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Doing Business in Russia

Market Overview   

The recent events in Ukraine have changed the landscape of the bilateral trade and investment relationship between the United States and Russia.  
 
Russia’s provocative actions, including its purported annexation of Crimea and destabilizing activities in southeastern Ukraine, have forced the United States and others in the international community to impose sanctions on Russian individuals, companies, and financial institutions. For specific information related to these sanctions, please visit the U.S. Department Treasury’s Office of Foreign Assets Control (OFAC) website (http://www.treasury.gov/resource-center/sanctions/Programs/Pages/ukraine.aspx).  For information on current export licensing restrictions, please visit the U.S. Department of Commerce’s Bureau of Industry and Security (http://www.bis.doc.gov/) and the U.S. Department of State’s Directorate of Defense Trade Control (http://www.pmddtc.state.gov/).  
 
Current Political Situation 

The United States has suspended government-to-government economic cooperation with Russia on many fronts, including our bilateral trade and investment working group that sought to expand economic and commercial ties.  
 
Within these parameters, U.S. companies can still export their goods and services to Russia and continue working with their Russian partners to sustain their position in this market.  However, companies should continuously monitor any developments concerning the United States’ political and economic relationship with Russia. 
 
For more information on the political and economic relationship between the United States and Russia, please click on the links in Chapter Two to view the U.S. Department of State’s notes on these topics.

Market Opportunities

With a vast landmass, extensive natural resources, more than 142 million consumers, and acute infrastructure needs, Russia remains a promising market for U.S. exporters. 
 
Russia is the world’s 8th largest economy by nominal gross domestic product (GDP) and the 6th largest by purchasing power parity (PPP), as cited by the International Monetary Fund. According to the World Bank, 2014 GPP per capita GDP was $13,210, the highest of the BRICS countries (Brazil, Russia, India, China, and South Africa).  Russia is a high-income country, with a highly educated and trained workforce and sophisticated, discerning consumers. 
 
Although Russia recovered quickly from the global financial crisis in 2009, economic growth slowed substantially subsequently, and GDP is expected to contract in 2015.
 
In terms of trade in goods, Russia was the United States’ 29th largest export market and the 20th largest exporter to the United States in 2014.  Russia was the United States’ 25th largest trading-partner overall.  U.S. exports to Russia in 2014 were $10.8 billion, a decrease of 3.3% from 2013.  Russian exports to the United States in 2014 were $23.7 billion, a decrease of 12.5% from 2013.  Russia’s leading individual trading partners are China, the Netherlands, Germany, Italy, Turkey, Japan, United States, Ukraine, South Korea, and Poland.
 
Stocks of U.S. investment in Russia through 2013 were approximately $18 billion.  The United States is Russia’s 10th largest foreign investor. 
 
Russia joined the World Trade Organization (WTO) in August 2012.  Congress also enacted legislation to extend permanent normal trade relations to Russia in the same year.
 
Russia’s membership in the WTO has the potential to create opportunities for U.S. exports and investments. 
 
U.S. manufacturers and exporters should have more certain and predictable access to the Russian market, because of Russia’s commitment not to raise tariffs on any products above the negotiated rates.  For industrial and consumer goods, Russia’s average bound tariff rate declined from almost 10% to under 8%.
 
For American businesses, Russia’s accession to the WTO also provides the following benefits, although Russia has been slow to fulfill many of its WTO obligations:

  • 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

Market Challenges

  • Russia is the largest country in the world, spanning 11 time zones and encompassing over 17 million square miles.
  • Seriously underdeveloped infrastructure poses logistical challenges, especially in accessing markets outside of major cities.
  • 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 a non-level playing field for competition due to the continued presence of large state-owned, or state-controlled, enterprises dominating strategic sectors of the economy.
  • Investments in the wide-ranging and ever-changing list of “strategic sectors” of the Russian economy are subject to Russian government control.

    As of 1 January 2015, representative offices of foreign companies may apply through a fast-track simplified procedure for obtaining work visas and work permits for their foreign employees who are classified as Highly Qualified Foreign Specialists (the "HQFS"). The requirements for applying through the HQFS procedure are the same as those for employers who are a Russian commercial legal entity or a branch. Requirements vary depending on the job, salary level and skillset of the foreign employee.  Rules on secondment of employees should be scrutinized for an individual company’s situation.  The Russian immigration and visa system requires time and patience for business travelers to obtain necessary permissions to do business in Russia.  Travel must occur within the dates specified on the visa.
  • English is not widely spoken, although knowledge of the language is expanding, especially in the major cities.

Market Opportunities

In alphabetical order:

  • Agricultural Equipment
  • Aviation Equipment
  • Broadcast Equipment
  • Building and Construction Equipment
  • Cosmetics and Perfumery
  • Electrical Power Generation and Transmission Equipment
  • Forestry and Woodworking Equipment
  • Franchising
  • Hydropower Generation Equipment
  • Machine Tools and Metal Working Equipment
  • Medical Equipment
  • Mining Equipment
  • Refinery Equipment
  • Safety and Security Equipment

Market Entry Strategy  

  • Expect to commit significant time, personnel, and capital, as developing business in Russia is resource-intensive, for those companies that believe opportunities in Russia outweigh risks.
  • 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 significant 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.
  • Travel frequently to Russia 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.

For a comprehensive overview of doing business in Russia, please review our Country Commercial Guide at this link: http://www.export.gov/ccg/russia.


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