Russian authorities have approved Russia’s accession to WTO
24.07.12On 21 July Russian President Mr. Putin signed Parliamentary legislation bringing Russia’s trading laws into compliance with the international standards set under the WTO. The presidential approval follows passage of accession implementation legislation on 18th July by the Federal Council, the upper house of Parliament and by the lower house, the Duma, on 10th July. Yesterday 23 July, Russia officially notified the WTO Secretariat that the ratification process was completed thereby clearing the way for the country to become the organization’s 156th member on 22nd of August. Since August 22nd the new import/export regulation will apply to some of the Company’s goods.
Sugar Business
Under the existing regulation the cane sugar import duty is divided into high and low seasons. In May-July the import duty is USD50-250 with negative correlation to international cane price (Sugar #11 contract on NYSE: ICE), in August-April the import duty is USD140-270. Since August 22nd the high season import duty will be changed to USD140-270 increasing than the price on NICE is lower than USD485 per ton thereby the protection of the Custom Union sugar market will be increased. This is a positive development for Rusagro’s sugar margins.
Meat Business
According to existing regulation the import duty for the pork meat is 15% inside the annual quota of 430 000 tons (not less than EUR0.25€/kg) and 75% outside the quota (not less than EUR1.5€/kg). The livestock import duty is 40% (not less than EUR0.25€/kg) and pork sub products the import duty is 25%. Following WTO accession the pork meat import quota will be kept on the same level as 430 thousand tons until 2020 but there will be no duty inside the quota. The duty for pork meat imported above quota will be reduced to 65%. After 2020 the import quota will be replaced by flat 25% duty. The livestock import duty will be reduced to 5% and for sub products to 15%. The new import regulation can decrease Rusagro’s meat margins in the future. At the moment European livestock and cattle import into Russia is prohibited for veterinary reasons.
Oil & Fat Business and
The new import duties for sunflower seeds and rapeseed will be reduced from 20% to 5%. For soybeans the import duty of 20% will be removed. Due to the decrease in export duties on sunflower seeds from 20% to 6.5% sunflower oil production margins will decrease. Following WTO accession the import duties for consumer margarine and for mayonnaise will decrease to 15% from 20% to 6% from 15%. The import tariff for tropical oil will be reduced to 3% from 5%. Changes in consumer product’s duties has neutral effect for Company as the most of raw materials is produced inside the country. Overall tariff change has moderately negative effect for the oil and fat business margins.
Agricultural Business
In accordance with the WTO agreement for grain commodities the import duties will be reduced from 15.1% to 10%. As Russia is the net exporter of grain the change of this import duty is neutral for the Company. Decrease in export duties on sunflower seeds from 20% to 6.5% is positive for Company’s Agricultural division.
Average duties after full implementation of tariff reductions under the WTO agreement will be 5.2% for chemicals (currently applied tariff 6.5%) and 10.0% for agricultural machinery (currently applied tariff 15%). These changes will have positive influence for Company’s margins in agricultural division.
The total state support for agricultural producers is now USD4.5 billion annually dollars and according to WTO provisions the total trade distorting agricultural support would not exceed USD 9 billion in 2012 and would be gradually reduced to USD 4.4 billion by 2018. This restriction is only applicable for the “orange basket” support. According to the development program of agricultural sector for 2013-2020 the governmental measures of support will shift to “green basket” which has no quantity restriction. After 2020 about 71% of total support will be made within the “green basket” rule. The Company does not expect decrease in state support for the sector, though support may be redistributed among existing and new instruments.
Prepared by:
Sergey Tribunsky
Tel.: +7 495 363 1661
e-mail: ir@rusagrogroup.ru