Doing Business in Russia

Doing Business in Russia: 2013 Country Commercial Guide for U.S. Companies
INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2010. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

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Chapter 1: Doing Business in Russia Chapter 2: Political and Economic Environment Chapter 3: Selling U.S. Products and Services Chapter 4: Leading Sectors for U.S. Export and Investment Chapter 5: Trade Regulations, Customs and Standards Chapter 6: Investment Climate Chapter 7: Trade and Project Financing Chapter 8: Business Travel Chapter 9: Contacts, Market Research and Trade Events Chapter 10: Guide to Our Services

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Chapter 1: Doing Business in Russia
• • • • • Market Overview Market Challenges Market Opportunities Market Entry Strategy Market Fact Sheet Link

Market Overview •

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With a vast landmass, extensive natural resources, more than 140 million consumers, a growing middle class, and almost unlimited infrastructure needs, Russia remains one of the most promising and exciting markets for U.S. exporters. Russia is the world’s 11th largest economy by nominal gross domestic product (GDP) and 7th largest by purchasing power parity (PPP). It has the highest per capita GDP ($13,400) of the BRICS countries (Brazil, Russia, India, China, and South Africa). Russia is an upper middle income country, with a highly educated and trained workforce and sophisticated, discerning consumers. Russia’s economy is still recovering from the economic crisis that began in 2008, with GDP growth estimated at 2.8% for 2013. In terms of trade in goods, Russia was the United States’ 27th largest export market and the 16th largest exporter to the United States in 2012. Russia was America’s 21st largest trading partner overall. U.S. exports to Russia in 2012 were $10.7 billion, a new record and an increase of almost 30% from 2011. This is six times more than the growth rate for overall U.S. exports worldwide, which rose by 5%. Russian exports to the United States in 2012 were $29 billion, a decrease of 15% from 2011. Russia’s leading trade partners were recently Netherlands, China, Germany, Italy, Ukraine, and Turkey. U.S. accumulated investment in Russia is approximately $10 billion. According to Russian data, the United States is Russia’s 10th largest foreign investor. Russia joined the World Trade Organization (WTO) in August 2012. This brought the world’s largest economy outside the WTO into the organization and bound it to a set of rules governing trade. Congress also enacted legislation to extend permanent normal trade relations to Russia in the same year. Russia’s membership in the WTO will liberalize trade with the rest of the world and create opportunities for U.S. exports and investments. For industrial and consumer goods, Russia’s average bound tariff rate declined from almost 10% to under 8%. U.S. manufacturers and exporters will have more certain and predictable access to the Russian market as a result of Russia’s commitment not to raise tariffs on any products above the negotiated rates. For American businesses, Russia’s accession to the WTO will also bring the following: 3

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More liberal treatment for service exports and service providers. Stronger commitments for protection and enforcement of IPR. Rules-based treatment of agricultural exports. Market access under country-specific tariff-rate quotas. Improved transparency in trade-related rule-making. More effective WTO dispute resolution mechanisms.

The United States is working vigorously to expand bilateral trade and investment cooperation to benefit both Russia and the United States. In the last several years, the positive atmosphere resulting from the “reset” of bilateral relations has led to an unprecedented advance in economic cooperation between our countries. From 2009 to 2011, U.S. exports to Russia rose markedly by about 57%, and total United States-Russia trade increased by more than 80%. There is much more room for growth in this important relationship. Return to top

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Market Challenges • • •

Russia is the largest country in the world, spanning nine time zones and encompassing over 17 million square miles. Seriously underdeveloped infrastructure poses logistical challenges, especially in accessing markets outside of major cities. An incomplete transition from central planning has led to an insufficiently integrated economy and disparities in wealth distribution, both geographically and demographically. Conducting business might be impeded by: burdensome regulatory regimes; inadequate intellectual property rights (IPR) protection and enforcement; widespread corruption and inadequate rule of law; inconsistent application of laws and regulations; lack of transparency; and the continued presence of large state-owned, or state-controlled, enterprises in strategic sectors of the economy. Investments in “strategic sectors” of the Russian economy are subject to Russian Government control. Recent reforms make it easier for companies to hire expatriate employees, but the Russian immigration and visa system requires time and patience for business travelers to obtain necessary permissions to do business in Russia. English is not widely spoken although knowledge of the language is expanding especially in the major cities. Return to top

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Market Opportunities In alphabetical order: • Agricultural Equipment • Apparel • Automotive Parts and Service Equipment/Accessories • Aviation 4

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Chemicals/Plastics Construction Consumer Electronics Electric Power Generation and Transmission Equipment Energy Efficiency/Green Build Medical Equipment Refinery Equipment Safety and Security Equipment Travel and Tourism to the United States Return to top

Market Entry Strategy • •

Commit time, personnel, and capital seriously, as developing business in Russia is resource-intensive. Conduct market research, such as with the U.S. Commercial Service’s Gold Key or International Partner Search services, to identify opportunities and potential Russian business partners. Conduct due diligence, such as with the U.S. Commercial Service’s International Company Profile service, to ascertain the reliability of business partners. Consult with U.S. companies already in the market, as well as with the U.S. Commercial Service and business organizations such as the American Chamber of Commerce in Russia and the U.S.-Russia Business Council. Communicate regularly with Russian business partners to ensure common understanding of expectations. Frequent travel to Russia is strongly recommended in order to establish and maintain relationships with partners and to understand changing market conditions. Maintain a long-term timeframe to implement plans and achieve positive results.

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Chapter 2: Political and Economic Environment
For background information on the political and economic environment of the country, please click on the link below to the U.S. Department of State Background Notes. http://www.state.gov/r/pa/ei/bgn/index.htm Information on Russia can be found at the following link: http://www.state.gov/r/pa/ei/bgn/3183.htm Return to table of contents

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Chapter 3: Selling U.S. Products and Services
• • • • • • • • • • • • • • • • Using an Agent or Distributor Establishing an Office Franchising Direct Marketing Joint Ventures/Licensing Selling to the Government Distribution and Sales Channels Selling Factors/Techniques Electronic Commerce Trade Promotion and Advertising Pricing Sales Service/Customer Support Protecting Your Intellectual Property Due Diligence Local Professional Services Web Resources Return to top

Using an Agent or Distributor

Encompassing nine time zones, Russia is the largest country in the world by landmass. Therefore, many businesses tend to approach the Russian market on a regional basis. Most new entrants start in Moscow and then move into the regions either through an existing distributor or by seeking new distributors in those locales. As both Moscow and St. Petersburg are major population and business centers, many Western firms have representatives there. The Northwest Federal District consists of the northern part of European Russia and includes eight federal subjects (equivalent to U.S. states), including Russia's second largest city, St. Petersburg. St. Petersburg and the surrounding Leningrad Region are home to Russia's largest port facilities, and the area has significant natural resources, especially in forest products and oil and gas. The region's population of over 13 million provides a stable and highly educated workforce. In addition, the region shares a long border with Finland, and nearly 40% of European Union-Russia trade takes place along this border. American companies have made significant investments in northwest Russia: Caterpillar, Ford, GM, International Paper, Kraft Foods, Wrigley and ConocoPhillips are some of the U.S. brand names with investments there. Some companies have successfully entered the Russian market by starting distribution in other key regions first because of market features and industry sector concentrations (e.g., woodworking in northwest Russia and energy projects in Sakhalin and western Siberia) and then expanding elsewhere. Well-organized distribution channels are established in western Russia, especially in Moscow and St. Petersburg, and continue to

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develop rapidly in southern Russia, the Volga region, Urals, Siberia, and Russian Far East. With a high concentration of mineral resources (diamonds, gold, silver, tin, tungsten, lead and zinc), fishing, and timber resources, the Russian Far East also represents business opportunities for U.S. exporters. The Russian Government is promoting a shift in the region to deep processing of natural resources and fostering local production of high value-added products, while preserving a reasonable focus on resource extraction. Deep processing is focused on the timber, fishing, and agricultural (meat and milk production) industries and will create a need for equipment in these areas. Local and international environmental groups are supporting this strategy, aimed at more sustainable economic development in the region. The Russian Government has mega-projects in the fuel and energy sectors, including continued development of the major Sakhalin oil and gas project at a cost of over 1.8 trillion rubles. Chemical production facilities using natural gas will likely be built along the pipeline routes. A large-scale petro- and natural gas chemical industry is expected to develop in the Russian Far East along the main pipeline routes to include methanol, ammonia, and fertilizer products, as well as manufacturing of polymeric plastics. These new projects will require procurement of equipment and machinery to support their production. The mining sector is also expected to be developed, including continued development of gold deposits in the Amur and Magadan regions and the Chukotka Autonomous Region. New projects in the mining sector will drive up the demand for expanded fleets of road construction machinery, and other equipment by local companies. The development of regional aviation as a means to connect population centers in the Russian Far East is another Government priority. A new Federal program (adopted in April 2013) plans to allocate 101 billion rubles to support regional aviation, including the upgrade of local airports’ infrastructure. This will create business opportunities for suppliers of regional aircraft and equipment, as well as for service providers specializing in airport modernization. It is recommended that U.S. companies interested in doing business in the Russian Far East have a Russian partner and move gradually into the market. To succeed in Russia growing market, it is important to choose sales targets and distributors carefully. U.S. companies have four basic options when choosing a distribution channel: 1) Agents It is not a common practice in Russia for foreign companies to rely solely upon the services of an agent. Distributors and representative offices, however, often employ agents in the Russian regions in order to promote their products. 2) Distributors The most common market entry strategy is to select a good distributor or several distributors (depending on the product). U.S. companies can consider a variety of national, regional, and local distribution alternatives. In some product categories (e.g., apparel, cosmetics, packaged foods, alcoholic beverages, consumer electronics, and household appliances), foreign suppliers can choose from a growing number of 8

established distributors. A good distributor will typically sell and deliver foreign suppliers’ products to end-users and/or the retail market and provide a wide range of logistical support, i.e., customs clearance, warehousing, inventory management, etc. However, handling promotion and advertising campaigns exclusively through independent distributors can often produce disappointing results. Russian distributors normally handle products from multiple suppliers and are not typically dedicated to promoting a specific company’s product unless the supplier provides substantial support for promotion and advertising. Russia’s retail law also limits some types of promotional activities. 3) Representative/Branch Offices Some foreign manufacturers, in addition to using distributors, have established their own representative offices. The major advantage of opening a representative office is that foreign companies have more direct contact with their end-users and control over the promotion and distribution of their products. However, under the Russian Civil Code, such offices cannot be directly involved in commercial activity. Instead, they typically oversee a network of distributors and/or agents that perform commercial functions. This approach affords greater control by the foreign supplier over the distribution process and helps to reduce risks. As representative offices may not take part in commercial activities, branch offices have become increasingly more popular. According to a 1999 foreign investment law, foreign companies may engage in commercial activities through their legally established branches. Branches are accredited for five years and must be registered with tax authorities and other state organizations. Both representative and branch offices can be attractive to foreign businesses wishing to operate in the Russian market, because there are fewer tax and other administrative burdens, and currency control restrictions may not apply. 4) Foreign Subsidiaries Some foreign manufacturers, particularly in the cosmetics, pharmaceuticals, consumer appliances, durables, and industrial products sectors, have registered their whollyowned subsidiaries in Russia. They then sell directly to their own companies registered in Russia that import for their own account. This approach affords full control of the supplier over distribution and helps to further reduce possible risks from false invoicing and other irregularities sometimes committed by independent importers and distributors. For more information on registering a company in Russia, please refer to the “Establishing an Office” section below. U.S. exporters are advised to cultivate personal relationships with their Russian representatives and clients, to proceed gradually, and to ensure that they have a contingency plan should problems arise. Because it is often difficult to find information on Russian companies, it is strongly recommended that U.S. firms consider using the U.S. Commercial Service’s International Company Profile service to validate potential partners. The U.S. Commercial Service strongly advises against the risky practice of a company representative simply visiting Russia once or twice, selecting a representative, granting exclusive representation, and then moving quickly to consignment or credit sales without first establishing a payment and performance history. In addition, exporters are cautioned to take primary responsibility for registering their brand names in Russia and not to rely on a partner to do this. Finally, it is important to provide a 9

Russian partner with Russian language product information and marketing materials. These can be prepared in the United States or done jointly with a Russian partner. The U.S. Commercial Service provides assistance to U.S. companies in finding local partners through the Gold Key Service, Preliminary Market Assessment, International Partner Search, International Company Profile, Customized Market Research, Platinum Key and other products and services. Information about these services can be found at http://export.gov/russia/servicesforu.s.companies/index.asp. Establishing an Office Return to top

The U.S. Commercial Service can provide basic counseling on registration requirements and procedures. However, it is strongly recommended that interested U.S. companies seek legal advice on business registration. U.S. Commercial Service staff can provide contact information for U.S. and Russian firms that offer professional legal advice in this area. Registration Options The following basic laws and government resolutions regulate business registration in Russia:  The 1999 Federal Law “On Foreign Investment in the Russian Federation.”  The 1994 Part I of the Civil Code.  The 2001 Federal Law “On State Registration of Legal Entities.”  Russian Government Resolution No. 319 “On Authorized Federal Entity of the Executive Power, Providing State Registration of Legal Entities” of May 17, 2002, and a number of legal acts. Conducting business without registration is illegal. Although the federal law governing the process is uniform throughout Russia, it is often subject to local interpretation. Russian law offers several commonly used structures to conduct business:  Representative or branch office of a foreign company.  Registration as an individual private entrepreneur.  Companies: o Limited Liability Company (OOO). o Privately held, closed joint stock company (ZAO). o Publicly held, open joint stock company (OAO). Branch offices and accredited representative offices are both legally distinct from Russian corporations, which may be established by foreign firms either as joint stock companies with partial Russian ownership or as wholly-owned subsidiaries of a foreign firm. Foreign ownership can be as high as 100%, with some exceptions. For example, foreign investment is limited in industries defined by the “Strategic Sectors Law” (discussed in this chapter under “Joint Ventures/Licensing”). Branch Offices Branches are not considered independent legal entities, though they may negotiate, market or provide other business support on behalf of firms based outside Russia. Setting up a branch may be worthwhile if a foreign company is starting to pursue 10

business in Russia and is exploring opportunities. Many large U.S. firms began their Russian operations as locally established branches. Branches of foreign firms must register with the State Registration Chamber, which is part of the Ministry of Justice of the Russian Federation. Branches will incur the following fees for accreditation: RR 120,000 (State duty) plus RR 15,000 for one year; RR 20,000 for two years; RR 35,000 for three years; and RR 75,000 for five years. Accredited Representative Offices Like branches, accredited representative offices are not independent legal entities; they may not be involved in commercial activities. After accreditation is obtained, the office should register with the local or regional registration chambers, located in many Russian cities. Advantages of an accredited office include annual/quarter (rather than monthly) reporting requirements for some activities (including some tax payments), and the ability to issue invitations for U.S. partners to visit Russia on business visas. Up to five foreign employees may work with an accredited office of a foreign company. Offices are usually accredited for one to three year terms. Accredited representative offices must register with the State Registration Chamber or the Russian Chamber of Commerce and Industry in order to be included in the State Register of Accredited Representative Offices of Foreign Legal Entities in the Russian Federation. Certain specific businesses must register with appropriate state organizations, depending on their industry. Such agencies include the Central Bank, Ministry of Economic Development, Ministry of Finance, Ministry of Transportation, Ministry of Industry and Trade, Ministry of Energy and others. According to internal procedures, accreditation of a representative office or branch should take 21 business days (for registration with the State Registration Chamber) starting from the day the full set of required documents are provided. Representative offices will incur the following fees for accreditation: (1) $1,500 for one year, $2,500 for two years, and $3,500 for three years for the accreditation with the Russian Chamber of Commerce and Industry plus RR 3,000 payment or (2) 35,000 rubles for one year, 65,000 rubles for two years, and 85,000 rubles for three years for the accreditation with the State Registration Chamber. An additional fee of 15,000 rubles may be paid for expedited accreditation within seven days. Further information is available on the State Registration Chamber Web site at http://www.palata.ru/en/. Companies and Taxation Companies are required to register with the local Tax Inspectorate (the tax registration will also include registration with the Russian Social Security Funds). Documents for state registration should be prepared and submitted to the local Tax Inspectorate in accordance with Chapter 12 of the August 8, 2001, Federal Law “On State Registration of Legal Entities.” An authorized legal entity, the Moscow Department of the Ministry of Finance of the Russian Federation (15, Tulskaya Street, Moscow), provides counseling to business people on registration procedures and registration documents. Further information on company registration, including the list of documents to be submitted, as well as contact information for local tax authorities can be obtained from the following Web site: http://eng.nalog.ru/. 11

Tax Code Major revisions of Russia’s tax code took place from 1999 to 2003. The resulting tax legislation more closely matches the needs of a growing market economy, and many of the provisions of previous legislation that distorted the business environment and kept many businesses in the shadow economy have been removed. The most fundamental changes were reflected in the new chapters of the Tax Code Part II and affected the value added tax, excise taxes, individual income tax, and profits tax. Also affected was the Federal Law "On the Introduction of Amendments and Additions to Part II of the Russian Federation Tax Code and to Separate Russian Federation Legislative Acts." These changes aimed at improving Part II of the Russian Tax Code were passed by the Duma and enacted into law in 2003. The ongoing tax reform has further improved procedural rules and reduced the overall tax burden in the country. Implementing numerous changes in the Russian Tax Code has resulted in some confusion. A general overview of Russian taxes follows, but companies operating in Russia should consult with a professional tax advisor to learn about the latest developments. Profits Tax The profits tax is levied on net profits. Effective January 2009, the profit tax rate was reduced from 24% to 20% (18% of this amount is allocated to regional Russian authorities and 2% to federal) to address the economic downturn. The regional authorities may, at their discretion, reduce their regional profits tax rate to as low as 13.5%. Thus, the overall tax rate can vary from 15.5% to 20%. Depreciation provisions were improved with the introduction of a 30% initial lump sum depreciation deduction and revision of non-linear depreciation rules. The tax rate was reduced in tandem with the introduction of more realistic interpretations of deductible expenses, the combined effect of which is to significantly reduce the profit tax burden and support the Russian economy during the financial downturn. The provisions on profit taxation enable foreign companies operating in Russia to benefit from the reduced withholding tax rates and exemptions under Russia's double taxation treaties (the United States and Russia have had a double taxation treaty in place since 1992), which in certain cases could result in advantages to U.S. companies. For example, representative offices are permitted to deduct expenses incurred on their behalf by a parent company located abroad. Value Added Tax (VAT) and Import Duties VAT is designed as a tax to be borne ultimately by consumers, but is collected on a basis similar to the European Union model. VAT is calculated on sales value and is applied at a uniform rate of 18%, except for certain foodstuffs, pharmaceuticals and children's clothes, which are taxed at 10%. Some products, such as certain financial services and medical equipment, are entirely exempt from VAT. As of January 1, 2008, in an attempt to bolster research and development (R&D) and investment in technology, intangibles such as inventions, software, industrial designs, and production know-how are exempt from the VAT. Imports are also subject to VAT, calculated based on the customs value of the item plus customs duties and fees. In addition, import duties are assessed at specified rates, ranging from 5% to 30% (as of January 1, 2010, import duty rates for some goods 12

increased with the introduction of the Customs Union among Russia, Belarus and Kazakhstan). They are assessed according to classification and are applied to the customs value of the imported goods, including shipping charges and insurance. Goods imported by foreign partners as in-kind contributions to the charter capital of a new enterprise may be exempt from import duties during a period specified in the charter documents and import VAT under certain conditions (e.g., the goods qualify as technological equipment which has no analogues manufactured in Russia). In general, goods manufactured or assembled in Russia, whether by a Russian or foreign company, and then exported out of Russia, are not subject to VAT. If these goods are exported before payment is received, then no VAT should be collected. On the other hand, if payment is received before shipment, the exporter must pay the applicable VAT and then request a refund from the tax authorities. Changes in the method of VAT collection for certain entities such as diplomatic missions, effective January 1, 2010, have resulted in some confusion as businesses and government offices make the needed adjustments to the revised system. Social Welfare Taxes As of January 1, 2010, the Unified Social Tax was replaced by social security (payroll) contributions to the State Pension Fund, Social Security Fund, Federal Medical Insurance Fund and Territorial Medical Insurance Fund. A business is liable for the entire amount of social security contributions and no amount is withheld from employees. The recent implementation of the change in social welfare taxes has resulted in some confusion, as businesses and government offices make the needed adjustments to the new system. The social security contributions apply at the aggregate rate of 34% on an employee’s annual salary of up to RR 415,000 (the threshold may be adjusted in the future by the Russian Government); the portion of an employee’s annual salary in excess of this threshold is exempt from the social security contributions. Social security contributions are payable as follows: 26% to the State Pension Fund, 2.9% to the Social Security Fund, 2.1% to the Federal Medical Insurance Fund, and 3% to the Territorial Medical Insurance Fund. The social security contributions apply to all payments to individuals (including individuals applying a simplified system of taxation) even if made from net income. Importantly, salary or other payments to foreign citizens temporarily present in Russia (i.e., not having a permanent resident permit) are not subject to social security contributions. Social security contributions are paid on a monthly basis and the calculations of the social security contributions are filed with the State Pension Fund and the Social Security Fund on a quarterly basis. Reduced social security contribution rates apply to certain business categories, including agricultural producers (20.2% in 2011-2012 and 27.1% in 2013-2014), software and high-tech companies (14% in 2011-2017), certain mass media companies (26% in 2011 and 27% in 2012) and companies engaged in special innovation projects (14%). Workplace accident insurance is paid by the employer in addition to social security contributions. Rates vary from 0.2% to 8.5% depending on the established class of professional risk.

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Withholding on Dividends, Interest, and Royalties Foreign legal entities without a business presence in Russia are subject to a withholding tax of 10% on freight services provided in Russia. Dividends are taxed at a rate of 15%, interest and royalties at a rate of 20%. These rates are often reduced pursuant to an applicable relevant double taxation treaty (the United States-Russia tax treaty potentially may reduce the dividends rate as low as 5%, depending on whether certain ownership and investment criteria are met, as well as lower the tax on interest and royalties to 0%). Lease payments and other income are subject to a 20% withholding rate. Land, Property and Personal Income Taxes Local authorities may impose a tax on land according to its type and location. The rate is higher in Moscow and St. Petersburg than in some other cities and rural areas. The personal income tax rate for Russian tax residents is a flat 13% imposed on worldwide income (non-residents are taxed at 30% on Russian-source income). Franchising Return to top

Franchising as a business model only came to Russia in the early 1990s. The first foreign franchises were primarily American and Italian restaurant chains. The Russian Civil Code, specifically in Chapter 54, formally adopted franchise legislation in 1994 where franchising is defined as a “commercial concession.” Since then, the number of franchise operations has steadily grown. While foreign franchises dominated the market for the first decade, a number of Russian retailers, restaurant and drugstore chains began to expand using the franchise model. Currently, there are more Russian than foreign franchise organizations. It is difficult to estimate the number of franchises currently working in Russia, because some are registered under other legal forms, such as through licensing agreements or sales contracts. The franchising business model has developed mainly in the restaurant and fast food, retail, and other consumer-service areas. Most franchisers choose to establish partnerships with franchisees in Moscow or St. Petersburg; however, there are several other cities with million-plus populations, which can provide excellent opportunities for expansion. A number of well-known U.S. franchises have successfully entered the Russian market. Among the most visible brands are: AlphaGraphics, Baskin Robbins, Burger King, Candy Bouquette, Carl’s Jr., Century 21, ChemDry, Chips Away, Crestcom, Domino’s Pizza, Dunkin’ Donuts, Fastrackids, Gold’s Gym, Hard Rock Café, Jani King, KFC, Kwik Kopy, LMI Consulting, Mail Boxes Etc., McDonald’s, Office 1 Superstore, Papa John’s, Pizza Hut, Pizza di Roma, Sbarro, Starbucks, Subway, Wendy’s, and Western Union. There are still some gaps in Russian franchising legislation, but local franchising entrepreneurs, with the help of the Russian Franchise Association, formed in 1997, are actively working to create a more favorable legal and business environment for the expansion of franchising in Russia and to support and protect the interests of its members. According to the Russian Civil Code amendments as of January 1, 2008, the subject matter of the franchising agreement currently includes the rights to use a trademark, service mark, and any other objects of exclusive rights, in particular commercial designation and know-how, which cannot be granted free-of-charge. Also, for a

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franchising agreement to be valid, it has to be executed in written form and registered with the Federal Service for Intellectual Property, Patents and Trademarks (Rospatent). The Buy Brand International Franchise Exhibition, held annually in Moscow in September, is a good way to make contacts and become acquainted with the market. Direct Marketing Return to top

Given the relatively underdeveloped state of some distribution channels in Russia, direct marketing has become an effective and profitable alternative, especially outside of Moscow and St. Petersburg. Leading direct sales companies such as Amway, Avon, Mary Kay, Oriflame, Herbalife, and Tupperware are active in Russia. World Direct Selling Association statistics revealed that direct sales in Russia in 2011 amounted to $3.59 billion (up from $3.13 billion in 2010) and that around 4.1 million salespeople Russia-wide were engaged in direct selling. Personal direct selling has been most successful in cosmetics and personal care products (70%), wellness (9%), and clothing and accessories (8%). For more information on the direct selling industry in Russia, visit the Russian Direct Selling Association Web site at: http://eng.rdsa.ru/. Joint Ventures/Licensing Return to top

U.S. companies may become strategic partners with Russian firms by taking equity positions in Russian joint stock companies and thus establishing joint ventures (JV). Establishing a JV in Russia demands meticulous planning and sustained commitment. In most cases, it is advisable for the U.S. partner to retain managerial and voting control. JVs in which foreign partners hold minority stakes are dependent on the good intentions of their Russian majority owners. Experience shows that foreign minority shareholders may face serious difficulty in protecting their interests in Russian courts. One advantage of a JV is that it helps a U.S. firm gain a measure of Russian identity, which can be useful in a culture where many still view foreigners with suspicion. The May 2008 Strategic Sectors Law identified 42 industry sectors requiring the Russian Government’s pre-approval of a foreign firm’s purchase of controlling interest. Additionally, political pressure is mounting in Russia for domestic content mandates in key sectors or for large-scale procurements. For example, some foreign investments in the oil industry may be required to source 70% of their goods and services from Russian providers. Firms that creatively help oil producers meet these requirements will have an advantage in this industry. Russian and U.S. partners often view JVs differently. U.S. companies, especially smaller ones, often view JVs as a means of securing a local partner with experience in the Russian market. On the other hand, many Russian managers view a foreign partner chiefly as a source of working capital, and these managers may place a low priority on local market development. While there are many examples of successful JVs, a U.S. investor invites trouble when it cedes oversight of any aspect of a JV to a Russian partner that does not share the same objectives. Before making financial or legal commitments, U.S. firms should thoroughly explore whether a potential partner shares their priorities and expectations. Any firm that forms a JV in Russia should be ready to

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invest the constant personal attention of U.S. managerial staff to keep the business on course, both before and after the venture has achieved commercial success. U.S. technology is sometimes licensed for Russian production outside the context of a joint venture. Major hurdles that must be overcome include quality levels attainable by Russian facilities in the absence of significant retooling, uncertain intellectual property protection and difficulty in receiving regular and prompt payments. In the opposite direction, Russian companies generally are eager to license their technologies to foreign companies in exchange for the cash infusion. Selling to the Government Return to top

Government procurement has always been a powerful incentive for the development of the small- and medium-sized enterprise (SME) sector in Russia. Given the amount of post-Soviet government property, the market for state procurement is quite impressive in value. The term “government procurement” includes all state agencies, ministries, state non-budget funds, state-owned plants and factories, high schools, hospitals, and companies operating infrastructural facilities such as Mosvodokanal (operating the water and sewage system of Moscow) and GorMost (operating all Moscow bridges, parks and lawns). These entities buy a large range of products from stationary to complex road building or construction equipment, and from food to drugs and medical equipment. The Ministry for Economic Development (MED) and Treasury are responsible for developing Russian procurement policy. All the legal initiatives are developed by this Ministry and sometimes jointly with the Ministry of Industry and Trade; however, MED is always the lead in any joint projects. On the other hand, it has always been a challenging issue for SMEs to apply and start supplying government agencies or affiliated structures. Until 2005, there was no proper legislation regulating procurement operations, which led to some corrupt practices. Companies close to the management of the state-owned public organizations have often pre-negotiated the results of the tenders, leaving no place for fair market competition. Many companies have encountered the problem that, despite being a major producer of the commodity and offering the best price, they still could not win. It is possible that the authorities reviewing bids will find a minor fault in the tender application or its specifications and thus reject the bid and give preference to another bidder. Russian Federal Law N94-ФЗ of July 21, 2005, requires all federal, regional and municipal government customers to publish all information about government tenders, auctions and other purchase procedures on the Internet. Other laws that regulate government procurement in Russia are: Federal Law 218-ФЗ, 53-ФЗ, 142-ФЗ, 207-ФЗ, 229-Р (about the e-commerce platform, www.zakupki.gov.ru), and 94-ФЗ (anti-corruption act for government procurement). The business community and many public organizations admit that the law in its existing form allows for much corruption. Therefore, Russia’s President ordered MED to revise the law and apply anti-corruption amendments, and, on November 11, 2010, the new wording of the law was approved by the State Duma (Russian Parliament). These laws stipulate new government procurement policies and are directed at transforming them into transparent business practices with equal rules and opportunities for all participants. In 2011, the law was revised again. The last edition of the law is dated November 21, 2011. 16

In 2012, the Government initiated a reexamination of the 94 Federal Law on procurement and concluded that the law in its current form did not protect the customer (state or municipality) from inappropriate execution of the contract and was not able to evaluate the efficiency of the work performed by the contract. Russia’s President initiated the changes to the law and proposed a new concept called the Federal Contractual System (Федеральная Контрактная Система). The new law provides more precise terms and definitions of the procurement process. For example, the new law introduces three stages in the process: (1) planning; (2) conduct of procurement; and (3) evaluation and performance control. The new law becomes effective on January 1, 2014. The following link provides access to the Russian language version of the new law: http://www.gov-zakupki.ru/files/FKS.doc If a U.S. company considers entering the Russian market and becoming a government supplier it must consider whether its equipment or products compete with any similar goods produced in Russia. Russian law states that the preference should be granted to the local manufacturer. The law also states that, in the case in which foreign goods outbid local goods for some reason, an additional discount of 10-15% is to be granted by the seller. The potential for the success of U.S. producers to sell to a Russian Government entity often depends on the U.S. company’s ability to find the right partner in this market. The direct sales model (B2G) does not fit the Russian market, because (1) the Government needs the goods that are tendered to be available for a spot deal, and this is only possible when the company runs its own operations or has a partner and (2) the bidder must be a Russia-based legal entity. Another key to success is to spot the unique opportunities in which Russian companies have no competitive edge or offer solutions that can outbid the local supplier, using either logistical or financial advantages. The government decree dated December 5, 2008 (№427), states that Russian manufactured goods will enjoy a 15% preference if any foreign manufactured goods are offered for the tender and that, if a company offering foreign goods wins the tender, the contract is to be signed with a 15% discount. This decree is not valid if the sought products or services have no competing analogs in Russia. For these reasons, it is advisable to enter the Russian Government procurement market either with a unique portfolio of products or to start operations aimed at launching manufacturing units within Russia. Federal law 94-ФЗ on government procurement is not valid for natural monopolists such as Gazprom or Russian Railways or Rosneft. However, work is under way to reconsider the current status of procurement policies at these state-owned companies and to make them dependent on federal law to enhance the structure of spending and to cut excessive costs. Such a change in procurement policies at state-owned corporations will be a step forward toward the elimination of corruption in these companies. The main regulators that consider complaints about companies and agencies infringing on the procurement law are the Federal Antimonopoly Service, MED, and the Ministry of the Interior (when there is a criminal case).

17

To see the list of public tenders, one can enter the Government Web site, www.zakupki.gov.ru, which is only in Russian. State-owned companies such as Russian Railways or Gazprom have English versions of their Web sites, where they also post information on their tenders. Distribution and Sales Channels Return to top

Well-organized distribution channels have developed significantly over the last few years, particularly in the major population centers, such as Moscow and St. Petersburg, and have begun to expand to the regions. In the consumer sector, some large-scale retail stores have recently emerged in Moscow that are able to buy in bulk and negotiate relatively long-term commitments. Large shopping malls have opened up on the Ring Road circling the capital and are giving the Moscow retail environment more of the characteristics of other European cities. Shopping malls and big box stores are common sights in St. Petersburg, Moscow, and many other Russian cities. By utilizing these domestic distribution organizations, the task of bringing goods to market in Russia has been greatly eased. However, their geographic coverage can be limited, and accessing markets in some of the regions can still be problematic. In these regions, U.S. firms may encounter erratic distribution, unpredictable and tough competition, and word-of-mouth marketing. Although Russia boasts increasing numbers of Western-style stores in major cities, much distribution and retailing still takes place through such informal channels as kiosks and open markets. Those who succeed do so through a combination of improvisation and innovation, combined with a substantial investment of time and a tolerance for early mistakes. U.S. companies with a long-term market development strategy may find regional markets well worth exploring. St. Petersburg remains the main port of entry for a variety of consumer and industrial products for European Russia (Russia west of the Urals). Vladivostok is the main port of entry for the Russian Far East. In general, the transportation infrastructure in this vast country is still underdeveloped and in need of major upgrades. The majority of cargo moves by rail, and the road network is in need of expansion. Major Western freight forwarders and express couriers are active in Russia. Selling Factors/Techniques Return to top

As with any country, successfully marketing and selling goods and services in Russia require adaptation to its commercial climate and business practices. Market research is required to identify opportunities and potential Russian business partners. The choice of a partner is key and should be done only after conducting sufficient due diligence to determine its reputation and reliability. The U.S. Commercial Service has services to assist with market research, identifying partners, and conducting due diligence (see http://export.gov/russia/servicesforu.s.companies/index.asp). Both before and after launching operations, travel to Russia is strongly recommended to establish and maintain relationships with business partners and to understand market attributes. Marketing in Russia requires patience: exporters should maintain a longterm perspective and not expect immediate results. It can be helpful to network with companies already in the market, as well as business organizations, such as the American Chamber of Commerce in Russia and the U.S.-Russia Business Council.

18

Business planning should include advertising, market promotion, and regular visits to Russia. When recruiting personnel or identifying business partners, local talent should be utilized, especially for government relations, which can be of critical importance, and professional services of all kinds, such as law, accounting, engineering, etc. Absentee management should be avoided; it is important to communicate regularly with Russian business partners to ensure common understanding of expectations. Partners can assist with required testing and certification, after-sales service, customs clearance, warehousing and preparation of Russian-language marketing and instruction materials. Business should always be conducted in compliance with all Russian laws and regulations (taxes, customs, labor, etc.), as well as applicable U.S. laws and standard business practices, including corporate governance and accounting practices. Companies that undertake corporate social responsibility programs in the United States should consider developing a similar approach for the Russian market. Exporters should avoid selling on open account until they have developed a wellestablished track record with buyers; letters of credit and other secure financing vehicles are available. Another option may be U.S. Government or multilateral development bank financing, such as the U.S. Export-Import Bank (Ex-Im Bank), the U.S. Overseas Private Investment Corporation (OPIC), or the European Bank for Reconstruction and Development (EBRD). (See Chapters 6 and 7 for more information on these financing mechanisms.) Exporters should be prepared to adjust prices according to currency fluctuations. Russian purchasers are generally sophisticated and highly educated. They are likely to be Internet users and receptive to imported goods. Russian purchasers may be price sensitive, but are frequently willing to pay for quality, especially for recognized and reliable imported brands – another reason to invest in advertising. Electronic Commerce Return to top

According to the Russian Association of Electronic Communications (RAEC), the Russian e-commerce market grew by 27% in 2012 to a value of 400 billion rubles ($12.8 billion). With 52 million Internet users, Russia’s e-commerce market is not only the fastest growing, but also the largest, market in Europe. According to a recent study from Comscore digital analytics, Russia is currently Europe’s largest Internet market, with an online audience of 61.3 million users. High Internet penetration coupled with Russia’s rising middle class, has led to a boom in e-commerce. According to research by Morgan Stanley, the Russian e-commerce sector stood at around $12 billion in 2012 – just 1.9% of total retail sales; by comparison, the global average is currently about 6.5%. But with e-commerce projected to grow by 35%, to 4.5% of Russian retail sales by 2015, and to 7% by 2020 – making the market worth $72 billion – a tipping point is fast approaching.

19

12%

10.2%

Russia is still underpenetrated relative to global peers online/total retail sales, % in 2012
10.1%

8% 5.7% 4% 1.9% 0% 5.3% 4.8%

UK

U.S.

China

France

Germany

Russia

According to Data Insight, 74% of the products sold online are physical goods, and 26% are tickets or digital products. Russian Internet users shop online for household appliances, books, mobile phones and computers, but online deals for clothes and footwear, video and audio products, tickets, goods for children, perfumes, online travel and entertainment bookings are showing the fastest growth. By sector, household and consumer electronics are the most frequently purchased online, with 55% of online shoppers making a purchase in that category in 2011. Computers and computer-related equipment, and clothing sales were the second and third most popular categories of purchases respectively. However, as the explosive growth continues, the Russian Post Office is finding it nearly impossible to keep up. The chief executive of the state-owned Russian postal service, Pochta Rossi, was fired on April 19th for failing to deal with a 500 ton backlog of foreign Internet purchases piling up at Moscow’s Sheremetyevo Airport. The chief executive claimed that delays in delivery were also due to overly picky Russian Customs inspectors, but it is clear that Pochta Rossi’s infrastructure is simply not able to handle the volume. The amount of packages delivered doubled in just two years, from just over 10 million in 2010 to 21.6 million in 2012. Most mail is still sorted manually, and the chief executive’s attempts to secure funding for organizational updates were unsuccessful. To get around this headache, Ozon.ru has started its own subsidiary, O’Courier to handle more than 90% of its parcel deliveries. Reliance on Pochta Rossi to deliver to more remote locations continues. AT Kearney, an international market consultancy, forecasts that online sales will grow to $16 billion by 2016. However, “to sustain growth, Russia needs to address its poor logistics infrastructure and consumer lack of confidence in delivery,” the consultancy said in its 2012 global e-commerce index. In 2012, one of the major trends in the market was regionalization. The turnover of ecommerce in the Russian regions grew twice as rapidly as in Moscow and St. Petersburg. One of the sales drivers is lack of similar products in local retail. Another trend is product diversification and investments in brand awareness. Internet retail platforms are “tired” of struggling for traffic in search engines. The stronger ones place their bets on the brand and create a supermarket “where you can buy anything.” Another important trend is toward converging online and offline customer experiences, e.g., a return to catalogs (Pochta Rossi, Enter), orders via terminals (Enter, Yulmart), and courier services (almost all retails). Offline contact is quite important in Russia. All 20

of the major Russian e-commerce Web sites display their toll-free numbers prominently, and most offer an online, real-time chat service. Large retailers like Svyaznoy (electronics) and X5 (groceries) have started e-commerce projects that leverage their physical locations and existing distribution networks. Pureplay e-commerce company Ozon.ru has a network of distribution centers where customers can pick up and pay for their orders. Wildberries.ru, which specializes in fashion, has a network of 140 physical locations throughout Russia, where customers can try on clothes, pay for their merchandise, and return items. Credit card use is growing quickly, but cards are still not widely used for retail purchases, let alone online purchases. In the Russian e-commerce realm, cash-on-delivery accounts for up to 80% of sales of physical products such as clothes, shoes, and electronics. The basic issue is a lack of trust in the integrity and reliability of online retailers, and in the safety of credit card issuers and banks. Russians have little faith that their banks would absolve them of liability in the case of online fraud. It’s very common for e-commerce retailers to employ a team of cash couriers. Having a team of cash couriers presents an opportunity for your company to have a personal interaction with potential customers, which could be a major benefit for e-commerce companies. According to Maëlle Gavet, CEO of Russian e-commerce giant Ozon, Russia still remains overwhelmingly a cash economy – a glaring anomaly in the Internet age, which is why 80% of Ozon’s sales are cash on delivery. E-commerce companies have yet to overcome this cash-centric mindset, while simultaneously developing the online payments ecosystem. Another important point is that Russians, in many ways, remain inwardly focused. Less than 10% of Russians speak any foreign language. Most foreign brands need to undertake full localization of their operations in order to stand a chance to succeed in Russia. The current wave of U.S.-based Internet companies is looking to go global earlier. Companies have learned from recent examples such as Facebook, which ignored the Russian market until it was too late, allowing local rival VK to build up a dominant following. Today, Facebook is the fourth most popular social network in Russia and is not making up much ground. eBay, the largest American online retailer in Russia, posted sales in 2012 of more than $400 million, a 54% increase from 2011. Ozon.ru, a Russian company similar to Amazon.com, saw a 55% increase in sales during the same period. Amazon, also active in the market, plans to open a local office and may start operations as early as fall 2013. In Russia, Amazon is expected to focus on selling digital media content: e-books, videos, and Kindle e-readers. Amazon is the second largest online retailer in the Russian market after eBay, which launched a trade portal in Russia in 2010 and opened a representative office in Russia in 2012. According to Morgan Stanley, online retailer Ozon.ru is the absolute leader of the country’s online business. Its revenue jumped 91% in the first half of 2012 to $232 million and is expected to reach $1 billion in 2014. The report also named Avito (online classified ads), KupiVIP and Lamoda (clothes, shoes and accessories), Biglion (collective shopping), Game Insight (mobile games), Wikimart (online retailer), and AnywayAnyday (flight booking) among the major players in the Russian e-market. 21

Trade Promotion and Advertising

Return to top

Television, radio, print, and billboard media are ubiquitous in the Russian market. Most international advertising agencies are active in Russia; domestic agencies are present in the market as well. Strong economic growth and increasing incomes have resulted in growth in the advertising industry, although enforcement of some advertising laws has been inconsistent, leading to situations where already purchased advertising is then disallowed by local government officials. Major advertisers in Russia include successful Russian and foreign manufacturers of consumer goods, particularly of processed foods and beverages. In 2012, the advertising market continued to recover after the economic downturn of 2008-2009, and companies are now actively increasing their media and marketing budgets. Experts from the Russian Association of Communication Agencies summarized the results of advertising market development in 2012. The general volume of ALT (above-the-line) advertising without VAT totaled about $10 billion, which is a 13% increase, compared to 2011. According to TNS Media Intelligence, most advertisers in 2012 belonged to “retail,” “food,” and “cosmetics and perfume” categories. The top three advertisers were Procter & Gamble, Mars-Russia, and Unilever. 2012 (billions of Rubles) 143.2 139.9 3.31 56.3 17.9 38.4 41.2 9.5 20.1 11.6 37.7 14.6 4.9 297.8 10 23 14 13 2 8 1 -1 34.3 11.8 4.1 263.4 35 17 45 40.4 8.8 19.8 11.8 2011 (billions of Rubles) 131.0 128.9 2.16 41.8 15.3 26.5

Segments TV Incl. terrestrial television cable Internet Incl. media advertising contextual advertising Press Incl. newspapers magazines advertising periodicals Outdoor advertising Radio Other Total

% Increase Over 2011 9 9 27

Source: Association of Communication Agencies in Russia (www.akarussia.ru) Though traditional forms of advertising are still prominent in Russia, in the face of the economic crisis, advertising agencies reconsidered their approach to the communication mix and increased their share of non-standard communication methods, including BLT (below the line) trade programs, ambient media, and flash mobs (publicity stunts). Advertising on the Internet continues to be a growth industry. 22

Total volume of print media retail points (kiosks) decreased in 2012 and resulted in 7% decrease of print media sales. 41.4% of profits of print media come from advertising. Experts note that a ban on advertising of alcohol and tobacco beginning in 2013 will shrink profits among agencies. According to TNS Media Intelligence, Komsomolskaya Pravda is the largest media holding, which includes eight print media titles, three Internet-sites, one radio station, and a TV-channel. In total, it reaches about 25 million people per week. Social Networking Both Russian and Western social networking sites are growing in popularity with huge consumer penetration, especially among younger demographic groups. The two most popular social networks are Russian-based VKontakte (www.vk.com ) and Odnoklassniki (www.odnoklassniki.ru/). Media research firm TNS (http://www.tns-global.ru/eng/) reported 76.5 million Internet users in Russia in March 2013. Approximately 80% of these users visit social networks daily. The largest social networks in Russia are VK.com (27.9 million unique daily visits) and Odnoklassniki.ru (19 million unique daily visits). Facebook is making inroads into the market in Russia, with 3.8 million daily visits in Russia. Due to this large market, advertising and media firms are becoming well versed in social media campaigns, although it is still a relatively new phenomenon. The following is a list of media outlets and print publications listed from highest to lowest penetration in Moscow [1]: TV Channels ORT: http://www.1tv.ru NTV: http://www.ntv.ru Russia 1: http://www.rutv.ru STS: http://www.ctc-tv.ru TNT: http://tnt-online.ru Radio Stations Russian Radio: http://www.rusradio.ru Avtoradio: http://www.avtoradio.ru Europa Plus: http://www.europaplus.ru Retro FM: http://www.retrofm.ru Echo Moskvy: http://www.echo.msk.ru Press Daily Newspapers Metro: http://www.metronews.ru/msk Moskovsky Komsomolets: http://www.mk.ru Rossiskaya Gazeta (“Russian newspaper”): http://www.rg.ru Sport-express: http://www.sport-express.ru Sovetskiy Sport: http://www.sovsport.ru Iz ruk v ruki: http://www.irr.ru Weekly Newspapers
[1]

Source: TNS statistics

23

Arguments and facts: http://www.aif.ru Komsomolskaya Pravda: http://kp.ru Moskovskovskiy Komsomolets: http://www.mk.ru Extra M: http://www.extra-m.ru Weekly Magazines 7 Days: http://www.7days.ru Antenna – Telesem: http://www.antenna-telesem.ru Teleweek: http://teleweek.ru Teshin Yazyk: http://trisemerki.ru/izdaniya/jurnaly/Teschin-Yazyk/index.htm Liza: http://burda.ru/Magazine/Liza.aspx Monthly Magazines Caravan of stories: http://www.karavan.ru Za rulem: http://www.zr.ru Cosmopolitan: http://www.cosmo.ru Lyubimaya Dacha: http://ldacha.ru Most Popular Web sites www.yandex.ruwww.mail.ru www.vk.com www.odnoklassniki.ru www.goole.com / www.google.ru www.youtube.com www.rambler.ru Pricing Return to top

Russian consumers are attracted to bargains, but are increasingly able and willing to pay for quality merchandise. U.S. companies exporting to Russia should be prepared to offer competitive prices for their goods, knowing that in many areas they face inexpensive Russian, Asian and strong European and other third-country competition. With a few exceptions, all goods and services sold in Russia are subject to a valueadded tax (VAT) of 18%. Imports into Russia are subject to VAT, which is assessed on the CIF value of an imported shipment plus applicable duty. In addition, in many sectors with strong local and third-country competition, it will be necessary to spend money on advertising and brand promotion. All these costs should be figured into the U.S. exporter’s pricing structure and become part of a long-term marketing/sales program. Sales Service/Customer Support Return to top

Good after-sales service, training, and customer support can be a major competitive advantage for U.S. firms entering the Russian market, as Russian manufacturers are known for inadequate post-sale service. Similarly, buyers of sophisticated equipment of all types – from computers and process controls to medical and mining equipment – are keenly interested in training, as their employees may never have used particular products or brands. U.S. firms able and willing to offer training and support for products, particularly in remote sites, can gain a significant advantage over competitors. Conversely, companies unwilling to make this commitment may find themselves at a distinct disadvantage to European or Asian companies, whose proximity facilitates training and service. After-sales service is also often an important component in leasing 24

arrangements in Russia, and will play a larger role in the decision process as leasing continues to develop. Leasing in Russia is covered in Chapter 7. Protecting Your Intellectual Property IPR Climate in Russia Several general principles are important for effective management of intellectual property rights (IPR) in Russia. First, it is important to have an overall strategy to protect IPR. Second, IPR is protected differently in Russia than in the United States. Third, rights must be registered and enforced in Russia, under local laws. U.S. firms should proactively take steps to protect their intellectual property in Russia, including registering their trademarks with the Federal Service for Intellectual Property (Rospatent) as well as recording them with the Russian Federal Customs Service. It is vital that companies understand that intellectual property is primarily a private right and that the U.S. Government generally cannot enforce rights on behalf of private individuals in Russia. While the U.S. Government is willing to assist, there is little it can do if the rights holder has not taken the fundamental steps necessary to secure and enforce his IPR in a timely fashion. The U.S. Commercial Service can provide a list of law firms based in Russia, which can provide advice on registering intellectual property and enforcing rights. A good business partner is an important ally in protecting intellectual property rights. Legal counsel familiar with Russian laws can assist to reinforce the partners’ IPR obligations by drafting a contract that includes non-compete clauses and confidentiality/non-disclosure provisions. It is also recommended that small and medium-sized companies work with trade associations and organizations to support efforts to protect IPR and stop counterfeiting. There are a number of these organizations, both Russia- and U.S.-based. These include: - American Chamber of Commerce in Russia (AmCham) - National Association of Manufacturers (NAM) - International Intellectual Property Alliance (IIPA) - International Trademark Association (INTA) - Coalition Against Counterfeiting and Piracy - International Anti-Counterfeiting Coalition (IACC) - Pharmaceutical Research and Manufacturers of America (PhRMA) - Biotechnology Industry Organization (BIO) - Coalition for Intellectual Property Rights (offices in the United States and Moscow) - Russian Anti-Piracy Organization (RAPO) (represents the Motion Picture Association of America) - Business Software Alliance (represented by Baltic Law Offices in Russia) - Association of Branded Goods Manufacturers in Russia (RusBrand) - Federal Service for Intellectual Property (Rospatent) - Russian Federal Customs Service - Russian Ministry of the Interior, Economic Security Department Return to top

25

More detailed information on IPR issues in Russia is provided in Chapter 6 (Investment Climate). Contact information is provided in Chapter 9. IP Resources A wealth of information on protecting IPR is freely available to U.S. rights holders. Some excellent resources for companies include the following: - For information about patent, trademark, or copyright issues -- including enforcement issues in the United States and other countries -- call the STOP! Hotline: 1-866-999HALT or register at www.StopFakes.gov. - For more information about registering trademarks and patents (both in the United States as well as in foreign countries), contact the U.S. Patent and Trademark Office (USPTO) at: 1-800-786-9199. - For more information about registering for copyright protection in the United States, contact the U.S. Copyright Office at: 1-202-707-5959; www.copyright.gov. - For U.S. small and medium-size companies, the U.S. Department of Commerce offers an "International SME IPR Advisory Program" available through the American Bar Association that provides one hour of free IPR legal advice for companies with concerns in Brazil, China, Egypt, India, Russia, and Thailand. For details and to register, visit: http://www.abanet.org/intlaw/intlproj/iprprogram_consultation.html. - For information on obtaining and enforcing intellectual property rights and marketspecific IP Toolkits visit: www.StopFakes.gov. This site is linked to the USPTO Web site for registering trademarks and patents (both in the United States as well as in foreign countries), the U.S. Customs & Border Protection Web site to record registered trademarks and copyrighted works (to assist customs in blocking imports of IPRinfringing products) and allows you to register for Webinars on protecting IPR. o For an in-depth examination of IPR requirements in specific markets, toolkits are currently available in the following countries/territories: Brazil, Brunei, China, Egypt, European Union, India, Italy, Malaysia, Mexico, Paraguay, Peru, Russia, Taiwan, Thailand, and Vietnam. o For assistance in developing a strategy for evaluating, protecting, and enforcing IPR, use the free Online IPR Training Module on www.stopfakes.gov. The U.S. Commerce Department has positioned IP Attachés in key markets around the world. Contact information for the IP Attaché who covers Russia is available at: http://export.gov/russia/contactus/index.asp or by emailing RussiaUSPTO@trade.gov. Due Diligence Return to top

As previously noted, Russia can be a challenging market fraught with obstacles for the U.S. company that does not take the time to learn about the business environment and choose local partners wisely. Taking shortcuts in evaluating business opportunities and in selecting local partners is not advisable. Complicating these efforts is the fact that the Russian economy continues the transition from a closed, centrally planned economy to a more open, market economy. This means that basic business information about regulations, company ownership and credit worthiness are not always easy to find, and 26

the regulatory framework continues to evolve requiring companies to stay up-to-date with changes. The U.S. Commercial Service offers the International Company Profile service as a way to evaluate potential partners. For more information on this and other services, visit http://export.gov/russia/index.asp. Additional resources are noted below. Local Professional Services Return to top

While professional services in Russia are expensive, attempts to avoid such expenditures could be perilous. In Russia's unsettled commercial environment, early and ongoing advice on tax and legal issues will ultimately save both aggravation and money. Russian commercial regulations are contained in thousands of presidential, governmental and ministerial decrees. Often, these decrees and laws overlap or conflict. Determining tax obligations is a complex task. Furthermore, Russian accounting practices differ markedly from Western standards. Although the Russian Government has officially stated that conversion to international accounting standards is a priority, the process is still far from complete. In Moscow and St. Petersburg, there are many offices of major Western accounting, legal and consulting firms blending the skills of Russian and foreign professionals. Competent smaller firms also operate under Russian or Western management. U.S. firms should avail themselves of locally based specialists familiar with issues confronting Western firms in Russia. The U.S. Commercial Service offices throughout Russia maintain lists of local attorneys and accounting firms. The American Chamber of Commerce in Russia is also a good source. Web Resources Return to top

U.S. Commercial Service in Russia: http://export.gov/russia/index.asp U.S. Department of Agriculture: http://www.fas.usda.gov; http://eng.usda.ru U.S. Embassy in Russia: http://moscow.usembassy.gov State Registration Chamber: http://www.palata.ru/en Company Registration: http://eng.nalog.ru Russian Direct Selling Association: http://eng.rdsa.ru American Chamber of Commerce in Russia: http://www.amcham.ru U.S.-Russia Business Council: https://www.usrbc.org Return to table of contents

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Return to table of contents

Chapter 4: Leading Sectors for U.S. Export and Investment
Commercial Sectors • • • • • • • • • • • • • Agricultural Equipment Apparel Auto Parts and Service Equipment/Accessories Aviation Chemicals/Plastics Construction Consumer Electronics Electrical Power Generation and Transmission Equipment Energy Efficiency/Green build Medical Equipment Refinery Equipment Safety and Security Equipment Travel and Tourism Services

Agricultural Sectors

28

Agricultural Equipment

Overview

Return to top $ thousands 2012 4,675,900 1,236,000 96,000 3,514,100

2010 Total Market Size Total Local Production Total Exports Total Imports 1,700,000 833,000 176,620 1,044,000

2011

4,066,000 1,339,000 130,170 2,857,000

Sources: Estimates from Russian Association of Agricultural Machinery Producers.

According to Association of Agricultural Equipment Producers “Rosagromash,” sales of agricultural equipment in Russia increased by 14.8% in 2012 (compared to 2011). Imports increased by 23% in 2012, while sales by Russian enterprises decreased by 6.1%, and Russian exports decreased by 27.1%. Production of Russian equipment decreased in 2012 by 7.7%. During 2011-2012, the production of grain harvesters decreased by 34.2%, cultivators by 30.9%, and seeders by 17.3%. The increased need for modernized agricultural machinery in Russia is clear. Inadequate agricultural machinery and equipment still remains the weakness of Russian agricultural production. Farmers’ finances have slowly recovered from the 2010 drought and the low crop prices in the beginning of 2011, but their indebtedness continues to limit their ability to purchase new tractors and harvesters. In the last 10 years, the fleet of tractors decreased 40%, with similar large reductions in the number of plows (-55%), seeders (-52%), grain harvesters (-50%), and forage harvesters (-49%). The age of most harvesters in Russian agriculture exceeds the service age (which is 10-12 years) by 2 to 2.5 times. Prospects for foreign manufacturers in the Russian market are difficult to determine. During the 2008 banking crisis, credit available to farmers was greatly reduced, which negatively affected sales of agricultural equipment. As conditions improved, the Government of Russia implemented a policy where Russian farmers could receive a subsidy equal to 50% of the interest rate they paid for loans on agricultural equipment through RosAgroLeasing. This subsidy is only available to products that are made in Russia or have a minimum content of Russian manufactured goods. It is unclear what the minimum content level is, therefore it is possible that the interest rate subsidy is being applied unevenly. This has led to great uncertainty among foreign manufactures, especially regarding their plans for future manufacturing in the country. In addition, there are other government policies that may affect the price of foreign machinery, such as a recently proposed recycling fee that may be applied to agricultural machinery sold in Russia. The outcome of this potential regulation is still to be determined, but it is adding to uncertainty among foreign manufactures. Some of these measures may counteract any advantages gained by lower tariffs for agricultural equipment, due to Russia’s entrance into the WTO. 29

Before Russia joined WTO in August 2012, the agricultural machinery import tariff was 15%; after WTO accession, it became 5%. However, the Eurasian Economic Commission recently imposed a temporary import duty of 27.5% on harvesters and some of the specific components, such as (1) threshing and separating components of combine harvester regardless of whether they have threshing cylinders or not and (2) cleaning systems and engines of tracked or wheeled harvesters. Specific Customs Union HS Codes that will be affected are: 1. Used harvesters (older than 3 years) - CU HS Code 8433 51 000 1 2. Other harvesters - CU HS Code 8433 51 000 9 ---Basically, the measure will be applied to both new and used harvesters, regardless of when they were produced. 3. Spare parts - CU HS Code 8433 90 000 0 This new duty will apply until July 5, 2013. At that time, a full decision by the Eurasian Economic Commission on the imposition of a protectionist tariff measure on Western manufactured harvesters is expected. This may increase both the time period and the level of tariffs for this equipment. Leading Russian producers of agricultural equipment are: • Rostselmash • Group of Companies “Traktornie zavody” • St. Petersburg Tractor Plant Leading producers of agricultural equipment from CIS are: • Minsk Tractor Plant (Belarus) • Gomselmash (Belarus) • Kharkov Tractor Plant (Ukraine) Other foreign producers of agricultural equipment (with varying levels of local content): • John Deere (USA) • CNH (USA) • Claas (Germany) • Agco (USA) The Russian Government has made it a priority to ensure food security for the nation by increasing the amount of agricultural goods produced in Russia. Therefore, there is a demand for agricultural equipment that allows increasing yield and labor capacity as well as guaranteeing ecological safety and a safe work environment. Although the growth potential is very high, there are several problems that the Russian agricultural sector is facing right now: • High interest rates for purchasing agricultural equipment (current minimal interest rates are 12%). • Reduction in government subsidies for agricultural producers coupled with rapid price growth for raw materials and energy. • Low growth in foreign investments in the sector. • Unstable demand for agricultural equipment, due to financial instability of Russian farming enterprises.

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The Russian Ministry of Industry and Commerce has developed a document called “Strategy for Development of Agricultural Machinery Production in Russia up to 2020”. According to this plan, the total size of the agricultural machinery market in Russia in 2020 will reach $10 billion. The program assumes the purchase of 127,000 tractors and 53,000 combines including (with government support) 12,600 new models of tractors, 5,300 grain harvesters and 1,300 forage harvesters within the next 8 years, while experts estimate that Russian agricultural producers need at least 300 thousand tractors, 95 thousand combines, 120 thousand of tillage equipment, 120 thousand of seeding machines and many other types of self-propelled, pull-type implements. The Russian Ministry of Industry and Commerce has suggested a number of measures to be implemented within the next few years. The measures include modernization of machinery production, increasing competitiveness of local machinery, new rules for estimating the level of localization, and increasing subsidy assistance for interest rates on credits for purchasing agricultural equipment. These measures are being considered by the Russian Government, but may be difficult to implement. Overall, Russia’s membership in the WTO should create significant commercial opportunities for agricultural equipment exporters: • U.S. manufacturers and exporters will have more certain and predictable market access as a result of Russia’s commitment not to raise tariffs on any products above the negotiated rates and to apply non-tariff measures in a uniform and transparent manner. • Russia agreed to bind all of its tariffs on agricultural equipment and, after full implementation of its WTO commitments, Russia’s average tariff on agricultural equipment will be 5.2%. • However, some of these reductions and improvements via WTO accession are being offset by protectionist measures some of which are outlined above. Sub-Sector Best Prospects • • • Return to top

Equipment for seed production. Cultivators and other soil preparation equipment including plows, harrows, cultivators, seeders, and fertilizer spreaders. Equipment for dairy livestock breeding, swine, and poultry production. Return to top

Opportunities

The agricultural sector experienced a great downturn, due to the financial crisis and recent weather conditions in Russia. However the sector is now recovering. With Russia’s membership in the WTO, there will be many opportunities for U.S. exporters in the agricultural sector, as the tariff rates will be bound at lower levels, thus allowing U.S. equipment to compete with locally produced, cheaper equipment. Besides, most government programs that support purchasing locally produced equipment by subsidizing interest rates may be cancelled if they contradict WTO rules. Some major U.S. companies have proposed comprehensive equipment, financing, and service projects, which could significantly increase associated farm machinery imports to Russia by making use of export credit guarantees available from the Export-Import Bank

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of the United States. For additional information about Ex-Im Bank programs, visit www.exim.gov. For U.S. firms interested in the Russian agricultural machinery market, exhibiting at one of the key Russian agricultural trade shows is advised. These trade shows are a powerful marketing tool and reassure Russian buyers that the U.S. company is committed to establishing and maintaining its presence in the Russian market. Substantial sales are often made at these events. U.S. companies may also have opportunities where financially healthy Russian companies are trying to expand in order to satisfy growing demand for domestically produced food. For example, increased sales of meat, fruit, and vegetable processing equipment may be possible. Web Resources Organizations Ministry of Agriculture: www.mcx.ru Soyuzagromash, the Association of Agricultural Machinery Producers: http://www.rosagromash.ru/ Ministry of Industry and Trade: http://www.minprom.gov.ru/eng/ Trade Events VIV Russia – From Feed to Meat May 21-23, 2013 Moscow http://www.vivrussia.nl/en YugAgro Field Days June 13-15, 2013 Krasnodar, Russia http://www.fd-yugagro.org/ Golden Autumn Russian Agricultural Week Trade Show October 2013 – Dates TBD Moscow http://www.goldenautumn.ru/en/ AgroTech Russia (In conjunction with Golden Autumn above) October 2013 – Dates TBD Moscow http://www.agrotechrussia.ru/ YugAgro November 26-29, 2013 Krasnodar, Russia http://yugagro.org/?lang=en-GB Agro Farm Russia February 4-6, 2014 Moscow 32 Return to top

http://www.agrofarm.org Agrosalon October 2014 Moscow http://agrosalon.com Commercial Service Contact Yekaterina Lushpina, Commercial Specialist Tel: +7 (495) 728 5556 Yekaterina.Lushpina@trade.gov

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Apparel

Overview

Return to top

Overall, experts believe that the Russian apparel market has good growth potential and low risk. Market growth figures are fairly robust at 5-7% for apparel in general and 910% for lingerie. Estimates vary widely, but total market volume is estimated at approximately $46 billion in 2012, growing to an estimated $53-60 billion in 2014. Russian producers capture only 18% of the apparel market. Explosive growth in the luxury market continues, but many consumers have switched to lower-priced segments – which has allowed mass-market retailers such as Zara and H&M to grow. Experts predict the continuing growth of the middle-price segment in this sector and note the lack of American brands in the market, which is dominated by European and Asian producers. Some segments, such as women’s apparel and lingerie, are close to saturation, while others, such as luxury and children’s clothes, have good prospects for growth. In 2012, the women’s apparel share was more than 60% of the apparel market. Russian production of lingerie is not developed, with 80% imported from China and Europe. Approximately 70% of lingerie falls within the budget and mid-priced categories. The children’s clothes market is around $3-5 billion and expected to grow 25% annually over the course of the next 5 years. Approximately 80% of children’s clothes in the Russian market are supplied from China, Turkey, and Southeast Asian countries. Outdoor markets still remain one of the most popular apparel distribution channels in Russia. According to BSMarket, the share of this channel is about 40%. This type of distribution is mostly typical in the regions, but less prevalent in the larger Russian cities. Of the population that lives in larger cities, 11% to 22% shops in single-brand boutiques; up to 45% prefers shopping malls. Discount centers are also a popular format for the larger cities. Online sales are growing rapidly in Russia, especially in the clothing and footwear segments, which are currently responsible for 8% of sales in this market. This segment will be developing as Russian online payment systems improve and customer preferences change. At the moment, 60% of Russian consumers prefer to buy clothes through retail channels. Moscow and St. Petersburg are still the dominant markets for apparel purchases in Russia. About 40% of all the purchases and 70% of luxury apparel are made in these two cities. Moscow has pursued an active policy of attracting large retail operators while pushing traditional markets beyond the city limits. The Moscow City Government adopted a plan in 2002 to double trading facilities to 16 million m2 by 2020. This includes supermarkets and wholesalers of 10,000-80,000 m2 in suburban areas and retail trade zones between 130,000 m2 and 400,000 m2 on the Moscow Ring Road motorway (MKAD). One of the latest Moscow retail trends is the opening of large outlet malls: Fashion House Moscow for 28,000 m2, Outlet Village Beleya Dacha for 38,000 m2, and Vnukovo Outlet Village for 26,000 m2.

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Most players already in the market are now moving aggressively to Russia’s regional customer bases outside of Moscow, where the market for modern retail outlets is still poorly developed. New foreign brands are expected to focus on brand development in the provincial regions where rents are significantly lower and markets less saturated than in Moscow, St. Petersburg, and other large cities. Sub-Sector Best Prospects • • • Children’s apparel Lingerie Luxury apparel Return to top Return to top

Web Resources Trade Events Collection Premiere Moscow (CPM), Fall September 4-7, 2013 Moscow http://www.cpm-moscow.com/ CJF Kids’ Fashion, Fall September 24-27, 2013 Moscow http://www.cjf-expo.ru/en/ Volvo Fashion Week October 24-29, 2013 Moscow http://www.fashionweekinmoscow.com/ Mercedes Benz Fashion Week October 26-30, 2013 Moscow http://mercedesbenzfashionweek.ru/en Garderobe Apparel Decorations and Accessories November 27-30, 2013 Moscow http://www.garderobe-expo.ru/en/Home/ Commercial Service Contact Yekaterina Lushpina, Commercial Specialist Tel: +7 (495) 728 5556 Yekaterina.Lushpina@trade.gov

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Automotive Parts/Accessories

Overview

Return to top $ thousands 2012 2013 48,000,000 52,000,000 20,000,000 21,000,000 na na 28,000,000 31,000,000 1,000,000 1,000,000

Total Market Size Total Local Production Total Exports Total Imports Imports from the US

2011 40,000,000 17,000,000 na 23,000,000 900,000

Source: U.S. Commercial Service estimates for OEM supplies and aftermarket.

Russia represents a large potential market for the U.S. automotive industry. Currently, the rate of car ownership in Russia is only 30% of the U.S. rate. The total Russian motor vehicle fleet is estimated at over 40 million units, including almost 37 million cars. Russia is one of the largest automobile markets in Europe. During 2001-2008, this market grew at an annual rate of 20-25% per year and included robust sales of imported used cars and trucks. The world financial crisis that started in 2008 put a damper on the Russian car market. Sales of new cars dropped 49% in 2009, while sales of trucks fell even more, by 70%. Used vehicle sales ceased as a result of the crisis and new, increased import duties. In 2010, Russia’s car and light commercial vehicle (LCV) market started to recover, demonstrating 30% market growth and reaching sales of 1.9 million vehicles, including 1.4 million locally-manufactured units. This growth trend continued in 2011-2012, and, as a result, more than 2.9 million vehicles were sold in 2012. The number of domestically assembled foreign makes is estimated at about 1,000,000 units and expected to grow in 2013. However, by the end of 2012, the growth in the car market stopped, and the first months of 2013 demonstrated stagnation. Market analysts believe that sales in the near future will be flat. As a key part of the automotive industry, the supply chain and market for components, including aftermarket replacement parts and accessories, was also greatly affected by the 2008 financial crisis. However, because Russian domestic manufacturers are not capable of producing the quality parts, accessories, and equipment required for modern cars and trucks, the imported parts market was not hurt as badly as the vehicle market. The Russian auto industry is one of the major sectors of the domestic economy. The Russian Government is taking measures to support the industry. Nonetheless, Russian vehicle assembly and component manufacturing factories remain hampered by outdated equipment, lack of modern technologies, and inadequate management. The major local automotive market players include: AvtoVAZ, currently controlled by the state-owned Rostechnologies Corporation and Renault (25% equity); Sollers, which partners with Ford; GAZ Group and Avtotor, which provides assembly for several international original equipment manufacturers, or OEMs. The majority of component manufacturing assets 36

are owned by a number of independent manufacturers, although the vertical integration with OEMs in component manufacturing is still pretty high. There are several projects under way to assemble foreign cars in Russia. Ford’s plant began operation in July 2002 in a suburb of St. Petersburg. The high demand for the new Focus model made Ford one of the sales leaders in 2002-2012. Currently, the production capacity of this plant is 125,000 vehicles. GM has several ventures in Russia: the GM-AvtoVAZ joint venture in Togliatti, which has manufactured the Chevrolet-Niva SUV since September 2002, and an assembly plant in St. Petersburg that makes over 100,000 Chevrolet and Opel vehicles annually. In February 2013, GM opened up another production facility in Nizhniy Novgorod, also in cooperation with AvtoVAZ, with an expected output of 30,000 Chevrolet Aveo sedans and hatchbacks annually. In 2005, Renault started manufacturing its low-cost Logan vehicle at a Moscow-based facility. The factory’s current turnover is about 70,000 vehicles. Renault is planning to replace the low-cost Logan in Moscow with higher-end models and move Logan manufacturing to AvtoVAZ facilities in the near future. Another Renault-Nissan project in Russia is the plant in St. Petersburg that was launched in 2009 to produce 50,000 Nissan Teana and X-Trail vehicles annually. In December 2007, Toyota launched an assembly facility in St. Petersburg to manufacture 50,000 Camry vehicles annually. Volkswagen and PSA opened their plants in Kaluga, 100 miles from Moscow, in 2008-2009. Hyundai began operating a new plant in St. Petersburg in 2010 and manufactures 150,000 low-cost sedan vehicles – the Hyundai Solaris – developed specifically for the Russian market. There are also several other lesser known projects: Sollers set up Ssang Yong SUV assembly and Fiat low-cost sedans manufacturing in Yelabuga and another Ssang Yong assembly facility in the Far-East region of Russia. Another Far-East production venture was announced in late 2012. In partnership with Russian manufacturer Sollers, Japanese automaker Mazda will produce 50,000 cars annually at a new plant in Vladivostok. The plant will produce the CX-5 crossover vehicle and Mazda6 sedan. There are also truck and bus assembly projects in Russia being developed by Volvo and Scania. The major obstacle to successful development of foreign assembly projects in Russia is the lack of local component suppliers. Best Prospects/Services Return to top

Engine and engine components, steering components, brake system components, powertrain components, seats, tires, interior components, specialty equipment for cars, new car dealerships, automotive aftermarket service, and maintenance. Opportunities Return to top

The best opportunities for U.S. firms are in the establishment of local manufacturing facilities either independently or in cooperation with Russian partners and the supply of components to foreign vehicle assembly projects in Russia. Because project operators are very interested in developing component supplier bases, they are ready to offer financial support for promising initiatives. International financing institutions, such as the EBRD (European Bank for Reconstruction and Development), are also inclined to provide financing for automotive projects in Russia. Although car sales in 2012 and early 2013 slowed down, industry analysts believe that the growth in original equipment 37

manufacturer (OEM) supplies and aftermarket support in 2010-2011 will continue in the mid-to-near future, as the demand is still considerable. Another good prospect is to supply upgraded equipment and technology to Russian manufacturers. Opportunities also exist in the licensing and transferring of modern technology to Russian component manufacturers. Aftermarket sales of replacement parts and accessories are dynamic, with high customer receptivity to U.S. products. Many U.S. brand names are well known and sell strongly in Russia. Some of the “Made in the USA” products that Russian motorists seem to favor are lubricants, automotive chemicals, and off-road accessories. There are no known trade barriers affecting imports of U.S. automotive products; tariffs for many imported spare parts are a relatively low 5%. The most important factor affecting growth of sales of U.S. aftermarket products in Russia is U.S. exporters’ lack of interest in sharing brand building risks with local distributors. In the crisis-affected market, the small and mid-size suppliers of specialty equipment for cars will be competitive if they are aggressive in their market entry, brand-building, and promotion actions. Finally, Russia lacks a well-developed network, even in the largest cities, of high quality aftermarket maintenance and service centers. Many of the first foreign car brands introduced to Russia are now coming to the end of their manufacturers’ warranty period, creating opportunities for U.S. companies to partner with Russian automotive businesses to meet increasing demand for quality, independent aftermarket maintenance, and repair services. Web Resources Organizations National Association of Automotive Component Manufacturers 5 Sushchevsky Val, bldg 2 Moscow 127018 Russia Tel: +7-495-974-8772, 73, 74 napak@napak.ru St. Petersburg Association of Automotive Component Manufacturers 16 Bolshaya Monetnaya Str. St. Petersburg 197101 Russia Tel. +7-812-313-8254 apac@spbapac.ru Trade Events Automechanika - Moscow International Motor Show Moscow Expocenter Aug 26-29, 2013 http://www.mims.ru Interauto Moscow – Crocus Expo Aug 28-31, 2013 http://eng.interauto-expo.ru Return to top

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Publications and market research Autobusiness Market Research Agency and Magazine http://www.abiz.ru/en Autostat Market Research Agency

http://eng.autostat.ru/
Commercial Service Contact Alexander Kansky, Commercial Specialist alexander.kansky@trade.gov Office Tel: +7 (812) 331-2881 or +7 (812) 331-2600

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Aviation

Overview

Return to top $ thousands 2012 2013 (estimated) 9,305,761 10, 356,383 6,000,000 6,666,666* 1,026,655 1,509,182 4,332,416 5,198,899 1,215,435 1,519,293

Total Market Size Total Local Production Total Exports Total Imports Imports from the US Data Sources: Total Local Production: Data from United Aircraft Corporation (UAC). Total Exports: HTS Code 88 from the Global Trade Atlas. Total Exports: HTS Code 88 from the Global Trade Atlas. Imports from USA: HTS Code 88 from the Global Trade Atlas. *announced in media by UAC Director General as projected for 2013 (200 billion RUR). The demand for aircraft in Russia is driven by growing air traffic needs. Despite the economic downturn of 2008-2009, the average growth rate of passenger traffic between 2001 and 2012 amounted to 11.4% annually. The cargo traffic for the same period was 6.1% annually. International air traffic is the most dynamic segment of the market. The major share of domestic air traffic belongs to long-distance flights, primarily through Moscow. The local and regional air traffic has less than 13% of the market, but plays an important role in Russia’s air transportation. In 2012, the Russian Government intensified efforts to support regional aviation to connect the outlaying regions and satisfy unmet regional air traffic needs. Under an innovative approach of the Russian Government, air traffic is forecasted to grow at 6.3-7.8% annually within the next 20 years. The share of Western made aircraft in Russian airlines’ fleet amounts to 63%. As of January 2013, the active commercial fleet of Russian operators totaled 2,745 aircraft units, including 645 mainstream aircraft, 294 regional passenger aircraft, 137 cargo aircraft, and 1,111 helicopters. Between 2008 and 2012, Russian airlines’ fleets received 540 Western-manufactured passenger aircraft and 50 new Russian aircraft. During the same period, 14 Western cargo aircraft and 8 Russian-made aircraft were delivered. In 2012, 133 passenger aircraft were received, including 114 Western aircraft, 15 new, and 4 previous-generation Russian aircraft. Due to the large number of aging Soviet aircraft in Russian fleets, fleet renewal is expected to continue in the near future. By 2031, it is forecasted that Russian airlines will require 1,540-1,870 long-haul aircraft and 420-500 regional passenger aircraft. The market need for cargo aircraft is expected to reach no more than 260 aircraft. The Russian aviation industry is not able to deliver commercial aircraft in the required quantities to meet growing air traffic demand. Output of new commercial aircraft in recent years has not exceeded 7-9 units annually, while pre-existing Soviet aircraft have become too inefficient to operate in terms of fuel efficiency and flight safety. Many local airlines have embarked on comprehensive programs of fleet renewal with Western-made 40

2011 7,802,566 5,390,000 3,008,889 5,421,455 1,877,885

aircraft. Major international manufacturers – Boeing, Airbus, Bombardier, and Embraer, among others – are very active in fulfilling this market need. The predominance of Western aircraft fleets in Russia also provides impetus for the growth of related market segments such as air components, spare parts, MRO (maintenance, repair, and operations), and airport ground support equipment, which represent business opportunities for U.S. suppliers. The Russian Government, however, views the aviation industry as “strategic” and strives to stimulate domestic aircraft building through its state program, “Development of the Aviation Industry for 2013-2025.” The program was approved in December 2012, and the total amount of funding to be allocated is 1.7 trillion rubles (approximately $56.6 billion). The “strategic” significance of the aviation industry is attributed to the integrative role it plays in the Russian economy. Due to its close relationship with other associated industries – component manufacturing and machine building – the Russian aviation industry has a significant influence on Russia’s development towards a more innovative economy. The Russian aviation industry is mainly represented by state-owned corporations United Aircraft Corporation (UAC) and Russian Technologies (Rostech RT). The Russian aviation industry includes aircraft, helicopter, aircraft engine, avionics, and air component production segments. The industry consists of 248 Russian enterprises. In 2011, the total profits of all the aviation companies reached 608 billion rubles (approximately $20 billion). The industry provides employment for 400,000 personnel and contributes more than 1.1% GDP to the Russian economy, according to the Russian Ministry of Industry and Trade. As part of the aviation industry development strategy, the Russian Government is interested in international cooperation on new aircraft projects and the transfer of Western technologies, offering additional business opportunities for U.S. companies. Best Products/Services Return to top

New Aircraft Cooperation Projects - Sukhoi SuperJet-100 and MS-21 are two examples of international cooperation projects in which Western components and systems are widely used. Sukhoi SuperJet-100, put into operation in 2011, is a regional medium-haul (3,0004,500 km) aircraft with 60-100 passenger capacity. MS-21 is a short-to-medium (5,500 km) aircraft with 150-212 passenger capacity and will be put into operation in 2017. SuperJet100 contains an estimated 80% of Western air components, while MS-21 has about 50% of Western components. In the future, the share of Western components for the MS-21 is planned to be reduced down to 15%. U.S. companies are advised to monitor current and future projects in the Russian market for business opportunities. Air Part Supplies - The quickly-expanding Western aircraft fleets drive up demand for aircraft spare parts and replacement components. The Russian aircraft spare parts market is estimated at $600-700 million per year, according to Locatory.com, a global e-business aircraft spare parts platform. Russian airlines spend about $150 million annually for maintenance and repair of 500 medium-haul Western aircraft (Boeing, Airbus), $120 million annually for 300 long-haul Western aircraft, and $18 million monthly for 60 regional Western aircraft (Bombardier, CRJ). Aircraft Interior Components - Industry experts say that about 90% of aircraft interior components supplied for aircraft VIP saloons are sourced out from Russian manufacturers. 41

However, Russian aircraft interior companies continue to seek out new technologies and monitor current trends in this market segment. The main interior items of interest include: customized passenger and pilot seats (better comfort, ergonomics, ecology and weight characteristics), interior LED (light-emitting diode) lighting, noise reduction systems and inflight entertainment (IFE) systems, to name a few. Microelectronics Product Supplies - The Russian electronics industry – the basis for the aviation, aerospace and the defense industry segments – is lagging behind in the serial production of electronics components, compared to Western manufacturers. New products are being developed and tested, but until they are put into serial production, imports will continue to play an important role in meeting this market need. The types of products in demand are: semi-conductors, integrated circuits, power and high frequency modules – items that serve as production components for various systems and modules. Localized Western Aircraft Production and MRO - Russian state corporation Russian Technologies is currently in joint venture negotiations with Bombardier to build the Q400 business aircraft in Ulyanovsk-Vostochny Special Economic Zone (SEZ). Rostech CEO Sergei Chemezov has indicated that the deal will be a 50-50 joint venture with an estimated investment of about $100 million. Ulyanovsk-Vostochny SEZ is a daughter structure of the Ministry of Economic Development of Russia and is funded 70% federally and 30% regionally. Ulyanovsk-Vostochny offers a unique tax regime and simplified customs procedures to allow domestic and foreign companies to localize in Russia. Established in 2009, it focuses on aircraft and helicopter full-cycle manufacturing, including production of aircraft components, MRO (maintenance, repair, and operations) services and cargo logistics. Opportunities Return to top

For U.S. firms interested in the Russian market, exhibiting at the key Russian aviation trade shows is a good way to introduce their products to the Russian market, obtain feedback from potential Russian partners, and familiarize themselves with the competitive landscape. These trade shows are a powerful marketing tool and reassure Russian buyers that a U.S. company is committed to establishing and maintaining its presence in the Russian market. U.S. companies can also meet prospective Russian partners at the high profile international shows, especially in Europe: Farnborough International Air Show, Paris Air Show, and ILA Berlin Air Show. The Aircraft Interior Expo show in Germany is also very popular. In general, building brand recognition through participation in trade shows and developing a long-term market strategy should be given serious consideration. Highlevel contacts with representatives of the Russian aviation industry, such as United Aircraft Corporation and Rostech, are preferred, and frequent visits to Russia are recommended. New U.S. companies are also advised to develop awareness of local and international competitors already present in this market to better assess the chances of success. Web Resources Trade Events HELI-RUSSIA 2013 (International Helicopter Show) May 16-18, 2013 42 Return to top

Moscow, Russia. http://www.helirussia.ru/en/index.html MAKS-2013 (Moscow International Aviation and Space Salon) August 27-Sept 1, 2013 Moscow, Russia http://www.aviasalon.com/en/ JET-EXPO (International Business Aviation Show) September 19-21, 2013 Moscow, Russia http://2012.jetexpo.ru/en/about-us/jet-expo-2013.html AERO TESTING RUSSIA (Aerospace Testing Equipment) October 22-24, 2013 Moscow, Russia http://www.aerospace-expo.ru/en-GB/default.aspx Internet Resources ATO (Air Transport Observer) Events http://www.events.ato.ru/eng/ (professional events organizer) Russian Aviation News & Information Server http://www.aviaru.net/english/ Aviation News Agency “Aviaport” (only in Russian) http://www.aviaport.ru/ Russian aviation industry news portal (English) http://www.russianavia.net/ Commercial Service Contact Vladislav Borodulin, Commercial Specialist Phone: +7(495) 728-5235 E-mail: Vladislav.Borodulin@trade.gov

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Chemicals/Plastics

Overview

Return to top $ millions 2010 2011 58,014 45,614 24,500 36,900 1,106 2012 63,000 46, 207 31,971 47,708 1,137

Total Market Size Total Local Production Total Exports Total Imports Imports from the US*

35,197 37,870 18,730 27,870 754

Sources: U.S. Commercial Service estimates and Russian Customs Statistics. *Chemicals and Chemical products, Plastics and articles thereof, Rubber and articles thereof.

Chemicals The chemical industry accounts for 1.8% of Russian GDP, 6.9% of the country's industrial production, and about 10.6% of volume of shipped goods in the manufacturing sector. Chemical companies provide roughly 5% of total Russian foreign currency earnings. In 2011, chemical production accounted for 75.9% of total volume of shipped goods in the chemical industry, with rubber and plastic goods manufacturing contributing 24.1%. For the same period, chemical products made up 6.3% and 15.2% of total Russian exports and imports, respectively. Russian experts forecast that the chemical market will continue growing about 4.2% annually and is expected to reach $71.4 billion by 2015. Russia currently produces about 1.1% of the world’s chemical products – 20th place, globally. The Russian chemical market constitutes 7.3% of the European market. The Russian industry is fully privatized and is dominated by a number of very large companies, although medium-sized and small companies play an active role. Leading Russian chemical companies include: SIBUR Holding, Nizhnekamskneftekhim, LukoilNeftekhim, Eurokhim, Nizhnekamskmeftekhim, EuroChem, Salavatnefteorgsintez, PhosAgro, Akron, Uralkaliy, Novomoskovkaya Stock Company Azot, Schekinoazot, Tomskneftekhim, and Kazanorgsyntez. Russia’s chemical industry plays an important role in the economic development of the country. The chemical industry includes chemical raw materials mining (apatites and phosphorites, common and potassium salts, sulfur, and several other products), basic chemistry and chemistry of organic synthesis. Basic chemistry includes the production of mineral fertilizers, chlorine, sodium, sulfuric acid, and other products. Chemistry of organic synthesis comprises the production of synthetic rubber, plastics, synthetic resins, and chemical fibers. Potassium salts are mined in the world's largest field, Solikamsk (in the northern Perm region), with fertilizer produced in the cities of Solikamsk and Berezniki. Another major field of phosphate raw material is located in Egoryevskoye (Moscow region). Most of the nitrogen fertilizers are produced in Tula region, Smolensk region, Togliatti, Novgorod, Magnitogorsk, Nizhny Tagil, Lipetsk, and Cherepovets. Synthetic rubber manufacturing 44

is located in Yaroslavl, Voronezh, Efremov, Tula region, and Kazan, and more recently in the Volga region, the Urals, and Krasnoyarsk. The production of plastics and synthetic resins is situated in the Volga region and western Siberia. From January-September 2012, chemical industry production was 3.1% greater than the comparable period of 2011, while rubber and plastics production increased 6.4%. Chemical fiber output decreased 3.9%. External trade turnover of chemicals from January-September 2012 reached $38.65 billion, a 0.8% increase compared to the same period in 2011. Russian exports accounted for 51.3% of external trade turnover, with imports making up 48.7%. During the first nine months of 2012, the volume of exports decreased 2% compared to 2011 and amounted $19.8 billion. Russian chemical imports grew 4% and amounted to $18.8 billion. Approximately 60% of domestic production consists of basic chemicals such as fertilizers, synthetic plastics, and resins. While the bulk of exports are primary chemicals, such as styrene, methanol, and synthetic rubbers, the range of imported product categories is broad and represented by high technological products such as PVC, polystyrene, paints and coatings, and chemical fibers. The list of Russian imports consists of a wide range of chemicals with added value. For the period January-September, 2012, the breakdown was as follows: articles made of plastics (21.2%); tires, rubber, and articles thereof (15.3%); paints, enamels, and polishes (7.3%); chemicals for plants protection (2.3%); and household chemicals (2%). Plastics and synthetic resins (19%) and synthetic fibers (1.7%) are a large portion of Russia’s chemical imports. Russia’s accession to the World Trade Organization (WTO) in August 2012 enables the country to remove some barriers restricting the access of Russian chemical companies to a number of foreign markets. U.S. manufacturers and exporters will have more certain and predictable market access as a result of Russia’s commitments not to raise tariffs on any products above the negotiated rates and to apply non-tariff measures in a uniform and transparent manner. Russia agreed to bind all its tariffs on chemicals and, after full implementation of its WTO commitments, will reduce its average tariffs on chemical products to 5.3%. The Russian Ministry of Industry and Energy’s Strategic Development Strategy foresees a decrease in imports to 12% by 2015 (compared to 50% now) and the development of domestic production to replace imports of more complicated, secondary chemicals. However, experts say it is unlikely that this plan for aggressive development of domestic production will be completed by the target date. The main factors that hinder the growth of the industry are: – obsolete technologies in a number of segments of the chemical industry and high wear and tear of fixed assets because of insufficient investments in the preceding years; – a relatively low level of consumption of fertilizers by domestic agricultural producers as compared to global agricultural standards; – limited access of Russian chemical products to the markets of some foreign countries plus unfavorable market conditions worldwide and stiff competition;

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– a discrepancy between the country’s existing transport infrastructure and export potential; – the absence of up-to-date production units for manufacturing some types of plastics and other chemical products; and – slow introduction of innovative technologies with the use of chemical products in the construction and automobile industries, the public utility sector, etc. The petrochemical industry is currently one of the leading sectors of the Russian economy. Oil & gas production as well as hydrocarbon exports directly influenced the development of the industry, and this situation will remain for years to come. Russia accounts for 40.3% of global reserves of natural gas and for 25% of its proven reserves. Unfortunately, the country exports mostly raw hydrocarbons, whereas value-added petrochemical products account for a relatively small share of its exports. The Government is well aware that it is vitally important to get rid of raw materials dependency as soon as possible. Russia is looking for new ways to stimulate the petrochemical sector. Petrochemical production growth in 2011 was led by Sibur’s expansion, with the company planning a 14% increase in annual output to 18.8 million tons. Major players in the industry include petrochemical subsidiaries of oil and gas operators, Sibur and Lukoil-Neftekhim, and individual petrochemical plants within oil and gas companies such as Surgut, TNK-BP, Tatneft, and Itera. Russia is expected to build up to ten complexes to produce ethylene, each with a 1 million-ton capacity, by 2030. The Russian Government has ambitious plans for its petrochemicals sector, which in spite of the country’s huge oil and gas wealth, remains underdeveloped. The Energy Ministry has set out plans to spend billions of dollars establishing a number of petrochemical hubs across the country and building the infrastructure, including pipelines and railways, to support an expanded petrochemical base. According to the Ministry of Economic Development, for the period 2012-2030, the Russian chemical industry may receive roughly 14.2 trillion rubles ($471 billion), including about 11.7 trillion rubles ($388.4 billion) for chemical production and nearly 2.5 trillion rubles ($83 billion) for the manufacture of rubber and plastic goods. On January 29, 2013, the Ministry submitted to the Government the plan containing predicted data on the industry's development. Budgetary funds will be allocated between chemical manufacturing plants and some segments of the industry such as rubber and plastics production. Plastics The Russian polymers market has been actively developing during the last ten years. The demand for plastics and synthetic resins increased 14.1% from 2010 to 2011, and another 6.2% in 2012. In order to meet the demand for plastics, the share of foreign products increased by 6% while local plastics and synthetic resins production remained the same (an estimated 5.34 million tons). Some experts believe that the situation in plastics production in Russia is stagnating but others, e.g., Alliance Analytics, JSC, disagree and believe that the reduction of output was limited to poleolefins only and was driven by an accident at the JSC Stavrolen

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pyrolysis plant. In 2012, polyethylene production declined by 12%, while polypropylene production decreased by 3.6%. The production of common plastics, PVC (polyvinyl chloride), PS (polystyrene) and styrene copolymers, and PET (polyethylene terephthalate), has been growing (by 6.2%, 11.7%, and 8.9% against 2011, respectively). In 2012, new facilities were launched: e.g., a new XPS facility with annual output of 50 million tons was launched at ZAO Sibur Chimprom, increasing the total capacity up to 100 million tons per year; and OAO Nizhnekamskneftekhim started its 60 million tons/year plant for ABS plastics. From 2007-2011, polymer demand grew faster than local production, which led to imports’ 50% share of the polymer segment and a rise in polymer prices, especially polyethylene. With the increase in production volumes, new international companies have entered the Russian market. The Russian polymers market is set to undergo significant changes in 2013. Notably, the country is expected to discontinue imports of PP (polypropylene) and become a PP exporter as new domestic capacities come on-stream. Russia-based petrochemical major Sibur plans to finish construction of a new 500,000 ton/year PP plant in Tobolsk. Sibur expects to begin commercial production at the plant, under the name Tobolsk-Polymer, in the first half of 2013. The plant was previously expected on-stream in 2012. The launch of Tobolsk-Polymer is expected to allow Russia to substitute PP imports and become an exporter of PP. Meanwhile, Russia's Titan Group, based in Omsk (western Siberia), aims to start operation of a new 180,000 ton/year PP plant. Titan initially expected the PP plant onstream in 2006; however, the project has been subject to repeated delays because of financing issues. The plant, under the name PolyOm, is now due to begin operation in 2013. The Russian polymers market is also becoming more open. On August 22, 2012, Russia became the 156th member of the World Trade Organization (WTO). According to the country's WTO entry terms, the import tariffs levied on most polymers are expected to fall from 10% to 6.5% in 2013. However, some market participants have raised concerns about upcoming import tariff cuts, with the Russian Union of Chemical Producers voicing objections in December 2012 against cutting the import tariffs levied on PP. Russia's polymer market is also set to witness capacity expansions beyond 2013, with new projects planned to come on-stream in the next few years. Increased local demand for smart plastics is likely to encourage foreign JV investments. Sub-Sector Best Prospects Return to top

Chemical products in demand include polyethylene materials, PVC sheets, PVC films (furniture, posters), polyolefin films, PET films, etc. Chemical industry products are sold as unbranded commodities. As a result, marketing strategies are greatly simplified. Absent contractual commitments, a consumer would be just as likely to buy from a new player on the market as from an established producer. 47

The processes and formulas used to manufacture chemicals used by the Russian industry have been around for decades, in many cases without intellectual property restrictions. The competitive situation in the chemical market will force local producers to upgrade their technologies to meet growing demand for new materials and products. In the next five years, the best opportunities for U.S. exporters will be production equipment and materials that can enable local manufacturers to gain a higher market share in quality chemical secondary products, such as PVC, ABS, and polyethylene products. Opportunities Return to top

Domestic producers of chemical and plastic materials can currently meet only 50% of market demand. This dynamic provides good prospects for chemicals and plastics from U.S. suppliers, which can use a difference in the euro/dollar exchange rate to their pricing benefit. Opportunities lie in the areas of polymers and high-tech chemicals, where market demand is continuing to grow. Investment in the development of the chemical sector is crucial for the Russian economy and provides U.S. machinery suppliers an opportunity to sell their chemical and plastic processing equipment. The Russian Government’s plan for the development of the chemical industry, noted above, will be crucial for funding these purchases. There is Russian market demand for both injection molding machines and extrusion equipment, among other things. Web Resources Organizations Plastinfo – Plastics Industry Directory: http://plastinfo.com/ Russian Petrochemical Community: http://www.rupec.ru/ Trade Events Khimiya 2013 September 2013 Moscow http://www.chemistry-expo.ru/en/ Plastics Industry Show (Industrya Plastmass) 2013 October 28-31, 2013 Moscow http://www.plastics-expo.ru/en/ Publications The Chemical Journal: http://tcj.ru/en/ Analytical Portal of Chemical Industry: http://newchemistry.ru/ Chem-Courier (On-Line Journal on Chemical Market): http://www.chem-courier.ru/ Plastics (Industry Journal): http://www.plastics.ru/index.php?lang=en&view=start/ Return to top

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Market Report (Plastics Industry Analytics): http://www.mrcplast.com/ Polymery-Dengi Journal: http://www.polymers-money.com/ Commercial Service Contact Darya Kolesnikova, Commercial Specialist Tel: +7 (495) 728 5579 Darya.Kolesnikova@trade.gov

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Construction

Overview

Return to top $ thousands 2013 2014 (estimate) (estimate) 19,519,500 17,136,000 11,665,500 10,416,000 8,020,320 8,710,553 1,164,240 1,264,435

Value of Housing Units Total Market Size Total Local Production Total Exports Total Imports Imports from the US

2011 16,900,000 10,100,000 6,944,000 1,008,000

2012 18,590,000 11,110,000 7,638,400 1,108,800

Data Sources: (1) Rosstat publications; ( 2) Interviews with industry experts.

Notwithstanding pessimistic forecasts and analysis conducted by various experts, the Russian construction industry continues to experience steady growth, with a growth rate of about 8%-10%, due to significant private and public investment in commercial, industrial, infrastructural, and residential as well as renovation and construction projects related to Russia’s hosting of the Winter Olympic Games in 2014 and the FIFA World Cup in 2018 as well as segmented construction activities in different regions. The Russian construction industry experienced 10% growth in 2012. As a result of government support and continued demand for infrastructure due to upcoming international sporting and trade events, the industry is expected to register continued growth in 2013. However, construction may be the first sector to be affected by a possible economic slowdown in 2014. Active introduction of new construction technologies such as aerocrete, left-in-place forms, and wood frame housing contributed to the significant growth in residential construction. Many developers remain optimistic and continue to look at this market as a tremendous opportunity. Industry experts observe that the buyer’s preferences are changing; given that the property prices inside the city areas is unaffordable for the majority of the population, people start acquiring apartments and townhouses in the vicinity of the city area, at the distance of 15-40 miles. Cost of construction in these areas is much lower than in the city area. For instance it costs about $300,000 to acquire 2 bedroom apartments in the downtown area of Moscow, while it is possible to buy a land plot with a ready three- or four-bedroom house only 20-25 miles away from Moscow for about the same price. Another issue that prevents consumers from buying apartments in Moscow is excessively high mortgage rates of 14%-16% per year. Additional market growth is fueled by warehouse construction. This market is controlled by European companies (primarily companies from Germany, Sweden, and Finland). Lately, U.S. companies have been showing high interest and attempts to enter this segment. The construction of sports facilities, hotels, and transportation systems is nearing its completion in Sochi and the Krasnodar region, however all the major contacts and 50

supplies have been distributed and it is widely observed that obtaining any supply contract within this system is rather challenging if a company does not have a reliable local partner involved in Sochi construction projects. Many experts also warn against excessive investments in Krasnodar and Sochi area, as the infrastructure that is being created will be used only for a short period of time. The speculative increase of the prices may turn into a dramatic Krasnodar area collapse shortly after Olympic Games in 2014. FIFA World Cup 2018 also creates additional market space, especially in the stadium construction segment of the market. However, tenders and construction contracts are awarded in an environment that lacks modern safeguards against corruption. At the same time, the country is said to lack experience in the construction of stadiums with a capacity over 50,000 visitors. Stadiums that are being built now are primarily subcontracted to foreign companies. The construction equipment market is characterized by strong competition. The main competitors are Chinese, German, Korean, and U.S. companies. At present, Chinese and Korean companies are prominent in the eastern region of Russia, monopolizing the market. One of the explanations for this is geographical location and the improved quality of their products. The construction market has grown at a double-digit rate since Russia’s accession to the World Trade Organization, or WTO, in 2012. The previous import tariff was about 25%, and after the transition period its average was reduced to 5%. However the real effect of these tariff actions was probably overestimated: no one rushed to offer discounts to buyers, while large companies such as Caterpillar, Volvo, JCB, Case, and Komatsu were already in the domestic market, operating local assembly and production facilities and enjoying preferences. Rental companies make substantial contributions to the growth of this market. Leveraging U.S. Export-Import Bank (EXIM), they import a high volume of equipment. Average deals vary from $2 million to $25 million. Local manufacturers suffer from insufficient investment as well as a lack of quality, a low level of technology, insufficient research and development, or R&D, and an inability to maintain customer loyalty. The also lobby their interests occasionally through the State Duma. Prior to Russian accession to WTO, there had been many attempts to create technical and tariff barriers to foreign producers and to force state-owned companies to buy locally-produced equipment. Price is an important factor, but one mainly considered by small construction companies or minor subcontractors. Today, large companies employing more than 1,000 people prefer leasing or renting equipment rather than buying it. Rental companies are becoming main buyers of such equipment. In 2012, almost 50% of construction equipment (except road construction equipment) was acquired by renting companies. Up to 95% of apartments and homes in Russia are sold without interior finishes; therefore, demand for such products continues to grow. In 2012 almost 40% of building materials were sold in “do-it-yourself” (DIY) chains at such stores as OBI, Leroy Merlen, and IKEA. Basic products used for primary finishing such as cement, concrete mixes, plasterboards, and plastic windows are manufactured locally using mostly German 51

technologies. Technology leaders such as Knauf (Germany) have numerous plants in the country. Korean companies such as Samsung and LG Chem have also entered this market, establishing representative offices involved in selling residential windows systems and artificial stone used in house decoration. Web Resources Organizations Federal Construction and Housing Agency www.gosstroy.gov.ru Builders Association of Russia http://www.a-s-r.ru/tabid/331/Default.aspx Construction World: The Associate Board of Architecture, Construction, Development and Reconstruction of Moscow www.stroi.ru Ecostandard Ecological services and expertise - 1st organization certified by U.S. Green Building Council http://www.ecostandard.ru/en Green Building Council Russia http://www.rugbc.org/en Trade Events Mosbuild April 1-4, 15-18 2014 Moscow http://www.mosbuild.com Conexpo Russia June 4-8 2013 Moscow http://www.conexporussia.com City Build Moscow October 15-17, 2013 http://www.city-build.ru/en-GB/ Publications Spec-Technika http://www.spec-technika.ru Commercial Service Contact (Construction and Building Materials) Timur Uddin, Commercial Specialist Timur.Uddin@trade.gov Tel: 7 (495) 728 5526 (direct) Return to top

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Consumer Electronics

Overview

Return to top $ millions 2014 2013 (estimated) (estimated) 28,000 30,000 4,200 5,000 2,400 3,000 26,200 28,000 4,600 5,300

2011 Total Market Size Total Local Production Total Exports Total Imports Imports from the US 24,000 3,000 2,000 23,000 3,200

2012 26,400 3,300 2,200 25,300 4,000

Total Market Size = (Total Local Production + Total Imports) – (Total Exports) Data Sources: Total Local Production: Expert estimates. Total Exports: Expert estimates. Total Imports: Expert estimates. Imports from US: Expert estimates. The Russian consumer electronics market includes telephones, MP3 players, home and automotive audio/video equipment, personal computers, TV sets, calculators, GPS automotive navigation systems, home security and automation products, products for playback and recording of digital video and audio media, digital cameras and camcorders, and other products for entertainment and communications. Before the 2008 economic crisis, the consumer electronics market was one of Russia’s most developed and most competitive retail sectors. In 2009, Russia’s consumer electronics market drastically declined. Industry experts evaluated the market at $18.5 billion (a 35% decrease compared to 2008). However, starting in the 2nd quarter of 2010 the consumer electronics market started to show strong signs of recovery and reached $26.4 billion by the end of 2012. Based on expert evaluations, including GFK-Russia research, the U.S. Commercial Service estimates the following 2012 sales volumes for key product groups: Product Category Audio/video equipment Personal computers, components, and accessories Mobile, radio phones and other telecommunication devices Photo equipment Home office equipment and consumables Total 53 2012 $ millions 7,400 9,600 5,300 2,100 2,000 26,400 % change from 2011 20 8 16 20 4 10

In 2012, sales growth in the audio/video industry subsector was mostly generated by the demand for flat panel TVs, including Smart TVs, 3D, and Slimline models; car digital video registration devices; and home theaters. The most demanded products in the IT subsector were mobile computers, including tablet PCs and notebooks. Netbooks significantly decreased their share in the market. The market for telecom products was mostly driven by sales of mobile smart phones with touch-screen technology and applications and services for mobile phones. The digital photo market continued recovery mostly because of increased sales of digital cameras providing higher resolution and advanced features, such as HD video, at an affordable price. The market for office equipment continued to recover, but did not show high growth rates. Accurate figures for the consumer electronics market in Russia are difficult to determine, due to a large number of so-called “gray market products” imported into the country. However, with the growth of the largest retail chains, whose market share will increase, a corresponding decrease in “gray market” goods is expected. Imports A major portion of the consumer electronics market is occupied by products imported from Asia, Europe, and the United States. All major global brands are represented in Russia and have wide recognition. The U.S. consumer electronics share of the Russian market is mostly represented by IT products, high-end audio products, automotive audio and navigation products, home security and automation products, and mobile phones. Domestic Production Local production is mostly represented by a large number of small- and medium-sized Russian IT companies and several telecom manufacturers. An example of foreign investment in the domestic IT industry is a $50 million HP and Foxconn joint venture, which started production of HP desktop computers in St. Petersburg in April 2010. Other local manufacturers include ODMs (original design manufacturers) providing EMS (electronics manufacturing services) for contract manufacturing of CRT, PDP, and LCD TVs, as well as DVD players under the Sony, Panasonic, Akai, and other well-known marks. Distribution Consumer electronics products are imported and distributed in Russia by many distributors. All major international brands have their representative offices or authorized distributors. About 50% of the consumer electronics marketed in Russia is sold by several of the largest retail chains that have hypermarkets and stores located in Moscow, St. Petersburg, and other large cities. Another 25% is sold by regional chains, while the rest is sold by small retail companies and through the Internet. However, recently, the share of products sold through the Internet has significantly increased. According to industry specialists, the volume of products sold through the Russian Internet in 2012 accounted for over 30% of sales. Participation in local trade shows/conferences and international events focused on Russia is very important for promotion of new products and establishing contacts with key industry people. 54

Sub-Sector Best Prospects Audio/video equipment Automotive audio and navigation products Home security and automation products Multi-media Wireless and networking products Mobile smart phones Mobile computers Opportunities

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The Russian market, with a population of 140 million, has huge potential and offers continued growth potential, due to relatively low penetration in product groups, such as computers and Hi-End digital products, especially in remote regions. Prior to the impact of the global economic crisis on the Russian market that began in late 2008, the consumer electronics sector was recognized as one of the fastest growing in Europe. During the crisis, however, customers started to save on purchases of consumer electronics, which are discretionary items for Russians. However, industry analysts believe that, following the industry recovery in 2012, the Russian market will continue to grow in 2013. Computers will continue to be the main growth driver of Russia’s consumer electronics industry, with an increasing share consisting of tablet PCs and notebooks. According to expert estimates, local PC assemblers control about 80% of the PC market. Therefore, computer components will also continue to be in a strong demand. High-end latest models of smart phones are traditionally highly sought-after status symbols among Russian consumers. Quality, functionality, and uniqueness should be competitive advantages for all products exported to Russia. New, highly advanced products are in constant demand, and their sales show continuing growth. As most of these products are imported and there is always strong demand for the latest and most technological categories, solid opportunities exist for U.S. companies, particularly in high-quality electronics gear and modern digital electronic products. Therefore, Russia remains a significant international market for U.S. consumer electronics. Web Resources Return to top

Organizations Russian Association of Trading Companies and Manufacturers of Consumer Electronics (RATEK): http://www.ratek.org/cgi/new_design/main.cgi?lang=eng&work=assoc&rec=engdecl Trade Events Consumer Electronics & Photo Expo 2013 Hi-Fi and High End Show 2013 April 11-14, 2013 Moscow http://www.cep-expo.ru/en/ 55

http://www.premiumhifi.ru/en/premium/ Integrated Systems Russia 2013 October 29 -31, 2013 Moscow http://www.isrussia.ru/en/isrussia/ Hi-Tech Building 2013 October 29 -31, 2013 Moscow http://htbh.ru/en/hthb/ Commercial Service Contact Mikhail Minkevitch, Commercial Specialist Tel: +7 (812) 326 2582 Misha.Minkevitch@trade.gov

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Electric Power Generation and Transmission Equipment

Overview

Return to top $ thousands 2013 (estimate) 1073 1054,7 18.6

(billion Kwh) Electricity Generation Electricity Consumption Electricity Exports

2011 1040.4 1021.0 18.0

2012 1064.0 1038.1 17.6

2014 (estimate) 1085 1075,7 19.8

Source: Russia System Operator; Federal Tax Service.

Russia holds the world’s largest natural gas reserves, second largest coal reserves, and eighth largest oil reserves. It is the fourth largest generator and consumer of electricity in the world; its 440 power stations (77 coal-fired) have an installed generation capacity of 220 GW. The grid links over two million miles of power lines, 93,000 miles of which are high voltage cables over 220 kV. Electricity generation is based largely on thermal (gas - 46%, coal - 18%), hydro (18%), and nuclear (17%) power. 60% of thermal generation is from combined heat and power plants (CHP). Russia operates 31 nuclear power reactors in 10 locations, with an installed capacity of 21 GW. Despite considerable geothermal, wind and wave resources, renewable energy production accounts for less than 1%. In 2002, the Russian Government began reforming the power sector. The main goal was, and remains, to upgrade aging and outdated heating and electricity infrastructure. The restructuring involved the separation and privatization of generation, transmission, and sales companies. The grids were brought under regulatory supervision. Power generation was divided up into seven wholesale generating companies (OGK) – including RusHydro, 14 territorial generating companies (TGK), independents, and stateowned entities. OGKs contain power plants and specialize mainly in electric power generation. TGKs contain predominantly combined heat and power plants (CHPs). The gradual liberalization of the wholesale electricity market, completed in January 2011, now allows producers to charge market prices. The transmission grid remains mostly under state control. As a result of the reorganization, Inter RAO UES became a major generating company in Russia in the field of export and import of electric power. The total installed capacity of the power plants owned or managed by the company is around 18,000 MW. The company’s main types of activities are generation of electric and thermal power, sales of electric and thermal power to consumers, and export and import of electric power. Foreign and domestic companies have invested about $27 billion in the power sector; as a condition of their investment, they have committed to create 186 GW of new capacity by 2020. As Russia emerged from the economic crisis, some investment plans were resumed, with strong growth anticipated. According to the International Energy Agency, the Russian power sector will require a $440 billion investment by 2030 to avoid regional blackouts and meet future demand. This will include installing new generating capacity and significantly modernizing what is currently installed. 57

The European Bank for Reconstruction and Development (EBRD) has invested in many of the new power generating companies. In June 2010, the EBRD laid the groundwork for a strategic partnership with the Federal Grid Company. Russian equipment producers are also modernizing their production. Power Machines (Siloviye Mashiny) is the market leader, with a share of over 50%. It unites production, supply, construction, maintenance, and modernization of equipment for thermal, nuclear, hydraulic, and gas turbine power plants. The following big international energy equipment holdings are well established and have joint ventures or their own production facilities in Russia: General Electric, Siemens, Alstrom, ABB, Skoda Power, Mitsubishi Heavy Industries, Ansaldo Energia, and Areva. Sub-Sector Best Prospects Return to top

Development of the energy sector has led to an increasing demand for highly technological equipment that is efficient and environmentally friendly. The Russian power engineering industry, well developed before the fall of the Soviet Union, can no longer supply all of Russia’s energy sector needs. Opportunities Return to top

The most competitive markets are concentrated around the cities of Moscow and St. Petersburg, while the regions are considered growing markets. Western equipment is usually installed in newly built infrastructure, while existing equipment is mainly maintained with locally produced equipment and to a lesser extent upgraded with Western devices. According to the Energy Strategy of Russia for the period up to 2030, the priorities in the electric energy industry are: • developing gas turbines with a capacity of 300-350 MW and highly efficient condensation combined cycle gas turbine units with a capacity of 500-1000 MW and a performance index exceeding 60%; • designing standard modular combined cycle co-generation units with a capacity of 100 and 170 MW and a performance index amounting to 53-55% for heat and power plants; • developing environmentally friendly coal condensation units on ultra supercritical steam conditions with a capacity of 660-800 MW, as well as combined cycle units on solid fuel gasification (200-600MW) and coal synthesis gas; • introducing technological energy complexes working on gas and solid fuel for combined production of electricity and synthetic liquid fuel; • developing highly integrated intelligent transmission and distribution networks (Smart Grid) in Russia’s Unified Energy System; and • developing power electronics, especially various types of network control devices (flexible alternating current transmission systems), automated electricity demand control systems; and hydroelectric equipment for tidal power plants. Russia is generally very receptive to U.S. products. Companies such as General Electric, Dresser-Rand, and Compressor Controls Corporation are present in the Russian market, and their products are available either directly or through representatives or distributors. Imports from third countries are also growing. U.S. firms 58

encounter increasing competition in the Russian market from European and Chinese manufacturers. Companies with production capacities in Russia tend to have an advantage over those that produce equipment abroad. This is the main motivation for foreign companies to form joint ventures and start production in Russia. Tenders for energy projects are processed through the world’s largest marketplace for power generation equipment online at www.b2b-energo.ru. Most of the OGKs and TGKs also have their own marketplaces on their Web sites. A foreign vendor needs to keep in mind that paper documentation for tenders is generally required in the Russian language. The power stations officially publish tenders for some renovation tasks. For major projects, they work with specialized engineering, procurement and construction companies (EPCs). Current information about new tenders, analytical materials, regulatory documents, application procedures, and other participation requirements may be found at http://tenderenergo.ru. The Web site is in Russian and intended for local representatives of foreign companies and Russian power supply firms. Information on state procurement (government purchases) can also be found at http://www.b2benergo.ru/?lang=eng. The Russian Government has stated that it intends to expand the role of nuclear and hydro-power generation in the future, to allow for greater export of fossil fuels, with a plan to increase nuclear generation to twice its current level. However, many nuclear plants are due for decommissioning; some of the older reactors will likely be replaced in the near future (ten nuclear units currently under construction), and meeting such a target will require billions of dollars of investment per year over the next decade. Web Resources Return to top

Russian Ministry of Energy: http://www.minenergo.gov.ru Rosatom - Federal Agency for Nuclear Energy: http://www.rosatom.ru/en Rosenergoatom: http://www.rosenergoatom.ru/wps/wcm/connect/rosenergoatom/site_en/ System Operator: http://www.so-cdu.ru Federal Grid Company: http://fsk-ees.ru/eng Inter RAO UES: http://www.interrao.ru/en The OGK and TGK Web sites (many also in English) may also contain information about each company’s investment, procurement, and production plans.
OGK-1 http://www.ogk1.com/en OGK-2 http://www.ogk2.ru/eng OGK-3 http://www.ogk3.ru/en-main OGK-4 http://ogk-4.ru/en Enel OGK-5 http://www.ogk-5.com/en OGK-6 http://www.ogk6.ru/en RusHydro http://www.eng.rushydro.ru TGK-1 http://eng.tgc1.ru TGK-2 http://www.tgc-2.ru/en Mosenergo/TGK-3 http://www.mosenergo.ru Quadra/TGK-4 http://www.quadra.ru TGK-5 http://www.tgc5.ru/eng.html

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TGK-6 http://www.tgc6.ru/index.php?id=news&L=1 Volzhskaya TGK/TGK-7 http://www.en.votgk.ru TGK-8 (Lukoil Ecoenergo) http://ekoenergo.lukoil.ru TGK-9 http://www.tgk9.ru/eng.html Fortum/TGK-10 http://www.fortum.ru TGK-11 http://www.eng.tgk11.com Kuzbassenergo/TGK-12 http://www.kuzbassenergo.ru/eng Yenisei TGK/TGK-13 http://eng.tgk13.ru TGK-14 http://www.tgk-14.com

Trade Events Russia Power March 4-6, 2014 Moscow http://www.russia-power.org Power Industry and Electrical Engineering May 20-23, 2014 St. Petersburg http://energetika.lenexpo.ru/en/ Power Efficiency, Energy Saving, Innovative Technologies & Equipment 2012 May 14-17, 2013 St. Petersburg http://www.en.farexpo.ru/energy2012/exhibition/about AtomExpo June 26-28, 2013 St. Petersburg http://2013.atomexpo.ru/en Electric and Power Infrastructure of the South of Russia September 3-5, 2013 Krasnodar, Russia http://ides-expo.ru/en-GB/exhibitions/epis.aspx Power Electronics, Energy and Energy Saving November 26-28, 2013 Moscow http://www.advantour.com/russia/moscow/exhibitions/power-electronics.htm Commercial Service Contact Anna Avetisyan, Commercial Specialist Tel: +7 (495) 728-5398 Anna.Avetisyan@trade.gov

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Energy Efficiency/Green Build

Overview

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Russia, with its large population and a seriously inefficient energy infrastructure, is one of the most promising markets for energy efficiency products and services. Russia’s leadership has identified energy efficiency as a top priority for modernizing the Russian economy and affirmed that energy efficiency and conservation are among the five strategic priorities for Russia’s modernization. Russia is aiming to reduce GDP energy intensity by 40% by 2020 from its 2007 level. GDP energy intensity is currently 2.5 - 3.5 times higher than in other countries in Europe. Russia currently ranks among the top 25 energy-intensive countries in seven major areas of economic activity: agriculture, forestry, construction, manufacturing, transport, storage, and services. New energy efficiency legislation in Russia came into force in 2009, which established standards for the regulation of energy consumption to increase efficiency and encourage energy savings, and provided for various amendments to existing legislation for enforcing energy-saving rules. It regulates different aspects of energy efficiency in industry, government, and residential construction, including energy efficiency requirements and certification for new buildings. For example, the law introduced restrictions on the sale of incandescent light bulbs and set requirements for providing energy efficiency information on product labels, and also set out guidelines on mandatory commercial inventories of energy resources, energy efficiency of new buildings, and reductions in spending on energy resources. The law also introduced mandatory energy evaluations for the most energy-intensive entities and set out guidelines for transition to long-term tariff regulation and the establishment of a common inter-ministerial energy efficiency information and analysis system. The law on heating, which was adopted in July 2010, further clarified tariff-setting principles for district heating, responsibilities for network planning, and metering and sanctions for non-payment. A Russian Energy Agency (REA) was established in 2009 under the auspices of the Ministry of Energy and tasked with the implementation of the state strategy on energy efficiency and renewable energy. Also in 2009, the Russian Government implemented a new climate change policy. With the primary goal of lowering greenhouse gas emissions, the policy acknowledged the mitigation of climate change as one of the major long-term elements of security of the Russian Federation and placed global climate change, both in its national and international dimensions, among the Russian Federation’s policy priorities. In accordance with this policy, all regional and municipal programs must increase the use of energy efficient technologies and secondary energy sources and/or renewable energy sources with specific energy saving targets to be met within the next 15 years. The major generating company in Russia in the field of export and import of electric power, Inter RAO UES, is committed to improving energy efficiency of energy facilities through development of innovative solutions and use of energy-saving technologies. Target energy efficiency built into the 2015 corporate development strategy is focused 61

on meeting the following requirements: improving fuel burning efficiency by a factor of 1.5; reducing self-consumed energy by 3-4%; improving environmental properties of production assets; developing renewable energy technologies; and creating a competitive machine building cluster. The Moscow energy saving program for 2012-2016 and until 2020 was approved in 2011 and is an integral cross-sector program interconnecting energy efficiency efforts of all Moscow authorities, institutes, enterprises, and businesses. According to the Mayor of Moscow, the program encompasses 40,000 residential houses and 75 non-residential buildings. The target of the program is to reduce energy intensity of economics by 2020 by no less than 40%, compared to 2007. According to statistics, compared to other regions, Moscow is remarkable for the lowest energy intensity of gross regional product; however energy intensity of residential and communal utilities of Moscow is lagging behind the largest cities in the world, which testifies to the high potential in this sector. 201.8 billion rubles have been allocated for the program implementation; 4 billion of this comes from the city budget, while about 180 billion comes from non-budgetary sources. The General Assembly of the United Nations is implementing a number of projects with the support of the Global Environmental Facility in Russia. In 2012, GEF invested around $2.5 million in pilot energy projects on lighting at schools in Moscow and at residential buildings in a number of regions (including northwest Russia). In addition to that, there are plans to re-equip street lighting in the town of Sarov (Nizhegorodskaya Oblast) in order to decrease energy losses. The EBRD signed an Energy Efficiency Action Plan with Russia in 2009 to support the country’s transition to a less energy- and carbon-intensive economy and has since made significant investments in sustainable energy. In 2011 alone, the Bank provided $600 million for new sustainable energy projects in Russia, bringing cumulative investments in this area in the country to over $2.5 billion since the launch of the Bank’s Sustainable Energy Initiative, or SEI. The SEI uses a range of instruments for its work in Russia, including debt and equity financing, donor-funded technical assistance to clients for project development, and policy support to government to improve regulatory climate and stimulate investments into sustainable energy. From 2010-2012, the EBRD’s development of dedicated industrial energy efficiency transactions was limited to several flagship projects (for example, an energy efficiency financing of NLMK and co-financing with Rusnano of a JV between Nippon Sheet Glass and its local partner, STiS, to construct a new facility to produce energy efficient glass, thereby deploying the most advanced coating technology and supporting expansion of the market for energy-efficient construction materials). In the industrial sector, the Bank also supported its clients through the industrial energy efficiency program, providing energy audits and related technical support designed to transfer best practice technologies and skills. Over the strategy period from 2010-2012, the Bank conducted 30 energy audits, feasibility studies, energy management trainings, and other support activities, which also helped the bank to generate 13 new projects. A UN energy efficiency construction project will be implemented in Pskovskaya Oblast. A project of the UN Development Program will also be conducted together with the Global Environmental Fund and be dedicated to "energy efficiency of buildings in northwest Russia." The aim of the project is to develop local potential and demonstrate local solutions for increasing energy efficiency during construction and maintenance of 62

buildings. The project in Pskovskaya Oblast will develop a normative and legal basis for energy saving program implementation and the establishment of an institutional energy efficiency management model for municipal bodies. As a result, favorable conditions and legal mechanisms to secure energy efficiency of buildings at regional and local levels should occur. Russia is demonstrating interest in implementing smart grid technology through cooperation with the United States under the auspices of the United States-Russia Bilateral Presidential Commission’s Energy Working Group. This cooperation will help Russian utilities reduce harmful emissions by enhancing their ability to help consumers use energy more efficiently; integrate and deliver renewable energy; and more efficiently transmit and deliver electricity to consumers. In May 2011, San Diego Gas & Electric Company, City of San Diego, Belgorodenergo, (the Belgorod region energy company), and the Belgorod Regional Administration signed a memorandum of understanding to cooperate in the deployment of smart grid technologies. Also in 2011, the U.S. Secretary of Energy and Russian Minister of Energy agreed to expand the program. The Interregional Grid Distribution Company (MRSK), a major Russian electricity distributor, is running and developing a smart grid as a pilot project. This project in the city of Belgorod in Belgorod Oblast near the Ukrainian border builds on MRSK’s project of the past few years of improving city street lighting controls, automating distribution networks, and installing neuron automated electricity metering systems. The project began with two districts of Belgorod and will expand to the entire city in three to five years, and eventually smart grid elements will be installed throughout the Oblast. Representatives from Moscow’s Information Technologies Company note that Belgorod now has 35,000 smart meters and an installed integrator. The major Russian transmission grid operator, Federal Grid Company of Unified Energy System (FSK), has developed a five-year plan, the first three years of which are dedicated to developing smart grid modeling along with a regulatory framework, and the development of new equipment and training. In the second phase of the plan, FSK will develop several pilot projects. Green building is a nascent sector in the Russian economy, though it is increasing in popularity as domestic consumer energy prices rise and people and organizations become more conscious of spending and the positive effects of a healthier environment. Following approval of the new Federal Law “On Energy Savings and Improving Energy Efficiency” in November 2009, the nascent Russian green building community has been playing an increasingly active role in promoting awareness of green building concepts in the traditional construction sector, and supporting expansion of green standards. Russian regions are actively implementing a program to resettle people from shabby dwellings into energy efficient houses, currently one of the priorities of the State Corporation fund to promote the introduction of modern energy efficient technologies within the field of housing and communal services. The introduction of resource saving technologies and increasing energy efficiency is an obligatory condition for the regions to receive the financial support from the fund. Pilot projects on the construction of energy efficient apartment buildings are under way. In 2011-2012, more than 20 energy

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efficient apartment buildings were launched in operation, and another 32 facilities are currently under design and construction. The Russian Green Building Council (RuGBC) created in November 2009 is the key catalyst and is playing a leading role in green standards implementation for the industry. Russia’s Ministry of Natural Resources plans long-term collaboration with RuGBC and intends to develop a program of joint events and courses. Over the past year, the RuGBC has built a strong membership base (120 members) on a philosophy of ‘standard neutrality’ and offers equal support for the rating tools relevant to the Russian market – LEED, BREEAM, DGNB and the emerging Russian National Standard. RuGBC has also supported the development of green standards and sustainable design and construction methods for the Sochi 2014 Winter Olympic Games, resulting in several international fact-finding missions and seminars, as well as the adoption of BREEAM and LEED as standards for top venues. Some of the perceived drivers of sustainable property development in Russia include: • the increasing perception by investors that green certification (BREEAM, LEED, or DGNB) represents lower investment risk based on evidence of lower voids in these buildings; • demand from international corporations for green offices due to international policies and standards; • increasing government-led initiatives towards sustainability – energy efficiency and innovation; and • the attractive prospect of higher rental and sales levels in green certified buildings due to a growing demand, following increased awareness of green building concepts and anticipated increases in energy prices. Sub-Sector Best Prospects Return to top

Road Infrastructure: Due to the rapid increase in the number of private vehicles in Russia, road transportation is a growing energy consumer. Products needed include road surfaces that lower CO2 emissions, mass transit systems, traffic management and sustainable asphalt paving. Environmental Technologies: The share of domestic manufacturers in the Russian environmental technologies market is about 40%, which opens broad avenues for foreign imports, including U.S.-made technologies and products. Foreign suppliers in Europe and China are already active in water treatment and waste management. The key environmental technologies market segments include solid waste management, water treatment, air purification, protection and rational use of lands. Water and Wastewater Management: Russia has a total of 8,801 water supply systems, with centralized water supply used by 106,500,000 people resident in 1,092 towns and 1,872 urban-type settlements. The total length of water mains in Russia's population centers is 463,000 kilometers, including 200,900 kilometers in towns (43%). The capacity of water supply systems is estimated at 90,000,000 cubic meters per day, with towns accounting for about 71,000,000 cubic meters per day (79%).

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The majority (95%) of municipalities own both the water supply and sanitation properties and manage them as municipal unitary enterprises, or “vodokanaly.” The federal government owns the water supply and sanitation systems in a few cities (including Moscow and St. Petersburg), but it has limited capacity and is seeking U.S. technologies and partnerships. A recent trend is the privatization of water facilities, which is generating new opportunities for the private sector. Private sector ownership is expected to grow from the current 10% of the urban population to 16% in the near future. Renewable Energy: According to current assessments, the economic potential of renewable energy in Russia amounts to at least 4.5 billion tons of coal equivalent used per year. A Presidential decree set a target of 4.5% from the current 1% renewables use (not including large hydropower projects with generation capacity greater than 25MW) by 2020. The decree mainly includes the potential for more solar and wind energy. In order to achieve the projected volumes of electricity production, commissioning of generating facilities (small hydroelectric power plants, wind, tide, geothermal power plants, thermal power plants) using biomass as one of the fuels with an aggregate installed capacity up to 20 GW should be realized within the stated period. Green Building: Green building includes products ranging from green architecture to energy-conserving materials and fixtures (toilets, light bulbs, appliances). Possibilities for future growth areas include insulation and heating systems. Non-toxic building products will likely gain popularity. “Smart home” technology should also attract a great deal of interest from Russian consumers. Prospective buyers are in fact all construction firms, contractors, and any business whose plans include construction or renovation of a local facility. Non-Russian companies are more likely to use energy-efficient construction than Russian companies. Many foreign investors, especially European investors, will lend money for construction only if it meets certain environmental requirements, particularly sustainability and efficiency. European and American companies are also more likely to undertake green projects than Russian firms. For these reasons, non-Russian companies located in Russia offer opportunities to providers of energy-efficient and environmentally responsible building supplies and services. Opportunities Return to top

Russia presents lucrative opportunities for U.S. environmental technologies companies to improve energy efficiency including energy storage, waste-to-energy, road construction materials, green buildings, smart grids, renewables, and environmental technologies including biofuels, biomass, and water and waste treatment. As of today, energy efficiency and energy saving are occupying the leading position within the five priorities of the Committee on Modernization and Technological Development of Economics under the aegis of the President of the Russian Federation created in 2009. The activity of the Committee in cooperation with leading Russian and foreign scientific and commercial organizations is, among others, aimed at complex implementation of six energy efficiency and energy saving projects: “count, save and pay,” “new light,” “energy efficient block,” “small complex hydro power,” “innovative energy,” and the project of introduction of energy efficient technologies at state establishments. Opportunities for green construction in Russia are dependent upon overall construction nationwide. Construction is expected to see growth in 2013, as the economy improves 65

after four years of contraction, the country prepares for the 2014 Olympic Games in Sochi and the 2018 FIFA World Cup, and as the Russian Government moves along with the Skolkovo technology park project. Among future projects, the technology park at Skolkovo in particular should prove to be fertile ground for green building and technology, as it will be an opportunity for Russia to showcase its modernization efforts. Sochi Olympic Games construction is another opportunity for American suppliers of green building materials and services to showcase their products. Specifically, the International Olympic Committee has mandated that certain standards be met. Ten of the 202 planned Olympic buildings will be either LEED or BREEM certified, and 150 objects will be certified by Olympstroy corporate standards for energy efficiency. In December 2010, Russia won its bid with FIFA to host the 2018 World Cup tournament and is planning the construction of 16 state-of-the-art stadiums in 13 cities, mostly in western Russia. Each stadium will have a price-tag between $70- $300 million. Web Resources Organizations Russian Ministry of Energy: http://www.minenergo.gov.ru Russia Energy Agency: http://rosenergo.gov.ru Inter RAO UES: http://www.interrao.ru/en Federal Grid Company: http://fsk-ees.ru/eng System Operator: http://www.so-cdu.ru Ecostandard, Ecological services and expertise - 1st organization certified by U.S. Green Building Council: http://www.ecostandard.ru/en Green Building Council Russia: http://www.rugbc.org/en Skolkovo Innovation Centre: http://www.sk.ru/ru-RU.aspx?sc_Lang=en Trade Events Power Efficiency, Energy Saving, Innovative Technologies & Equipment 2012 May 14-17, 2013 St. Petersburg http://www.en.farexpo.ru/energy/exhibition/about/ Waste-Tech 2013 May 28-31, 2013 Moscow http://2013.sibico.com/ City Build 2012 October 15-17, 2013 66 Return to top

Moscow http://www.city-build.ru/en-GB/visitors/get_ticket/citybuild_2013.aspx High-Tech Building 2013 October 29-31, 2013 Moscow http://www.hitechbuilding.ru/en/hthb/ Power Electronics, Energy and Energy Saving 2013 November 26-28, 2013 Moscow http://power.primexpo.ru/en/ Mosbuild April 1-4, 2014 Moscow http://www.mosbuild.com Publications Rosstat Publications: http://www.gks.ru/bgd/regl/b10_12/Main.htm Zhilaya Sreda: http://www.finestreet.ru/magazine/home Beautiful Houses: http://www.houses.ru Tepliy Dom: http://www.teplydom.com Commercial Service Contact Anna Avetisyan, Commercial Specialist Tel: +7 (495) 728-5398 Anna.Avetisyan@trade.gov

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Medical Equipment

Overview

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Russia has instituted a comprehensive reform of its healthcare system, and healthcare is “Priority #1” among the Government’s new national priority projects. Russia’s healthcare system is evolving rapidly, and this is creating many promising areas for U.S. medical equipment exports. It is currently estimated that only 20% of the Russian population of 142 million has access to quality healthcare. The majority of hospitals and polyclinics are public and belong to federal, regional, or local governments. At the moment, the two major sources of public healthcare funding – mandatory insurance funds (30%) and spending supported by federal and regional budgets (70%) – do not cover all healthcare expenses. As a result, a significant portion of overall (public and private) health care spending (about 20%) is covered out of patients’ pockets. Voluntary healthcare insurance programs account for approximately one-third of total private healthcare expenditures. According to long-term reform plans, mandatory insurance funds will serve as the main source of healthcare funding, providing transparency and control over cash flow within the system. The Russian medical equipment and supply market is one of the fastest growing sectors of the economy. There are two factors that explain this high potential. First, there is an unsatisfied deferred demand for medical equipment. Second, the Russian Government pays high attention to this field, and makes efforts to make it more transparent and efficient. These two factors are closely connected, as the Russian Government decides which medical equipment to buy, a fact that is shaping the demand for such products. In order to support the healthcare sector, a number of government programs have been implemented: the reforms of the Mandatory Healthcare System (adoption of the law “About Mandatory Healthcare Insurance” on January 1, 2011), the National Health Project, and the concepts of healthcare development (adoption of the strategic document “Healthcare Through 2020”). In 2011, the market for medical equipment was estimated at $4.9 billion. During the next nine years, experts expect yearly market growth of about 13.5%. This puts the market among the 20 fastest-growing markets in the world, although annual per capita spending is a very low $23. Almost two-thirds of the medical equipment and devices used in public clinics and hospitals are obsolete and need replacement. There are basically two major problems that the Russian healthcare system faces. First healthcare facilities are in very poor condition. According to data from the Russian Federal Statistic Service, 2% of medical facilities are in hazardous condition, 8.5% do not have cold and hot water, 32.5% do not have hot water, more than 10% do not have central heating, 11.2% do not have a sewage system, and 6.7% do not have telephone connections. In order to solve these problems, the regional parts of the budgets allocated for modernization will be used. Second, new medical equipment will be needed for those renovated medical facilities, which will drive the demand for medical equipment. The Federal Service on Surveillance in Healthcare and Social Development of the Russian Federation (Rosdravnadzor) has approved over 20,000 medical products and 68

devices for use in treatments, 60% of which are locally manufactured (appliances 3,000; equipment - 1,000; instruments - 7,000; and glass and polymer medical products - 700). About 1,200 Russian enterprises, 90% privately-held, manufacture an array of medical devices, including apparatuses and appliances (45%), medical instruments (10%), medical equipment (9%), glass and polymer medical products (10%), and other medical products (26%). According to various sources, imported medical devices constitute 60% of the Russian market. Statistical data show that 40-45% of imports come from Germany, 20-25% from the United States, 10% from Japan, and 5% each from Italy and France. For the last three years, a growing number of cheap analogs from China and Pakistan have entered the Russian market in large volumes. Russian medical equipment manufacturers are making some progress in several traditional and developing segments. For that purpose, the Ministry of Industry and Trade of Russia wrote a program called “Development of the pharmaceutical and medical equipment industry in the Russian Federation until 2020 and further perspective”, which was adopted on February 17, 2011. This program is divided into two stages: years 2011-2015 and years 2016-2020. By the end of the program the % of medical equipment manufactured by the Russian producers should increase from 1820% to 40%. This effect can be achieved by foreign companies that localize their production. There are many benefits to production localization: among others, the construction of new and modern manufacturing facilities; the creation of new jobs in Russia; and the evolution of new technologies. Also, the manufacturer that works in the Russian market better understands the needs of the consumer and, because of that, makes a product that meets the demands and specifics of the Russian market. Additionally, equipment manufactured in Russia will be customer-friendly, especially true for monitoring equipment that will have the Russian interface. In addition, local production facilitates the creation of a more transparent market: pricing becomes clearer, and who acts as a seller or buyer becomes more evident. Thus, localization can solve problems in the procurement of medical equipment. The best example of production localization is the following: at the end of 2009, GE Healthcare and one of the leading local manufacturers, Medical Technologies Limited (MTL), signed a strategic partnership agreement. The first stage was marked by the production of Computer Tomograph (CT), called BrightSpeed Elite, which was installed in May 2010 in Moscow Hospital 67. In April 2011, GE Healthcare and State Corporation “Rostechnologie”, represented by OAO “RT-Biotechprom” and MTL, presented the first serial production of CTs. The plan was to make more than 16 units in 2011 and approximately 100 units in 2012. The price of these CTs is much less than that of imported ones and will decrease even more when local Russian manufacturers, rather than GE Healthcare, supply parts. This shift is planned for the period 2012-2015. There are also some European examples. The Ural Optical and Mechanical Plant bought a license from German company Siemens to produce a CT. Cooperation between the JSC Ural Priborostroitelny Plant and Italian manufacturers resulted in production of an ultrasound scanning instrument that won one of the tenders for the National Health Project. Finally, the Izomed Company successfully manufactures another ultrasound diagnostic instrument in cooperation with a Japanese company. Such joint cooperation can bring accessible, innovative, and modern healthcare technologies to support Russian Government projects modernizing healthcare in various 69

disease areas. Meanwhile there are particular types of medical devices produced in Russia. First, most routine X-ray diagnostic procedures are done on Russian-made equipment. Apart from that, the Russian medical device market is well represented by monitors for various uses, including those for intensive therapy, surgical operations, pregnancy and at the patient’s bedside. Also, Russian companies manufacture certain models of electrocardiographs, encephalographs, and rheographs. A particular focus of Russian manufacturers (usually 15% of the products made at any given plant) is on producing surgical tables, lighting systems, sterilization equipment, cameras for disinfection, beds, and medical furniture. Russian manufacturer KB Vzlet developed the “Kosmea” apparatus used for cardiac artery bypass surgery that works without an artificial blood-circulation apparatus. “Trekpor Technology” Holdings developed an industrial magnetic-resonance accelerator for the production of membranes. Russian Government organizations are the main users of medical equipment; approximately 80% of medical equipment is sold to them. Private hospitals and patients themselves represent the other 20%. Because of that uneven distribution, Government procurement programs (“tenders”) play a crucial role in this market. Sub-Sector Best Prospects Return to top

Despite recent breakthroughs and the fact that locally made medical equipment is two to four times cheaper than imported equipment, Russian production still lags behind that of the majority of developed countries. Thus, Russia is still dependent on imports for a significant number of medical equipment industry sub-sectors, especially those requiring large investments in research and development (R&D), innovative technologies, and automation. The most promising market segments include diagnostics and visualization, cardiovascular, ophthalmology, orthopedics, laboratory diagnostics, and urology equipment and technology. For example, the average annual increase from 2006-2011 in market share for diagnostics and visualization equipment was 18% and in medical information technology (IT) 10%. Opportunities Return to top

For a number of years, the Russian Government launched many programs, financing the healthcare sector. The first program, designed to significantly improve Russian healthcare, was the National Health Project in 2005. From 2011-2013, $15.4 billion was allocated from both the federal budget and the Mandatory Healthcare Insurance Fund to this program. A recent program was the Program of Modernization in Healthcare 20112012, aimed at renovating and upgrading healthcare facilities, and it was financed at $11 billion. The significant funding reflected the current need for new modern technologies for diagnostics and treatment. Russian patients are becoming more aware of modern medical technologies around the world and expect the same types of treatment in Russia. Specifically for medical equipment, the Program of High-Tech Medical Assistance 2011-2013 was established and financed at $4 billion. According to “Healthcare through 2020,” a document developed by the Ministry of Healthcare and Social Development, Russian citizens will receive high-quality medical 70

care, which will be standardized through all of Russia, new effective medical procedures will be introduced, and new medical equipment will be supplied to medical institutions. This document is closely connected with the “Concepts of long-term social-economic development of the Russian Federation until 2011,” which was adopted in 2008 and revised later in 2009. According to this document, the expenses for healthcare should be 5.7% of GDP. So the medical equipment market should show the best results by the 2013-2016 and reach $15 billion by 2020. WTO accession will be also beneficial for foreign exports to Russia. After full implementation of WTO accession commitments, tariffs for medical equipment will be between 0 and 7%; currently this figure is up to 15%. Web Resources Organizations Ministry of Healthcare: http://www.rosminzdrav.ru/health Russian Federal Service on Surveillance in Healthcare and Social Development: http://www.roszdravnadzor.ru Trade Events Zdravookhranenie, International Exhibition of Medical Equipment and Drugs December 9-13, 2013 Moscow http://www.zdravo-expo.ru/en Commercial Service Contact Yuliya Vinogradova, Commercial Specialist Tel: +7 (495) 728-5586 Yuliya.Vinogradova@trade.gov Return to top

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Refinery Equipment

Overview

Return to top $ thousands 2013 2014 (estimate) (estimate) 6,000,000 6,000,000 3,000,000 3,000,000 900,000 3,300,000 2,700,000 900,000

2011 Total Market Size Total Local Production Total Imports Imports from the US
Source: CS Russia estimates.

2012 5,000,000 2,000,000 3,000,000 800,000

3,000,000 1,000,000 2,000,000 600,000

The importance of the oil and gas industry to Russia cannot be overstated. Depending on the data source, Russia is the number one or two crude oil producer and the number two producer of natural gas, with the largest natural gas reserves in the world. Proceeds from the oil and gas industry account for almost half of Russian federal budget revenues, most of it coming from exports of crude oil. Lately, however, a strong emphasis has been placed on the necessity to develop Russia’s oil and gas refining and petrochemical industry. The plan is to upgrade existing domestic refining capacities, which are generally far below European standards in efficiency, refining depth and environmental concerns. This strategy is intended to lead Russian companies to focus on the export of processed petroleum products rather than crude oil, and to meet the increasing domestic need for high-quality petroleum and petrochemical products. One of the major incentives for the rapid technological upgrade of Russian refineries is the official ban on the production of low-quality fuels. The ban on production of Euro-2 fuel, originally scheduled for December 31, 2010, has been postponed twice, because most Russian refineries failed to upgrade their facilities to the level necessary for the production of Euro-3 fuel. At the request of Russian refining companies, the Government postponed the introduction of Euro-3 fuel emission standards until January 2013, to be followed by the introduction of Euro-4 in 2015 and Euro-5 in 2016. This decision was tied to the obligation imposed on all major refining companies to upgrade their facilities in order to comply with new requirements. This, as well as the earlier mentioned ambition of Russian petroleum producers to export more refined products to the international marketplace, requires intensive modernization and capacity increase of existing refining facilities. Thus, Russia remains one of the few regions that continue to look at major investment programs in the downstream sector. A reason for this trend is the relatively small investments made in the sector over the past decades. According to varying assessments, a total technical upgrade of the Russian refining industry requires $30 billion to $50 billion. Despite ambitious plans adopted in 2008, when the Government of Russia initiated a large scale campaign on technological upgrade of the country’s refining capacity, actual expenditures by major Russian oil companies for this purpose, according to Russia’s Ministry of Energy (MoE) estimates, did not exceed $6 billion within 2008-2010. According to the MoE officials, a sharp increase in investment activity in this area was planned for 2011-2015, and, as the country seeks to grow the sector to 72

prevent a slowdown in economic growth, in 2013 the refining sector will see a 93% yearon-year increase in investment. Capital expenditure in refining was to have increased to $11 billion by 2012, as envisioned by the Ministry. Sub-Sector Best Prospects Return to top

The following general areas can be identified as most promising: • emphasis on secondary refining upgrades to increase the depth of refining, from current levels of 60% up to 80% and above, including development and installation of new visbreakers and introduction of delayed coking processes; • • • • • • • • upgrade of primary (top) refining units with the objective of increasing light-end product bleeding and reducing electricity consumption; optimization of commercial motor gasoline production, and upgrade of catalytic reformers to produce high-octane components of motor gasoline; introduction and/or upgrade of low-sulfur diesel fuel production units; upgrade of catalytic cracking units to increase the yield and RONC of gasoline and improve energy-efficiency in this process; transfer of certain types of fuel hydrogenation units to light hydro cracking technology, in order to increase diesel fuel output; transfer of decommissioned catalytic reformers to isomerization processes of C5C6 hydrocarbons to produce high-octane components of motor gasoline; adaptation of atmospheric distillation and thermal cracking units to visbreakers; optimization of internal refinery energy systems, including installation of energyefficient, stand-alone gas-turbine and diesel power plants where appropriate to lower refineries’ power consumption costs; upgrade of storage and intermediate reservoirs; cogeneration of refinery heavy bottoms into steam and electricity, or other relevant utilization technologies; and introduction of modern integrated process control and accounting systems, including Distributed Control Systems (DCS).

• • •

Smaller oil producing companies are looking for opportunities to process crude oil right at the production site, which would allow them to increase the value of their product and reduce transportation expenses. This provides opportunities for U.S. manufactures of equipment for mini refineries. Companies providing turn-key solutions have the best prospects. Opportunities Return to top

As of today, Russia has about 30 major and over 80 mini oil refineries with a total processing capacity of 5.6 million b/d. In 2010, the Russian refining industry produced 36 million tons of gasoline, 70 million tons of diesel fuel, and 70 million tons of fuel oil. Most of the Russian oil refineries were built in the two postwar decades: 16 plants, more than half of those currently active, were commissioned between 1945 and 1965. Only 73

two refineries, with the total capacity of about 70,000 b/d, were launched in Russia after the collapse of the Soviet Union. Thus, overall, plants built during the Soviet time are currently recycling about 98% of oil, and until recently, only a few had gone through significant technological upgrade. It is not surprising, therefore, that experts unanimously admit a high level of depreciation (60-75%) and use of old technologies in the Russian refining industry. Despite certain positive changes that have taken place recently, the quality of the product leaves much to be desired and the depth of oil refining is still extremely low: the average depth of oil processing in Russia does not exceed 72%. In addition, the hydro skimming capacity of the Russian refining industry exceeds its capacity to produce refined petroleum products, which is explained by the fact that the Soviet oil refining industry was focused on the production of diesel fuel and fuel oil, while demand for gasoline was relatively low. Today, companies produce more low quality petroleum half-stuff than they can process to the finished product level, and therefore, often have to export the semi-finished product at a discounted price. The period of economic reforms in the 1990s did not bring any positive changes to the Russian oil refining and petrochemical industries. In fact, due to the sharp decrease in domestic oil consumption, these years witnessed a significant decline in the actual volume of processed materials. In 2000, Russian refineries processed only 168.7 million tons of crude material, thus making no use of almost half of their total capacity (296 million tons per year). The “contemporary history” of the Russian refining industry and prospects for its future are to a big extent conditioned by the vertically integrated character of the sector: about 90% of oil refining capacities are controlled by ten major vertically integrated oil and gas companies. According to various assessments, technical upgrades in the industry require $30 billion to $50 billion. Most of this burden falls on the oil majors. With the payback period for investments in technological upgrades of refining facilities being 5 to 7 years, and crude oil production and transport paying back much quicker, companies used to take on refining projects based on what remained in their budgets. However, recent efforts of the Russian Government made Russian oil majors change those policies and start allocating substantial resources to oil refining. The result of this policy change is the start of a broad-scale reconstruction of existing Russian refineries and construction of new ones, which creates opportunities for U.S. technologies and equipment suppliers. U.S. engineering services and equipment suppliers enjoy a relatively sound position in the Russian import market and can look forward to opportunities to increase their share further if new projects become sustainable and their market development efforts are commensurate with the market’s potential. Web Resources Trade Events Moscow International Oil and Gas Expo (MIOGE) - 2013 June 25-28, 2013 Moscow http://www.mioge.com USA Pavilion will be organized at MIOGE - 2013 Return to top

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Oil, Gas, and Petrochemistry, 19th International Specialized Exhibition September 5-6, 2013 Kazan, Russia http://www.oilexpo.ru/eng Moscow Refining, Gas & Petrochemicals Week 2013 September 16-20, 2013 Moscow http://www.europetro.com/en/moscow_week_2013 References & Key Contacts Information on Russian and Central Asian refinery projects: http://abarrelfull.wikidot.com/russian-and-central-asia-refinery-projects Rosneft refineries: http://www.rosneft.com/Downstream/refining LUKOIL refineries: http://lukoil.com/static_6_5id_257_.html Gazprom-Neft refineries: http://www.gazprom-neft.com/business/petroleum_refining.php TNK-BP refineries: http://tnk-bp.com/en/production/enterprises/russia/#type:processing Bashneft refineries: http://www.bashneft.com/ The Taneco Refining and Petrochemical Complex: http://www.taneconpz.com/en/about/index.php The Kirishi Refinery: http://www.surgutneftegas.ru/en/oil/about/ Russian Ministry of Energy Tel: +7 (495) 631 9858 minenergo@minenergo.gov.ru http://www.minenergo.gov.ru Russian Association of Oil and Gas Equipment Producers Tel: +7 (495) 514 5856 info@n-g-k.ru http://www.eng.derrick.ru Commercial Service Contact Gulnara Kenzhebulatova, Commercial Specialist Tel: +7 (495) 728 5405 Gulnara.Kenzhebulatova@trade.gov

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Safety & Security Equipment

Overview

Return to top $ thousands 2013 2014 (estimate) (estimate) 9,267,85 9,731,24 0 2 6,387,10 6,706,45 0 5 2,880,75 3,024,78 0 7 113,850 119,542 581,900 610,995 2,589,80 2,719,29 0 0 160,250 168,262

2011 Total Market Services Equipment Local Production Exports Imports Imports from the US 7,008,00 0 4,830,00 0 2,178,00 0 660,000 440,000 1,958,00 0 100,000

2012 8,059,00 0 5,554,00 0 2,505,00 0 759,000 506,000 2,252,00 0 140,000

The Russian market for safety and security has the potential for steady development because of the country’s vast infrastructure, large area, and number of potential security threats. In 2012, the safety and security market entered a stage of steady growth, letting companies recover losses incurred in previous periods of financial crisis. This market segment directly correlates with the construction and transportation market segment and is thus dependent on its financial situation. In 2012, the safety and security market enjoyed double-digit growth of 12%, supported by newly implemented safety initiatives at railway stations, airports, other public places, as well as by private business investment in retail and production safety and security. Another growth driver was implementation of new traffic surveillance systems to record traffic violations. Regionally, 50% of the market is concentrated in Moscow and St. Petersburg, 30% in the Urals Federal District, 7% in the Siberian Federal District, and 6% in the Northwest Federal District. The rest of the market is divided among the Volga, Far East, and Southern Regions. The safety and security equipment market is divided into five main product segments: • • • • • CCTV and Video Surveillance Access Systems Fire Safety Systems Perimeter Security and Control Systems Cloud Computing Systems

In 2012, the Russian CCTV and access systems segments totaled just over $1.6 billion, or 60% of the equipment market. It is considered the most developed and competitive segment. The size of the security and fire alarm segment was approximately $500 76

million (24% of the equipment market), historically increasing 12% to 15% annually. This segment grew substantially in 2010 because of the heavy fires that occurred in the summer throughout the country and kept growing, with new construction projects being launched nationwide. Moreover, the Government developed a new fire security program, with the Ministry of Emergency Situations in charge of key points of the development agenda. The most important is the CCTV market segment. These are online surveillance, recording, personal identification, and face recognitions systems. Along with Olympic projects and transportation infrastructure upgrade, the Government has allocated almost $312 million till 2015 to implement this technology at metro stations, railways, public areas, and city halls. Depending on the segment, the share of imported products ranges from 50% to 95%. Experts estimate that up to 80% of access control, about 50% of intruder and fire alarms, and more than 95% of CCTV systems are imported. Even locally manufactured equipment contains 60% to 95% imported components. Hi-tech solutions come from China, Taiwan, and Korea and are popular in Russian regions outside of Moscow and St. Petersburg. Premium systems are imported from the United States, Europe (Great Britain, Germany, France, Italy, and Poland), Japan, and Israel, though the majority of the components even in these systems originate from China. In 2011, the following companies gained the largest sales in the Russian market: Tyco, Axis Communications, Bosch Security Systems, CBC Group, ComNet Europe, Fujinon, Hikvision, Microdigital Inc, Milestone Systems, Mobotix, Panasonic, Qnap, Samsung, Siemens, and Sony. The Government is the main end-user of products and services in this industry, with over $700 million in 2012. Government agencies and state corporations have almost doubled their expenses. The Government’s share is constantly increasing as it embarks on new construction projects for upcoming events such as Universiade 2013 in Kazan, the Sochi Olympic Games, the APEC Forum, and the FIFA Soccer World Cup. The crime situation in the Northern Caucasus is still uncertain, and terrorism still represents a threat to stability in the central region of Russia as well as in its southern region. After a series of terrorist attacks in the Moscow metro and at Domodedovo airport, the Government adopted additional safety and security measures, including incorporation of metal detection and face/voice recognition systems. U.S. companies such as Tyco and Garrett hold strong positions in these areas. With Russia’s accession to the WTO, many foreign companies are making plans to enter previously inaccessible safety and security market segments: for example, prison safety products, prisoner control equipment, and some types of protective gear.

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Major Consumers of Safety and Security Products and Services in 2012

While Russian Government procurement is substantial, private entities, mainly in real estate, banking, retail, and oil and gas, are also important buyers and end users of a wide variety of security equipment. Currently, there are over 300 distribution companies working in the Russian security market. Sixty-five % of these companies are located in the Moscow and St. Petersburg regions. Finding a local partner knowledgeable in the industry and experienced in procurement tenders would be the shortest path to successfully entering the Russian market. All Government purchases are made through http://www.zakupki.gov.ru, a large Web-based resource consolidating all procurement enquiries from state organizations and agencies. It operates only in Russian. It is essential to cooperate with a Russian company or to open a representative office inside the country to handle operations related to government tenders. Moreover, companies working in this business need steady and long-term relations with law enforcement and emergency agencies, which are the main consumers of safety and security products. Sub-Sector Best Prospects Return to top

A new trend in the CCTV and access systems markets is the merging of these two segments in cloud computing applications. CCTV becomes more comprehensive, bringing in higher resolution for the transmitted image. Higher data traffic in turn creates more vigorous technical requirements for the hardware. There is also increased demand for fire security equipment as well as alert and emergency notification products. In the summer of 2010, wildfires in Russia injured hundreds of people and, in 2012, floods in the southern regions forced the Government to implement major changes in the Fire Service, which is a part of the Emergency Ministry. Much attention is being paid at the moment to fire security in public places and forests and to river and lakes control agencies. 78

The Russian Government continues to show concern about possible terrorist attacks. Companies selling metal detectors experience an increase in sales, as luggage and individual inspection have become mandatory at rail stations and other transportationrelated areas. The 2014 Olympic Games in Sochi also present competitive business opportunities. The total budget for the Games is about $13 billion. The cost of safety and security equipment is estimated at 17% of construction costs, thus creating a $2 billion market for safety and security products. Additionally, U.S. companies may be presented with opportunities related to the 2018 FIFA World Cup. The best prospects for sales of U.S. manufactured hardware in 2013-14 are: • • • • • • • • • • IP-based solutions in various equipment segments (surveillance, detection, day/night surveillance and infrared systems), especially high end systems; access control systems; fire/intruder alarm systems, especially for public places; integrated control systems; biometric equipment, identifiers, and readers; antiterrorist equipment, especially bomb-detection equipment; anti-theft systems, radar detection, and recording equipment (wireless); fire safety equipment; cloud computing used for CCTV/access systems; and rescue equipment

Experts consider that growth for these groups of products can sustain at 10-15% in the next three years unless any critical changes in the financial or political situation take place. Companies should be aware of possible U.S. export control regulations related to the export of these types of technologies and equipment. Opportunities Return to top

The strength of the safety and security systems market is in constant innovation and price competitiveness. New concepts and products may create market entry opportunities. Participation in industry events is very important in this Russian market and facilitates successful market entry. There are several key events in the Russian safety and security industry. Key companies in the sector participate in the Moscow International Exhibition for Protection, Security & Fire Safety (MIPS), a show that has received government support, as well as in Interpolitex, a specialized trade show dedicated only to emergency and law enforcement and supported by the Ministry of the Interior. Companies exhibiting at this trade fair work closely with this Ministry and its law enforcement agencies. Web Resources Organizations Russian Security Industry Association http://www.rasi.ru/index_eng.php 79 Return to top

VNIIPO; All-Russian Scientific-Research Institute for Fire Prevention (Fire security equipment certification body) http://www.vniipo.ru Trade Events MIPS (Moscow International Exhibition for Protection, Security & Fire Safety) April 14-17, 2014 Moscow http://mips-expo.com Interpolitex (International Exhibition of Police and Defense Technologies) October 22-25, 2013 Moscow http://www.interpolitex.ru/en Publications Safety Systems Magazine published by Groteck Company http://www.groteck.net Sec.ru http://www.sec.ru Commercial Service Contact Timur Uddin, Commercial Specialist Tel: 7 (495) 728-5526 Timur.Uddin@trade.gov

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Travel and Tourism Services

Overview

Return to top Unit: persons 2013 2014 (forecast) (forecast) 35,054,000 38,899,400 276,000 292,000

2011 Russians Traveling Abroad Russians Traveling to US 29,503,800 221,878

2012 (estimate) 31,103,500 255,000

Source: Q1 Russian Tourism Report, BMI 2013; Office of Travel & Tourism Industries, U.S. Department of Commerce.

With a population of over 140 million, Russia is the ninth most populous country in the world and is a huge market for outbound travel. Russians made over 30 million international trips in 2012. As the growing Russian middle class discovers new routes that cater to their tastes and budget, U.S. destinations are becoming more popular among Russian tourists. Russia is the third fastest growing inbound U.S. market, with 31% growth behind only Saudi Arabia and China (minimum 100,000 arrivals). Growth of Russian arrivals to the United States has been consistently strong even during the economic crisis (see chart below). The figures below provide an overview of the current market and the strong potential for Russian inbound visitation to the United States. New direct passenger flights to the United States, simplified U.S. visa procedures, and the continued strength of the euro and British pound against the U.S. dollar have helped make travel to the United States more attractive and affordable for Russian travelers. While the financial crisis of 2008-2009 interrupted the rapid growth of the Russian travel and tourism market, three post-crisis years showed a vivid continuation of the positive dynamics, and experts’ longer-term forecasts are extremely optimistic.

Source: Office of Travel & Tourism Industries, U.S. Department of Commerce

According to the UN World Tourism Organization, Russia was the second fastest growing market in terms of tourism expenditure, with 28% growth in 2010 (a faster rate of growth than that of China). Visa reported that Russian travelers spent $5.8 billion on Visa cards in 2010 – 36% growth. In 2010, Russians spent $438 million when they visited the United States, a 42% increase on 2009. The number one segment for 81

spending among Russians on their Visa cards is in department stores, outpacing what they spend in other categories, including airline tickets. Sub-Sector Best Prospects Return to top

Based on the results of the survey of Russian tour operators conducted by U.S. Commercial Service Moscow, the most promising destinations in the United States include: • Cities: New York City, Miami, and Las Vegas. • National Parks. • Ski /Winter Resorts. • Leisure /Entertainment Complexes. New York City has been and will likely remain the most popular city destination for Russian tourists in the near future. Russians will often combine their business travel to New York City with a pleasure trip. Their family, historical, and cultural ties to New York City put it on the top of the list for brand awareness, followed by Miami and other locations in Florida, famous for their comfort and opportunities for various forms of leisure. As more Russian tourists reach the U.S. West Coast, California resorts and attractions are becoming increasingly popular in this respect as well. Las Vegas, historically considered by many Russians the gambling and entertainment capital of the world, has gained in popularity after July 1, 2009, when gambling was officially banned in Russia. Interest in national parks is growing as Russian tourists learn more about what they have to offer. Ski and winter sports resorts have become more popular in recent years as an alternative to European resorts as they provide a unique travel experience in terms of variety, beauty and quality of service. Opportunities Return to top

Increased prices for domestic travel destinations and the development of outbound travel services triggered Russians’ growing interest in travel to destinations outside Russia. Turkey, Egypt, and China have been the most popular international destinations for Russian tourists for the past several years. These countries, along with Finland, Italy, Spain, Greece, Bulgaria, and Thailand still constitute the core of mass tourism destinations for Russian travelers. However, recent outbound traffic statistics indicate that, in addition to traditional warm and seaside destinations, more Russians are choosing countries where they may supplement time on the beach with other activities, such as cultural and sporting events, shopping, and recreation. Moreover, Russians who have traveled to Asia and Europe in the past are willing to explore destinations other than those they have already visited. While the activity may be similar, the different destination is appealing. For example, skiers who have visited the Alps for their proximity look to Colorado, Utah, and Vermont for their next trip. The popularity of the United States as a tourist destination has grown steadily over the last decade with especially strong growth in 2010-2012. According to international arrival data from the Office of Travel and Tourism at the U.S. Department of Commerce, the number of Russians traveling to the United States totaled 175,000 in 2010, a 22.4% growth over the prior year. That number increased to 221,000 in 2011 (27% growth), coming to 255,000 in 2012 and is forecasted to reach 276,000 in 2013.

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An important factor accounting for the steady growth in the number of Russian travelers to the United States is the significant improvement in the visa application process that has taken place in recent years. The U.S. Embassy has made great progress in streamlining the process in the face of a rapidly growing number of applications including: providing visa information available online in Russian; allowing application fees and supporting documents to be sent to the Embassy via a courier service with offices across Russia; and accepting payments at Russian post offices and online. Russians now have the opportunity to secure three-year, multiple entry visas. For those wishing to renew a visa, the requirement to appear for an interview is waived if they apply within 47 months following their previous visa expiration date which has allowed many Russian visa applicants to obtain their visa without an in-person interview. The availability of visa information online has made it possible to counter the market’s impression that U.S. visas are expensive, difficult to obtain and take a long time to process. Russian tour operators are also educating their travelers regarding these improvements. Visit USA Russia, a young yet very active organization registered in Moscow in April 2010, is contributing to this effort by organizing meetings of Russian travel industry professionals with consular officers working in the U.S. Embassy in Moscow and U.S. Consulates throughout the country. Another significant improvement is the fact that more airlines, both U.S. and international, have launched non-stop service connecting Moscow with U.S. destinations. Delta Airlines, Aeroflot Russian Airlines, Transaero, and Singapore Airlines all offer direct flights to U.S. cities. Aeroflot flies to New York City, Washington, D.C., and Los Angeles; Delta flies to New York; Transaero to New York and Miami, and Singapore Airlines flies to Houston. Many more international airlines transport Russian travelers to the U.S. via hubs such as Frankfurt, Copenhagen, Amsterdam, Madrid, London, and others. As the market becomes more educated about U.S. destinations, visa processing, flight availability and purchase value, the Russian market is looking increasingly to the United States for tourist destinations. A key partner in the market is Visit USA Russia, comprised of the leading Russian tour operators and U.S. travel product suppliers. The current roster includes 77 members dedicated to promoting the USA as a travel destination. Visit USA is very active in Russia through the organization of promotional road-shows throughout Russia, USA pavilions at leading travel fairs, press conferences, FAM (familiarization) trips, membership meetings, and more. Web Resources Trade Events Visit USA Roadshow 2013 September 3-12, 2013 Major Russian Cities http://www.visit-usa.ru/en Moscow Ski Salon October 25-27, 2013 Moscow http://eng.skiexpo.ru/ Visit USA Russia organizes a joint US pavilion at Moscow Ski Salon Return to top

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International Travel Fair Intourmarket March 15-18, 2014 Moscow http://www.itmexpo.ru/en/ Moscow International MICE Forum March 17, 2014 Moscow http://www.miceforum.ru Moscow International Travel & Tourism (MITT) March 19-24, 2014 Moscow http://www.mitt.ru/en Visit USA arranges a Pavilion at MITT References & Key Contacts Visit USA Russia Margarita Babayan, Chair Tel: +7 (495) 935 7925/36 Cell: +7 (906) 756 1883 chair@visit-usa.ru http://www.visit-usa.ru/en Transaero 47 B. Polyanka Street, Bld. 1 Moscow Tel: +7 (495) 937 8477 http://transaero.ru/en Aeroflot Russian Airlines 37 Leningradsky Prospect, bldg. 9 Moscow Tel: +7 (495) 223 5555 http://www.aeroflot.ru/cms/en American Airlines 20 Sadovaya-Kudrinskya str., Office 206 Moscow Tel: +7 (495) 234 4074; 234 4075 http://www.aa.com United Airlines 40/2 Prechistenka Street, Block 1, Entrance 3, Office 32 Moscow Tel: +7 (495) 980 0882 http://www.united.com/ Delta Airlines 11 Gogolevsky Blvd., 2nd floor 84

Moscow Tel: +7 (495) 937 9090 http://www.delta.com Singapore Airlines Hotel Renaissance 18/1, Olympisky Prospect Moscow Tel: +7 (495) 937 5920 http://www.singaporeair.com U.S. Travel Association 1100 New York Avenue, NW Suite 450 Washington, DC 20005-3934 http://www.ustravel.org International Trade Administration, Office of Travel & Tourism Industries U.S. Department of Commerce http://tinet.ita.doc.gov -USA-TRADE U.S. Department of Homeland Security, US-Visit Program 1616 N. Fort Myer Drive Arlington, VA 22209 Tel: +1 (202) 298-5200 http://www.dhs.gov/usvisit Russian Travel Industry Union Sergey Shpilko, President 11, Stoleshnikov per., office 426 Moscow, 107031 Russia Tel: +7 (495) 692 2464 E-mail: rata@rata.ru http://www.rustourunion.ru/ Commercial Service Contact Gulnara Kenzhebulatova, Commercial Specialist Tel: +7 (495) 728 5405 Gulnara.Kenzhebulatova@trade.gov

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Agricultural Sectors

Return to top

Russia’s total agricultural, fish and forestry imports decreased by 2.7% in 2012 and totaled $39.2 billion. The situation for U.S. exports, however, improved considerably. In 2012, Russia’s imports of agricultural, fish, and forestry from the United States increased 25.8% year-on-year to $2.0 billion, spurred by record U.S. exports of breeding cattle, increased pork, beef and poultry exports, as well as expanded exports of prepared foodstuffs, nuts, sunflower seeds, soybeans, and hatching eggs. Year-on-year average annual growth in Russian agricultural fish and forestry imports can be seen in the following table: 2008 Agricultural Imports (billion dollars1) Growth Year-on-Year (percent)
*

2009 28.3 -17.5

2010 33.7 19.4

2011 40.3 19.4

2012 39.2 -2.7

34.3 28.6

UDG: WTO 2010; Source: Global Trade Atlas (excludes Belarus for entire time series and Kazakhstan after July 2010)

The average applied external agricultural tariff of the Russia-Kazakhstan-Belarus Customs Union (CU) is approximately 13.2% ad valorem equivalent. Tariff rate quotas (TRQ) for beef, poultry, and pork are under the control of the Eurasian Economic Commission (EEC), which is the regulatory body of the Customs Union. Consistent with Russia’s WTO commitments, Russia’s increased TRQ volumes for fresh or chilled beef and frozen poultry in 2013 as compared to 2012. However, despite Russia’s accession to the WTO in August 2012, Russia’s governmental control over imported foodstuffs remains complicated and bureaucratic. Additionally, many of Russia’s food and trade regulations have or are undergoing reform as the Customs Union continues policy integration. While the legal framework has improved, in practice, Russia has not yet taken all of the steps expected towards improving the environment for trade. Moreover, Russia has, in some instances, moved backward, to harmonize with restrictive European Union regulations. Russia maintains a number of barriers with respect to imports, including tariffs and tariffrate quotas; charges and fees; and licensing, registration and certification regimes. SPS rules continue to be regularly and commonly abused to create trade barriers. Positive growth in Russian grocery retailers helped to spur retail sales in 2012. Russian retail sales turnover in 2012 grew by 5.9 percent year-on-year. In value terms, the indicator reached $706 billion. At the same time, the retail sales turnover of food products was valued by Rosstat at $328 billion in 2012. The share of food products in total retail sales in 2012 was 46.5 percent versus 47.8 percent in 2011. Russian food retail development continues to be led by large domestic retailers with annual turnover exceeding $2 billion. Russian retail giants such as the X5 Retail Group, Magnit, Seventh Continent and Dixie chains are still among the top Russian retail players. In addition to domestic companies, the French Auchan Group, German Metro AG and others have earned significant market shares during last decade. Nationwide, retail chains occupy about 18% of the food retail market, but with higher concentrations in major urban centers (about 21% in Moscow and 48.3% in St. Petersburg, according to Rosstat). 86

Top 10 Grocery Retailers in Russia by sales turnover, 2012 Rang Company Name Sales turnover (US$, bn) 18.2 16.7 9.9 8.4 5.5 4.3 4.2 2.3 1.0 0.8

1 X5 Retail Group 2 Magnit 3 Auchan Group 4 Metro Group 5 Dixie Group 6 O'Key 7 Lenta 8 Seventh Continent 9 Globus 10 Rewe Group (Selgros) Source: PlanetRetail, 2013

The economic crisis stimulated mergers and acquisitions in the retail industry throughout the country. Nevertheless, the Russian retail market is still highly fragmented with the 10 largest retailers (by revenue) controlling just 23 percent of the market (18 percent in 2009) versus 80 percent for the 10 largest retailers in the United States. 1 The most dynamic growth in modern retail formats in 2012 was shown by convenience stores (14 percent year-on-year), which is similar to the U.S. discounter model. Hypermarkets grew by 8 percent, supermarkets -- by 6 percent. Traditional retail is shrinking their market share and declining in sales. The most popular grocery retail format in Russia remains supermarkets with $96 billion sales in 2012. Because retailers demand consistent quality and adherence to contract specifications and penalize suppliers for failure to meet requirements, foreign suppliers continue to be competitive in the Russian market as they are more accustomed than Russian agricultural producers to meeting such strict specifications. Russia’s food processing sector growth is supported by rising disposable income, increasing real wages, declining unemployment and growing food expenditure. Food processing sectors that are showing strength include: meat and offal, sausages, meat products (including pork, poultry, sausages and semi-finished meat), dry milk and cream, butter, canned milk, pasta, sugar, confectionery, frozen fruits and vegetables, and mineral water. Food ingredients are imported mainly from Denmark, Belgium, France, Germany, Austria, Great Britain, and the United States. Many Russian manufacturers are investing in modernization and expansion in order to strengthen their position in the market. The Russian food industry continues its dependence on imports, and thus opportunities to supply the market with U.S. products are plentiful.

For more on the food retail sector in Russia please see ATO Moscow’s Annual Retail Report 2012 at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Retail%20Foods_Moscow%20ATO_R ussian%20Federation_9-24-2012.pdf

1

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The food processing industry is made up of foreign and domestic manufacturers with the latter dominating number wise. The biggest Russian food manufacturers are: Baltika Brewery Company, Unimilk, United Confectionaries, Cherkizovo, and Efko Group. Among the most well-known foreign food manufacturers in Russia are Kraft Foods and PepsiCo which invested heavily in WimmBill Dann in 2010-2011. These foreign investors are strengthening their positions with investments and marketing activities that overshadow domestic companies. The leaders in this market are focused on consolidation and expansion into regions outside of Moscow and St. Petersburg. Sub-Sector Best Prospects Beef, Chilled/Frozen Russia is the world’s fourth largest import market for meat and poultry products at more than $8 billion, including trade with Belarus. Barring the onset of trade irritants, chilled/frozen beef has potential for expanded sales to the processing sector, retail sector and the hotel/restaurant/institution sector. Upon WTO accession, Russia locked in the current applied TRQ quantities of frozen beef available to the United States (60,000 metric tons) and increased access for chilled beef from 1,000 metric tons to 11,000 metric tons(for non-EU countries). The in-quota rate was bound at 15 percent, and the out-of-quota rate was kept at the previous level of 50 percent, but not less than 1 euro per kilogram. If Russia chooses to move to a tariff-only regime, these duties will fall to 27.5 percent. Russia respects the U.S. definition of high-quality beef, all of which will be permitted to enter at 15 percent and not count against TRQ volumes. Beef valued at more than 8,000 euros per metric ton is also exempted from the TRQ. Beef offal continues to be quota-exempt, yet U.S. trade is weak in most types of beef offal, except liver. Animal Genetics While Russia’s stated goal to be self-sufficient in categories such as meat and dairy products may limit U.S. exports of those products to some extent, these goals may also create new market opportunities for U.S. exporters to supply high protein feeds and animal genetics. The Russian Government has adopted several plans to stimulate development of the dairy, poultry, pork, and beef sectors. As market access for meat and poultry continues to be limited through quotas and/or the imposition of trade restrictive SPS measures, the demand and opportunity for higher quality animal genetics is expected to continue to grow. Demand exists for both dairy cattle, specifically registered Holsteins, as well as beef cattle, particularly Angus. For example, Russian Government subsidies and current development projects facilitated the import of 37,725 heifers in 2010, 94,468 heifers in 2011 and 137,613 head of cattle in 2012, from around the world. The United States is well-positioned to be a major supplier into the future, especially for producers seeking the best genetics available. The United States was the largest exporter of live bovine animals to Russia in 2012. U.S. exports grew from $85 million (19,092 head) in 2011 to $289 million (74,734 head) in 2012. The market also continues to grow for semen and embryos. In addition, hatching eggs and chick exports to Russia remain important for the expanding Russian poultry and egg sector and, as a result, most import tariffs are set at zero. Swine genetics also remain an area of opportunity. However, transit restrictions through the European Union require creative shipping solutions by U.S. exporters.

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Edible Tree Nuts Russia’s commercial nut production is limited to pine nuts and therefore Russia is entirely dependent on imports for consumption of most other tree nuts. In 2012, imports of tree nuts reached 88,577 tons for $425 million in 2012, an 18 percent increase in volume and 49 percent in value compared with 2007. Despite this significant growth, the Russian tree nut market is far from saturated and has good potential for further expansion. Per capita tree nut consumption is only around 0.67 kg (including imported sweetened nuts and seeds), which is significantly lower than consumption levels in European countries, the United States, Japan, and China. According to import statistics, the most popular nut in Russia is the almond (25 percent of the market in volume terms), followed by pistachios (20 percent), hazelnuts (14.5 percent), coconuts (12 percent), walnuts and cashews (10 percent each). The major suppliers of tree nuts to Russia are: the United States (almonds), Iran (pistachios), Indonesia (coconuts), Turkey (hazelnuts), Ukraine (walnuts), and Vietnam (cashews). In 2012, the United States was the largest supplier of tree nuts to Russia with a 29 percent market share of which the U.S. had 84 percent share of almonds and 15 percent of pistachios. U.S. sales in FY 2012 grew by 40 percent to a new record of $125 million. The best prospects in American tree nuts exports to Russia are: Almonds: Russia imported 90 percent of its almonds from the United States in 2012. In FY 2012, U.S. almond sales exceeded the previous record of $100 million. The trend is expected to continue driven by growing demand from confectionary, bakery, and other food processing industries (consuming 65 percent of shelled almonds) and growing consumption of nuts as a healthy snack leading to sales of high grades of shelled and inshell almonds. Pistachios: Russia is one of the largest importers of pistachios in the world in 2012, with market volume at 18,131 metric tons worth $124.2 million. 95 percent of imported pistachios are in-shell, most of which goes to snack packing or selling loose via retail. The popularity of pistachios as a snack product and rising incomes in Russia drive the demand for quality pistachios and opportunity of American pistachios. Iran is the main supplier of pistachios with over 77% market share, followed by the United States. In 2012, U.S. sales grew by over 46 percent in volume and value and reached 3,909 tons for more than $32 million and hopefully the growth in this market will continue. However, American pistachios sales are directly affected by the crop situation in Iran, the main supplier of pistachios to Russia. Pecans: In 2012, Russian imported 100 tons of pecans valued $1.5 million. Mexico and the United States are the main suppliers with close to 50 percent share. Due to high prices for pecans compared to other nuts as well as insufficient knowledge about nutrition and application options for pecans in the confectionary industry, the demand is somewhat unstable. However, taking into account growing interest in high-quality natural ingredients in Russia, increased pecan exports are possible, especially with greater informational outreach to the confectionary industry and consumers. Fish and Seafood In FY 2012, U.S. fish and seafood exports to Russia fell by more than 30 percent in value compared to FY 2011 to $45.1 million as a result of a poor catch of salmon in the United States. Salmon and salmon roe usually constitute the bulk of U.S. exports to Russia. However, exports of crab, crab meat and lobster have increased significantly. 89

With demand for fish expected to continue to grow in Russia and a favorable forecast for future U.S. salmon stocks, this market looks promising for U.S. suppliers. The U.S. still currently supplies only about 2 percent of total fish and seafood products to Russia, which indicates that there is massive room for growth. Russian importers report that the variety of fish and seafood products and quality of these products are increasingly important to Russian consumers. To satisfy demand, local retail outlets and restaurants are offering a wider selection of both traditional products as well as exotic items. In addition to the customary herring, mackerel, and salmon, consumers can now find squid, prawns, mussels, crab, live scallops, snails, oysters, and many other products. Because of this growing market, U.S. fish and seafood producers will continue to be able to find new market opportunities in Russia as consumers’ incomes rise, demand continues to boom, and consumer habits continue to change. Fish consumption patterns will continue to depend heavily on household income, prices, and preferences within the population. Russian consumers tend to prefer the following: herring, pollock, mackerel, salmon and trout. Frozen fish is also traditionally popular in Russia. Fresh Fruit (Apples, Pears, Grapes, Citrus) Russia is the world’s second largest importer of fresh fruit and is the largest import market for apples and pears. In 2012, Russian imports reached $5.5 billion, a 1.9 percent increase compared with 2011. The United States exported to Russia 17,640 tons of fresh fruits totaling over $22.2 million, a decrease in volume and value compared to 2010 and the record year of 2011. For January 2013, the volume of American fruit exports started to recover and increased by 9 percent in volume and 30 percent in value. Apples, pears, grapes, and pomegranates are the major fruit varieties that traditionally come from the United States and, if priced appropriately for the market, have opportunities for expansion. Fruit sales in general are on a long term steady increase in Russia. In 2012, however, per capita fruit consumption in Russia was on par with 2011 and reached 70.8 kg. Russians are still hesitant to go back to their pre-2008 crisis high spending levels despite signs that purchasing power is increasing due to the higher income and lower unemployment. Consumers remain cautious and their purchasing behavior reflects a calculated balance between price and quality. In 2013, fruit consumption is expected to grow supported by the trend toward healthy diets in Russia. Russians mainly buy apples, bananas, pears, and citrus. Imports have grown from 3.8 million metric tons in 2005 to 5.8 in 2012, and value in this time period nearly tripled to percent to $5.5 billion in 2012. In 2012 fruit imports remained flat from 2011. The largest overall fruit suppliers to Russia are Ecuador (bananas), Poland (apples), Turkey (citrus, grapes, and stone fruits), China (apples, citrus, stone fruits), Argentina (apples, pears, and citrus), and Chile (grapes). Russia is the priority export market for former Soviet republic countries, European, Turkish and North African producers due to the close proximity to Russia and long-term relationships with Russian buyers. The best prospects for American fruits are apples and pears. 90

Apples: Apples are the favorite fruit in Russia. In 2012, Russia was the largest importer of apples in the world with 1.2 million tons of import volumes valued at $772.2 million, where American apple share is around 1 percent. American apples are typically more expensive and compete with Italy, Belgium, Germany, and the Netherlands in the higher-cost and quality segment. The total share of these higher-quality apples in Russia is around 18 percent. With decreasing tariffs as a result of WTO accession, these quality apples can be somewhat more affordable in Russia. American apples have the potential for increased sales to Russia, especially considering that Russian consumers like large, richly colored apples, which are characteristics that U.S. suppliers can normally provide. Pears: Pears are one of the most popular fruits in Russia following apples, citrus, and bananas and consumption is growing. Russia doesn’t produce this fruit commercially and is the world’s largest importer. In 2012, pear imports decreased to $435 million from $485 in 2011. American pears have seen remarkable growth in recent years, rising from just over $1 million worth in FY 2004 to over $11 million worth in FY 2011. However, pear imports decreased at similar rates as overall imports in 2012. Market share of American pears remains low in Russia at 2 percent of the total pear market. American pears will always face strong competition from European pears, but in spite of this the huge Russian market allows for ample opportunity for expansion. In order to diversity their product offerings, importers have strong demand for American Anjou pears, which are not a typical European variety. Prunes and Other Dried Fruit Russia is the biggest importer of prunes in the world. In 2012, prune imports to Russia grew by 15 present and reached 28,416 tons ($56.3 million in value term) over 2011. Prunes are one of the most popular dried fruits in Russia and often used in home cooking. The food manufacturing and snack packing industries are major consumers of plums and the demand is expected to grow following the trend for healthy eating in Russia. The Unites States is among the three largest suppliers of prunes to Russia, along with Chile and Argentina. However, the American product exports significantly dropped from 5,579 tons (valued at $12.3 million) in 2010 to 2,599 ton ($5.5 million) in 2012. According to the industry experts, American prunes became more expensive compared with products from Chile and Argentina and accordingly less attractive. American prunes are recognized for consistent quality, taste and have good potential for expanding sales when the price becomes more competitive. Wine and Spirits Russia is the 10th largest wine market in the world with. With per capita wine consumption estimated at 7 liters in 2012 and growing, Russia is one of the largest growth markets for wine and the most developed wine market of the BRICs. Italy, France and Spain, the three major wine producers globally, are also the major exporters of wine to Russia. U.S. wine sales have risen in recent years, and reached over $12.3 million in fiscal year 2012, up 27% from 2011. Despite this, U.S. wine currently only has about 1.2 % market share, and there is large room for growth. Russian wine imports reached $1.052 billion in FY2012, up 10.3% from 2011. Among the world’s top ten spirits markets in volume terms, Russia has dramatically increased imports of U.S. bourbon and rum from Puerto Rico since 2009. The United 91

States (including Puerto Rico) is the sixth largest supplier of spirits to Russia and the market is growing, up 38% by volume in 2012. In 2012, U.S. exports of spirits to Russia were worth $104 million, reaching a new record. Russian imports of hard liquor were $1.399 billion in FY2012, up 22.5% from FY2011. All alcoholic products saw tariffs fall upon Russia’s WTO accession, with full implementation typically between 2015 and 2016. However, excise tax rates are increasing dramatically annually (particularly for spirits) and import guarantees and other regulatory requirements add significant costs to the final retail price. Web Resources Organizations U.S. exporters should consult reports from USDA’s office in Moscow, which are posted on the Web site of the Foreign Agricultural Service under the “Attaché Reports” heading or go to http://gain.fas.usda.gov/Pages/Default.aspx. Of particular interest should be the annual Exporter Guide as well as periodic reporting on changes in tariffs, market opportunities, and Russian commodity trends. Exporters should consider exhibiting their products in the U.S. pavilions at the World Food trade show (September 2013) or the Golden Autumn trade show (October 2013). For further information on these shows, please contact the Moscow Agricultural Trade Office at atomoscow@fas.usda.gov. U.S. Embassy Holly Higgins, Minister-Counselor for Agricultural Affairs 8, Bolshoy Devyatinskiy Pereulok, Moscow 121099 Tel: +7 (495) 728 5222, Fax: +7 (495) 728 5133 agmoscow@fas.usda.gov, atomoscow@fas.usda.gov Washington-based U.S. Government Contacts for Russia U.S. Department of Agriculture, Foreign Agricultural Service Office of Country and Regional Affairs, Europe Division Kristina Horgan, Country Desk Officer Kristina.Horgan@fas.usda.gov 1400 Independence Avenue, S.W. Washington, DC 20250-1000 Tel: +1 (202) 720-1330 Foreign Agricultural Service, USDA: http://www.fas.usda.gov Agricultural Attaché Reports: http://www.fas.usda.gov/scriptsw/AttacheRep/default.asp USDA office at the American Embassy, Moscow, Russia: http://www.usda.ru/eng/ Russian Federation Ministry of Agriculture: http://www.mcx.ru Russian Federation Ministry of Economic Development: http://www.economy.gov.ru/wps/wcm/connect/economylib4/en/home Trade Events Food and Beverage Products for the Wholesale and Retail Sectors: Prodexpo 92

February 10-14, 2014 Moscow, Expocentre http://prod-expo.ru/en/ World Food Moscow September 16-19, 2013 Moscow, Expocentre www.world-food.ru/eng Food and Beverage Products for the Hotel and Restaurant Sector: PIR Hospitality Industry October 1-4, 2013 Moscow, Crocus Expo Center http://www.pir.ru/ Food and Beverage Ingredients: Ingredients Russia March 11-14, 2014 Moscow, All-Russian Exhibition Centre (VVC) http://www.ingred.ru/Default.aspx?lang=en-GB Russian Farming Sector Shows (animal genetics, feeds, agricultural equipment, machinery, technology, and veterinary medicines) VIV Russia May 28-30, 2013 Moscow, Crocus Exhibition Center http://www.vivrussia.nl/en/Bezoeker.aspx Golden Autumn October 10-13, 2013 Moscow, All-Russian Exhibition Center (VVC) http://lenagro.org/vystavki/109-vystavki-2013/3309-zolotaya-osen-2013.html Agro Farm February 4-6 , 2014 Moscow, All-Russian Exhibition Center (VVC) http://www.agrofarm.org/english/about-exhibition.html Return to table of contents

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Return to table of contents

Chapter 5: Trade Regulations, Customs and Standards
• • • • • • • • • • • Import Tariffs Trade Barriers Import Requirements and Documentation U.S. Export Controls Temporary Entry Labeling and Marking Requirements Prohibited and Restricted Imports Customs Regulations and Contact Information Standards Trade Agreements Web Resources Return to top

Import Tariffs

In August 2012, after 18 years of negotiations, Russia became a member of the World Trade Organization (WTO), lowering the average bound tariff rate on industrial and consumer goods, from almost 10% to less than 8%. However, Russia continues to maintain a number of barriers with respect to imports, including tariffs and tariff-rate quotas, discriminatory and prohibitive charges and fees, and discriminatory licensing, registration and certification regimes. This situation has become more complicated due to the entry into force on January 1, 2010, of the Customs Union (CU) among Russia, Belarus and Kazakhstan. All issues such as tariffs, tariff rate quotas and licensing and certification are being harmonized, although implementation so far has been uneven. For more detailed information concerning tariffs, please refer to the “Customs Regulations and Contact Information” section below. The following is a selection of tariff ranges for popular U.S. goods entering Russia. Commodity HS 02: Meat and edible meat products (within quota, but not less than .20-.25 Euro/kilo) (beyond quota, but not less than 1-1.5 Euro/kilo) HS 0207 (within quota, but not less than .2 Euro/kilo) (beyond quota, but not less than .7 Euro/kilo) HS 24: Tobacco and manufactured tobacco/Unmanufactured tobacco - Cigars and Cigarettes but not less than 3 Euro/1000 pcs HS 28: Inorganic Chemicals HS 38: Miscellaneous chemical products HS 39: Plastics and Articles thereof - Finished products HS 73: Articles of iron and steel HS 84: Nuclear reactors, boilers, machinery HS 85: Electric Machinery HS 87: Vehicles except railway and tramway 94 Rate (%)

15 50-75 25 80 5-20 30 0-20 0-15 0-10 0-20 0-20 0-20 0-20 0-35

HS: 8708 Auto parts HS 90: Optic, Photo, Medical and Surgical Instruments and devices -Medical equipment

0-10 0-20 0-15

Current information on the harmonized tariffs of the CU can be found in Russian at: http://www.eurasiancommission.org As part of the negotiations for the CU, Russia changed many of its tariffs and tariff lines. The new CU tariff schedule changed rates for over 100 categories of commodities, lowering the tariff ceiling for some categories, but raising them or making permanent previous temporary tariff increases for many others. Notable changes included lowering of import tariffs for pearls, diamonds and other precious stones from 20% to 10-15% and keeping the high "temporary" tariffs on agricultural equipment and off-highway trucks. Certain commodities continue to be regulated through seasonal duties and quotas. In addition to tariffs, there are two other charges applied to imports: the ubiquitous Value Added Tax (VAT) and selective excise taxes. The universal 18% VAT rate effective January 1, 2004 (with the exception of certain foodstuffs, pharmaceuticals and medical supplies, goods for children, and printed media for which VAT is 10%) is applied to the import price, tariff, and excise tax combined. There are some exemptions from VAT. For example, resolution No.19 of January 17, 2001, provides a list of vitally essential medical equipment to which no VAT is applied. The excise tax applies to a number of luxury goods, motor fuel, lubricants and other petroleum products, alcohol and tobacco products, and varies from 20% to 570%. From December 2008 through February 2009, the Russian Government announced a series of significant duty increases on cars, harvesters, certain steel products (including pipes, tube and rebar), and certain agricultural products (including butter, milk and soy meal). These duty increases, many of which the Government renewed after their initial nine-month period, have now been included in the harmonized CU tariff schedule and will continue to be an obstacle to U.S. exports to Russia. In 2011, the CU increased import tariffs on 124 types of products, roughly 40% of which apply to U.S. producers. Products subject to tariff increases include continuous-action elevators and conveyors specially designed for underground use, liquid-filled radiators, some drilling machines, disc harrows, ordinary seeding machines and balers, sprayers and powder distributors designed to be mounted on or drawn by tractors, beet-topping machines and beet harvesters and other harvesting machinery, and other products.. High import duties on finished vehicles (as much as 30% for new cars and at a prohibitive level for used cars older than five years) have forced companies to set up local assembly plants to get past the tariffs. Russia also maintains an automotive investment regime. Under new contracts signed in 2011, automobile producers in Russia that manufacture at least 350,000 vehicles per year and ensure that 60% of the vehicles' value is sourced locally may import automobile parts duty free. As part of its WTO accession commitments, Russia agreed to end the WTO-inconsistent elements of the program (the domestic content provisions applying to goods) by July 1, 2018 and reduce the average bound tariff rate on imported vehicles to 12.3% by 2019. The Russian Government also passed a bill in 2012 applying a “recycling fee” to all imported vehicles. This fee, calculated from a base rate plus a multiplier based on engine size,

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has yet to be put into force as Russia continues to determine exactly how such a fee will be imposed and collected. In 2009, Russia increased import tariffs in various key areas to protect domestic industries, often citing the global economic crisis as justification. With the adoption of the CU CET on January 1, 2010, Russia made permanent many of those “temporary” duties (e.g., tariffs on automobiles, trucks, combine harvesters, soy meal, selected dairy products, and some construction equipment). While it initially appeared that the Russian Government imposed these measures mainly to protect domestic producers from competing imports during the global economic crisis, their new permanence in the CU tariff schedule suggests that Russia may aim to promote local industry over foreign producers. In addition to duty increases, trade investigations conducted by the Russian Ministry of Industry and Trade (MIT) have resulted in additional duties on such products as certain steel products, large diameter pipes, mechanical fasteners, and cutlery and steel pipes. However, all of Russia’s current safeguard and antidumping measures are being reviewed by the MIT in view of the CU Agreement of November 19, 2010, on the Application of Safeguard, Antidumping and Countervailing Measures during a Transition Period. Trade Barriers Return to top

In general, U.S. companies face a number of tariff and non-tariff trade barriers when exporting to Russia. A complaint frequently voiced by U.S. companies is Russia’s complex system of standardization. As explained in detail in the “Standards” section below, Russia’s regime remains extremely complex due to its lack of clarity and transparency, and overall redundancy. While the system has improved somewhat, U.S. companies are encouraged to obtain appropriate legal advice or assistance from experienced distributors or consultants, as well as the U.S. Commercial Service. Discrimination against foreign providers of non-financial services is, in most cases, not the result of federal law, but stems from abuse of power, sub-national regulations and practices that may violate Russian law. For example, a few foreign service providers allege that they are forced to pay a range of fees to obtain licenses from local authorities that domestic companies bypass via bribes. The 1996 federal law "On Banks and Banking Activity" permits foreign banks to establish subsidiaries in Russia. However, Russia does not allow foreign banks to establish branches in Russia. The 1990 federal law on banking activities specifically states that any quota or limitation on the size of foreign charter capital in the banking sector would require a new law to be put forward by the Government of Russia and agreed to by the Central Bank of Russia. Among other WTO accession commitments, Russia has pledged to allow foreign ownership to account for as much as 70% of the country’s total banking sector equity. Currently, the share of foreign capital is just 28%. The Central Bank requires newly established banks, whether domestic or foreign subsidiaries, to have a minimum of 300 million rubles ($10 million) in capital, and 900 million rubles ($30 million) is required to obtain a general license, which allows a bank to conduct operations in foreign currency and attract deposits. Banks established before 2007 are required to have a minimum capital of 90 million rubles ($3 million), while 96

banks established after January 1, 2007 must have at least 180 million rubles. At least 75% of the bank's employees and 50% of the bank's management board must be of Russian nationality if the chairman is not a Russian citizen. Heads of foreign banks' Russian offices are required to be proficient in the Russian language. In the insurance sector, Russia allows foreign firms to establish subsidiaries but not branches. Insurance firms are individually subject to a cap of 49% foreign capital. Additionally, there is a 25% quota on the aggregate share of foreign capital in the insurance sector. The sector temporarily reached this maximum early in 2011, but near the end of 2011 foreign capital was under 25%. Russia’s WTO membership will provide increased market access to foreign insurance companies, including 100% foreign ownership of non-life insurance companies upon accession. Limits on the number of life insurance licenses granted to foreign insurance firms, as well as foreign participation in a small number of mandatory insurance lines will be phased out five years from the date of accession. Russia will allow foreign insurance companies to open direct branches for life and non-life insurance, reinsurance, and services auxiliary to insurance nine years from the date of its accession. In 2010 the law “On Private Detective and Security Activities” entered into force. The law states that no security company can be owned by a non-Russian entity, including a Russian subsidiary owned by a foreign entity, and includes restrictions on the use of foreign capital in the operation of such firms. Russia agreed during WTO negotiations, however, to remove restrictions on foreign participation in this sector upon its accession. The Russian telecommunications sector is governed by the Law on Communications, dated July 2003 and the law on “Information, Information Technologies and Information Protection,” dated July 2006. The latter law’s impact on competitive alternative telecommunications operators, many of which enjoy large foreign investment, has been substantial, since these companies now fall under tight government regulation. In particular, regulations on interconnection -- the process by which alternative operators connect their networks to the Russian public telephone network -- place interconnection contracts and fees under the regulatory authority of the Ministry for Communications and Mass Media. Alternative operators fear that these fees will be raised to subsidize network upgrades of government-owned and ministry-controlled local and long distance operators. The Land Code that was passed in 2001 allows equal treatment of domestic and foreign entities to buy land and buildings, although purchase of agricultural land by foreigners and foreign legal entities, or legal entities with more than 50% of foreign capital, is still prohibited. Foreign entities are restricted from buying land close to federal borders and in areas that the President determines critical to national security. On January 12, 2011, Russia published a presidential decree listing 380 areas around the country, primarily along its borders, in which the sale of land to foreigners or foreign companies is forbidden. A ban on the ownership of real estate by foreigners has been in force in Russia’s border areas since 2001, but the geographic scope of the ban had not been definitively established. The Government enacted the Strategic Sectors Law (SSL) in May 2008. The SSL introduced a list of 42 "strategic" sectors in which purchases of "controlling interests" by foreign investors must be pre-approved by the Russian Government. The list of 97

restricted sectors includes: enterprises in the nuclear industry or involved in handling radioactive materials; enterprises involved in work on infectious diseases; arms, munitions, and military equipment production, maintenance, or repair; the aviation and space industries; certain data-transmission (radio, television, telecommunications) infrastructure; production and distribution of encryption technologies and equipment; production and sales of goods and providing services under conditions of a "natural monopoly" (e.g., activities such as operating certain gas networks); newspapers with a circulation of more than one million; and natural resource extraction. Under the procedures created by the SSL, the Federal Antimonopoly Service conducts initial vetting of proposed foreign investments, and in some cases the Federal Security Service (FSB) conducts additional verification to determine whether the transaction would result in a foreign company gaining control over a strategic business. Once vetting is completed, the Government Commission on Foreign Investment, chaired by the Prime Minister, is charged under the SSL with reviewing proposed transactions and either approving or denying them, or deferring them for additional review. Partly in response to investor criticism, in 2011 Russia amended the law to simplify the approval process and narrow the range of potential investments requiring formal review by the commission. Some foreign investors have raised concerns that the law could be used to restrict foreign investors' access to Russia’s strategic sectors. Since 2008, however, the commission has approved 128 of 136 applications for foreign investment. Many of the applications came from Russian-owned companies based offshore. The Strategic Sectors Law and Russian subsoil legislation require government approval for foreign investment in excess of 10% in companies operating subsoil plots of “federal significance,” as well as for foreign investment in excess of 5% if the target company is state-owned. In November 2011, the Russian Government signed an amendment that raised the foreign investment threshold for non-state companies from 10 to 25%. In addition, subsoil legislation limits the licensing of strategic fields located offshore, on the continental shelf, to Russian legal entities at least 50% controlled by the Government with at least five years of experience in the development of fields on the continental shelf. Foreign companies may participate in shelf projects as a minority partner. Russian oil production continues to grow increasing by 2.2% in 2010 and by another 1.2% in 2011. Oil production in 2011 reached 10.27 million barrels per day, a new postSoviet oil production record. High global oil prices along with new output from several major fields, primarily from state-owned Rosneft’s giant Vankor field, are the main causes of recent production increases. However, many analysts and oil sector executives continue to predict longer-term oil production stagnation and decline without further fundamental reforms to the sector’s onerous tax structure. Oil taxes are levied on revenues, instead of on profits, hindering needed large investments in new fields. Rosneft’s success in obtaining tax breaks were an essential component of the decision to proceed with the development of the Vankor field. Rosneft, Gazprom and other companies are pushing for similar tax breaks for the development of offshore and other new field projects. Russia’s power generation sector is in urgent need of modernization and extension of generation capacity. Further delay in expanding electricity output could result in a drag on industrial growth. In 2003, the International Energy Agency’s annual World Energy Outlook predicted that from 2003 to 2030, Russia’s power sector would require roughly $380 billion in new investment. According to Russia's Ministry of Energy, the average 98

energy efficiency of gas-fired power stations in Russia is only 38%; its goal is to raise that efficiency to 53% by 2030. In aviation, many of the Russian-flagged carriers have aging fleets and use outmoded avionics and engines. Several are seriously considering significant purchases or wetleases of foreign aircraft in an attempt to be more competitive with Western airlines. When purchases do occur however, the effect of tariffs, VAT, and customs handling fees on aircraft is equivalent to a 40% tax, making it virtually impossible for Russian airlines to afford to purchase foreign planes. That said, under the latest Customs Union decision related to aircraft tariffs, passed last fall, exemptions were created to facilitate key purchases for leading airlines. Regulations and tariff levels in this area remain subject to change and potential market entrants should check on current conditions. New regulations have also been introduced for certain cargo aircraft. Previously, cargo aircraft were subject to general regulations and were not classified into separate categories. Under the new regulations, the customs duty rate applicable to cargo aircraft having a maximum take-off weight in excess of 370,000 kg depends on whether such aircraft have an installed cargo ramp. If a cargo aircraft has a maximum take-off weight in excess of 370,000 kg and an installed cargo ramp, it is subject to 20% customs duty. If such aircraft has no cargo ramp, it is subject to a 0% customs duty. At the end of 2010, following intense negotiations with the EU, Russia agreed to postpone through 2011 a planned increased in export duties on raw timber from the current rate of 25% to 80%. Initially, the major objective of the measure was to stimulate the development of a domestic wood processing industry and to encourage the export of sawn lumber and value added wood products. The Government has indicated that the moratorium on raising export tariffs on coniferous logs and round wood will continue in 2012. In September 2011, the Russian Coordinating Center of the National Internet Domain (the Coordination Center) issued an updated version of the “Regulations for Domain Names Registration in .RU and .РФ domains,” effective November 11, 2011 in an effort to harmonize the procedure of national domain registration in both .RU and .РФ domains. These Regulations have lifted a number of restrictions imposed in the previous versions, such as the former restriction on non-Russian residents from registering domain names in the .РФ domain. Currently, not only Russian citizens and businesses registered in the country (as was the case with the second stage of the registration for Cyrillic domain names, November 11, 2010 – November 10, 2011), but also non-Russian residents are able to purchase .РФ domain names. Both .RU and .РФ domain names may be registered for a fee of approximately $20 for a one-year period, with the possibility of subsequent renewal of the domain name's registration annually. To date, the Coordination Center has registered over 925,000 domain names in the .РФ domain. A new law on electronic digital signatures went into effect on April 8, 2011 that should considerably widen the sphere of application of electronic signatures, including foreign electronic signatures. The law states that electronic documents signed by electronic signatures will have the same legal effect as paper documents signed by hand provided that in case of simple electronic signatures and advanced signatures the parties shall explicitly agree to it or it shall be additionally stipulated by the Russian law. 99

While this law represents an important step forward, licensing requirements related to goods with encryption technology, present serious obstacles to trade in goods that Russia requires for further development of electronic commerce. Currently, any IT product requires a notification from the Russia’s Federal Security Service (FSB), which a company should be able to obtain in 10 days. If the product contains low levels of cryptography, the FSB can grant authorization to import. If the product contains higher levels of cryptography, the FSB informs the importer of the need to apply for an import license from the Ministry of Industry and Trade. This permission and licensing process can take six months or longer to complete. Leading U.S. IT companies contend that the current system impedes imports, delays the creation of an innovation and knowledgebased economy in Russia, and hampers the further development of their R&D centers in Russia. Russia's WTO accession documents include clarifications on what constitute "mass market" goods not subject to notification. This "mass market" category should help to facilitate access for U.S. exports to the Russian market, but implementation will need to be observed closely, as Russia will maintain the authority to define what constitutes a "mass market" good. There are similar licensing requirements which impact other high tech business such as energy industry service providers. New technology brought in by Western service companies must be certified by Russian experts, a lengthy and thus expensive process, before it is permitted entry into Russia. Both Russian and foreign businesses frequently complain about so-called “raiding” (“reiderstvo”), a practice which refers to the criminal takeover of a business through corruptly obtained legal documents. Raids are often carried out by professional raiders, sometimes working in tandem with corrupt officials and former employees or business partners of the victim company. Raids can be difficult to protect against as they rely on legal documents and frequently result in the victim being tied up in litigation for extended periods of time while the assets are transferred through a series of shell companies to an ostensible good faith purchaser. To minimize the risk of such attacks, investors are urged to vet local partners, review all business documents and make sure that documents are properly secured. As many details regarding the operation and implementation of Customs Union regulations are still being worked out, there is a lack of clarity in many areas such as import licenses, customs procedures and IPR enforcement. As part of the CU preparations, the GOR is planning to standardize Russia’s, and the CU's, technical regulations in line with European practices. These proposed regulations are likely to increase restrictions on trade practices and may have a large impact on U.S. exports to Russia. Import Requirements and Documentation Return to top

The Customs Union (CU) harmonized tariffs entered into effect on 1 January 2010, and the unified Customs Code took effect on July 1, 2010. These two documents now regulate trade in the integrated customs zone. Despite of this fact customs clearance remains one of the main issues for foreign companies working in the Russian market. While the main function of the customs is control and statistics, Russia still deploys it as a budget cash flow generator. Customs clearance as a general rule should be performed in the jurisdiction of the respective participants in foreign economic operations. For example, goods transiting to Russia and/or Kazakhstan from foreign 100

suppliers through Belarus are customs cleared at the CU’s external frontier in Belarus. This is the same procedure for items entering Russian and Kazakhstan to other countries within the Customs Union. Some freight forwarders have noted that using Belarus and Kazakhstan as an entry point for goods bound for Russia can be advantageous. These forwarders indicated that the customs procedures at ports of entry in Belarus are often more efficient than Russian ports of entry. Since the Customs Union allows products to be transshipped between Russia, Belarus and Kazakhstan without additional customs clearance, this provides an opportunity for importers to bypass the more cumbersome Russian border crossings. However, the transportation infrastructure in Belarus is not as developed as other ports of entry, which may cause delays. The main seaport for Belarus is Gdansk, Poland with goods then transferred via truck or rail to the Belarus border. Major importers continue to use ports in Finland as the main hub for import to Russia. Kotka port efficiency and transparency as well as handling costs are better compared to Saint Petersburg’s port. Importers are required to complete a Russian customs freight declaration for every item imported. A declaration must be supported by the following documents: contracts, commercial documents such as commercial invoices and packing lists, transport documents, import licenses (if applicable), certificates of conformity and/or safety (see "Product Standards" below) certificates of origin (if applicable), sanitary certificate (if applicable), import permission and licenses for products containing encryption technology, and documents confirming legitimacy of declarants/brokers/importers. As for all exports, U.S. exporting firms are required to complete a Shipper’s Export Declaration (SED), but this document does not need to be presented to Russian Customs, although they may ask for it. Exporters must present the appropriate export license (see next section), if one had to be obtained, at customs. Customs officials may seek other documentation to substantiate the declared value of any shipment. In addition, currency control regulations require issuance of a "transaction passport" for both exports and imports to ensure that hard currency earnings are repatriated to Russia. The regulations also ensure that transfers of hard currency payments for imports are for goods actually received and properly valued. U.S. Export Controls Return to top

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) is responsible for implementing and enforcing the Export Administration Regulations (EAR), which regulate the export and re-export of some commercial items, including “production” and “development” technology. The items that BIS regulates are often referred to as “dual use” since they have both commercial and military applications. Please note that even commercial items without an obvious military application may be subject to the EAR and may even require an export license. Items with an Export Control Classification Number (ECCN) that are regulated for Chemical and Biological Weapons (CB), National Security (NS), Missile Technology (MT), Regional Stability (RS) or Crime Control (Column 1 or 2) purposes may require a license from BIS for export to Russia. If you are unsure whether your product is considered a “controlled item” under the EAR, please call +1 (202) 482 4811 and a counselor in the Office of Export Services should be able to help.

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Further information on export controls is available at: http://www.bis.doc.gov/licensing/exportingbasics.htm. BIS has developed a list of "red flags," or warning signs, intended to discover possible violations of the EAR. These are posted at: http://www.bis.doc.gov/enforcement/redflags.htm. Also, BIS has "Know Your Customer" guidance at: http://www.bis.doc.gov/Enforcement/knowcust.htm. If there is reason to believe a violation is taking place or has occurred, report it to the Department of Commerce by calling the 24-hour hotline at +1 (800) 424 2980, or via the confidential lead page at: https://www.bis.doc.gov/forms/eeleadsntips.html. The EAR does not control all goods, services, and technologies. Other U.S. Government agencies regulate more specialized exports. For example, the U.S. Department of State has authority over defense articles and services. A list of other agencies involved in export control can be found on the BIS Web site or in Supplement No. 3 to Part 730 of the EAR, which is available on the Government Printing Office Web site at: http://www.access.gpo.gov/bis/ear/ear_data.html. BIS provides a variety of training sessions to U.S. exporters throughout the year. These sessions range from one to two day seminars and focus on the basics of exporting as well as more advanced topics. A list of upcoming seminars can be found at: http://www.bis.doc.gov/seminarsandtraining/index.htm. For further details about the Bureau of Industry and Security and its programs, please visit the BIS Web site at: http://www.bis.doc.gov. Temporary Entry Return to top

Temporary entry of goods is allowed with full or partial relief from customs duties and import VAT for a period of up to two years. Russian Customs issues authorization for temporary entry of goods based on a written application submitted by an importer. The list of goods for temporary entry with full relief from customs duties and taxes as well as terms of such relief is regulated by the Customs Union. Full conditional relief from customs duties is allowed when it does not affect the Russian economy, such as the temporary import of: • • • • Containers, pallets, and other types of containers and packages for repeated use; Goods for the purposes of the development of international relations in the scientific, cultural, sports, cinematography and tourism fields; Products for international assistance; Commercial samples, not for sale, used at trade shows and exhibitions.

All goods falling outside of this list are subject to partial relief only, as established by the Customs Code. The Customs Code provides for temporary import with a partial exemption from customs duties for 36 months when goods are classified as main production assets on the condition that such goods are not owned by the Russian 102

entities using them in the territory of the Russian Federation. When partial relief from customs duties is applied, 3% of the amount of customs duties and taxes should be paid on a monthly basis for the period when goods are located in the customs territory of the Russian Federation. In practice, however, many U.S. companies bringing in commercial samples have had problems with Russian Customs. Sometimes officials demand that the importer pay a bond to cover any applicable import duties if the goods are sold in Russia. Russian Customs accepts the use of ATA Carnets, which are widely and effectively used. For further information, please refer to the Customs Union Web site: http://www.eurasiancommission.org or Russian Federal Customs Service Web site: http://www.russian-customs.org/, or http://www.tks.ru. Labeling and Marking Requirements Return to top

Labels on food items must feature the following information in the Russian language: • • • • • • • • • • Type and name of the product; Legal address of the producer (may be given in Latin letters); Weight/volume of the product (if item is preserved in liquid, weight without liquid mass); Food contents (name of basic ingredients/additives listed by weight in decreasing order); Nutritional value (calories, vitamins if their content is significant or if product is intended for children, for medical, or for dietary use); Conditions of storage; Expiration date (or production date and period of storage); Directions for preparation of semi-finished goods or children’s foodstuffs; Warning information with regard to any restrictions and side effects; Terms and conditions of use.

Labels on nonfood items must include: • • • • • Name of the product; Country of origin and name of manufacturer (may be given in Latin letters); Usage instructions; Main characteristics, rules and conditions for effective and safe use of product; Any other information determined by the state regulation body.

It is advisable to place the Rostest mark on the label for products that have appropriate Rostest and sanitary-epidemiological certificates. This rule is applicable to both food and nonfood items. Prohibited and Restricted Imports Return to top

The import and export of goods in Russia is carried out in accordance with the Federal Law on “Government Regulation of International Trade Activities” of 2003, which stipulates the application of quotas, licenses and other temporary restrictions on such operations.

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Import licenses are issued by the Russian Ministry of Industry and Trade or its regional branches, and controlled by the Federal Customs Service. Licenses for sporting weapons and self-defense articles are issued by the Interior Ministry. Licenses are required for many other items as well including: • • • • • • • • • • • • • • • • • • • • • • • • • • Alloys Carpets Cattle meat, chilled and frozen Chemicals used for plant’s protection Color televisions (14, 21, and 25-inch) Combat and sporting weapons Crayfish Cultural valuables Ethyl alcohol Explosives Medicine, also used for veterinary purposes Military and ciphering equipment Ozone damaging substances Pork Poultry meat Precious metals Radioactive materials and waste Self-defense articles Stones Strong poisons and narcotics Sturgeon fish species, including caviar Technical means purposed for receiving non-disclosed information Tobacco products Valuable wood species Vodka and many other types of alcoholic beverages Wild animals, wild plants, ivory, and coral

To learn whether an import license is needed for a particular product, contact the Russian Ministry of Industry and Trade licensing department (http://www.minpromtorg.gov.ru/eng). Customs Regulations and Contact Information Return to top

As a member of the World Customs Organization, the Convention of Temporary Imports and the International Convention on Harmonized Commodity Description and Coding System, Russia is obligated to adhere to internationally accepted customs regulations and practices. In January 2004, Russia implemented a new Customs Code as part of its WTO accession efforts. The new code reduced the time for customs clearance from ten to three days. Now that Russia is a WTO member it is planning next steps towards transparency and simplification of customs procedures. However, no instant progress is expected in the short run. It also offered advance declaration of cargo before arrival at customs. Other important changes introduced by the 2004 Customs Code included: • Restricting the Russian Federation State Customs Committee from issuing contradictory additional regulatory acts; 104

• • • • •

Making possible the settlement of disputes with customs authorities directly in a court of law; Establishing a definitive and comprehensive list of documents that must be submitted for customs clearance; Prohibiting customs authorities from refusing to accept a declaration containing inaccuracies, if the inaccurate information has no impact on the defrayal of customs payments, or does not place restrictions in foreign trade; Allowing clearance of goods through any customs office; Providing urgent customs clearance for perishable goods, express cargoes, or time-sensitive materials for the mass media.

In 2010, Russia’s existing Customs Code was replaced by the unified Customs Code of the Customs Union and the Law on Customs Regulation, which took effect as of July 1 and December 2010, respectively. The Law on Customs Regulation, in particular, contains the “ex-officio amendment,” a key part of Russia’s commitments under the 2006 United States-Russia Bilateral Agreement on IPR. Recently, the priorities for customs modernization included improvement in regulations, implementation of IT systems and enhanced dialogue with market participants. Starting in 2009 many importers joined the e-clearance system, which allows the submission of the declaration in electronic form and processing customs payments using Internet protocols. There is also a clearer understanding of the continued need for customs to take effective action against significant levels of gray market practices and to implement effective control coordinated on a global scale. However, many examples of arbitrary practices by local customs officials still exist and are encouraged by ambiguities in customs legislation. Small and medium-sized enterprises remain most vulnerable to these arbitrary practices. On December 16, 2011, trade Ministers approved the terms of Russia’s accession and issued a formal invitation for Russia to join the World Trade Organization (WTO), marking the culmination of Russia’s 18-year effort to join the multilateral trading system. On August 22, 2012 Russia became the WTO’s 156th member. This historic step in the long run is aimed at unifying the customs rules and making them relevant to the standards and practices used worldwide for clearing goods through customs. Standards • • • • • • • Overview Standards Organizations Conformity Assessment Product Certification Accreditation Publication of Technical Regulations Contacts Overview Return to top Return to top

Despite positive changes in the last several years, the standards regime in Russia still lacks transparency. Russia continues to rely on product testing as a key element of the product approval process. Other types of product safety assurance, such as plant 105

auditing, quality systems, and post market vigilance, are still underdeveloped. Russia continues to follow redundant practices of further testing of internationally accepted certified products, which can delay entry of a variety of products into the country. In addition, the former Soviet federal authority on standardization, Gosstandart, has been restructured twice as part of a larger government reorganization which led to some uncertainty as to exactly who in the agency performed what function, further adding to delays in discharging its responsibilities. The current government authority for standardization, metrology and certification matters is the Federal Agency for Technical Regulations and Metrology (whose abbreviated name is Rosstandart). It is an agency of the Ministry of Industry and Trade. Until June 2010, the abbreviated name was Rostekhregulirovanie, but it was then changed to Rosstandart because of its similarity to the former abbreviation Gosstandart, which was used in Soviet times. Affiliated with this new agency are 485 technical committees, comprised of research institutes that develop standards. Standards Organizations Return to top

The following are the key government standards organizations in Russia. Federal Agency for Technical Regulations and Metrology (Rosstandart) 9, Leninsky Prospect Moscow, 119991 Tel: +7 (499) 236 0300 Fax: 7 +(499) 236 6231 E-mail: stand@gost.ru http://www.gost.ru/wps/portal/pages.en.Main Federal Service for Control over Healthcare and Social Development (Roszdravnadzor) Slavyanskaya sq. 4, building 1 Moscow, 109074 Tel.: +7 (495) 698 4538 E-mail: info@rosdravnadzor.ru http://www.roszdravnadzor.ru Federal Service for Supervision of Consumers Protection and Welfare (Rospotrebnadzor) Vadkovskiy pereulok, house 18, stroenie 5 and 7 Moscow, 127994 Tel.: +7 (499) 973 2690 E-mail: depart@gsen.ru http://rospotrebnadzor.ru/en/web/en/ Federal Service for Ecological, Technological and Nuclear Surveillance (Rostechnadzor) ul. Luykyanova, house 4, korpus 1 Moscow, 105066 Tel: +7 (495) 411 60 20 Fax: +7 (495) 411 60 52 E-mail: rostehnadzor@gosnadzor.ru 106

http://www.gosnadzor.ru/ Federal Agency of Svyaz (Rossvyaz) Ministry of Communications and Mass Media Nikoloyamskiy per. 3 A, building 2 Moscow, 109289 Mr. Vitaliy Kreindelin Head of Conformity Department Tel: +7 (495) 986 31 60 Fax: +7 (495) 986 30 48 E-mail: mail@minsvyaz.ru http://eng.rossvyaz.ru/ VNIIS (Research Institute for Certification) 3/10, Elektrichesky Pereulok, Building 1 Moscow, 123557 Phone: +7 (499) 253 7006 Fax: +7 (499) 253 3360 E-mail: vniis@vniis.ru http://www.vniis.org/ Federal Service on Accreditation (Rosakkreditastia) ul. Vavilova, 7 Moscow, 117997 Tel: +7 (495) 695 5843 E-mail: info@fsa.gov.ru http://www.fsa.gov.ru NIST- Notify US Service Member countries of the World Trade Organization (WTO) are required under the Agreement on Technical Barriers to Trade (TBT Agreement) to report to the WTO all proposed technical regulations that could affect trade with other Member countries. Notify US is a free, web-based, e-mail subscription service that offers an opportunity to review and comment on proposed foreign technical regulations that can affect your access to international markets. Register online at Internet URL: https://tsapps.nist.gov/notifyus/data/index/index.cfm Russia TBT Enquiry Point All members of the World Trade Organization have agreed to the Technical Barriers to Trade (TBT) agreement which requires the establishment of “enquiry points” – offices that provide information about the country's technical regulations, test procedures, and adherence to various international standards. The enquiry point for Russia is:
STANDARTINFORM

4 Granatny per., Moscow, K-1, GSP-5 123995 Russian Federation Tel: + 7 (495) 225 61 89 Fax: +7(495) 332 56 59 +7(495) 719 78 20 E-mail: enpoint@gostinfo.ru 107

Conformity Assessment

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In Soviet times all products sold in the country, both native and foreign, had to be certified according to the gosudarstvennye standarty (state standards). Those standards were published and compiled under the abbreviation “GOST” and classified according to a numbering system for the different products categories. GOST standards were mandatory and covered nearly every type of product sold in the country. After the collapse of the Soviet Union, Russia made changes to this old regulatory system. These newly developed standards have the abbreviation GOST-R instead of GOST. The regulatory document that the company received was called GOST-R certificate, indicating that the products confirmed to the requirement of those standards. In recent years there has been a substantial movement toward the adoption of common international language on product standards and certification procedures, and some improvements have been made. For the last ten years the main document that governed the standardization field was Federal Law No. 184-FZ “On Technical Regulations” (December 27, 2002). It was intended to change the existing cumbersome standardization and certification systems and harmonize Russian legislation with international standards by transitioning from a mandatory certification system to a modern system based on self-declaration. This law has been amended a number of times, but still it does not address the big picture of standards because it “serves” only the 24 technical regulations that replace old GOST and GOST-R standards. Because of this limitation, a new Federal Law “On Standardization in Russian Federation” http://webportalsrv.gost.ru/portal/GostNews.nsf/acaf7051ec840948c22571290059c78f/3 1df4d876b7c282244257a37003e01d3/$FILE/3.%20Fed_Zak_Stand.pdf is being developed and the draft, at the time of writing, has been placed on the Web site of Rosstandart. The main developers of this law are the Ministry of Industry and Trade and the industry association RSPP (The Russian Union of Industrialists and Entrepreneurs). Also other business organizations and companies have been participating in the public discussions of this law. This aim of this law is a realization of “Concepts of development of national system of standardization until 2020” adopted by the Government on September 24, 2012. This draft contains the main principles that determine the structure of national system of standardization, its main definitions, roles of participants, state policy in standards field, development of national standards, application of national standards in solving social and economic issues. Establishment of the Customs Union (CU) between Russia, Belarus and Kazakhstan also affected the regulatory regime because the technical regulations developed by three countries must be consistent with each other. The information about new technical regulations, approved by the three countries can be found on the CU Web site (http://www.eurasiancommission.org) Currently, the prior system of certification, GOST-R, has been replaced by Certificates and Declarations of Conformity. The process of obtaining these certificates is still time consuming and applies to virtually all products entering the Russian market. The different types of certification and the process for obtaining these certificates are reviewed in the next section.

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Product Certification

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As the result of the establishment of the CU, the system of obtaining certification documents has changed. Now there are two sets of documents dedicated to Technical Regulations and Sanitary Regulations. Technical Regulations (Certificate of Conformity/Declaration of Conformity) As of July 1, 2010, new rules for conformity assessment, established in the CU, came into effect. As the result, manufactures can now obtain unified certificates/declarations of conformity for all three countries. The full set of the documents, including the unified list of accredited bodies and laboratories that governs this process, is published on the CU Web site (http://www.eurasiancommission.org). A “Unified list of products” was also established and according to this list, those products included need to have certificates of conformity/declarations of conformity. If a product is not included, then it should go through the conformity process according to the national standards of Russia, Kazakhstan, or Belarus, depending on the final destination of the product. Sanitary Regulation (Certificate of State Registration) After July 1, 2010 the Certificate of State Registration was established for all products that need a Sanitary Certificate. Products which need a Certificate of State Registration are listed in part II of the “Unified list” that was approved by the CU Commission on May 28, 2010, No. 299 (last edition No. 456 dated November, 11, 2010). The procedure for obtaining Certificate of State Registration is also outlined on the CU Web site (http://www.eurasiancommission.org). A number of other mandatory and voluntary certification systems also exist, which are partly managed by other ministries or agencies. Below are the most widely used certificates: Fire Safety Certificate: The Federal Law No. 123-FZ “Technical Regulations of Requirement for Fire Safety,” which came into effect on May 1, 2009, now governs this process. Products requiring this certificate are listed in Government Decree No. 241 dated March 3, 2009. Certificate of Conformity/Declaration of Conformity for Systems of Communications: The system of certification in the area of communication confirms that the equipment conforms to technical requirements. Rossvyaz is responsible for issuing those certificates. Rossvyaz obtained this function due to Government Decree No. 320 dated June 30, 2004. The list of communication devices which require a certificate of conformity can be found in Government Decree No. 532 dated June 25, 2009. Despite the fact that on November 1, 2011 the function of accreditation of bodies and laboratories was moved from Rossvyz to the newly established organization – Rosakkreditastia, Rossvyaz still publishes an updated list of technical requirements on its Web site. License (permission) from Rostekhnadzor allows the manufacture, installation and use of industrial machinery and equipment for the petrochemical, metallurgical and other industrial facilities in Russia. The process and list of products requiring this certificate are listed in Rostekhnadzor’s Order No. 112, dated February 29, 2008.

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Approval for Encrypted Products is issued by the Federal Security Service (FSB), while the Ministry of Industry and Trade issue an import license. Russia participates in the following international certification systems: • System of the International Electrotechnical Commission (IEC) for tests of electrical, electronic and related equipment on conformity to safety standards (http://www.iecq.org) • System of certification of passenger cars, trucks, buses and other transport vehicles (http://www.unece.org) • OIML Certificate System of Measuring Instruments (http://www.oiml.org) Russia’s complicated, cumbersome and often changing system of certification as well as cultural and language barriers are a challenge for foreign companies attempting to certify products without appropriate legal advice or assistance from experienced distributors or consultants. In order to minimize time and expenses, it is recommended that U.S. companies work with reliable partners and consulting companies on registration and certification issues. For additional information regarding product certification, please contact the U.S. Commercial Service in Moscow. Certification Service Providers (this list is not exhaustive and is not to be construed as an endorsement of the companies listed below). Russia Rostest Moscow (various products) Russian Center for Tests and Certification 31 Nakhimovsky Prospect, Moscow, 117418 Phone: +7 (495) 544 0000 E-mail: spravka@rostest.ru Web: http://www.rostest.ru/ Consult Business Group (pharmaceutical products including biological active supplements, medical equipment and cosmetics) ul Butyrksaya, 77, Business center “Diagonal House”, 8 floor 127015 Moscow Olga Makarova, President Email :makarova@c-b-g.ru Abramova Oksana, Vice President Email: abramova@p-s-a.ru Tel: + 7 495 797 4963 Tel.: + 7 495 730 2481 Fax: + 7 495 730 2482 Web: http://www.c-b-g.ru/en/ Eurotest 4 Krutitskiy pereulok, house 14 Moscow, 109044 Tel. +7 (495) 660-52-28 E-mail: eurotest@eurotest.ru Web: http://www.eurotest.ru 110

Russian Register - Baltic Inspectorate Ltd. Contact: Vitaliy Krichevskiy, Marketing and Business Development Director 87, Maliy Prospect P.S. St. Petersburg, 197022 Russian Federation Tel: +7 (812) 332 9536/37 Fax: +7 (812) 332 9534 Email: rr-baltic@rusregister.ru, krichevsky@rusregister.ru Web: http://www.rr-baltic.ru/ United States Velosi Group (Oil & gas, petrochemical and refining industries) http://www.velosi.com Nemko http://www.nemko.com Russian Standard, Ltd. Certification and Regulatory Consulting Center (almost all areas, except aviation equipment and aviation instruments, military products, telecommunication equipment) http://www.rosstandard.com TUV America Inc. http://tuvamerica.com TUV Rheinland http://www.tuv.com Underwriters Laboratories (UL) http://www.ul.com Accreditation Return to top

Bureaucratic incongruities, overlapping fields of activity and the application of different procedures and criteria in the accreditation process have recently been common occurrences in Russia. In order to improve the whole certification system, the Russian Government issued Presidential Decree No 86 on January 24, 2011, “On Unified National System of Accreditation”, according to which a new “approval” agency, the Federal Service on Accreditation (Rosakkreditastia), was established. This Agency reports to the Ministry of Economic Development and is responsible for the establishment of the Unified National System of Accreditation. But most importantly, it controls all legal entities and entrepreneurs, who are accredited as testing laboratories, and issues certificates to organizations. Various federal executive authorities used to have responsibility for carrying out accreditation in accordance with the relevant legislation. There were 16 government agencies that were in charge of accreditation, including Rosstandart, Rostechnadzor, Rospotrebnadzor, and Rossvyaz. Currently Rosakkreditastia publishes the list of certification bodies and accredited testing laboratories, the list of all issued declarations and certificates of conformity. Before, Rosstandart had this function. 111

Publication of Technical Regulations

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Proposed technical regulations are published (in Russian) on the Rosstandart Web site (http://www.gost.ru/wps/portal/pages.en.Main) for two months. Any Russian or foreign entity may comment (in Russian) to the contact listed on the Web site. Draft and final documents are published in the monthly “Vestnik of Technicheskogo Regulirovania” (“Journal of Technical Regulations”). This journal is an official publication of Rosstandart for its documents, instructions, rules, and decrees. “Vestnik of Technicheskogo Regulirovania” is the country’s effort to ensure transparency in the development of national standards required for WTO compliance. WTO membership presumes that all changes in the standardization system will be transparent, thereby avoiding hidden obstacles (non-tariff barriers) in trading relations with WTO partners. Another publication that can be found on Rosstandart’s Web site is “Mir Standartov” (“World of Standards”). Contacts U.S. Commercial Service - Moscow 8 Bolshoy Deviatinsky pereulok Moscow 121099, Russia Tel: +7 (495) 728 5580 Fax: +7 (495) 728 5585 E-mail: Moscow.Office.Box@trade.gov Trade Agreements Return to top Return to top

Russia currently participates in a free trade agreement with the Commonwealth of Independent States and the Customs Union with Belarus and Kazakhstan. Russia also has an association agreement with the European Union and has historically received NTR and GSP status from the United States. Russia formally joined the WTO on August 22, 2012, and gained permanent normal trade relations (PNTR) on December 20, 2012. Web Resources Return to top

Bureau of Industry & Security, U.S. Department of Commerce Main site: www.bis.doc.gov Export Controls: www.bis.doc.gov/licensing/exportingbasics.htm Possible Violations: www.bis.doc.gov/enforcement/redflags.htm Russian Federal Customs Service: http://eng.customs.ru/ Russian Ministry for Economic Development:

http://www.economy.gov.ru/wps/wcm/connect/economylib4/en/home
Russian Ministry of Industry and Trade: http://www.minprom.gov.ru/eng Return to table of contents

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Return to table of contents

Chapter 6: Investment Climate
• • • • • • • • • • • • • • • • • • • Openness to Foreign Investment Conversion and Transfer Policies Expropriation and Compensation Dispute Settlement Performance Requirements and Incentives Right to Private Ownership and Establishment Protection of Property Rights Transparency of Regulatory System Efficient Capital Markets and Portfolio Investment Competition from State Owned Enterprises Corporate Social Responsibility Political Violence Corruption Bilateral Investment Agreements OPIC and Other Investment Insurance Programs Labor Foreign-Trade Zones/Free Ports Foreign Direct Investment Statistics Web Resources Return to top

Openness to Foreign Investment

Russian President Vladimir Putin has stated that improving the investment climate in Russia and increasing foreign direct investment are a priority for his tenure as President. This commitment led to a variety of reforms in 2012 that sought to reduce administrative barriers and provide incentives for foreign business people looking to invest in Russia. The capstone of this commitment was Russia’s accession to the World Trade Organization in August of 2012, reducing tariffs across the board and securing a variety of market-opening acts by the Russian Government. Russia continues to promote the use of high-tech parks, special economic zones, and industrial clusters, which offer additional tax and infrastructure incentives to attract investment. One of the Presidency’s stated goals, to move Russia from 120th (in 2010) to 20th on the World Bank’s Doing Business Report by 2018, saw incremental progress, with Russia climbing to 112th in the 2012 publication. Russia’s continued engagement in the accession process to the Organization for Economic Cooperation and Development could also lead to greater market access for foreign investors. Despite these positive changes, investing in the Russian market still requires that firms navigate a complicated and fluid set of challenges ranging from complex and burdensome regulatory processes to corruption that marks both political and judicial structures. The Russian economy was impacted by the global economic slowdown and the 2008-2009 financial crisis but has quickly rebounded, thanks to high energy prices and use of two sovereign wealth funds to inject capital into domestic markets. Russia’s 113

GDP growth forecast of 3.6% in 2013 is a healthy figure when compared to the expected continuation of economic contraction in Europe, slow growth in the U.S. and deceleration in China. However, Russia continues to be particularly vulnerable to global energy prices and continued weakness in the European economy as the EU represents more than 50 percent of Russia’s total trade volume. On July 5, 2012, the United Nations Conference on Trade and Development (UNCTAD) released its annual World Investment Report, which examined foreign direct investment (FDI) trends around the world. In evaluating global FDI, the report highlighted internal policies and external factors that shape investment patterns such as political risk, perceived levels of corruption, and bureaucratic structure. According to the report, Russia saw FDI flows grow 22%, reaching $53 billion in 2011, its third-highest level ever recorded. In addition, in 2011, according to Ernst & Young’s 2012 Russia Attractiveness Survey report, Russia was the premier destination for investment in Central and Eastern Europe. The Ernst & Young Russia Attractiveness Survey combined analysis of statistical data with a survey of 208 global executives, 135 of whom do business in Russia. According to the survey, 19% of international investors considered Russia to be one of the most attractive regions of the world; this was up from 8% in the previous year’s results. According to the Central Bank of Russia, in 1H 2012, FDI into Russia reached $16.2 billion, with manufacturers and the financial industry receiving most of the money (the most recent numbers available). The Economic Development Ministry forecasts that 2012 FDI in Russia will exceed the 2011 level and will likely reach about $60 billion. Prime Minister Dmitry Medvedev is particularly committed to building a strong high technology sector in Russia. The country's solid base of expertise in the scientific and mathematics fields, combined with a sizable market and an economy growing faster than most others in the region, have helped entice a series of U.S. firms to make investments in Russia. Roughly a dozen U.S. companies and organizations already have announced their intention to invest in the Skolkovo Innovation Center, Russia's initiative to create a high-tech cluster, modeled on the example of Silicon Valley, in the outskirts of Moscow. While a legal structure exists to support foreign investors, the laws are not always enforced in practice. The 1991 Investment Code and 1999 Law on Foreign Investment guarantee that foreign investors enjoy rights equal to those of Russian investors, although some industries have limits on foreign ownership (discussed below). Russia has sought to enhance consultation mechanisms with international businesses, including through the Foreign Investment Advisory Council whose members are CEOs of large companies, regarding the impact of the country's legislation and regulations on the business and investment climate. In June 2012, Russia’s President appointed an Ombudsman for Entrepreneurs' Rights. The Ombudsman’s remit includes advocating for business rights in court and requesting suspension of official actions if a business feels its rights were violated. In December 2012, the State Duma approved the Business Ombudsman Law in its first reading and is expected to adopt the bill in the first half of 2013. Still, the country's investment dispute resolution mechanisms remain a work in progress and at present can seem non-transparent and unpredictable. The Russian Government stepped up its campaign against corruption in 2012 (see the Dispute Settlement section). In March 2012, the Russian Government adopted the National Anti-Corruption Plan for the years 2012–2013. The Plan contains guidance and 114

recommendations for the government, federal executive bodies and other government agencies on counteracting corruption, including the establishment of a legal framework for lobbying and increasing the transparency of state officials’ personal finances and acceptance of gifts. In 2012, Russia adopted a law requiring individuals holding public office, state officials, municipal officials and employees of state organizations to submit information on the funds spent by them and members of their families (spouses and underage children) to acquire certain types of property, including real estate, securities, stock and vehicles. The law also requires public servants to disclose the source of the funds to confirm the legality of the acquisitions. In addition, the State Duma approved in its first reading a draft law requiring state officials, deputies, senators and governors to disclose information on their foreign bank accounts and transactions related to acquisition of property and stocks abroad. The law is expected to be adopted in 2013. Speaking at the Russian General Prosecutor's Office on the occasion of the 291st anniversary of its establishment Sergei Ivanov, Chief of the Presidential Administration, mentioned that, in 2012, over 7,000 persons charged with corruption received prison sentences and a greater number of corruption cases were initiated than ever before. One high-level case led to the firing of Defense Minister Anatoly Serdyukov, although no formal charges have been announced. On April 17, 2012, Russia became the 39th Party to the OECD Anti-Bribery Convention outlawing the bribery of foreign public officials in international business transactions. Bribing a public official has been illegal in Russia since May 2011. The Convention criminalizes commercial bribery and prohibits both offering bribes to foreign government officials and accepting such bribes. It provides no exceptions for “grease payments,” and includes foreign entities doing business in Russia. Thus entities that do business in Russia could be subject to liability under their own country’s law, as well as Russia’s. The law also increased the penalties that may be imposed upon an individual or entity found in violation. Fines and the available ranges of incarceration under the new law vary depending upon the type of bribe and the official involved, and the court may prevent the offender from holding certain governmental or corporate positions in the future. Russian Government officials have repeatedly stressed that foreign investment and technology transfer are critical to Russia's economic modernization. At the same time, the government continues to limit foreign investment in sectors deemed to have strategic significance for national defense and state security via the Strategic Sectors Law. The law, adopted in May of 2008, specified 42 activities that have strategic significance for national defense and state security and therefore require government approval for foreign investment in those sectors. Foreign investors wishing to increase or gain ownership above certain thresholds need to seek prior approval from a government commission headed by Russia's Prime Minister. The 2012 addition of Russian privatelyheld Internet search company Yandex to the strategic companies list highlights the broad interpretation of what is required to protect state security and national defense. However, there have been some adjustments to the list. Notably in 2011, Russia amended the law to simplify the approval process and narrow the range of potential investments requiring formal review by the commission. With respect to the extractive industries, previously government approval was required for foreign ownership above a 10% threshold for companies operating subsoil plots of "federal significance." The November 2011 reforms raised the threshold to 25%, a move that experts predict will greatly reduce the number of cases considered by the commission. Since 2008, however, the commission approved 129 of 137 applications for foreign investment. 115

Statements made by key Russian officials in November of 2012 suggest that Russia will take additional action to roll back administrative barriers to foreign investment in Russian strategic companies. The Federal Antimonopoly Service (FAS) prepared various amendments, still awaiting approval by the State Duma, intended to simplify the procedures for state supervision of foreign investment in Russian strategic companies and to eliminate ambiguities in the interpretation and application of existing legislative provisions. The proposed amendments include the following: (1) removal of activity involving the use of infectious agents in food and beverage production from the list of strategic activities. FAS reports that it is considering revisions affecting certain other strategic activities (such as, for example, distribution and servicing of encryption devices) to limit the applicability to companies in selected sectors of the Russian economy; (2) eliminate the need for prior approval by the Government Commission for transactions in which foreign investors already holding more than 75 percent or more of a Russian strategic company’s shares move to increase their share in the company; (3) abolition of the formalistic requirement for prior approval for intra-group transactions by foreign investors controlled by the same entity; (4) allow foreign investors that have already been issued a permit (typically with a 2-year term) to invest in a strategic enterprise, request the federal Antimonopoly Service at the end of the term that the permit be extended from 2 to 5 years without obtaining a new approval from the Commission; (5) eliminate the need to get GOR approval for acquisitions by Russiancontrolled purchasers from foreign-controlled sellers (currently, only Russian-to-Russian transactions are exempt, but not acquisitions by Russian-controlled purchasers from foreign-controlled sellers); and (6) clearer rules are proposed on state supervision and approval of transactions involving the placement or organization of the circulation of securities of Russian strategic companies (including depositary receipts) on stock exchanges, including foreign stock exchanges. The share of the private sector in Russia’s GDP continued to decrease in 2012, falling to 50% from 60% in 2006, according to the Russian Ministry of the Economy. The government also continues to hold significant blocks of shares in many privatized enterprises. In an effort to increase market forces in the economy and raise revenue for the federal budget, in 2009 the government began considering more ambitious privatization program. In October 2010, the Russian Cabinet approved a major Privatization Plan, that paves the way for selling an estimated $60 billion of government stakes in about 1,000 companies (out of a total of 6,467 companies with some government ownership). To date, treatment of foreign investment in new privatizations has been inconsistent. Foreign investors participating in Russian privatization sales under the 2011-2013 Privatization Plan often have been confined to limited positions. Subsequently, many have faced problems with inadequate protection for minority shareholder rights and corporate governance. Potential foreign investors are advised to work directly and closely with appropriate local, regional, and federal ministries and agencies that exercise ownership and other authority over companies whose shares they may want to acquire. The following table includes the most recent data from indices measuring the investment and business climate in Russia: Measure Transparency International Year 2012 Index/Ranking 28 – 133 of 176 countries

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Corruption Index Heritage Economic Freedom World Bank Doing Business 2012 2013 50.5 – 144 of 184 countries 112 of 185 economies

Fiscal Policy (IMF World Economic Outlook) Trade Policy (Heritage Economic Freedom) Business Start Up (World Bank Doing Business) Land Rights Access (World Bank Doing Business) Freedom Rating (Freedom House)

2011 (est.) 2012

Government net annual borrowing: 1.11% of GDP 68.2 (moderately free)

2013 2013 2013

101 of 185economies Construction Permits: 178 of 185 economies Registering Property: 46 of 185economies 5.5 out of 7 (scale of 1-7, 1 being the best) Status: Not Free Political Rights: 6 Civil Liberties: 5 Return to top

Conversion and Transfer Policies

While the ruble is the only legal tender in Russia, companies and individuals generally face no significant difficulty in obtaining foreign exchange. Only authorized banks may carry out foreign currency transactions but finding a licensed bank is not difficult. According to currency control laws, the Central Bank retains the right to impose restrictions on the purchase of foreign currency, including the requirement that the transaction be completed through a special account. The Central Bank does not require security deposits on foreign exchange purchases. Russia has no capital controls and there are no barriers to remitting investment returns abroad, including dividends, interest, and returns of capital. Nonetheless, investors should seek expert advice at the time of an investment. Currency controls exist on all transactions that require customs clearance, which in Russia applies to both import and export transactions and certain loans. A business must open a "deal passport" with the authorized Russian bank through which it will receive and service the transaction or loan. A “deal passport” is a set of documents that importers and exporters provide to authorized banks which enable the bank to monitor payments with respect to the transaction or loan and to report the corporation's compliance with currency control regulations to the Central Bank. Russia's regulations regarding deal passports are prescribed under Instructions of the Central Bank of Russia number 117-I of June 15, 2004. In early 2011, the Central Bank of Russia expanded the list of grounds under which a deal passport does not have to be submitted. The Central Bank adopted Instruction 117

number 1238-I on June 4th, 2012, which states “On order of submission by residents and nonresidents to authorized banks of documents and information relative to conducting of currency operations, order of deal passport formalization as well as order of currency operations’ registration by authorized banks and control for their execution”. One of the innovations suggested by the Instruction is an opportunity to file notifications on currency operations by an authorized bank. Previously, the parties involved in the transaction had to file the notification, themselves. Though the notification is an important element of Russia’s currency controls, under current regulations, basic transaction such as direct debiting from foreign currency accounts held by Russian residents are precluded. Once this Instruction enters into force, it is hoped that this type of transaction will be permitted. Another improvement is the ability of the resident legal entity to the contract (loan agreement), to transfer formalization of the deal passport and currency operations relating to that contract, to its branch. Expropriation and Compensation Return to top

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 the investor must be adequately and promptly compensated. At the sub-federal level, expropriation has occasionally been a problem, as has local government interference and a lack of enforcement of court rulings protecting investors. Dispute Settlement Return to top

Russia has a body of conflicting, overlapping, and frequently changing laws, decrees and regulations, which complicates the environment for dispute resolution. In an attempt to address these challenges, First Deputy Prime Minister Shuvalov in 2010 was tasked to be the Investment Ombudsman which includes coordinating and overseeing efforts to improve the business and investment climate, including the protection of foreign and domestic investors. In 2011, the Russian Government appointed Investment Ombudsmen in each Federal District to perform similar roles at the regional level. The government has also encouraged international business leaders to participate in the discussion of dispute resolution mechanisms, as well as individual commercial disputes, as part of their work in the Foreign Investment Advisory Council. While these steps offer some promise, overall, the country's investment dispute mechanisms remain underdeveloped and largely non-transparent. In 2012, the Russian Presidency created the position of Ombudsman for Entrepreneur’s Rights, a position designed to be an additional measure of protection and advocacy for entrepreneurs. Independent dispute resolution in Russia can be difficult to obtain since the judicial system is still developing. Courts are sometimes subject to political pressure. According to numerous reports, corruption in the judicial system is widespread and takes many forms, ranging from bribes of judges and prosecutors to fabrication of evidence. Corruption likely does not play a role in the vast majority of cases, most of which involve relatively low stakes. A law enacted in late 2008 as part of the Russian Presidency’s anti-corruption initiative requires that judges disclose their incomes and real estate assets, including those owned by their spouses and minor children. Another component of the Presidency’s anti-corruption initiative included a series of amendments to the Code of Criminal Procedure – in 2008, 2009, and 2010 – to limit pre118

trial detention of individuals accused of economic crimes. Implementation of these reforms has yielded mixed results. Prosecutors have sometimes avoided them by charging defendants under articles technically not covered by the amendments and judges have sometimes refused to apply them. Nevertheless, available statistics reveal a substantial decrease in the number of pre-trial detentions in cases involving economic crimes since the legislation was passed. Commercial courts are required by law to decide business disputes relatively quickly, and many cases are decided on the basis of written evidence and little or no live testimony of witnesses. The commercial court workload is dominated by relatively simple non-contentious cases involving the collection of debts between firms and disputes with the taxation and customs authorities, pension fund, and other state organs. Taxpayer firms often prevail in their disputes with the government in court. The number of routine cases limits the time available to decide more complex cases. Many observers believe that over the twenty year period that the commercial court system has existed, its judges have grown more competent and better at writing decisions. Many lawyers nonetheless report that due to insufficient training, especially in complex business disputes, many judges often make poorly reasoned or simply incorrect decisions. Execution of court decisions is often problematic. Few firms pay judgments against them voluntarily and rumors of corruption concerning bailiffs, who are charged with enforcing decisions, are frequent, although hard evidence is more scarce. Federal Law 262, in effect since mid-2010, requires the courts to publish their decisions online and otherwise make information about their activities publicly available. All Russian courts now have Web sites, which generally include a schedule of cases to be heard, the name of the judge, the location of the court, form documents that can be used by prospective litigants, and copies of decisions. Personal information is expunged before case decisions are posted online. The better Web sites allow citizens to calculate filing fees and search for analogous decisions. The commercial courts have played a leadership role in providing information online and using information technology. Electronic filing allows citizens to sign up to receive e-mail notifications of developments in cases of interest to them. NGOs have rated the compliance of courts with their obligations under the law and found that the information provided varies greatly in quality from one region to another, but have noted a willingness by some courts to respond to queries and criticisms by improving their sites. Although there are gaps and failures to provide information, overall judicial transparency has increased since the law took effect in 2010. Many attorneys refer Western clients who have investment or trade disputes in Russia to international arbitration in Stockholm or to courts abroad. A 1997 Russian law allows foreign arbitration awards to be enforced in Russia, even if there is no reciprocal treaty between Russia and the country where the order was issued. Russia is a member of the International Center for the Settlement of Investment Disputes and accepts binding international arbitration. Russia is also a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. However, enforcement of international arbitral awards still requires action from Russian courts and follow-up by bailiffs, which have yet to become consistently effective enforcers of court judgments. As noted above, commercial disputes between business entities are heard in the commercial court system. That court system has special procedures for the seizure of property before trial, such that it cannot be disposed of before the court has heard the 119

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. A similar arbitration court has been established in St. Petersburg. As with international arbitral procedures, the weakness in the Russian arbitration system lies in the enforcement of decisions. As per Federal Law of December 2011, a specialized court for intellectual property disputes is schedule to open by February 2013. This court, embedded in the system of arbitration (commercial) courts, will hear cases on intellectual property rights, including those challenging statutory instruments on IP, in the first instance and cassation. In September 2012 the Higher Qualification Board of Judges (a body within the Russian judicial corps responsible for nominating judges to be further appointed by the President) nominated 20 judges to form the new IPR Court, and the Chief Judge of the IPR Court was appointed by the President in December 2012. Then-President Medvedev encouraged widespread adoption of alternative dispute resolution (ADR) to help courts handle their caseloads and to provide citizens with speedier and cheaper methods of resolving legal disputes. In January 2011, a new law took effect that authorizes the use of mediation in various kinds of disputes, including commercial ones, and provides for the confidentiality of mediation proceedings and for their enforceability in court. Although there are still issues concerning implementation, it represents an important step towards further development of ADR in Russia. The level of professionalism in the legal bar, including in the realm of corporate compliance, continues to grow. While significant quality disparities reportedly still exist between large international firms with Russia offices and indigenous Russian firms, there are indications that continued joint trainings and other professional interaction is slowly improving the quality of local legal support for the business community. Performance Requirements and Incentives Return to top

Performance requirements are not generally imposed by Russian law and are not widely included as part of private contracts in Russia. However, they have appeared in the agreements of large multinational companies investing in natural resources and in production-sharing legislation. There are no formal requirements for offsets in foreign investments. Since approval for investments in Russia frequently depends on relationships with government officials and on a firm's demonstration of its commitment to the Russian market, this may result in offsets in practice. In September of 2012, the United States and Russia signed a new bilateral visa agreement which extended the validity of a tourist visa to 36 months for both American and Russian travelers. This agreement also reduced the documentary requirements for Americans applying for a visa and eliminated the need for an invitation letter in most cases. The process for the approval and renewal of visas and residence permits for foreign businessmen and investors remains cumbersome with numerous documentary requirements. Additionally, there are regulations in specific industries that require a certain percentage of staff be Russian citizens, which may have a negative impact on foreign investors. The situation is improving, however. As part of Russia's efforts to encourage investment in innovation sectors, the GOR has eased the regulations on visas and residence permits for "highly-skilled" workers, and eliminated yearly quotas for 120

foreign workers who fall into this category (defined by salary, position and education level). Potential investors are advised to consult the State Department's Country Specific Information on travel to Russia, which includes the latest information on Russian visas. Right to Private Ownership and Establishment Return to top

Both foreign and domestic legal entities may establish, purchase, and dispose of businesses in Russia. As noted above, foreign investment in sectors that are regarded as affecting national security may be limited. Protection of Property Rights Return to top

The Constitution and a 1993 presidential decree give Russian citizens general rights to own, inherit, lease, mortgage, and sell real property. Foreigners enjoy similar rights with certain restrictions, notably with respect to the ownership of farmland and areas located near federal borders. Mortgage legislation enacted in 2004 facilitates the process for lenders to evict homeowners who do not stay current in their mortgage payments. Thus far this law has been successfully implemented and generally effective. Mortgage lending is in its initial stages, and after a sharp contraction in 2008-09, the total value of mortgages in Russia is around 3 percent of GDP. In January – November 2012, mortgage lending grew bv 40 percent over the same period of 2011, with new issuances amounting to $32 billion in the first eleven months of the year. In Russia, the protection of intellectual property rights (IPR) is enforced on the basis of civil, administrative, criminal or customs legislation. The Civil Code sets up the level of compensation for IPR infringement and/or incurred damages for copyright, trademarks and geographical indications. The Code of Administrative Offenses concerns IPR infractions that violate public or private interest or rights, but do not meet the criteria of the Criminal Code. An administrative investigation may be initiated at the request of an IPR owner or by law enforcement authorities (police or customs) suspecting possible IPR infringement. Administrative cases are dealt with by general jurisdiction courts or state arbitration (commercial) courts that have jurisdiction over economic disputes. The IPR provisions of the Criminal Code apply to large-scale infringements of copyright, patent and trademark rights that cause gross damages, as defined by the Criminal Code. In recent years, Russia made significant progress in improving the legislative environment and legal framework for IPR protection. Russia passed amendments to Part IV of the Civil Code for compliance with the Trade-Related Aspects of Intellectual Property (TRIPs) agreement, amended its Customs Code to include ex-officio authority for Russian Customs officials, and amended the Law on Circulation of Medicines to provide for 6 years of regulatory data protection effective as of Russia’s accession to the WTO in August 2012. However, implementation and enforcement thereof is subject to the respective regulations and corresponding bylaws, which are yet to be developed. Additionally, a law adopted in December 2011 laid the foundation for the establishment of a Russian IPR Court within Russia's system of commercial courts by February 2013. Copyright violations (films, videos, sound recordings, computer software) remain a serious problem, particularly in the online environment. Although dwarfed in volume by pirated products online, legitimate DVD sales are on the rise, thanks in part to cheaper 121

legitimate products, a growing consumer preference for high quality goods, and increased law enforcement action against pirates. Local representatives of the entertainment and software industries have also reported marginal declines in levels of piracy. Russian police on occasion carry out end-user raids against businesses using pirated products. However, at times, police have used IPR enforcement as a tactic to elicit bribes or harass NGOs. Russia has had a law providing for bankruptcy of enterprises since the early 1990s. Law enforcement officials, however, tend to view bankruptcy with suspicion and reported 500 cases of financial crime involving bankruptcy in 2011. In November 2012, the State Duma passed in its first reading (three readings required for passage) a personal bankruptcy bill. The bill states that a citizen who finds himself in financial difficulty can submit a bankruptcy statement to the court. The court may then grant the individual the right to pay the debt in installments for a term of up to five years. An individual with debts exceeding 50,000 rubles ($1,576) and whose arrears amount to three months can be declared bankrupt. In this case, the individual cannot apply for a bank loan without citing his bankruptcy for the five years after his bankruptcy status was declared. The individual is then given six months to come up with a debt restricting plan subject to the approval of both the creditors and the court. Once the plan is approved, all late payment fees and penalties will be waived and assets unfrozen. Only in the case of a person who has no assets and no income may the debt be completely written off. The bill also stipulates a ban on declaring oneself bankrupt more than once in five years. The Duma is expected to approve the bill in the first half of 2013 with provisions possibly coming into effect in 2014. Transparency of Regulatory System Return to top

Russia's legal system remains in a state of flux, with various parts of the government continuing to implement new regulations and decrees on a broad array of topics, including the tax code and requirements related to regulatory and inspection bodies. Negotiations and contracts for commercial transactions, as well as due diligence processes, are complex and protracted. Investors must do careful research to ensure that each contract fully conforms to Russian law. Contracts must likewise seek to protect the foreign partner against contingencies that often arise. Keeping up with legislative changes, presidential decrees, and government resolutions is a challenging task. Uneven implementation of laws creates further complications; various officials, branches of government, and jurisdictions interpret and apply regulations inconsistently and the decisions of one may be overruled or contested by another. As a result, reaching final agreement with local political and economic authorities can be a long and burdensome process. Companies should be prepared to allocate sufficient funds to engage local legal counsel to set up their commercial operations in Russia. Russia’s tax system has recently undergone major changes. “We have brought our tax legislation into line with OECD requirements. This is very important for the convenience of taxpayers – we have simplified the tax system. It is important for the harmonization of our tax system with the best world standards. We have also recently made a decision on avoiding double taxation and on transfer prices on all principles, which are laid down in the OECD requirements,” Finance Minister Siluanov stated last fall. Still, businesses have serious complaints regarding tax administration. In particular, tax audits have been criticized for the serious impact they can have on the conduct of a taxpayer's business, for example due to the imposition of multiple audits and repeat requests for 122

documentation and the technical weakness of some tax claims. Head of the working group of Tax Experts Council of the Russian Chamber of Commerce and Industry Pavel Gagarin expects that in 2013-14 tax audits will be exercised in an even more rigid mode and additional taxes assessed will go further up (average tax audit brought RUB4.5 million to the budget in 2011). Galkin explained that in the fall of 2012 head of the Federal Tax Service Mishustin revised the system of incentives for tax inspectors such that it would take into account the amount of additional tax accruals resulting from tax audits. Russia’s new Law on Transfer Pricing entered into force on January 1, 2012, with certain provisions scheduled to be phased in by 2014. Some provisions of the new law, particularly those drafted in accordance with OECD principles, have not met with major implementation complaints in this first year. Some experts warn that, once all provisions are enacted in 2014, additional disputes with tax authorities might flare up. All draft laws that go through the Russian Duma are published on the Duma's Web site. Sometimes, but not consistently, Ministries and other Russian Government bodies also publish proposed legislation (including draft laws, government decrees and regulations) on their Web sites. Russia’s Open Government initiative aims to provide more transparency and governmental accountability to Russian citizens. The initiative creates opportunity for public comment on a wide range of initiatives. Russian Ministries have become more active in seeking input from industry experts and business groups, including the Foreign Investment Advisory Council, when developing business-related laws and regulations. Some NGOs claim Open Government is largely a public relations effort that will result in few substantive changes in decision-making. However, Russia is in the very beginning stages of this initiative, and it is too soon to come to a conclusion on the efficacy of the program. In 2012, Russia submitted a letter of intent to join the Open Government Partnership, an international body seeking to promote governmental transparency and accountability. However, in May 2013, Russia withdrew this letter stating that it is no longer interested in being a party to this body. Efficient Capital Markets and Portfolio Investment Return to top

The Russian banking system remains relatively small, with RUB 43.2 trillion ($1.4 trillion) in aggregate net assets as of October 1, 2012. Though Russia has roughly 1000 banks, the sector is dominated by state-owned banks, particularly Sberbank and VTB. The six largest banks (in terms of assets) in Russia are state-controlled, and the top five held 50.9% of all bank assets in Russia as of November 1, 2012. The successful implementation of the Deposit Insurance System in 2004 has proved a critical psychological boon to the banking sector, evidenced by growth in overall deposits. Despite measured progress, the Russian banking system is not yet efficiently performing its basic role of financial intermediary (i.e., taking deposits and lending to business and individuals). At the beginning of 2012, aggregate assets of the banking sector amounted to just 76.3% of GDP and aggregate capital was just 9.6% of GDP. Russia's banking sector has almost recovered from the economic crisis, with corporate loan growth reaching 17.1% and retail loan growth 42.7% in the 12 months running to November 1, 2012. The Bank of Russia considers the latter too rapid and is taking measures to restrain it. The share within Russia's banking sector of non-performing and troubled loans, which during the 2008-2009 financial crisis increased substantially, stabilized in 2010 at around 20% and began to slowly decline in the second half of 2011 such that on November 1, 2012 it was less than 16%. Russia's two main stock exchanges – the 123

Russian Trading System (RTS) and the Moscow Interbank Currency Exchange (MICEX) – merged on December 19, 2011. The MICEX-RTS bourse is eyeing an initial public offering (IPO) soon, possibly in 1Q13. Russian authorities and shareholders of MICEX and RTS believe the merged entity, MICEX-RTS, will become a global player. However, most large Russian companies choose to list their stock in London and elsewhere abroad in order to obtain higher valuations. Russia started the year with very high capital outflow ($34.6 billion in 1Q12), which later decelerated to average about $12 billion per quarter. In January –September, total net private capital outflows reached $57.9 billion. Analysts stress that capital outflows, in part, are acting as an air valve in order to prevent the economy from overheating. The Law on the Securities Market includes definitions of corporate bonds, mutual funds, options, futures, and forwards. Companies offering public shares are required to disclose specific information during the placement process, as well as on a quarterly basis. In addition, the law defines the responsibilities of financial consultants who assist companies with stock offerings and holds them liable for the accuracy of the data presented to shareholders. Russian financial authorities are trying to deepen the ruble-denominated domestic debt market to make it more attractive to foreign investors. In December 2011, the Central Bank issued a resolution allowing, effective January 1, 2012, government bonds (aka OFZs) to be traded outside Russian exchanges (over the counter). Currently, foreign investors wanting to trade domestic bonds have to set up local brokerage and custody accounts, a lengthy process that discourages many investors from buying OFZs. Additionally, in February 2013, Russian OFZs began trading via Euroclear, the world’s largest settlement system for securities. Russian corporate and municipal debt are expected to be Euroclearable in late spring 2013. As of February 7, Euroclear began settling transactions of OFZ bonds (Russia’s primary sovereign debt security) through nominee accounts with the CSD. Clearstream, another leading settlement firm, followed shortly after on February 28th. Market observers expected this move to attract some $20 billion of new foreign capital into the OFZ market, though inflows so far have been disappointing. Russian corporate and municipal debt are expected to be Euroclearable later this spring. Equities are expected to be Euroclearable in early 2014. Euroclearability has several advantages, including eliminating settlement risk for foreign investors and removing the need for foreign banks to have domestic trading accounts. Hostile takeovers are common in Russia among both foreign and local firms. Private companies' defenses to prevent hostile takeovers relate to all potential hostile takeovers, not just foreign ones. Russia's financial market suffers from a shortage of private domestic institutional investors. For example, the life insurance market remains underdeveloped, comprising only 6.2% of insurance premium payments. Private pension funds, held back by a public distrust of financial instruments and a lack of tax incentives, currently have an equivalent of $17 billion in management, equal to 0.8% of GDP. Pension reform proposals supported by the government in late 2012 would do little to grow the private pension fund industry. Competition from State Owned Enterprises Return to top

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Despite Russia’s ongoing privatization program, the state, whether as majority shareholder in open joint-stock companies or as sole shareholder in “state corporations,” continues to play a large role in the Russian economy. (Note: State corporations are 100% owned by the Russian Government and operate under special legislation. The Russian economy also features thousands of other companies owned in part or whole by the Russian Government that operate under different legal arrangements, such as unitary enterprises and joint stock companies.) Private enterprises are allowed to compete with state-owned enterprises on the same terms and conditions and in some sectors, including where state ownership is minimal, sectorial competition is robust. But in other areas the playing field can be tilted. Issues that hamper efficient operations of state corporations, and some state-owned enterprises, include a lack of transparency, unclear responsibilities of boards of directors, misalignment of managers' incentives and company performance, inadequate control mechanisms on managers' total remuneration or their use of assets transferred by the state to the state corporation, and reduced disclosure requirements. On June 7, 2012, the Cabinet approved amendments to the 2011-2013 state privatization program and a preliminary list of companies to be privatized by 2016. The specific details of the privatization program, as well as the complete list of companies to be privatized have not yet been fully disclosed. The initial privatization list has been split into two: the first list contains all non-natural resource sector companies scheduled for privatization over the next 12 to 18 months, while the second, potentially more controversial list contains energy companies which will likely see further state consolidation before an equity sale over a five-year horizon. First Deputy PM Shuvalov has stated publically that the government will not rush privatization, and if market conditions worsen privatization could be further postponed. There are two sovereign wealth funds in Russia: the Reserve Fund ($62.08 billion as of January 2013 and the National Wealth Fund $88.59 billion as of January 2013. Management of both funds' assets is executed by the Ministry of Finance in accordance with procedures and terms established by Government of the Russian Federation. The Central Bank of Russia acts as operational manager. Reserve Fund assets can be used to purchase: foreign currencies (dollars, euro, pounds) that are then kept in the Federal Treasury's accounts with the Central Bank of Russia, which in turn pays interest on those deposits; and financial assets denominated in foreign currencies. The list of eligible financial asset classes is determined by Russian legislation. Ministry of Finance guidelines for Reserve Fund asset allocation are foreign (12 OECD countries) government debt instruments – 95%, international financial institutions' (a closed list of 9) debt instruments – 5%. The National Wealth Fund can be held in foreign currencies (dollars, euro, pounds) in the Federal Treasury's accounts with the Central Bank of Russia, which pays interest according to the bank account agreement. The National Wealth Fund can also be used to purchase financial assets denominated in Russian rubles and eligible foreign currencies. The Reserve Fund and National Wealth Fund are audited by Russia's Chamber of Accounts and the results are reported to the Federal Assembly. In 2009 and 2010, the Russian Government tapped into both funds heavily to finance bail-out programs for major banks and industries during the global economic crisis.

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Corporate Social Responsibility

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While far from standard practice, Russian companies are beginning to show an increased level of interest in their CSR reputation. When seeking to acquire companies in Western countries or raise capital on international financial markets, Russian companies face international competition and scrutiny, including on CSR standards. Consequently, most large Russian companies currently have a CSR policy in place, or are developing one, despite the lack of pressure from Russian consumers and shareholders. Russian firms' CSR policies often are now published on corporate Web sites and detailed in annual reports. These CSR policies and strategies, however, are still in an early stage relative to those of Western counterparts. Most companies choose to create their own NGO or advocacy group rather than contribute to an already existing organization. The Russian Government remains the most powerful stakeholder in the development of certain companies' CSR agendas, resulting in the expectation that these companies support local health, educational and social welfare systems as specified by the government. The Federal Service for Financial Markets established a corporate governance code in 2002 and has endorsed an OECD White Paper on ways to improve practices in Russia. International business associations such as the American Chamber of Commerce in Russia, the U.S.-Russia Business Council, the Association of European Businesses in Russia, and the International Business Leaders Forum, as well as Russian business associations, stress corporate governance as an important priority for their members and for Russian businesses overall. One association, the Russian Union of Industrialists and Entrepreneurs, developed a Social Charter of Russian Business in 2004 that over 200 Russian companies and organizations have since joined. Political Violence Return to top

The large-scale public protests seen after the March 2012 Presidential elections died down towards the close of 2012 but were revived on January 12, 2013 when tens of thousands of people turned out to protest the Dima Yakovlev Law, which bans the adoption of Russian children by American citizens. The law was in direct retaliation to the U.S. Magnitsky Act, which bans the travel of Russian human rights violators to the United States. The arrest and subsequent imprisonment of three (one has since been released) members of the Russian punk rock group, Pussy Riot, became another flashpoint for opponents of the Putin Administration and raised questions regarding the state of Russia’s democracy. Opposition figures have faced increasing harassment by the Russian authorities though permits for protest marches are generally approved and have, so far, avoided large scale violence. Aleksey Navalny, anticorruption whistleblower and member of the opposition Coordination Council, was hit with three criminal cases in 2012, including 2009 charges for conspiring to steal timber that were resurrected following Navalny’s public criticism of Investigative Committee chief Aleksandr Bastrykin. Other opposition figures, including politician Boris Nemtsov and chess professional Garry Kasparov, were detained at various points during the year on a variety of grounds. The resurgence of the protest movement suggests that Russians have become more politically engaged and that mass civic action will continue to be a feature of the Russian political landscape. Although the use of strong-arm tactics is not unknown in Russian commercial disputes, the Embassy is not aware of cases where foreign investments have been attacked or damaged for purely political reasons. Russia continues to struggle with an ongoing insurgency in Chechnya, Ingushetiya and 126

Dagestan. These republics and neighboring regions in the northern Caucasus have a high risk of violence and kidnapping. Corruption Return to top

Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law. It is important for U.S. companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel. Corruption remains a major challenge for Russia. Targeted efforts in 2012 to root out corruption by public officials and within business transactions led to widely reported investigations in the Ministry of Defense and the Ministry of Agriculture. Russia’s ranking improved 10 spots to 133rd in Transparency International’s 2012 Corruption Perceptions Index (CPI). On December 3, the President of Russia signed into law a long-awaited bill that will require all civil servants to declare large expenditures or face termination. These officials must also present information on the expenditures of their spouses and children if the expenditures involve acquisitions of land, vehicles or securities. Expenditures that do not match the declared income will be investigated by law enforcement agencies. If an individual fails to prove that the property in question was acquired legally, the property will be confiscated and turned over to the state. The legislation will enter into force in 2013 and will cover transactions carried out since January 1, 2012. The bill complements existing 2011 legislation requiring officials to declare their incomes. The U.S. Government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U.S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below. U.S. Foreign Corrupt Practices Act: In 1977, the United States enacted the FCPA, which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person's Guide at: www.justice.gov/criminal/fraud/fcpa/docs/lay-personsguide.pdf. Guidance on the U.S. FCPA: The Department of Justice's (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of the Justice Department's present enforcement intentions under the anti-bribery provisions of 127

the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ's Fraud Section Web site at www.justice.gov/criminal/fraud/fcpa. Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel's Web site, at http://www.ogc.doc.gov/trans_anti_bribery.html. More general information on the FCPA is available at the Web sites listed below. Other Instruments: It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-Bribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements. OECD Anti-Bribery Convention: The OECD Anti-Bribery Convention entered into force in February 1999. There are 38 parties to the Convention including the United States and Russia (see http://www.oecd.org/dataoecd/59/13/40272933.pdf). The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Anti-Bribery Convention through the FCPA. In 2012, Russia acceded to the Anti-Bribery Convention and is currently in the process of its Phase 2 review as a part of Russia’s overall OECD accession process. UN Convention: The UN Anticorruption Convention entered into force on December 14, 2005, and there are 158 parties to it as of November 2011 (see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html). The UN Convention is the first global comprehensive international anticorruption agreement. The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anticorruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Antibribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery. OAS Convention: In 1996, the Member States of the Organization of American States (OAS) adopted the first international anticorruption legal instrument, the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention, among other things, establishes a set of preventive measures against corruption, provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment, and contains a series of provisions to strengthen the cooperation between its States Parties in areas such as

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mutual legal assistance and technical cooperation. As of December 2009, the OAS Convention has 34 parties (see http://www.oas.org/juridico/english/Sigs/b-58.html) Council of Europe Criminal Law and Civil Law Conventions: Many European countries are parties to either the Council of Europe (CoE) Criminal Law Convention on Corruption, the Civil Law Convention, or both. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and account offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia. The Group of States against Corruption (GRECO) was established in 1999 by the CoE to monitor compliance with these and related anticorruption standards. Currently, GRECO comprises 49 member States (48 European countries and the United States). As of December 2011, the Criminal Law Convention has 43 parties and the Civil Law Convention has 34 (see www.coe.int/greco.) Free Trade Agreements: While it is U.S. Government policy to include anticorruption provisions in free trade agreements (FTAs) that it negotiates with its trading partners, the anticorruption provisions have evolved over time. The most recent FTAs negotiated now require trading partners to criminalize “active bribery” of public officials (offering bribes to any public official must be made a criminal offense, both domestically and transnationally) as well as domestic “passive bribery” (solicitation of a bribe by a domestic official). All U.S. FTAs may be found at the U.S. Trade Representative Web site: http://www.ustr.gov/trade-agreements/free-trade-agreements. Local Laws: U.S. firms should familiarize themselves with local anticorruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel. Russia is a signatory to the UN Convention against Corruption, the Council of Europe's Criminal Law Convention on Corruption, and, as of 2012, the OECD Anti-Bribery Convention. However, concerns remain regarding the implementation and enforcement of the many measures required by these conventions. In recent years, there appears to be a greater number of prosecutions and convictions of mid-level bureaucrats for corruption, but real numbers are difficult to obtain and high-ranking officials are rarely prosecuted. It is important for U.S. companies, irrespective of size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance programs or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in Russia should take the time to become familiar with the relevant anticorruption laws of both Russia and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel. Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. Commercial Service can provide services that may assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The U.S.

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Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its Web site at www.trade.gov/cs. The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. Government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report A Trade Barrier” Web site at tcc.export.gov/Report_a_Barrier/index.asp. Anti-Corruption Resources Some useful resources for individuals and companies regarding combating corruption in global markets include the following: • Information about the U.S. Foreign Corrupt Practices Act (FCPA), including a “LayPerson’s Guide to the FCPA” is available at the U.S. Department of Justice’s Web site at: http://www.justice.gov/criminal/fraud/fcpa. Information about the OECD Antibribery Convention including links to national implementing legislation and country monitoring reports is available at: http://www.oecd.org/department/0,3355,en_2649_34859_1_1_1_1_1,00.html. See also new Antibribery Recommendation and Good Practice Guidance Annex for companies: http://www.oecd.org/dataoecd/11/40/44176910.pdf. General information about anticorruption initiatives, such as the OECD Convention and the FCPA, including translations of the statute into several languages, is available at the Department of Commerce Office of the Chief Counsel for International Commerce Web site: http://www.ogc.doc.gov/trans_anti_bribery.html. Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world. The CPI is available at: http://www.transparency.org/research/cpi/overview. TI also publishes an annual Global Corruption Report which provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents and an overview of the latest research findings on anti-corruption diagnostics and tools. See http://www.transparency.org/. The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 213 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. See http://info.worldbank.org/governance/wgi/index.asp. The World Bank Business Environment and Enterprise Performance Surveys may also be of interest and are available at: http://data.worldbank.org/data-catalog/BEEPS.

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The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index, and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. See http://www.weforum.org/s?s=global+enabling+trade+report. Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at http://www.state.gov/g/drl/rls/hrrpt/. Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report, which provides indicators for 106 countries with respect to governance and anti-corruption. The report highlights the strengths and weaknesses of national level anti-corruption systems. The report is available at: http://report.globalintegrity.org/. Return to top

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Bilateral Investment Agreements

Russia has concluded bilateral investment treaties (BITs) with 75 countries, and 54 of them are in force. The United States and Russia have not concluded a BIT, although both sides have expressed interest in discussing such an agreement. In 1992 the United States and Russia signed an income tax treaty designed to address the issue of double taxation and fiscal evasion with respect to taxes on income and capital. The full text of the treaty can be found here: http://www.irs.gov/pub/irs-trty/russia.pdf There is some concern that taxation requirements have sometimes been used in Russia as a way to "raid" or illegally take possession of foreign companies, particularly small and medium enterprises. OPIC and Other Investment Insurance Programs Return to top

In an agreement ratified in 1992, the U.S. Overseas Private Investment Corporation (OPIC) was authorized to provide loans, loan guarantees ("financing"), and investment insurance against political risks to U.S. companies investing in Russia. OPIC's political risk insurance and financing help U.S. companies of all sizes invest in Russia. OPIC insures against three political risks: expropriation; political violence; and currency inconvertibility. OPIC recently announced that political risk insurance now covers private equity fund investments. To meet the demands of larger projects in Russia and worldwide, OPIC can insure up to $250 million per project and up to $300 million for projects in the oil and gas sector with offshore, hard currency revenues. Projects in the oil and gas sector with offshore, hard currency revenues may be approved for an exposure limit up to $400 million if the project receives a credit evaluation ("shadow rating") of investment grade or higher. The individual per project exposure limit for financing is $250 million. The maximum combined (insurance and financing) exposure limit to OPIC on a single project is $400 million. OPIC has no minimum investment size requirements. OPIC also makes equity capital available for investments in Russia by guaranteeing long-term loans to private equity investment funds. Detailed information about OPIC's programs can be accessed at www.opic.gov. Russia is a member of the Multilateral Investment Guarantee Agency.

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Labor

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The Russian labor market remains fragmented, characterized by limited labor mobility across regions and consequent wage and employment differentials. Earnings inequalities are substantial, enforcement of labor standards is relatively weak, and collective bargaining is underdeveloped. The rate of actual unemployment (calculated according to ILO methodology) in 2012 remained relatively low, and declined from 6.6% in January to historic low of 5.2% in August and September. The rate increased a little by the end of the year. Average unemployment in urban districts (4.4% as of November) is much lower than in rural districts (8.3%). Two regions in the North Caucasus have the highest unemployment rates in the country: Ingushetia (47% as of September-November) and Chechnya (30.8%). In stark contrast, the unemployment rate is only 0.6% in Moscow and 1.1% in St. Petersburg. Employers regularly complain about shortages of qualified labor. This is due in part to weak linkages between the education system and the labor market. In addition, the economy suffers from a general shortage of highly skilled labor. Businesses face increasing labor costs as competition over a limited pool of workers intensifies. On the other hand, a large number of inefficient enterprises with high vacancy rates offer workers unattractive, uncompetitive salaries and benefits. Official statistics registered only five strikes in January-November 2012. Independent commentators, however, noted 258 protests during January-November 2012, including 87 that involved the complete or partial cessation of work. The majority of labor disputes occurred in the manufacturing sector. The primary causes of labor disputes were wage arrears, company reorganization or closure, low pay, and layoffs. Approximately 45% of Russia's workforce is unionized. The Government generally adheres to ILO conventions protecting worker rights but often fails to enforce them. The 2002 Labor Code governs labor standards in Russia. The enforcement of worker safety rules continues to be a major issue, as enterprises are often unable or unwilling to invest in safer equipment or to enforce safety standards. Foreign-Trade Zones/Free Ports Return to top

Russia has 27 Special Economic Zones (SEZs), which fall in one of four categories: industrial and production zones; technology and innovation zones; tourist and recreation zones; and port zones. Enterprises operating within SEZs enjoy a range of benefits that the Ministry of Economic Development (MED) – which manages the SEZ program – estimates can save investors up to 30% of the cost of doing business. Specifically, investors enjoy streamlined administrative requirements and procedures, a more favorable customs regime (including the waiver of import duties and refunds of the value-added-tax), and reduced tax rates on income, property, land, and transport. SEZ investors also receive cut rates on infrastructure expenses, including facilities and utilities costs. Such benefits are extended for an agreed introductory period, often lasting five years. In a Federation Council meeting in December 2012 there was wide support for a proposal to leverage the SEZs in attracting new foreign direct investment rather than 132

working to place companies that have already decided to invest in Russia with an SEZ. How the MED will go about refocusing the SEZ mission to attract investment is unclear; but the proposal reflects broad interest in improving the performance of the existing SEZs, which have met with mixed results to date. Lack of interest from foreign investors in addition to environmental concerns led to the closure of the proposed Kaliningrad tourist and recreational zone SEZ in late 2012. The majority of SEZ investments are still listed as "planned,” meaning investors are still able to back out of commitments. The Russian Government has been hesitant to go forward with major SEZ infrastructure projects. Detailed information about the benefits and results of Russia's SEZs can be found at the MED's SEZ Web site: http://www.economy.gov.ru/wps/wcm/connect/economylib4/en/home/activity/sections/sp ecialeconomicareas/main/index. Independent of the SEZs, in 2010, the Russian Presidency launched an initiative to establish the Skolkovo Innovation Center in the Moscow suburbs to promote investment in high-technology startup businesses, research, and commercialization of technological innovation. Inspired by the model of Silicon Valley, Skolkovo "resident companies" can receive a broad range of benefits, including complete exemption from profit tax, valueadded tax, property taxes, and import duties, and partial exemption from social fund payments. Applicants for residency are evaluated and selected by an international admission board. According to the Skolkovo Foundation, over 200 companies have been selected as residents thus far. Foreign Direct Investment Statistics Return to top

Table 1 shows flows of foreign investment by country for the first nine months of 2012, compared to the same period in 2011. Total foreign investment decreased by 14% yearon-year. According to Russian statistical practice, total foreign investment numbers include direct investment (FDI), portfolio investment, and other investment (largely trade credits). FDI flows into Russia, however, increased slightly in 2012, rising by 4 percent. As also was the case last year, the largest share of foreign investment came from Switzerland. FDI from the Netherlands and Cyprus is consistently high because most FDI coming from these countries is either returning or reinvested Russian capital through subsidiaries or off-shore vehicles. (Note: The data in the tables below are from the Russian State Statistical Service (RosStat) and differ from data maintained by the Central Bank of Russia and the U.S. Department of Commerce.) Table 1: Top Investors - By Year (in $ millions) Country Jan-Sep 2012 Total FDI 43,252 88 15,676 909 11,788 3,842 3,799 1,119 10,618 500 Jan-Sep 2011 Total 69,115 13,218 12,972 8,169 6,336 133 FDI 70.1 3,023 2,758 1,480 176 Jan-Sep 2010 Total 3,398 7,507 5,635 7,520 4,240 FDI 64.5 943 1,912 1,095 430

Switzerland Netherlands Cyprus Germany UK

All Others 29,330 5,819 23,976 4,228 19,189 3,751 Total 114,463 12,277 133,784 11,736 47,488 8,196 The numbers in Table 2 represent the accumulated stock of total foreign investment by country, including FDI, portfolio, and "other" investment as of September 30, 2012, compared to the amount accumulated a year prior. Source: RosStat. Table 2: Top Investors - Accumulated Basis (in $ millions) As of Sep 30, As of Sep 30, 2012 As of Sep 30, 2011 2010 Total FDI Total FDI Total FDI Cyprus 78,566 53,357 69,057 47,290 57,600 40,377 Netherlands 59,223 21,723 46,295 23,328 44,184 22,790 Luxembourg 39,808 1,191 35,051 643 32,228 652 Germany 24,757 11,393 29,779 11,386 22,656 8,332 China 27,792 1,346 27,356 1,238 10,543 931 115,650 42,529 98,743 37,074 All Others 123,198 46,298 Total 353,344 135,308 323,178 126,415 265,954 110,156 Table 3 shows total foreign investment by region over the first nine months of 2011, compared to the same period in 2010. RosStat has not provided any updated data on regional foreign investment for 2012. In the 2010-2011 comparison, Moscow continued to attract the largest volume of investments (63.4% of total foreign investment), mainly due to the concentration of companies' headquarters and consumers with high purchasing power. Source: RosStat. (Note: includes direct, portfolio and "other" investment.) Table 3 – Foreign Investment – Top Regions (in $ millions) Country Jan-Sep 2011 Amount Moscow (city) Tyumen Region Sakhalin Region St. Petersburg Belgorod Region Others Total 84,878 9,821 6,570 3,972 3,171 25,371 133,784 % 63.4% 7.3% 4.9% 3.0% 2.4% 19.0% 100% Rank 1 2 3 4 5 Amount 15,816 701 3,611 3,723 24.7 23,612 47,488 Jan-Sep 2010 % 33.3% 1.5% 7.6% 7.8% 0.1% 49.7% 100.0% Rank 1 11 4 3 58

Table 4 shows investment by sector over the first nine months of 2012, compared to the same period in 2011. Total investment decreased in five of the ten top sectors. Foreign investment into the financial sector dropped off precipitously, with a decrease of 42%. Given the continued weakness of the global economy, investors are reducing their exposure to emerging markets, including Russia. Foreign, particularly European, banks are also repatriating profits from their Russian subsidiaries. Source: RosStat. Table 4: Foreign Investment: Top Sectors (in $ millions)

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Industry/Sector Finance Extraction of Fuel Wholesale and Retail Trade Production of coke and oil products Metallurgy Transport and Communications Real Estate and Related Services Chemical Industry Food Industry Production of vehicles All Others Total

Jan-Sep 2012 Jan-Sep 2011 Jan-Sep 2010 % Amount % Amount % Amount 33.46% 38,300 49.10% 65,711 3.70% 1,764 10.60% 12,136 9.60% 12,850 17.10% 8,115 15.79% 18,074 9.20% 12,363 18.30% 8,688 10.78% 6.05% 2.95% 12,338 6,927 3,377 7.50% 4.40% 4.10% 9,997 10.50% 5,902 10.40% 5,494 8.30% 4,980 4,950 3,952 3,843 1,679 1,866 1,569 6,082 47,488

6.25% 7,150 3.60% 4,782 8.10% 2.09% 2,387 2.70% 3,636 3.50% 1.38% 1,583 1.50% 1,964 3.90% 2.45% 2,802 1.40% 1,845 3.30% 9.20% 9,389 6.90% 9,240 12.80% 100.00% 114,463 100.00% 133,784 100.00%

Table 5 shows stocks of Russian FDI abroad as of September 30, 2012 and September 30, 2011, as well as flows of Russian FDI abroad for the first nine months of 2012, compared to the same period in 2011. Russian FDI stocks abroad increased in five of seven top destinations for FDI (data from 2011 was unavailable for Luxembourg and the United Kingdom).Source: RosStat. Table 5: Top Destinations of Russian FDI - By Year (in $ millions) Country as of Sep 30, 2012 Stock 31,049 25,686 8,115 7,880 6,270 6,206 5,820 Flow 6,848 10,834 38,641 642 7,528 213 5,877 as of Sep 30, 2011 Stock 25,067 14,280 2,814 6,663 N/A N/A 2,685 Return to top Flow 8,427 842 328 439 N/A N/A 629

Netherlands Cyprus Switzerland United States United Kingdom Luxembourg Belarus Web Resources See above sub-sections. Return to table of contents

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Chapter 7: Trade and Project Financing
• • • • • • How Do I Get Paid (Methods of Payment) How Does the Banking System Operate Foreign-Exchange Controls U.S. Banks and Local Correspondent Banks Project Financing Web Resources Return to top

How Do I Get Paid (Methods of Payment)

Payment methods and terms vary depending upon the U.S. company’s business model and relationship with its Russian trading partner. For new-to-market companies, requesting advance payment for goods and services from a Russian customer may be a prudent course to follow until both parties establish a positive record of payment. Once a U.S. firm has established a strong relationship with a Russian trading partner, it may consider extending short- and eventually longer term credit as a way to bolster sales volume. This should be done with caution and only after careful evaluation and establishment of successful payments. For some large transactions, advance payment from a Russian buyer may be impractical. In such cases, financing may be provided by a bank, export credit agency or venture fund. Exporters’ risk can be minimized with a bank or insurance guarantee from a Russian bank that would be acceptable to a U.S. bank. In leasing deals, exporters should insist on an upfront payment of three to fourth months upon delivery as a way to mitigate some of the risk. Leasing has become increasingly attractive to both lessees and lessors because of its economic effectiveness, flexibility and accessibility in comparison to bank finance. Most large Russian banks have leasing programs that they can offer their clients in such cases, and there is a growing list of foreign leasing companies operating in Russia that can offer Russian clients leasing terms for imported equipment. Aviation, energy, mining, construction, transportation, pharmaceutical, forestry and fishing industries equipment which may be too expensive for Russian customers to purchase, are often leased. How Does the Banking System Operate? Return to top

Despite improvement over the last several years, the Russian banking system is still evolving in terms of being able to meet the capital and credit needs of a rapidly growing and dynamic market economy. However, while the banking services available from Russian banks is still limited compared to what is available in the United States, a company doing business in Russia can access an expanding range of basic services offered by a larger commercial bank.

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The Russian banking sector is highly segmented, with the top five banks controlling 48% of assets. There are over 1000 banks in Russia; 80 are 100% foreign-owned. The number of small banks is gradually decreasing due to insolvency and consolidation. The top two banks, Sberbank (controlled by the Central Bank) and VTB (controlled by the Government), together own about one-third of the banking sector assets in Russia. The Russian Government has approved a list of 11 state-controlled companies whose stakes are to be privatized in 2011-2013, which includes Sberbank and VTB. This mass privatization began with the sale of a 10% stake in VTB for $3.3 billion in February 2011. Foreign-Exchange Controls Return to top

Currency control legislation has been liberalized considerably in the last few years. For payments related to the import of goods, there are no significant restrictions. However, the bank of the Russian importer is obliged to ensure compliance of payments with the currency regulations. Therefore, the Russian importer and its bank set up a “transaction passport” for each contract. The foreign exporter is not directly involved, but may be affected due to the need for the Russian importer to obtain documents and information from the exporter. For more information, see Conversion and Transfer Policies in the Investment Climate Statement (Chapter 6). U.S. Banks and Local Correspondent Banks Return to top

Most foreign businesses prefer to deal with foreign-owned banks, as they are more stable, more experienced and generally offer higher levels of service. Until recently, these banks concentrated their activity in highly profitable financial markets and were not interested in commercial banking. However, demand led them to diversify their services to include foreign trade transactions and commercial banking. Many foreign banks now provide regular commercial services, including accounts, transfers, currency exchange, credit, documentary operations, letters of credit and trade financing. Some of these banks will establish individual accounts for non-residents and employees of their institutional clientele. Under Russian law, foreign banks are only allowed to establish subsidiaries and not branches within the Russian Federation. Unfortunately, the lack of nationwide subsidiaries makes these services largely unavailable to customers operating outside the major metropolitan centers of Moscow and St. Petersburg. U.S. banks have increased their share of the Russian banking market. Citibank has been present in the Russian market for many years, but has recently increased its presence via aggressive expansion into retail banking. GE Money Bank has also made inroads in the sector. State-Owned Banks: Two state-controlled banks, Sberbank and Vneshtorgbank (VTB), continue to dominate the corporate and retail banking sectors in Russia. The state also controls a number of smaller banks. The Russian Government has repeatedly urged Russia's state-controlled banks to modernize in order to play a more active role in the economy. These public criticisms aside, state banks have been the primary beneficiaries of the Government’s efforts to supply short- and long-term liquidity to the economy to mitigate the economic crisis.

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Russian Private Commercial Banks: Other viable Russian banks include emerging service-oriented banks and large banks owned by financial-industrial groups. They are competitive and likely to remain customer oriented and to find creative solutions to Russia's business complexities. A potential weakness is their limited capacity to provide services comparable to those of large international banks. Furthermore, they lack nationwide coverage. Russia’s 10 largest commercial banks are:  Sberbank  VTB  Gazprombank  Rosselkhozbank  Bank of Moscow  Alfa-Bank  UniCredit Bank  ZAO Raiffeisen Bank  VTB24  Rosbank Project Financing Return to top

The Export-Import Bank of the United States (Ex-Im Bank) is the official export credit agency of the United States. Ex-Im Bank’s mission is to assist in financing the export of U.S. goods and services to international markets. Ex-Im Bank offers guarantees and direct loans to finance the construction and operation of projects through structured finance transactions, including limited recourse project finance in which project cash flows are used for repayment of the financing. In 2012 the Export-Import Bank of the United States and Sberbank of Russia, the largest financial institution in Russia and the CIS, signed a $1 billion Memorandum of Understanding to facilitate increasing U.S. exports of goods and services to Russia and other countries in which Sberbank operates and Ex-Im Bank programs are available. While the agreement is available to support sales in all business sectors for which Ex-Im Bank export-financing support is available, Ex-Im sees great potential for U.S. companies is concentrated in aviation, infrastructure, and energy, including both conventional and renewable energy. According to the terms of the agreement, Ex-Im and Sberbank intend to support up to $1 billion in U.S. exports to buyers in Russia and other target countries through 2014. And Ex-Im will consider increasing the amount of financing support should demand exceed $1 billion. Ex-Im Bank exposure in Russia at the end of Fiscal Year 2011 (September 30, 2011) was approximately $315 million, of which $117 million was authorized in FY 2011. As of fiscal year 2012, Ex- Im Bank approved $35.8 billion in total authorizations– an alltime Ex-Im record. This total includes more than $6.1 billion directly supporting smallbusiness export sales. These transactions supported $50 billion worth of American exports and an estimated 255,000 American jobs. For additional information on the U.S. Ex-Im Bank's financing options and its projects in Russia, please contact the Bank directly: Brian Sant Angelo Global Business Development 138

Export-Import Bank of the United States Phone: +1 (202) 565 3484 Web Resources Export-Import Bank of the United States: http://www.exim.gov Country Limitation Schedule: http://www.exim.gov/tools/countrylimitationschedule/ OPIC: http://www.opic.gov Trade and Development Agency: http://www.ustda.gov/ SBA's Office of International Trade: http://www.sba.gov/oit/ USDA Commodity Credit Corporation: https://www.fsa.usda.gov/ U.S. Agency for International Development: http://www.usaid.gov European Bank for Reconstruction and Development: http://www.ebrd.com/pages/country/russia.shtml Return to table of contents Return to top

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Chapter 8: Business Travel
• • • • • • • • • • Business Customs Travel Advisory Visa Requirements Telecommunications Transportation Language Health Local Time, Business Hours and Holidays Temporary Entry of Materials and Personal Belongings Web Resources

Business Customs

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The Russian market is extremely competitive. Salesmanship is a key factor and U.S. firms should be prepared to describe the competitive advantages and factors that distinguish them in the marketplace. Establishing a personal relationship with business partners is a critical factor in the successful negotiation of major projects, government procurement or in developing longterm business relationships. Scheduling meetings with potential Russian business partners can be challenging. It may take weeks to get a response to an email, fax or a telephone request for a meeting. Once contact has been established, patience may still be required to confirm a date and time to meet. U.S. business visitors to Moscow or St. Petersburg are advised to factor traffic into scheduling. Russian language ability is a must and an interpreter should be hired if necessary. An increasing number of Russian businesspeople speak a courtesy level of English; however, many prefer to conduct business discussions in Russian. The U.S. Commercial Service can arrange for the services of qualified interpreters. Business cards are important and are exchanged freely. Cards should have regular contact information and an email address and Web site if available. Most foreign businesspeople in Russia carry bilingual English/Russian business cards (one side English, the other Russian). Promotional materials in Russian are an important tool for creating interest in a company’s products in the Russian market. It is very important that the translation be accurate and of high quality. Many companies interested in the Russian market have used on-line translation services for translation of their promotional material, only to learn that the translation was inferior and did not serve the intended purpose. For the best results, it is highly recommended that professional translation services be used. The Commercial Service can recommend fully qualified translators upon request.

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Travel Advisory

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The State Department issues Travel Alerts and Warnings when warranted by local conditions. If you are traveling to Russia, please refer to the Country-Specific Information (CSI) for the Russian Federation at http://travel.state.gov/travel/cis_pa_tw/cis/cis_1006.html#page and consider enrolling your travel with the Department of State in order to receive e-mail updates. The CSI is updated regularly and contains key information for travelers regarding security and safety, health, visa and immigration regulations, and general travel information about the Russian Federation. Travel Tips Hotels: While world-class tourist and business facilities exist in Moscow and St. Petersburg, they are under-developed in much of Russia, and many goods and services taken for granted in other countries are not yet available. Moscow, St. Petersburg, Novgorod, Nizhniy Novgorod, Nizhnevartovsk, Perm, Samara, Yekaterinburg, Perm, Sochi, Yuzhno Sakhalinsk, and Vladivostok, among other cities, have Western-style hotels, though often priced at a premium compared with other major cities of the world. Outside major cities, traditional Russian hotels offer modest accommodations at modest rates. Some regional hotels raise rates for foreign guests. It is possible to find wellappointed hotels in some small towns; it is equally possible to be temporarily without water or electricity when visiting some regions of Russia. Clothing: Russian businessmen and women predominately wear business suits. For women, dresses, skirts or pants are acceptable. Winters can be extremely cold in Russia with occasional temperatures in the minus-20 Fahrenheit range in northern and Siberian cities; Moscow and St. Petersburg can be quite cold as well, with temperatures in the teens F. not uncommon. Winter clothes may be needed as early as October or as late as April. During the winter months people dress for warmth. Travelers are advised to bring boots or other protective footwear, as streets and sidewalks in winter are frequently slushy or icy. Summers, while brief, can be surprisingly hot, and air conditioning is still rare outside big-city hotels and offices. Food: A meal in a hotel or top restaurant in Moscow and St. Petersburg can be very expensive by U.S. standards. Nevertheless, in these cities there is an increasing variety of less expensive restaurants, including pizza, and fast food establishments. Russian food can be bland to American tastes, while many visitors find Caucasian, Georgian and Uzbek cuisines to be interesting contrasts. Regardless of the city or hotel, bottled water served with no ice is recommended. Money: Russia is a predominately cash economy with the Russian ruble as the only legal tender for local transactions. It is illegal to pay for goods and services in U.S. dollars or other foreign currency. Old, worn, or marked bills are often not accepted at banks and exchanges. In Moscow and St. Petersburg, currency exchange offices are available in most shopping areas and provide reliable service. Credit cards are now accepted at many modern businesses in Moscow and St. Petersburg, and at some hotels and restaurants in larger regional cities, but frequently only in major stores. Traveler checks are not widely accepted in Russia. Travelers to regional cities or towns are advised to carry enough cash to cover foreseeable expenses. Major hotels and the American Express offices in Moscow and St. Petersburg may be able to suggest locations for cashing traveler’s checks or obtaining cash advances on credit cards. 141

Rubles (and dollars, if needed) may be obtained from bank ATMs that are connected to the PLUS and CIRRUS systems using U.S. debit/credit cards. It is not recommended to use credit/debit cards for small purchases or in standalone ATMs (those not physically located at a bank). ATMs are common in the larger cities, although there have been some instances of theft from card numbers used in these systems. Western Union has many agents in Moscow, and other cities in Russia, which disburse money wired from the United States. Mail Services: The following companies, with offices in Moscow, offer priority mail services between the United States and Russia: • DHL • Federal Express • Pony Express • TNT • UPS Personal Security Incidents of unprovoked, violent harassment against racial and ethnic minorities regularly occur throughout the Russian Federation. The U.S. Embassy and Consulates General continue to receive reports of American citizens, often members of minority groups, having been victimized in violent attacks by “skinheads” or other extremists. Travelers are urged to exercise caution in areas frequented by such individuals and wherever large crowds have gathered. Americans most at risk are those of African, South Asian, or East Asian descent, or those who, because of their complexion, are perceived to be from the Caucasus region or the Middle East. These Americans are also at risk of harassment by police authorities. Visitors to Russia need to be alert to their surroundings. In large cities, they need to take the same precautions against assault, robbery, or pickpockets that they would take in any large U.S. city:
• • • •

keep billfolds in inner front pockets, carry purses tucked securely under arms, wear the shoulder strap of cameras or bags across the chest, walk away from the curb and carry purses and other bags away from the street.

The most vulnerable areas include underground walkways and the subway, overnight trains, train stations, airports, markets, tourist attractions, and restaurants. Groups of children and adolescents have been aggressive in some cities, swarming victims, or assaulting and knocking them down. They frequently target persons who are perceived as vulnerable, especially elderly tourists or persons traveling alone. Some victims report that the attackers use knives. Persons carrying valuables in backpacks, in back pockets of pants and in coat pockets are especially vulnerable to pickpockets. Recently, groups of older teen males have also swarmed Metro passengers and forcibly stolen personal belongings. Foreigners who have been drinking alcohol are especially vulnerable to assault and robbery in or around nightclubs or bars, or on their way home. Some travelers have been drugged at bars, while others have taken strangers back to their lodgings, where 142

they were drugged, robbed, and/or assaulted. The Russian media report that the drug GHB is reportedly gaining popularity in local nightclubs, under the names butyrate or oxybutyrate. This drug can also cause amnesia, loss of consciousness, extreme intoxication when mixed with alcohol, and death. The drug, typically a capful of liquid mixed with a beverage, gained notoriety in the United States after incidents of date rape and death. In many cases, stolen credit cards are used immediately. Victims of credit card or ATM card theft should report the theft to the credit card company or issuing bank immediately. Travelers are advised to be vigilant in bus and train stations and on public transport. Travelers have generally found it safer to travel in groups organized by reputable tour agencies. Visitors are strongly discouraged from using unmarked, “gypsy” taxis. Passengers have been victims of robbery, kidnapping, extortion and theft. Criminals using these taxis to rob passengers often wait outside bars or restaurants to find passengers who have been drinking and therefore more susceptible to robbery. Robberies may also occur in taxis shared with strangers. Although there are few registered taxi services in Russia, travelers should always use authorized services when arriving at major airports. A common street scam in Russia is the “turkey drop” in which an individual “accidentally” drops money on the ground in front of an intended victim, while an accomplice either waits for the money to be picked up, or picks up the money him/herself and offers to split it with the pedestrian. The individual who dropped the currency then returns, aggressively accusing both of stealing the money. This confrontation generally results in the pedestrian’s money being stolen. Avoidance is the best defense. Do not get trapped into picking up the money, and walk quickly away from the scene. To avoid highway crime, travelers should try not to drive at night, especially when alone, or sleep in vehicles along the road. Travelers should, under no circumstances, pick up hitchhikers; they not only pose a threat to physical safety, but also put the driver in danger of being arrested for unwittingly transporting narcotics. Extortion and corruption are common in the business environment. Threats of violence and acts of violence are commonly resorted to in business disputes. Organized criminal groups and sometimes local police target foreign businesses in many cities and have been known to demand protection money. Many Western firms hire security services that have improved their overall security, although this is no guarantee. Small businesses are particularly vulnerable. American citizens are encouraged to report all extortion attempts to the Russian authorities and to inform consular officials at the U.S. Embassy or nearest Consulate General. Travelers should be aware that certain activities that would be normal business activities in the United States and other countries are either illegal under the Russian legal code or are considered suspect by the Federal Security Service (FSB). U.S. citizens should be particularly aware of potential risks involved in any commercial activity with the Russian military-industrial complex, including research institutes, design bureaus, production facilities or other high technology, government-related institutions. Any misunderstanding or dispute in such transactions can attract the involvement of the security services and lead to investigation or prosecution for espionage. Rules governing the treatment of information remain poorly defined.

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It is not uncommon for foreigners in general to become victims of harassment, mistreatment and extortion by law enforcement and other officials. Police do not need to show probable cause in order to stop, question or detain individuals. If stopped, travelers should try to obtain, if safe to do so, the officer’s name, badge number, and patrol car number, and note where the stop happened, as this information assists local officials in identifying the perpetrators in cases where the incident is not for legitimate purposes. Authorities are concerned about these incidents and have cooperated in investigating such cases. Travelers should report crimes to the U.S. Embassy or the nearest Consulate General. Consular Services: All Americans who travel to Russia are encouraged to register at the U.S. Embassy or at one of the U.S. Consulates, listed below. In addition to providing updated travel and security information, registration facilitates replacement of a lost or stolen passport as well as contact in case of emergency. U.S. Embassy - Moscow 8 Bolshoy Deviatinsky Pereulok, Moscow 121099 American Citizen Services, Consular Section 21 Novinskiy Blvd, Moscow 123242 Tel: 7 (495) 728-5577, Fax: 7 (495) 728-5084 After-hours (emergencies): Tel: 7 (495) 728-5025/728-5000 U.S. Consulate General - St. Petersburg 15 Furshtadkskaya Street, St.Petersburg 191028 Tel: 7 (812) 331-2600, Fax: 7 (812) 331-2852 After-hours emergencies: Tel: 7 (812) 271-6455 or 939-5794 U.S. Consulate General - Vladivostok 32 Pushkinskaya Street, Vladivostok 690001 Tel: 7 (4232) 300-070, Fax: 7 (4232) 499-371/2 (4232) 300-091 (visa section) After-hours emergencies: Tel: 7 (4232) 710-067 U.S. Consulate General – Yekaterinburg 15 Gogol Street, 4th Floor, Yekaterinburg 620151 Tel: 7 (343) 379-3001/379-4619/91, Fax: 7 (343) 379-4515 Visa Requirements Return to top

The Russian Government requires visas and residence permits for businessmen and investors. Work and residence permits must be renewed periodically – a cumbersome process that almost always requires local legal counsel. Russia’s visa system is very complicated, and visitors should consult the State Department’s Country-Specific Information (CSI) for the Russian Federation for up-to-date information on Russian entry and exit requirements. The CSI can be referenced at: http://travel.state.gov/travel/cis_pa_tw/cis/cis_1006.html#page. U.S. companies that require travel of foreign businesspersons or workers to the United States should be aware that Russian citizens require visas to enter the United States. A visa is issued by a U.S. Embassy or Consulate and entitles the holder to travel to the United States and apply for admission; it does not guarantee entry. An immigration 144

inspector at the port of entry determines the visa holder's eligibility for admission into the United States. The Embassy and Consulates process visa applications in an expeditious manner, but it is important to apply as early as possible. Further information on U.S. visas is available at the following links: State Department visa Web site: http://travel.state.gov/visa/ U.S. Embassy Moscow Visa Information: http://moscow.usembassy.gov/visas.html Telecommunications Return to top

Internet Accessibility: The level of penetration and Internet awareness continues to increase in Russia. Recent figures show that roughly half of the Russian population uses the Internet on a regular basis. The largest players in Russian language e-mail services and search engines are Mail.ru, Rambler and Yandex. Internet is widely available in the major cities. Wi-Fi is increasingly available in Russia. Currently, there are about 6,000 hot spots active in Russia that are primarily located in Moscow, St. Petersburg and other large cities. Launching WIMAX services combined with Wi-Fi will be the driver for further proliferation of wireless Internet access. Mobile Technology: Mobile services are provided in the GSM, CDMA-450, AMPS and DAMPS standards. GSM dominates the market, holding 80% of the market space. The major cellular operators in the market are Mobile TeleSystems (MTS), Vimpelcom (Beeline) and Megafon. Long distance telephone calls can usually be made from any place in the city using IP phone services, including SKYPE, if you have an available Internet connection. One can also buy a mobile SIM card for intercity or international phone calls at a special rate. To save money on international calls and internal calls, one can buy a phone at a cell phone shop (starting $30 and a local sim -$5) A rudimentary knowledge of Russian is extremely helpful for those placing a call through local telephone and telegraph offices. Moscow is eight hours ahead of Washington, D.C., during Eastern Daylight Time and nine hours ahead during Eastern Standard Time. To reach Moscow by phone from the United States you need to access an international line, and then dial Russia Country Code “7,” Moscow City Code “495” followed by the phone number. Some new numbers use “499” for Moscow, and calling cell phones in Russia often require a different dialing string. Transportation Return to top

The U.S. Federal Aviation Administration (FAA) has assessed the Russia Government as being in compliance with the ICAO international aviation safety standards for oversight of Russia air carriers operations. See http://www.faa.gov/about/initiatives/iasa/ for more information. Travelers should be aware some local airlines may not have advance reservation systems and sell tickets for cash at the airport. However, due to consolidation of Russian airlines and the growing popularity of Internet-based sales, advance on-line 145

ticket purchases are becoming more common. Flights often are canceled if more than 30% of the seats remain unsold. Travelers should have their passport with them at all times. Air travel within western Russia is occasionally erratic but generally stays on schedule; the quality of service continues to improve. Flights within the Russian Far East are sometimes delayed or cancelled in winter months due to snow or fog. International Russian carriers such as Aeroflot and Transaero usually use Western equipment and meet higher standards than other domestic carriers. Moscow has three major airports (Sheremetyevo, Domodedovo and Vnukovo); a fourth airport, Bykovo, deals primarily with cargo and emergency flights. International flights generally enter Moscow through Sheremetyevo and Domodedovo. Most international flights arrive in Sheremetyevo-2 (renamed SVO-F in December 2009) while Sheremetyevo-1 (renamed SVO-B in March 2010) handles most domestic traffic. With the opening of terminal C (SVO-C) in March 2007 and the opening of terminal D (SVOD) in November 2009, some international and domestic travel has been diverted to these facilities. Terminal E (SVO-E) was completed in April 2010 and also receives international flights. In July 2010, terminals F, D, and E were connected to allow for more convenient passenger movements throughout the terminals. Travelers may continue to other Russian cities from Sheremeyevo, Vnukovo or Domodedovo airports. However, travel time between airports or to the city center can take as much as three hours, and ample time must be allowed for passport control, customs clearance and baggage retrieval. The introduction of Aeroexpress trains that provide a high-speed direct connection from each of the airports to the city center (35-45 min travel time) have greatly alleviated this problem over the recent years. St. Petersburg's airport has two terminals: Pulkovo-1 (domestic flights) and Pulkovo-2 (international flights). Train travel in Russia is generally reliable and convenient as stations are located in the city center. From St. Petersburg to Moscow, travelers often ride overnight trains, although unaccompanied passengers are reminded to keep an eye on their valuables and lock their doors at night (if in a sleeping compartment), as some incidents of pickpocketing have been reported. For quicker train connection between Moscow and St. Petersburg during the daytime, travelers can consider taking the high-speed SAPSAN train that reaches destination only within 4 hours. Inclement weather, erratic maintenance and a culture of aggressive driving make road conditions throughout Russia highly variable. Drivers and pedestrians should exercise extreme caution to avoid accidents. Traffic police sometimes stop motorists to levy cash "fines," and criminals occasionally prey on travelers, especially in isolated areas. In Moscow and St. Petersburg, the metro (subway) can be an efficient and inexpensive means of transportation. However, for non-Russian speakers, it can be difficult unless prepared in advance. Be sure to carry a metro map with you and learning the Cyrillic alphabet is helpful. Marked taxis are increasingly present in Moscow and St. Petersburg. Short-term business travelers may wish to consider renting a car and driver for extensive excursions, or hire taxis through their hotels for shorter jaunts. Car rentals are another option that has opened up in the last couple of years, although driving in Russia can be difficult for the uninitiated.

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Language

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Though many better-educated Russians in major cities speak English, you should be prepared to conduct business in Russian. Many first-time visitors are surprised by how difficult it can be to find anyone who speaks English. U.S. businesses should hire a reputable interpreter when conducting important negotiations. Not having product literature in Russian will put your company at a disadvantage relative to your European and Asian competitors, not to mention local firms. Health Return to top

Western medical care in Moscow can be expensive, difficult to obtain, and not entirely comprehensive. The Embassy strongly urges all travelers who visit Russia to purchase traveler's medical insurance which includes coverage for a medical evacuation. The U.S. Embassy maintains a list of medical service providers on its Web site at: http://moscow.usembassy.gov/medical.html. The Department of State updates its Country-Specific Information (CSI) for Russia every six months and includes information on Medical Facilities and Health Information as well as Medical Insurance. Please go to: http://travel.state.gov/travel/cis_pa_tw/cis/cis_1006.html#medical. Further information on health matters can be obtained from the Centers for Disease Control and Prevention's international traveler's hotline at 1-877-394-8747, or via the CDC home page at http://www.cdc.gov. Local Time, Business Hours, and Holidays Return to top

There are 9 time zones across Russia. As of March 2011, daylight savings time is observed year-round. Moscow is eight hours ahead of Eastern Daylight Time and nine hours ahead of Eastern Standard Time. Most companies and offices maintain business hours of 9:00 a.m. - 6:00 p.m. Many shopping centers and supermarkets are open from 10:00 a.m. - 8:00 p.m. Increasingly, major supermarket chains are open 24 hours, 7 days per week. Russian Holidays: The holidays listed on the U.S. Embassy’s Web site are not an exclusive list. Occasionally days off will be declared by the Government to create a long weekend, particularly at Christmas (when holidays fall on weekends, Russian authorities generally announce during the week prior to the holiday whether it will be celebrated on the previous Friday or the following Monday). Travelers should be aware that little business is done from mid-December through mid-January. The country essentially shuts down for business from New Years to Russian Orthodox Christmas (January 7). Government offices, most businesses and even much of the press close during this period. The period from May 1 through May 9 is similar. U.S. Embassy Official Holidays for 2013: http://moscow.usembassy.gov/holidays.html

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Temporary Entry of Materials and Personal Belongings

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Russian customs procedures include entry and exit declaration forms. Foreigners are allowed to export up to $3,000 without providing a customs declaration or proof of how the money was obtained. Foreigners may also export up to $10,000 by simply filling out a customs declaration upon exit. More than $10,000 can be exported upon proof that it was imported into Russia legally (a stamped customs declaration or proof of a legal bank or wire transfer must be presented to export currency). Failure to follow these procedures can and does result in delays, detentions, confiscation of the currency, and even imprisonment. Lost or stolen customs forms should be reported to the Russian police, and a police report (spravka) should be obtained to present to customs officials upon departure. Often, however, the traveler will find that the lost customs declaration cannot be replaced. Generally speaking, you should obtain a receipt for all items of value – including caviar – purchased in Russia. Furthermore, old artifacts and antiques must have a certificate indicating that they have no historical value. For further information, call Russian Customs at +7 (495) 265 6628 or 208 2808. Additional information can also be found at http://eng.customs.ru/. Export duties may be imposed on any items that are determined by customs officials at the point of departure to be of commercial use. Items which may appear to have historical or cultural value -- icons, rugs, art, antiques, etc. -- may be taken out of Russia only with prior written approval of the Ministry of Culture and payment of a 100% duty. Occasionally, dealers of quality items may be able to arrange this approval at a much lower cost. Certain items, such as caviar, medications, jewelry, precious and semiprecious stones or metals, and fuel may be exported duty-free in limited amounts only. Computers, electronic notebooks and related hardware must be presented to customs officials at the airport for scanning at least two hours prior to departure. The Embassy understands that customs officials may require "information storage devices" to be submitted 24 hours before departure. The law is often neglected but can be enforced on a case-by-case basis. Failure to follow the customs regulations may result in penalties ranging from confiscation of the property in question and/or imposition of fines or arrest. To prevent possible difficulties in taking currency and valuables back out of Russia, travelers are highly advised to ensure that their passenger declaration form is completed and is stamped by customs officials at the point of entry. This customs declaration should be kept and made available when exiting Russia. Web Resources U.S. Department of State Web site: http://www.travel.state.gov Centers for Disease Control and Prevention: http://www.cdc.gov U.S. Embassy Moscow Web site: http://moscow.usembassy.gov U.S. Federal Aviation Administration (FAA): http://www.faa.gov/ Return to table of contents Return to top

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Chapter 9: Contacts, Market Research and Trade Events
• • • Contacts Market Research Trade Events

Contacts Russian Government Offices

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Ministry of Economic Development Mr. Andrey Belousov, Minister 1/3, 1st Tverskaya-Yamskaya Street, Moscow 125993 Tel: 7 (495) 694-0353; 950-9263 (The Americas Dept.), Fax: 7 (499) 251-6965 http://www.economy.gov.ru/wps/wcm/connect/economylib4/en/home Ministry of Finance Mr. Anton Siluanov, Minister 9 Ilyinka Street, Entrance 1, Moscow 103097 Tel: 7 (495) 987-9101/-9130/-9140/-9868; Fax: 7(495) 625-0889 http://www.minfin.ru/en/ Ministry of Industry and Trade Mr. Denis Manturov, Minister 7 Kitaigorodskiy Proyezd, Moscow 109074 Tel: 7 (495) 710-4888; Fax: 7 (495) 710-5150 (International Dept.) http://www.minpromtorg.gov.ru/eng Ministry of Energy Mr. Aleksandr Novak, Minister 42 Shchepkina Street, GSP-6, Moscow 107996 Tel: 7 (495) 631-98-58; Fax: 7 (495) 631-8364 http://minenergo.gov.ru/ Ministry of Information and Mass Communications Mr. Nikolay Nikiforov, Minister 7 Tverskaya Street, Moscow 125375 Tel: 7 (495) 771-8100; Fax: 7 (495) 771-8710 http://minsvyaz.ru/ru/ Ministry of Transportation Mr. Maxim Sokolov, Minister 1/1 Rozhdestevenka Street, Moscow 109012 Tel: 7 (495) 626-1000, Fax: 7 (495) 626-9128, 626-9038 http://www.mintrans.ru

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Ministry of Healthcare Ms. Veronika Skvortsova, Minister 3 Rakhmanovsky Per., GSP-4, Moscow 127994 Tel.: 7 (495) 628-4453, Fax: 7 (495) 627-2944 http://www.rosminzdrav.ru/ Ministry of Agriculture Mr. Nikolay Fedorov 1/11 Orlikov Pereulok, Moscow 107139 Tel: 7 (495) 607-8000; Fax: 7 (495) 607-8362 http://www.mcx.ru Ministry of the Interior Mr. Vladimir Kolokoltsev Economic Security Department 16, Zhitnaya St., Moscow 119049 Tel: 7 (495) 667 2221 http://eng.mvdrf.ru Ministry of Regional Development Mr. Igor Slyunyaev Sadovaya-Samotechnaya St., 10/23, bldg. 1, Moscow 127994 Tеl: (495) 980-25-47; Fax: (495) 699-38-41 http://www.minregion.ru/eng Federal Customs Service Mr. Andrey Belyaninov 11/5, Novozavodskaya St., 121087 Moscow Tel: 7 (495) 449 7252 http://www.russian-customs.org/ Federal State Statistics Service (Goskomstat) Mr. Alexander Surinov 39 Myasnitskaya St., Moscow 107450 Tel: 7 (495) 607 4902; Fax: 7 (495) 607 4087 http://www.gks.ru/wps/wcm/connect/rosstat_main/rosstat/en/main/ Russian Agency for Patents and Trademarks (Rospatent) Dr. Boris Simonov, Director General 30-1 Berezhkovskaya Nab., G-59, GSP-5, Moscow 123995 Tel. 7 (495) 240-6138, 240-6015; Fax: 7 (495) 243-3337 http://www1.fips.ru/wps/wcm/connect/content_en/en/main/ Central Bank of Russia Mr. Sergey Ignatyev, Chairman Sergey Tatarinov, Head of External and Public Relations 12 Neglinnaya Street, Moscow 107016 Tel: 7 (495) 771-9100; Fax: 7(495) 621-6465 http://www.cbr.ru/eng/daily.aspx

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Selected Regional Governments Moscow City Administration Sergey Sobyanin, Mayor of the City of Moscow 13 Tverskaya Street, Moscow 125032 Tel/Fax: 7 (495) 692-1637 http://www.mos.ru St. Petersburg City Administration Georgiy Poltavchenko, Governor of St. Petersburg Igor Divinskiy, Vice Governor Committee for External Relations Smolny,Nevskiy Prospekt, 176 St. Petersburg 191060 Tel: 7 (812) 576-7113; Fax: 7(812) 576-7633 http://www.kvs.spb.ru/?lang=eng http://eng.gov.spb.ru Vladivostok City Administration Igor Pushkaryov, Mayor of Vladivostok Okeanskiy prospect, Vladivostok 690950 Tel: 7 (4232) 614-223 http://www.vlc.ru Chukotsky Autonomous Okrug Government Roman Kopin, Governor 20 Bering Street, Anadyr 689000 Tel: 7 (42722) 290 86, Fax: 7 (42722) 290 87 http://www.chukotka.org/en/main Kamchatka Oblast Territorial Administration Vladimir Ilyukhin, Governor 1 Lenin Square, Petropavlovsk Kamchatsky 683040 Tel: 7 (4152) 412 096; Fax: 7 (4152) 423 503 http://www.kamchatka.gov.ru/en/ Natalia Labkovskaya, Director Department of Foreign Economic Relations and Protocol Tel/Fax: 7 (4152) 42 53 06 E-mail: orgotdel@kamchatka.gov.ru Khabarovsk Territorial Government Aleksandr Levintal, Vice-Chairman, Minister Ministry of Economic Development & Foreign Relations 19 Muravjeva-Amurskogo Street, Khabarovsk 680002 Tel: 7 (4212) 329 739; Fax: 7 (4212) 324-153 E-mail: econ@adm.khv.ru http://gov.khabkrai.ru/ Leningrad Oblast Andrey Minin, Chairman 151

Committee for International and Regional Relations 67 Suvorovsky Prospect, St. Petersburg 193311 Tel: 7 (812) 274-4742; Fax: 7 (812) 274-5986 E-mail: kvs@lenreg.ru http://www.lenobl.ru/ Primorskiy Territorial Administration Yevgeniy Markin, Director Department of International Relations and Tourism 22 Svetlanskaya Street, Vladivostok 690110 Tel: 7 (4232) 208 340; Fax: 7 (4232) 209 259 E-mail: intnlcmt@primorsky.ru http://www.primorsky.ru Sakhalin Regional Administration Sergey Vlasov, Chairman Committee for International, Foreign Economic and Regional Relations 173 Lenina Street, Yuzhno-Sakhalinsk 693000 Tel: 7 (4242) 727 494; Fax: 7 (4242) 727 493 E-mail: kom_mvms@adm.sakhalin.ru http://www.adm.sakhalin.ru/ Sverdlovsk Oblast Administration Ministry for International and Foreign Economic Relations Alexander Kharlov, Minister 1 Oktyabrskaya Ploshchad, Yekaterinburg 620031 Tel: 7 (343) 217-86-72/73; Fax: 7 (343) 217-89-07/11 http://www.midural.ru/ Tatarstan Republic Administration Interantional Foreign Economic Relations Department Airat Nazmeev,General Director 1 Ploschad Svobody, Kazan Tel: 7 (843) 264-7723 http://prav.tatar.ru/eng/ Yekaterinburg City Administration Svetlana Garipova, Chairman Foreign Relations Department 24a Lenina Prospect, Yekaterinburg 620014 Tel: 7 (343) 377-55-67, 51-43-83; Fax: 7 (3432) 51-90-05 Email: garipova@adm-ekburg.ru http://www.ekburg.ru/english_version/ American Chamber of Commerce in Russia American Chamber of Commerce in Russia Andrew Somers, President Tatiana Raguzina, Sr. VP for Policy and Membership

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7 Dolgorukovskaya Street, Moscow 127006 Tel: 7 (495) 961-2141; Fax: 7 (495) 961-2142 E-mail: amcham@amcham.ru http://www.amcham.ru American Chamber of Commerce in St. Petersburg Ms. Maria Chernobrovkina, Executive Director “Na Novo-Isaakievskoy” Business Center Ulitsa Yakubovicha 24, left wing, 3rd floor St. Petersburg 190000 Tel: 7 (812) 448 1646; Fax: 7 (812) 448 1645 E-mail: all@spb.amcham.ru http://www.amcham.ru/spb/ Russia-Focused Chambers of Commerce and Industry and Trade Associations in the United States U.S.-Russia Business Council Edward Verona, President and CEO 1110 Vermont Avenue, NW, Suite 350, Washington, DC 20005 Tel: (202) 739-9180, Fax: (202) 659-5920 www.usrbc.org Lotte Plaza Business Center Novinskiy boulevard 8, office 907 Moscow 121099 Tel: 7 (495) 228 58 96; Fax: 7 (495) 228 58 93 American-Russian Chamber of Commerce and Industry Helen Teplitskaya, President Aon Center, 200 E Randolph St., Suite 2200 Chicago, IL 60601 Tel: (312) 494-6562; Fax: (312) 494-9840 E-mail: info@arcci.org www.arcci.org/ Foundation for Russian-American Economic Cooperation Carol Vipperman, President 2601 Fourth Avenue, Suite 600, Seattle, WA 98121 Tel: (206) 443-1935; Fax: (206) 443-0954 E-mail: fraec@fraec.org http://www.fraec.org Mid-Atlantic Russia Business Council Val Kogan, President and CEO 1760 Market Street, Suite 1100, Philadelphia, PA 19103 Tel: (215) 708-2628; Fax: (215) 963-9104 E-mail: info@ma-rbc.org http://www.ma-rbc.org

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Russian-American Chamber of Commerce Sergio Millian, President 100 Wall Street, 11th Floor New York,NY 1005-3817 Tel:(212)884-9455 Fax: (678)559-0418 E-mail: sergio@russianamericanchamber.com http://www.russianamericanchamber.com Russian Chambers of Commerce and Industry and Trade Associations Council for Trade and Economic Cooperation (Russia-USA) Boris Alekseyev, President 3 Naberezhnaya Tarasa Shevchenko, Moscow 121248 Tel: 7 (495) 243-5514, -5494; Fax: 7 (495) 243-4156 E-mail: info@ctec.ru http://www.ctec.ru/eng Veronika Krasheninnikova, Ph.D., President 445 Park Avenue, 10th Floor New York, NY 10022 Tel: (212) 829 5724; Fax: (917) 322 2105 Email: info-usa@ctec.ru Moscow Chamber of Commerce and Industry Leonid Govorov, President 38/1, Sharikopodshipnikovskaya Street Moscow, 115088 Russia Tel.: 7 (495) 661-0776 Fax: 7 (499) 132-0029 E-mail: mtpp@mtpp.org http://www.mostpp.ru/eng Chamber of Commerce and Industry of the Russian FederationSergey Kartyrin, President 6 Ilyinka Street, Moscow 109012 Tel: 7 (495) 620-0009 Fax: 7 (495) 620-0360 E-mail: tpprf@tpprf.ru http://www.tpprf.ru/en/ Russian Union of Industrialists and Entrepreneurs (RSPP) Alexander Shokhin, President 17,Kotelnicheskaya Nab., Moscow 109240 Tel: 7 (495) 663-0404 Fax: 7 (495) 663-0432 E-mail: rspp@rspp.ru http://www.rspp.ru St. Petersburg Chamber of Commerce and Industry Vladimir Katenev, President Ms. Tatyana M. Radion, Director of External Relations Department 154

46-48 Chaikovskogo Street, St. Petersburg 191123 Tel: 7 (812)719-6644; Fax: 7 (812) 272-8612 E-Mail: spbcci@spbcci.ru http://www.spbcci.ru/english Russian-American Business Council (RABC) Ednan T. Agayev, Vice President 17 Kotelnicheskaya Nab. Office 324, Moscow 115184 Tel: 7 (495) 970-13-89 Fax: 7 (495) 970-13-88 E-mail: rabc@rabc.ru https://usrbc.org/ U.S. Commercial Service Contacts in Russia CS Russia has offices in Moscowand St. Petersburg. For a complete list of services, upcoming events and industry specific contacts, please visit: http://www.buyusa.gov/russia/en Moscow U.S. Embassy, U.S. Commercial Service 8, Bolshoy Deviatinsky Pereulok Moscow 121099, Russia Phone: 7 (495) 728-5580, Fax: 7 (495) 728-5585 Email: Office.Moscow@trade.gov St. Petersburg U.S. Consulate General, U.S. Commercial Service 15 Ulitsa Furshtatskaya St. Petersburg 191028 Tel: 7 (812) 326-2560, Fax: 7 (812)326-2561 Email: Office.StPetersburg@trade.gov U.S. Embassy and Consulates in Russia U.S. Embassy 8 Bolshoy Deviatinsky Pereulok Moscow 121099, Russia Tel: 7 (495) 728-5000; Fax: 7 (495) 728-5159 After-hours (emergencies): Tel: 7 (495) 728-5025 http://moscow.usembassy.gov U.S. Consulate General - St. Petersburg 15 Ulitsa Furshtatskaya, St. Petersburg Tel: 7 (812) 331-2600; Fax: (812) 331-2852 After-hours emergencies: Tel: 7 (812) 331-2600 http://stpetersburg.usconsulate.gov/ U.S. Consulate General - Vladivostok 32 Pushkinskaya Street, Vladivostok 690001 155

Tel: 7 (4232) 300-070, Fax: 7 (4232) 499-372 http://vladivostok.usconsulate.gov/ U.S. Consulate General - Yekaterinburg 15 Gogolya Street, 4th Floor, Yekaterinburg Tel: (343) 379-30-01, 379-46-19, 379-46-91, 379-45-51 Fax: (343) 379-45-15 http://yekaterinburg.usconsulate.gov/ Market Research Return to top

To view market research reports produced by the U.S. Commercial Service please go to the following Web site: http://www.export.gov/mrktresearch/index.asp and click on Country and Industry Market Reports. Please note that these reports are only available to U.S. citizens and U.S. companies. Registration to the site is required, and is free. Trade Events Return to top

Please click on the link below for information on upcoming trade events. http://www.export.gov/tradeevents/index.asp (Add link to trade events section of local buyusa.gov Web site here or just delete this text.) Return to table of contents

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Chapter 10: Guide to Our Services
The President’s National Export Initiative aims to double exports over five years by marshaling Federal agencies to prepare U.S. companies to export successfully, connect them with trade opportunities and support them once they do have exporting opportunities. The U.S. Commercial Service offers customized solutions to help U.S. exporters, particularly small and medium sized businesses, successfully expand exports to new markets. Our global network of trade specialists will work one-on-one with you through every step of the exporting process, helping you to: • • • • • Target the best markets with our world-class research Promote your products and services to qualified buyers Meet the best distributors and agents for your products and services Overcome potential challenges or trade barriers Gain access to the full range of U.S. Government trade promotion agencies and their services, including export training and potential trade financing sources

To learn more about the Federal Government’s trade promotion resources for new and experienced exporters, please click on the following link: www.export.gov For more information on the services the U.S. Commercial Service offers to U.S. exporters, please click on the following link: (Insert link to Products and Services section of local buyusa.gov Web site here.)
U.S. exporters seeking general export information/assistance or country-specific commercial information can also contact the U.S. Department of Commerce's Trade Information Center at (800) USA-TRAD(E).

To the best of our knowledge, the information contained in this report is accurate as of the date published. However, The Department of Commerce does not take responsibility for actions readers may take based on the information contained herein. Readers should always conduct their own due diligence before entering into business ventures or other commercial arrangements. The Department of Commerce can assist companies in these endeavors.

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