost of visas depends on the amount of time allowed for processing. Given a month's notice, a Russian single-entry visa theoretically costs $40. When asking for very fast service, a Russian visa can cost $170 or more; visa fees sometimes vary from consulate to consulate, within the U.S. and in other countries. Business travellers must have a letter of invitation from a Russian individual or organization which serves as the sponsor.

Visas of short duration are stamped with exit dates which must be strictly observed. Allowing a Russian visa to expire can result in heavy fines and tedious work with the bureaucracy for permission to leave the country. If the visa is for a prolonged stay, then an exit visa must be obtained by the traveler's sponsor after his arrival in Russia.

If travellers stay more than three days in Russia, they must register their visa through their hotel or their sponsor. Failure to do so can result in grave difficulty in leaving the country. Travellers should ensure that their visa is in order before leaving the United States.

Americans can receive assistance from the Russian Embassy, Consular Division, 1825 Phelps Place, NW, Washington, DC, 20008. The Russian Embassy can be reached at (202) 939-8907. Travellers can also receive assistance from the Russian Consulates in New York, San Francisco or Seattle.

Holidays

Russian holidays include:
Jan 1-- New Year's Day
Jan 7-- Orthodox Christmas
Mar 8 -- International Women's Day
May 1 -- International Labor Day
May 2 -- Spring Day
May 9 -- Victory Day
June 12 -- Independence Day
Nov 7 -- Revolution Day
Dec 12 -- Constitution Day

during the week prior to the holiday, if the day will be celebrated on the following Monday.

Transportation

Air transport to Russia is steadily improving:

* Western airlines fly daily to Moscow and St. Petersburg. * New flights on Lufthansa have been initiated to Yekaterinburg, Nizhny Novgorod and Novosibirsk.
* Alaska Airlines has summer flights to Magadan, Khabarovsk and Vladivostok.
* All major Russian cities can be reached from Moscow via Aeroflot, and increasingly the joint venture airline Transaero is flying to a number of key Russian cities from Moscow, as well as to several key international destinations.

Moscow has four major airports which ring the city. International flights enter Moscow through Sheremetyevo II and travellers may continue to other Russian cities through any of the other three airports. Travel time to the departure airport can be as much as an hour and a half from Sheremetyevo II, and ample time must be allowed for passport control, customs clearance and baggage retrieval. Several new taxi services have been initiated at Sheremetyevo II. The St. Petersburg airport (Pulkovo) has two terminals: Pulkovo I (domestic flights) and Pulkovo II (international flights).

Travellers should not expect western standards on Russian airlines. With the breakup of Aeroflot into many small airlines, travel within Russia is often unreliable. Domestic air travelers must often cope with unpredictable schedules and difficult conditions including deterioration of centralized systems of maintenance and quality of service, as well as overloading.

A good way to get around Russia is the train. For cities as close as St. Petersburg, travellers can generally ride night trains. Unfortunately, incidents of theft and other crimes on trains have made this mode less safe -- especially for unaccompanied passengers. Car travel is not advised except for the cities very close to Moscow. Roads are often in poor condition and fuel is sometimes difficult to obtain.

Within Moscow and St. Petersburg, the metro system provides an excellent, inexpensive, though crowded transportation. Signs are all written in Russian, so it is helpful to learn the Cyrillic alphabet before you come. Marked taxis in Moscow and St. Petersburg are scarce. FCS recommends that short-term business travellers rent a car and driver for extensive excursions, or hire taxis through their hotels for shorter jaunts.

Crime

Though crime in Moscow, St. Petersburg and other major cities is no worse than in some major cities of America, crime here is often targeted against foreigners since they are easily identified and perceived to be lucrative targets. Foreigners' hotel rooms and residences have also been targets, and some victims have been seriously assaulted during robberies. Extortion from criminal gangs is a common problem for small retail businesses.

The Embassy offers several tips on the crime situation:

* Travelers should "dress down", and avoid loud conversation calling attention to themselves.
* Americans should exercise particular caution in airports, open markets, near major train and metro stations, and when hailing taxis. * The Embassy recommends that U.S. firms consult with and possibly hire reputable security services.
* Do not break Russian laws. Avoid drugs, sleazy business partners, and criminals.
* Do not give or take bribes.
* Do not pay off the Mafia. If you are worried about your safety, hire a reputable security service.
* Try to keep a low profile. Stay away from expensive jewelry and luxury cars.
* Carry a copy of your passport with you at all times. Leave an extra copy of your passport in your room.
* Carry U.S. Embassy and other emergency phone numbers with you at all times.

Language

Though better educated Russians in major cities often speak good English, you should be prepared to operate in Russian. For important negotiations U.S. businesses should hire a reputable interpreter. Learn some Russian, even if its only "Da", "Nyet", and the alphabet.

Hotels

Moscow, St. Petersburg, Novgorod, Sochi and Vladivostok have western style hotels. Most will cost $200/night or more. Russian state hotels often provide only the barest necessities and charge foreigners over a hundred dollars for rooms without hot water, electricity, or heat.

Clothing

Winters can be extremely cold in Russia with temperatures in the minus 30 range not unusual. Winter clothes can be needed as early as October and as late as April. Waterproof footwear is a must all year round, and rain gear is highly recommended from April to October. Dress very warmly in fall, winter, and early spring. In winter, don't go outside without a hat.

Health

Travellers should be certain that all immunizations are up-to-date, especially their diphtheria and typhoid shots. Travelers should drink only boiled or bottled water throughout Russia. Current advisories can be obtained from the Center for Disease Control's International Travelers' Hotline. Tel: (404) 332-4559.

Medical Facilities

Medical care in Russia, even in the major cities, is often far below Western standards, with severe shortages of basic medical supplies. Access to the few quality facilities in major cities usually requires cash dollar payment at Western rates upon admission. The US Embassy and Consulates maintain lists of such facilities and of English speaking doctors. Many Americans living in Russia travel to the West for virtually all of their medical needs; such travel can be expensive if undertaken under emergency conditions. Travelers should know their insurance coverage and consider supplemental coverage for medical evacuation. Elderly travelers and those with existing health problems may be at particular risk.

Food

Most Russian restaurants in Moscow and St. Petersburg charge as much if not more than U.S. restaurants for food and service that is often of lower quality. However, each month, the number of joint venture or Western-owned restaurants in these cities increases; and increased competition may eventually bring prices down. Outside these two major cities, the situation is bleak.

Currency

* Travelers' checks are rarely accepted in Russia * Credit cards are accepted in many establishments in Moscow and St. Petersburg
* Old or worn bills (or bills with anything written on them) are often not accepted even at banks
* Dollars are often demanded for service, and should never be given (it's against the law).
* In Moscow and St. Petersburg, automatic tellers for American Express and bank cards are located throughout the city. These should be used with discretion, as theft of card numbers is common. * The American Express offices in Moscow and St. Petersburg can cash American Express Travelers' checks, and personal checks for card holders. * The St. Petersburg American Express Office can provide cardholders with cash advances up to $500. In St. Petersburg, Promstroybank, Bank St. Petersburg and Baltiyskiy Bank provide cash advances for all major types of international credit cards and cash traveler's checks. * Western Union has agents in Moscow, St. Petersburg and some other large cities who can disburse money wired from the United States.

Customs Regulations

Russian customs laws and regulations are in a state of flux and are not consistently enforced. A 600 percent duty is required to export any item with a value greater than 300,000 rubles (customs officials decide the value of what you purchased). Items of historical or cultural value (icons, traditional samovars, rugs, old books, antiques, art) may only be taken out of the country with prior written approval of the Ministry of Culture and a payment of 100% duty. Failure to follow customs regulations may result in temporary or permanent confiscation of the property in question.

APPENDICES

APPENDIX A: COUNTRY DATA\1

Population: 148.1 million people (January 1, 1996) Population Growth Rate: 0 percent
Religions: Russian Orthodox, Islamic, Jewish, Catholic, Protestant, Buddhist, Other
Government System: Federal with 89 Republics, Territories,regions, and Autonomous Areas
Languages: Russian (official), plus over 140 other languages and dialects Work Week: 40 hours per week

APPENDIX B: DOMESTIC ECONOMY

--
1995
1996
1997\2
GDP (Ruble Trillions)
1659
2300
Real GDP Growth Rate
-4
-1
GDP Per Capita (Ruble Thous.)
1120
1553Government Spending (%GDP)
32
32
Inflation (Average Annual)
198
51
Unemployment (percent)
8.2
9.1
Foreign Exchange Res.s($ bill.)
7.7
7.0
Avg, Exchange Rate (rubles per $)
4562
5220
Foreign Debt ($ bill.)
130
135
Debt Service Ratio (before rescheduling)
16.5
13.0
US Economic/Military Assistance ($ mill.)
343
150

APPENDIX C: TRADE (US$ Billions)

--
1995
1996
Total Country Exports
78.3
46.7
Total Country Imports
46.7
51.0
U.S. Exports
2.8
3.0
U.S. Imports
4.0
4.3

\1 - Source (Appendix A and B): Russian State Statistics Committee (ROSKOMSTAT). Total trade data supplied by Russian State Customs Committee. Bilateral trade data from U.S. Department of Commerce. \2 - Figures for 1997 cannot be predicted with any degree of reliability. 1996 figures are unofficial estimates.

APPENDIX D: FOREIGN INVESTMENT STATISTICS

Statistics from the Russian government indicate that the following countries are leading investors in Russia:

1995
1996
Accumulated
COUNTRY
% Total
Million US$
Million US$
USA
29.1
812.1
2,039.8
Switzerland
15.0
419.8
518.7
Germany
10.5
293.5
763.9
Britain
5.8
161.4
994.4
Liechtenstein
4.1
114.4
--
Belgium
3.8
105.3
199.1
France
3.4
95.9
596.9
Netherlands
3.0
83.3
320.7
Japan
2.7
74.1
--
Austria
2.6
71.8
210.6
Italy
--
--
351.8
Canada
--
--
196.1

APPENDIX E: U.S. AND RUSSIAN CONTACTS

Russian Government Agencies

Ministry of Foreign Economic Relations:
Oleg Dmitriyevich Davydov,
Deputy Prime Minister and Minister of Foreign Economic Relations Co-chair, U.S.-Russia Intergovernmental Business Development Committee (BDC)
Krasnopresnenskaya Nab., 2, Moscow
Tel: (095) 205-4595; Fax: (095) 205-6541

Nikolay Ustinovich Drozdov, Deputy Minister 32/34, Smolenskaya-Sennaya Ploshchad, Moscow 121200 Phone: (095) 244-3690; Fax: (095) 244-1600

Ministry of Finance:
Vladimir Grigoriyevich Panskov, Minister of Finance Ulitsa Ilyinka 9, Entrance 1, Moscow
Tel: (095) 298-9130; Fax: (095) 925-0889

Ministry of Fuel and Energy:
Anatoliy Tikhonovich Shatalov, First Deputy Minister 7, Kitaysky Proezd, Moscow 103074
Phone: (095) 220-5252; Fax: (095) 206-8191

Ministry of Agriculture and Food:
Victor Nikolayovich Khlystun, Minister of Agriculture and Food Orlikov Pereulok, 1/11, Moscow
Tel: (095) 207-4243; Fax: (095) 207-8362

State Customs Committee:
Anatoliy Sergeyevich Kruglov, Chairman, State Customs Committee 1a, Komsomolskaya Ploshchad, Moscow 107842 Phone: (095) 975-3289; Fax: (095) 975-4823

State Committee for Standardization, Metrology and Certification: Sergey Fyodorovich Bezverkhiy, Chairman
9, Leninskiy Prospekt, Moscow 117049
Phone: (095) 236-6208, -4044; Fax: (095) 236-6231, 237-6032

Russian Copyright Agency:
Georgiy Artashessovich Ter-Gazariyants, Chairman of the Board; Vadim Serafimovich Dunin, Head of Foreign Relations Department 6a, Bolshaya Bronnaya Ul., Moscow 103670 Phone: (095) 203-2996, -4599; Fax: (095) 200-1263

Committee of the Russian Federation for Patents and Trademarks: Vitaliy P. Rassokhin, Chairman
2/6 Cherkasskiy Pereulok, Moscow
Tel: (095) 206-6203; Fax: (095) 923-4093

State Investment Corporation:
Yuriy Vladimirovich Petrov, Chairman
35, Myasnitskaya Ul., Moscow 103685
Phone: (095) 925-6796; Fax: (095) 207-6936

Regional Government

Moscow Registration Chamber:
Vladimir Ivanovich Sobolyov, Chairman
Mokhovaya Ul., 11, Bld. 8-E, Moscow 103009 Phone/Fax: (095) 202-2787;
Roald Nestorovich Lebedinskiy,
Director for Registration/Accreditation Service (Information in English) Phone: (095) 132-0500
Tatyana Kuzminichna Nikanorkina
Expert on Registration of Companies with Foreign Capital (Russian) Phone: (095) 202-4042

St. Petersburg Mayor's Office:
Aleksey B. Miller, Chief of Department, External Affairs Committee 1, Smolniy, St. Petersburg
Phone: (812) 271-0767; Fax: (812) 278-1633

Igor Sorokin, Deputy Chairman, Committee on Economy and Finance 16, Vosnessenskiy Prospekt, St. Petersburg Phone: (812) 319-9747;(812) 319 9554

Ina L. Bigotskaya, Expert, Foreign Affairs Ministry 67, Suvorovskiy Prospekt, St. Petersburg Phone: (812) 274-4759; Fax: (812) 274 5986

Yekaterinburg Regional Administration:
Igor Ivanovich Arzyakov, Director of Foreign Relations Department 1, Oktyabrskaya Ploshchad, Yekaterinburg 620031 Phone: (3432) 51-54-97, 58-96-56; Fax: (3432) 51-98-70

Yekaterinburg City Administration
Vladimir Ippolitovich Lomovtzev, Director of Relations Department 1, Oktyabrskaya Ploshchad, Yekaterinburg 620031 Phone: (3432) 51-13-07, 51-43-83; Fax: (3432) 51-90-05

Primorskiy Territorial Administration:
Andrey Zaumyonnov
Chairman, Committee for Foreign Economic Relations and Regional Trade 22, Svetlanskaya Ulitsa, Vladivostok
Phone: (4232) 22-79-37

Khabarovsk Territorial Administration:
Sergey Lopatin, Chief, Foreign Economic Relations Department 19, Muravyov-Amurskiy Ul., Khabarovsk
Phone: (4212) 33-41-21

Sakhalin Territorial Administration:
Vladislav Rukavets, Commissioner for Foreign Economic Relations 39, Kommunisticheskiy Prospekt,Yuzhno-Sakhalinsk, Sakhalin Phone: (42422) 34-908

State Duma (Lower Chamber of Parliament):

Committee on Budget, Taxes, Banking and Finance: Mikhail Mikhailovich Zadornov, Chairman
2, Georigiyevskiy Pereulok, Moscow
Tel: (095) 292-3618; Fax: (095) 292-5601

Committee for Economic Policy:
Yuri Dmitrievich Maslyukov, Chairman
2, Georgiyevskiy Pereulok, Moscow
Tel: (095) 292-3269; Fax: (095) 292-7387

Committee on Property, Privatization and Economic Activity: Pavel Grigoryevich Bunich, Chairman
2, Georgiyevskiy Pereulok, Moscow
Tel: (095) 229-9559; Fax: (095) 229-6996

Committee on Industry, Construction, Transport and Energy: Vladimir Kuz'mich Gusev, Chairman
2, Georgiyevskiy Pereulok, Moscow
Tel: (095) 292-0365; Fax: (095) 292-3763

Trade Associations/Chambers of Commerce in Russia

American Chamber of Commerce
Peter Charow, Executive Director
Kosmodamianskaya Nab. 52, Building 1, 8th floor, Moscow Phone: (095) 961-2141; Fax: (095) 961-2142

American International Business Association of St. Petersburg Lucas Angell, Executive Administrator
57 Bolshaya Morskaya, St. Petersburg
Tel: (812) 110-6042; Fax: (812) 311-0794

Council for Trade and Economic Cooperation (CIS-USA) Boris Petrovich Alekseyev, President
3, Naberezhnaya Shevchenko, Moscow 121248 Phone: (095) 243-5514, -5470; Fax: (095) 230-2467

Russian Chamber of Commerce and Industry Stanislav Alekseyevich Smirnov, President; Yuriy Nikolayevich Denissenkov, Head,
Sergey Borissovich Kulyba, Expert on Accreditation, Protocol Department 6, Ilyinka Ul., Moscow 103684
Phone: (095) 929-02-86,-60,-61,-62,-63; Fax: (095) 929-0356

Primorskiy Territory Chamber of Commerce and Industry Aleksandr Pisarev, Chairman
13A, Okeanskiy Prospekt, Vladivostok
Phone: (4232) 26-96-30; Fax: (4232) 22-72-26

Khabarovsk Territory Chamber of Commerce and Industry Mikhail Kruglikov, President
113, Shevronova Ulitsa, Khabarovsk 680000 Phone: (4212) 33-03-11, 33-11-30; Fax: (4212) 33-03-12

Russian Commercial Banks

Please contact the U.S. Commercial Service in Moscow, St. Petersburg and Vladivostok for a listing of Russian commercial banks.

U.S. Government Personnel Handling Trade Issues in Russia

U.S. Embassy Moscow:
John Peters, Minister Counselor for Commercial Affairs 15, Novinskiy Bulvar, Moscow 121099
Phone: (095) 255-4848, 255-4660; Fax: (095) 230-2101 Satellite telephone: 7 (502) 224-1105; Satellite fax: 7 (502) 224-1106

Clifford Bond, Minister Counselor for Economic Affairs 21, Novinskiy Bulvar, Moscow 121099
Phone: (095) 956-4139; Fax: (095) 956-4296

Mary Revelt, Minister Counselor for Agricultural Affairs 21, Novinskiy Bulvar, Moscow 121099
Phone: (095) 956 4103; (502) 221 1245
FAX: (095) 975 2339; (502) 224 1356

James Waller, Treasury Attache
21, Novinskiy Bulvar, Moscow 121099
Phone: (095) 956-4258; Fax: (095) 956-4148

Federal Aviation Administration (FAA)
Dennis B. Cooper, Senior Representative
8, B. Devyatinskiy Per., Moscow 121099
Phone: (095) 956-4036; Fax: (095) 956-4293

U.S. Agency for International Development Office of Privatization and Economic Restructuring 8, B. Devyatinskiy Per., Moscow 121099
Phone: (095) 956-4281

U.S. and Foreign Commercial Service, St. Petersburg David Schneider, Principal Commercial Officer 57, Bolshaya Morskaya Ul., St. Petersburg, Russia Phone: (812) 110-6656, 110-6727; Fax: (812) 110-6479 Satellite phone: (812) 850-1902; Satellite fax: (812) 850-1903

American Business Center, St. Petersburg Zhanna Agasiyeva, Assistant Manager
57, Bolshaya Morskaya Ul., St. Petersburg, Russia Phone: (812) 110-6042, 110-6271; Fax: (812) 311-0794 Satellite phone: (812) 850-1900; Satellite fax: (812) 850-1901

U.S. and Foreign Commercial Service, Vladivostok Timothy Smith, Principal Commercial Officer 2, Batareynaya Ul., Vladivostok
Satellite phone/fax: (509) 851-1211
Phone: (4232) 25-46-25; Fax: (4232) 25-46-61

American Business Center, Vladivostok
Inna Nazarova, Assistant Manager
2, Batareynaya Ul., Vladivostok
Satellite phone/fax: (509) 851-1212
Phone: (4232) 25-46-25; Fax: (4232) 25-46-61

U.S. Consulate General in Yekaterinburg
Jonathan Turak, Commercial/Economic/Political Officer AMCONGEN Yekaterinburg, Department of State, Washington, D.C. 20512-5890 Phone: (3432) 564-619; Fax: (3432) 564-515 Phone: (3432) 564-736 (Foreign Commercial Service)

Washington-Based USG Contacts for Russia

Overseas Private Investment Corporation
Nicola Bradley, Manager, NIS, Investment Development 1100 New York Avenue, N.W., Washington, D.C. 20527 Phone: (202) 336-8618; Fax: (202) 408-5145

U.S. Trade and Development Agency
Daniel Stein, Regional Director
U.S. Department of State, SA-16, Room 301, Washington, D.C. 20523-1602 Phone: (703) 875-4357; Fax: (703) 875-4009

Export-Import Bank
Mitchell McCauley, Insurance officer
811 Vermont Avenue, NW, Washington, DC 20571-0999 Phone: (202) 566-8190; Fax: (202) 566-7524

Business Information Service for the Newly-Independent States (BISNIS) Anne Grey, Director
U.S. Department of Commerce, Room 7413, Washington, D.C. 20230 Phone: (202) 482-4655; Fax: (202) 482-2293

U.S. Department of State
Mary Elaine Earl, Economics Officer
2201 C Street, N.W., Washington, D.C. 20520 Phone: (202) 647-6749; Fax: (202) 736-4710

U.S. and Foreign Commercial Service, Russia/NIS Program Office Vivian Spathopoulos, Director
U.S. Department of Commerce, Room 1235, Washington, D.C. 20230 Phone: (202) 482-2902; Fax: (202) 482-2456

International Trade Administration, Russia and Independent States Division Jack Brougher, Director
U.S. Department of Commerce, Room 3318, Washington, D.C. 20230 Phone: (202) 482-2354; Fax: (202) 482-3042

U. S. Agency for International Development Gregory Huger, Director, Office of Privatization and Economic Restructuring Washington, D.C. 20523
Phone: (202) 736-4410

U.S. Department of Agriculture
Gordon Nicks, Russian Area Officer
USDA, 14th St. and Independence Avenue, Washington, D.C. 20250 Phone: (202) 720-3080

U.S.- Russia Defense Conversion Committee Dan Hurley, Editor for Russian Defense Business Directories U.S. Department of Commerce, BXA, Room 3898, Washington, D.C. 20230 Phone: (202) 482-1455; Fax: (202) 482-2387

Special American Business Internship Training Program (SABIT) Liesl Duhon, Acting Director
U.S. Department of Commerce, Room 3413, Washington, D.C. 20230 Phone: (202) 377-0073; Fax: (202) 377-4098

U.S.-Based Multipliers and International Organizations with Interests in Russia

U.S.-Russia Business Council
Eugene K. Lawson, President
1701 Pennsylvania Ave., N.W. Suite 650, Washington, D.C. 20006 Phone: (202) 956-7670; Fax: (202) 956-7674

Russian-American Chamber of Commerce
Irene M. Lewis, President
6200 South Quebec St., Suite 210, Englewood, Colorado 80111 Phone: (303) 689-8642; Fax: (303) 689-8762

National Association of State Departments of Agriculture Richard Kirchhoff, Executive Vice President 1156 15th Street, N.W. Suite 1020, Washington, D.C. 20005 Tel: (202) 296-9680; Fax: (202) 296-9686

World Bank
Thomas Kelsey, Department of Commerce liaison 1818 H Street, NW, Washington, DC, 20433 Phone: (202) 458-0118; Fax: (202) 458-0118

International Finance Corporation (IFC)
Mark Constantine
1850 I Street, NW, Washington, DC 20433
Phone: (202) 473-9331; Fax: (202) 676-1513 Moscow Office: Roger Gale
6, Neglinnaya St., Moscow
Tel: 7-095-928-5328; Fax: 7-095-927-6832

International Bank for Reconstruction and Development U.S. Department of Commerce Liaison to the U.S. Executive Director's Office 1818 H Street, N.W., Room D-13004, Washington, D.C. 20433 Phone: (202) 458-0118; Fax: (202) 477-2967

Office of Multilateral Development Banks, U.S.& Foreign Commercial Service U.S. Department of Commerce, Room H-1107, Washington, D.C. 20230 Phone: (202) 482-3399; Fax: (202) 273-0927

European Bank for Reconstruction and Development One Exchange Square, London EC2A 2EH, United Kingdom Dean Peterson, Commerce Liaison
Tel: 011-44-171-338-6569; Fax: 011-44-171-338-6487

APPENDIX F: MARKET RESEARCH

A comprehensive and up to date listing of Market Research is available on the NTDB (National Trade Data Base). The following listing is of key publications from 1996, and some planned publications for 1997.

List of Available and Upcoming Industry Sector Analyses (ISA's) Environmental Equipment and Services
Upgrade & Refurbishment of Power Generation Equipment General Aviation
Computer Services
Children's Apparel
Heavy Construction Machinery
Office Supplies
Telecommunications in Northwest Russia
Oil and Gas Equipment
Automotive Accessories
Pharmaceuticals
Waste Water Treatment
Processed Foods
Commercial Fishing Equipment
Diagnostic Medical Equipment
Satellite/Cable TV
Food Processing and Packaging
Airport and Ground Equipment
Book Publishing
Building Products for Interior Finishing Woodworking Machinery
LAN Equipment

LIST OF USDA/FAS Commodity Reports and Market Briefs (FY1996 [as of June 1, 1996] and FY1997)

Oilseed and Products (annual) - June 1, 1996 Cotton (annual) - June 20, 1996
Annual Marketing Plan Information Report - July 15, 1996 Livestock (annual) - August 11, 1996
Poultry (annual) - August 15, 1996
Honey (annual) - August 25, 1996
Fresh Deciduous Fruit (annual) - September 10, 1996 Seafood (annual) - September 15, 1996
Agricultural Situation (annual) - September 30, 1996 Sugar (semi-annual) - October 1, 1996
Foreign Buyer List Annual Report - October 15, 1996 Dairy (annual) - November 30, 1996
Livestock (semi-annual) - February 10, 1997 Planting Seeds (annual) - February 10, 1997 Forest Products (annual) - February 15, 1997 Seafood (semi-annual) - March 15, 1997
Sugar (annual) - April 10, 1997
Tobacco (annual) - May 1, 1997
Oilseeds and Products (annual) - June 1, 1997 Cotton (annual) - June 20, 1997
Annual Marketing Plan Information Report (annual) - July 15, 1997 Livestock (annual) - August 1, 1997
Poultry (annual) - August 15, 1997
Honey (annual) - August 25, 1997
Fresh Deciduous Fruit (annual) - September 10, 1997 Seafood (annual) - September 15, 1997
Agricultural Situation Report - September 30, 1997

APPENDIX G: TRADE EVENT SCHEDULE; MAJOR TRADE SHOWS IN RUSSIA

A comprehensive list of trade shows in Russia is available from any US&FCS post in Russia. The following is a list of the most important events.

MODA Autumn '97, October 1-4, 1996, Moscow The International Fashion Trade Fair
Organizers in the USA: Comtek International 43 Danbury Road, Wilton, Connecticut 06897 Phone: (203) 834-1122; Fax: (203) 762-0773 In Russia: Crocus International, 4, Room 426, Kulneva St., Moscow 121170 Phone: 095/249-8606; Fax: 095/249-8609

NETCOM '97, October 1-4, 1996, Moscow
The International Trade Fair for Information Technologies Organizers: Comtek International and Crocus International (see above)

Apteka '96 - October 7-12, 1996, Moscow
The Drugs and Pharmaceuticals Trade Show Organizer: Pharmimex, Alexander Apazov, General Director 7, Pushkinskaya St., Moscow 101668
Phone: 095/292-4848/5502; Fax: 095/292-9889

Interstroi - October 8-13, 1996, St. Petersburg Construction Equipment and Building Products Organizer: Lenexpo, 103, Bolshoy pr., 199106 St. Petersburg Phone: 812/355-5810; Fax: 812/355-1985

Nizhny Novgorod Autumn - October 10-15, 1996, Nizhny Novgorod International Trade Fair for Consumer Goods Organizer: Nizhegorodskaya Yarmarka JSC
13, Sovnarkomovskaya Ul., Nizhny Novgorod, Russia 603086 Phone: 8312/444-110, 443-712; Fax: 8312/443-404, 440-146 Moscow Representative: Phone: 095/915-0535; Fax: 095/915-7562

Bank and Office '96 - October 14-18, 1996, Moscow The 6th International Trade Show for Banking Equipment Krasnaya Presnya Exhibition Center, pavilion 2 In the USA: Duesseldorf Trade Shows,
70 West 36th Street, Suite 605, New York, NY 10018 Phone: 212/356-0400 Fax: 212/356-0404
In Germany: Duesseldorf Trade Shows
P.O. Box 101006, D-40001 Duesseldorf, Germany Phone: (211) 45-60-02 Fax: (211) 45-60-740 In Russia: EXPOCENTR, 14, Krasnopresnenskaya Nab., Moscow 123100 Russia Phone: 095/255-3733; Fax: 095/205-6055

COMTEK '96 - October 21-24, 1996, St. Petersburg Computer and Communications Technology Exposition and Conference Organizers: Comtek International and Crocus International (see above)

Security and Safety - October 21-25, 1996, St. Petersburg Organizer: Lenexpo , 103, Bolshoy pr., 199106 St. Petersburg Phone: 812/356-3560; Fax: 812/355-1985

Energetica - November 6-9, 1996, St. Petersburg Organizer: Lenexpo, 103, Bolshoy pr., 199106 St. Petersburg Phone: 812/356-3560; Fax: 812/355-1985

Interavto - November 19-23, 1996, Lenexpo, St. Petersburg International Autosalon
Organizer: Lenexpo, 103, Bolshoy pr., 199106 St. Petersburg Phone: 812/356-3560; Fax: 812/355-1985

Interplastica '96 (4th International Trade Fair for Plastics and Rubber) and
Laki i Kraski '96 (3rd International Trade fair for Paint and Varnish) - December 3-6, 1996, Moscow
Organizer: Dusseldorf Trade Shows, Inc.
In U.S.: NOWEA International
150 N. Michigan Avenue, Suite 2920, Chicago, IL 60601 Phone: in the USA: 312/781-5180; Fax: 312/781-5188 E-mail: http://www.dtsusa.com/dts/

MIHE '96 - December 3-6, 1996, Moscow
2nd Moscow International Healthcare Exhibition Organizer: ITE, Byron House, 112A Shirland Road, London, W9 2EQ, UK Phone: 44/171/286-9720; Fax: 44/171/286-0177

Zdorovie i Farmatsevtika (Health and Pharmaceuticals) '96 December 3-6, 1996, Moscow
In the USA: Dusseldorf Trade Shows
70 West 36th Street, Suite 605, New York, NY 10018 Phone: 212/356-0400 Fax: 212/356-0404
In Russia: Expocenter, 14, Krasnopresnenskaya Nab., Moscow, Russia 123100 Phone: 7-095-255-3733; Fax: 7-095-205-6055

Agro '97 - February 12-16, 1997, Ufa
6th International Trade Fair for agricultural machinery, food processing equipment, agricultural chemicals and veterinary preparations Organizer: RID Center, P.O. Box 136 A, 450000 Ufa, Bashkortostan Phone: 7/3472/53-03-71, 53-01-16, 16-6434; Fax: 7/3472/53-03-71, 33-16-77

Norwecom - February 18-22, 1997, Lenexpo, St. Petersburg Telecommunications
Organizer: Lenexpo, 103, Bolshoy pr., 199106 St. Petersburg, Russia Phone: 812/356-3562; Fax: 812/355-1985

Mosbuild/Batimat '97, March 12-15, 1997, Moscow International Building and Construction Exhibition Organizers: EXPOCENTR and ITE (see above)

Computers and Data Processing - March 12-16, 1997, Yekaterinburg Data Processing in Business, Industry, R & D, and Everyday Life Organizer: Uralexpocenter, 18, Komsomolskaya st., 620219, Yekaterinburg Phone: 3432/493-017; Fax: 3432/493-019

MIOGE/Oil and Gas '97, April 7-10, 1997, Moscow Organizer: ITE (see above)

COMTEK '97 - April, 1997, Moscow
Trade Fair for Computer Systems, Peripherals and Software Organizer: COMTEK, 43 Danbury Road, Wilton, Connecticut 06897 Phone: (203) 834-1122; Fax: (203) 762-0773

SVYAZ/Expocomm '97 - May 19-23, 1997, Moscow Trade Fair for Telecommunications
Organizers: Expocenter (see above) and E.J. Krause & Associates, Inc. 7315 Wisconsin Avenue, Suite 420 East, Bethesda, MD 20814 Phone: 301-986-7800; Fax:301-986-4538

SPAFE - May 26-30, 1997, Lenexpo, St. Petersburg St. Petersburg Agro-Food Exhibition
In the USA: Comtek (see above)
In Russia: Crocus International (see above)

Medicine for You '97 - June, 1997, Moscow Organizer: Corporation "Medicine for You", P.O. Box 112, Moscow 121019 Phone/fax: 095/965-7783, 965-7784

International Computer Forum - June 3-6, 1997, Moscow Organizer: International Computer Club
4, Lubyansky Proezd, Moscow 101813 Russia Phone: 095-921-0902, 924-2167, 925-4667; Fax: 095-925-0995 E-mail: internet:levon@staff.icc.msk.su

Avtosalon-97 - August, 1997, Moscow
The 4th Russian International Automobile Salon Organizer: Expocenter and ITE (see above)

Russian Farmer - August 26-31, 1997, St. Petersburg The 6th Agricultural World Trade Fair
Organizer: Russian Farmer World Fair
8 M. Morskaya St., 191065 St. Petersburg Phone: 812/312-0635; 164-5368; Fax: 812/312-0635

CEM/IHHM/PWM '97 (Consumer Electronics/Housewares and Hardware/Photographic Equipment), September 22-26, 1997, Moscow Organizer: Comtek International (see above)

Siberia for Children '97 - September 23-26, 1997 Goods, Toys, Games, and Attractions for Children Organizer: The Siberian Fair (see above)

Uraleuroindustry - September 24-27, 1997, Yekaterinburg Machine Building and Metallurgy
Organizer: Uralexpocenter (see above)

**Provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)
[Image] trailers/mainfp.trailer 3-October-1996