Required Report - public distribution

**Date:** 3/3/2004

**GAIN Report Number:** RS4012

RS0000

**Russian Federation**

**Cotton and Products**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Randall Hager

U.S. Embassy

**Prepared by:**

Yelena Vassilieva and Dorothy Adams

**Report Highlights:**

Higher international prices have resulted in lower raw cotton imports
and a reduction in profitability for the local processing industry. In
contrast, expanding disposable income is increasing fabric consumption,
which will by supplied mostly through imports.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Unscheduled Report

Moscow \[RS1\]

\[RS\]

Table of Contents

[**Executive Summary 3**](#executive-summary)

[Production 3](#production)

[Table 1. Cotton Supply and Demand, Metric Tons and Hectares
3](#table-1.-cotton-supply-and-demand-metric-tons-and-hectares)

[Consumption 3](#consumption)

[Trends in Textile Production 4](#trends-in-textile-production)

[Table 2. Structure of Fabrics Production in the Russian Federation in
CY 1994-2003
4](#table-2.-structure-of-fabrics-production-in-the-russian-federation-in-cy-1994-2003)

[Table 3. Cotton Fabrics Production, Marketing Years, Million Square
Meters
5](#table-3.-cotton-fabrics-production-marketing-years-million-square-meters)

[Trade in Cotton 5](#trade-in-cotton)

[Imports 5](#imports)

[Table 4. Trade Matrix, Cotton Imports, 1,000 Metric Tons
7](#table-4.-trade-matrix-cotton-imports-1000-metric-tons)

[Barter 7](#barter)

[Tolling 7](#tolling)

[Exports 8](#exports)

[Tariffs 8](#tariffs)

[Prices 8](#prices)

[Table 5. Prices Table 9](#table-5.-prices-table)

[Trade in Yarn and Fabrics 9](#trade-in-yarn-and-fabrics)

[Table 6. Imports of Cotton and Products, Market Years, 1,000 U.S.
Dollars
10](#table-6.-imports-of-cotton-and-products-market-years-1000-u.s.-dollars)

[Table 7. Imports of Cotton and Products, Market Years, Metric Tons and
1,000 Square Meters
11](#table-7.-imports-of-cotton-and-products-market-years-metric-tons-and-1000-square-meters)

[Chart 1. Imports of Cotton, Cotton Thread, Cotton Yarn and Flax,
Calendar Years, Metric Tons
12](#chart-1.-imports-of-cotton-cotton-thread-cotton-yarn-and-flax-calendar-years-metric-tons)

[Chart 2. Imports of Cotton Fabric, Calendar Years, Thousand Square
Meters
12](#chart-2.-imports-of-cotton-fabric-calendar-years-thousand-square-meters)

[Flax 12](#flax)

[Stocks 13](#stocks)

[Policy 13](#policy)

# Executive Summary

Cotton consumption in Russia decreased in MY 2003 to 332,970 metric tons
due to higher world market prices for the raw cotton imports on which
the Russian industry depends. Consumer demand for cotton fabric is
increasing, stimulated by growing incomes; but imports, not locally
produced goods, are filling this demand, as a strong exchange rate makes
imports of cotton fabric from developing countries and China more
competitive than domestically produced fabric.

# Production

Official data on domestic cotton production does not exist, and in any
case, only a miniscule amount of low quality cotton (post estimates
about 1,000 metric tons) is produced in southern Russia (Astrakhan
oblast) on a few farms managed by cotton specialists from Central Asia.
Production depends entirely on agreements between these cotton growers
and regional cotton processing plants. Greater domestic cotton
production will depend on better world prices, and some farmers would
like to boost output as a result of the current market situation
mentioned above.

## Table 1. Cotton Supply and Demand, Metric Tons and Hectares

+------------------+-------+-------+-------+-------+-------+-------+
| ###### PSD Table |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| **Country**      | **Ru  |       |       |       |       |       |
|                  | ssian |       |       |       |       |       |
|                  | Fe    |       |       |       |       |       |
|                  | derat |       |       |       |       |       |
|                  | ion** |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| **Commodity**    | **Cot |       |       |       | (HEC  |       |
|                  | ton** |       |       |       | TARES |       |
|                  |       |       |       |       | )(MT) |       |
+------------------+-------+-------+-------+-------+-------+-------+
|                  | 2002  | Re    | 2003  | Est   | 2004  | For   |
|                  |       | vised |       | imate |       | ecast |
+------------------+-------+-------+-------+-------+-------+-------+
|                  | USDA  | Post  | USDA  | Post  | USDA  | Post  |
|                  | Off   | Est   | Off   | Est   | Off   | Est   |
|                  | icial | imate | icial | imate | icial | imate |
|                  | \[    | \[    | \[    | \[    | \[    | \[    |
|                  | Old\] | New\] | Old\] | New\] | Old\] | New\] |
+------------------+-------+-------+-------+-------+-------+-------+
| **Market Year    |       | 08    |       | 08    |       | 08    |
| Begin**          |       | /2002 |       | /2003 |       | /2004 |
+------------------+-------+-------+-------+-------+-------+-------+
| Area Planted     | 0     | 0     | 0     | 0     | 0     | 0     |
+------------------+-------+-------+-------+-------+-------+-------+
| Area Harvested   | 0     | 0     | 0     | 0     | 0     | 0     |
+------------------+-------+-------+-------+-------+-------+-------+
| Beginning Stocks | 48335 | 48335 | 48335 | 48335 | 48335 | 48335 |
+------------------+-------+-------+-------+-------+-------+-------+
| Production       | 0     | 0     | 0     | 1000  | 0     | 800   |
+------------------+-------+-------+-------+-------+-------+-------+
| Imports          | 3     | 3     | 3     | 3     | 0     | 3     |
|                  | 59249 | 59249 | 15704 | 32370 |       | 20150 |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL SUPPLY     | 4     | 4     | 3     | 3     | 48335 | 3     |
|                  | 07584 | 07584 | 64039 | 81705 |       | 69285 |
+------------------+-------+-------+-------+-------+-------+-------+
| Exports          | 0     | 0     | 0     | 400   | 0     | 0     |
+------------------+-------+-------+-------+-------+-------+-------+
| USE Dom.         | 3     | 3     | 3     | 3     | 0     | 3     |
| Consumption      | 59249 | 59249 | 15704 | 32970 |       | 20950 |
+------------------+-------+-------+-------+-------+-------+-------+
| Loss Dom.        | 0     | 0     | 0     | 0     | 0     | 0     |
| Consumption      |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL Dom.       | 3     | 3     | 3     | 3     | 0     | 3     |
| Consumption      | 59249 | 59249 | 15704 | 32970 |       | 20950 |
+------------------+-------+-------+-------+-------+-------+-------+
| Ending Stocks    | 48335 | 48335 | 48335 | 48335 | 0     | 48335 |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL            | 4     | 4     | 3     | 3     | 0     | 3     |
| DISTRIBUTION     | 07584 | 07584 | 64039 | 81705 |       | 69285 |
+------------------+-------+-------+-------+-------+-------+-------+

# Consumption

According to Russian experts, cotton demand on the Russian market is now
stable at approximately 320,000 -- 330,000 metric tons per year, or
enough to keep the Russian textile industry working smoothly. Over the
last ten years, the domestic textile industry has contracted, and the
survival of the remaining factories will depend on their ability to
compete with imported cotton fabrics, reverse the steady deterioration
of processing equipment (the Russian textile industry lags behind most
other domestic industries in the quality of its machinery and
infrastructure), rectify legal and tax law shortcomings, develop better
long-term credit sources, and slow transfer to production of
cotton-linen fabrics.

Post estimates cotton consumption in MY 2003 at 332,970 metric tons,
seven percent lower than the previous year. Cotton stocks remain
unchanged at less than two month's consumption.

## Trends in Textile Production

Cotton fabrics still constitute the main portion of fabric production in
Russia. However, the relative high cost of imported raw cotton has led
to changes in fabric production technology, and to increased output of
thinner and lighter fabrics, and mixed fabrics that contain over 50
percent cotton.

## Table 2. Structure of Fabrics Production in the Russian Federation in CY 1994-2003

  ---------------- --------- ------- ------- ------- ------- ------- ------- ------- ------- -------
                   1994      1995    1996    1997    1998    1999    2000    2001    2002    2003

                   In                                                                        
                   million                                                                   
                   M2                                                                        

  All fabrics      2,169     1,757   1,401   1,559   1,395   1,653   2,323   2,614   2,847   2,889

  Including                                                                                  

  \- Cotton        1,525     1,291   1,052   1,150   1,085   1,261   1,820   2,085   2,326   2,358

  \- Linen and     162       131     112     103     68      90      115     124     138     157
  hempen                                                                                     

  \- Woolen        91        72      50      47      40      48      54      56      50      44

  \- Silk          246       197     136     134     111     148     177     171     148     144

  \- other         145       66      51      125     90      106     158     177     185     186

                   As a                                                                      
                   percent                                                                   
                   of all                                                                    
                   fabrics                                                                   

  All fabrics      100       100     100     100     100     100     100     100     100     100

  Including                                                                                  

  \- Cotton        70.3      73.5    75.1    73.8    77.8    76.3    78.3    79.8    81.7    81.6

  \- Linen and     7.5       7.5     8.0     6.6     4.9     5.4     4.9     4.7     4.8     5.4
  hempen                                                                                     

  \- Woolen        4.2       4.1     3.6     3.0     2.9     2.9     2.3     2.2     1.8     1.5

  \- Silk          11.4      11.2    9.7     8.6     8.0     9.0     7.6     6.5     5.2     5.0

  \- Other         6.7       3.8     3.6     8.0     6.5     6.4     6.8     6.8     6.5     6.4
  ---------------- --------- ------- ------- ------- ------- ------- ------- ------- ------- -------

Source: State Statistical Committee of the Russian Federation

Numbers may not add due to rounding.

The table below shows cotton production in local marketing and in
calendar years. Post provides this data in order to correlate cotton
marketing year imports and consumption with the available official
calendar year data on trade in yarn and fabrics. Production of cotton
fabrics in MY 2003 is forecast to decrease by seven percent to 2,145
million square meters.

Post estimates are based on assumption that during February-July 2004
the Russian textile industry's cotton fabric output will match at least
the monthly average for the last five years. However, a shortage of
cotton and intense competition with imported fabrics may lead to a
further decrease in cotton fabric production.

## Table 3. Cotton Fabrics Production, Marketing Years, Million Square Meters

  ---------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
             08/92   08/93   08/94   08/95   08/96   08/97   08/98   08/99   08/00   08/01   08/02   08/03

  Aug.       214     187     96      123     90      90      76      113     147     186     187     202

  Sept.      171     213     102     121     85      95      61      123     152     181     195     212

  Oct.       166     209     90      125     100     105     47      123     166     207     213     217

  Nov.       182     238     112     120     95      110     43      138     168     207     197     199

  Dec.       161     238     131     109     95      110     64      155     171     201     202     212

  Jan.       127     169     120     88      85      107     59      139     160     190     183     176

  Feb.       174     193     127     100     100     145     83      165     163     199     193     160\*

  Mar.       190     184     100     78      115     142     109     171     155     211     210     171\*

  Apr.       199     161     74      81      100     139     105     155     150     223     211     169\*

  May        181     114     75      75      85      85      77      122     152     167     166     137\*

  Jun.       229     110     110     85      85      98      101     140     168     169     188     153\*

  Jul.       150     62      87      80      70      79      75      124     155     173     169     139\*

                                                                                                     

  Total MY   2,144   2,078   1,223   1,185   1,105   1,305   899     1,668   1,907   2,314   2,312   2,145

  Calendar                                                                                           
  Years,                                                                                             
  Million                                                                                            
  Square                                                                                             
  Meters                                                                                             

  Yr/Month   1993    1994    1995    1996    1997    1998    1999    2000    2001    2002    2003    2004

  Jan.       127     169     120     88      85      107     59      139     160     190     183     176

  Feb.       174     193     127     100     100     145     83      165     163     199     193     NA

  Mar.       190     184     100     78      115     142     109     171     155     211     210     NA

  Apr.       199     161     74      81      100     139     105     155     150     223     211     NA

  May        181     114     75      75      85      85      77      122     152     167     166     NA

  Jun.       229     110     110     85      85      98      101     140     168     169     188     NA

  Jul.       150     62      87      80      70      79      75      124     155     173     169     NA

  Aug.       187     96      123     90      90      76      113     147     186     187     202     NA

  Sep.       213     102     121     85      95      61      123     152     181     195     212     NA

  Oct.       209     90      125     100     105     47      123     166     207     213     217     NA

  Nov.       238     112     120     95      110     43      138     168     207     197     199     NA

  Dec.       238     131     109     95      110     64      155     171     201     202     212     NA

                                                                                                     

  Total CY   2,335   1,523   1,291   1,052   1,150   1,085   1,261   1,820   2,085   2,326   2,358   NA
  ---------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------

Source: State Statistical Committee of the Russian Federation

\* Post Estimate

# Trade in Cotton

## Imports

Post estimates cotton imports in MY 2003 at 332,370 metric tons, more
than seven percent lower from the previous year, and forecasts a further
decrease in cotton imports to 320,000 metric tons in MY 2004. According
to industry sources, at least 10-15 percent of cotton is shipped to
Russia without being declared at customs as cotton (either border trade
or shipments under different HS codes). Post estimates include this
portion of cotton, and these adjusted import volumes more closely
correlate with officially reported production of cotton fabrics. Thus,
in the PSD table cotton imports are listed at 359,249 metric tons, while
according to official customs data in MY 2002/03 Russia imported 313,943
metric tons of cotton, including 304,977 metric tons of cotton, not
carded or combed (HS number 5201), and 8,966 metric tons of cotton
waste, including yarn waste and garneted stock (HS number 5202).

Imports of cotton in MY 2003 are estimated to decrease, mostly due to
high international prices. Thus, during August -- November 2003 official
statistical data showed cotton imports of only 75,434 metric tons, the
lowest quantity in that period for the last four years, and 763 metric
tons of cotton waste. In the trade matrix, post includes non-reported
cotton imports in the "Others, not listed" category.

Several former republics of the Soviet Union provide over 75 percent of
Russia's cotton imports. This dominant share, or dependency, is due in
part to Russia's cotton processing equipment being set to the specific
characteristics of Asian cotton, and also to the preponderance of
Russian-Central Asian joint venture cotton processing operations in
Russia.

Uzbekistan remains the main cotton supplier to Russia, although their
market share is decreasing as they continue their policy of adding value
to their own cotton. Quantity shipped and market share held by
Kazakhstan are increasing because as a member of a Customs Union with
Russia imports are free of VAT. Post notes that some imports from
Kazakhstan may have other Central Asian origins.

Cotton imports from the United States are price dependent. For example,
before the 1998 economic crises, Russia imported 2,523 metric tons of
U.S. cotton. In contrast, current high prices have cut trade in MY 2003
(through November 2003) to only 200 metric tons. Despite this price
sensitivity, even small imports play are important for upgrading
Russia's cotton processing technology and in moving Russian standards
towards world norms and grades, and pave the way to future imports from
the United States.

## Table 4. Trade Matrix, Cotton Imports, 1,000 Metric Tons

  ----------------------- ------------- ----------------- ----------------
  **Import Trade Matrix**                                 

  **Country**             Russian                         
                          Federation                      

  **Commodity**           Cotton                          

  Time Period             Aug/Jul       Units:            Metric Tons

  Imports for:            2002                            **2003**

  U.S.                    355           U.S.              360

  Others                                Others            

  Uzbekistan              152554        Uzbekistan        145000

  Kazakhstan              64314         Kazakhstan        65300

  Kyrgyzstan              33882         Tajikistan        33100

  Tajikistan              32314         Kyrgyzstan        32500

  Azerbaijan              17966         Azerbaijan        12000

  Turkey                  1548          Turkey            1500

  Country Unknown         938           Turkmenistan      600

  Turkmenistan            652                             

  Iran                    446                             

  Pakistan                7                               

  Total for Others        304621                          290000

  Others not Listed       54628                           42370

  Grand Total             359249                          332370
  ----------------------- ------------- ----------------- ----------------

Source: State Customs Committee of the Russian Federation

## Barter

Barter and tolling are widespread practices in the Russian cotton
industry. Barter is often used when Russian importers are connected with
regional administrations. However, Central Asian exporters offer prices
for barter trade at a disadvantageous 50-70 percent higher than the
Russian textile producers are willing to pay. Barter agreements are
fruitful if they are supported at the regional level, and the
administrations are involved in the transaction. The negotiations
involve usually many local producers of products suitable for barter,
and administrative resources of the local authorities, making the
process more expensive.

According to media reports, 85-90 percent of cotton for factories
located in Vladimir, Orenburg and Omsk oblast is imported on barter
terms, and the cotton producing oblasts in Uzbekistan and Kazakhstan
receive in return vehicles and agricultural machinery, wood and
chemistry products, pharmaceuticals, and wheat and corn flour. This
system has reportedly boosted production of cotton and cotton-linen
mixture fabrics by almost 50 percent in 2002-2003.

## Tolling

During the last ten years, 90 percent of Russian textile factories were
working on a tolling basis, with profits transferred to the foreign
owners of the cotton. Some portion of cotton imported for processing
only is not registered at customs, confusing trade statistics. Relations
between barter agreements, which involve local administrations and
tolling are not transparent. However, these practices are widespread and
make it difficult for other cotton suppliers and importers to compete in
the Russian market.

## Exports

Russia does not regularly export cotton, and Post does not forecast
exports for 2004. However, private companies that import cotton into
Russia can re-export some cotton from their warehouses when they cannot
find a domestic customer. In MY 2003 these companies re-exported over
400 metric tons of cotton due to favorable international prices.

## Tariffs

There have been no changes in tariffs on cotton and cotton products
imports. All raw cotton (HS numbers 5201, 5202 and 5203 00 000 0) is
imported duty free. The import tariff for sewing thread and cotton yarn
(HS numbers 5204, 5205, 5206, 5207) is five percent of customs value.
The import tariff for cotton fabrics is 20 percent of the customs value.
Imports from Kazakhstan (a member of the Customs Union with Russia) are
duty free. Agreed price of cotton is the most important factor because
most Russian companies that import cotton use tolling or barter schemes
in trade with the major cotton exporter to Russia, namely Uzbekistan.
However, along with increasing exports of Uzbek cotton to other
countries, this agreed price tends to more often reflect international
market prices. An 18 percent value added tax is in place on imported
cotton, but this tax does not affect cotton imported on tolling schemes.

## Prices

The increase in international cotton prices in 2003/04 affected Russia's
textile production and stimulated fabric imports. According to cotton
importers, in 2003/2004 the average world market price for raw cotton
reached 1,390 U.S. dollars per metric ton, the highest level in six
years, and in October 2003 the price of cotton was 2,100 U.S. dollars
per metric ton. However, according to industry sources, more than 70
percent of domestic cotton textile factories can afford to purchase
cotton at only 750 U.S. dollars per metric ton, and the remaining 30
percent do not purchase cotton, but rather get it from Central Asia on
barter terms. Thus, the average price of imported cotton increased only
slightly in MY 2003, while volume of imported cotton shrank.

## Table 5. Prices Table

  ---------------------- --------------- ---------------- ----------------
  **Prices Table**                                        

  **Country**            Russian                          
                         Federation                       

  **Commodity**          Cotton                           

  Prices in              US Dollars      Per              Metric Ton

                                                          

  Year                   2002            2003             \% Change

  Jan                    750             760              1%

  Feb                    780             810              4%

  Mar                    740             820              11%

  Apr                    745             760              2%

  May                    720             730              1%

  Jun                    730             760              4%

  Jul                    755             800              6%

  Aug                    770             810              5%

  Sep                    730             800              10%

  Oct                    730             730              0%

  Nov                    810             810              0%

  Dec                    790             810              3%
  ---------------------- --------------- ---------------- ----------------

# Trade in Yarn and Fabrics

In contrast to decreasing imports of raw cotton, Russia increased
imports of yarn, threads and cotton fabrics. Experts estimate that over
45,000 metric tons of cotton was imported in CY 2003 in form of yarn,
threads and cotton fabrics, or 35 percent more than in 2002/03. Table
below shows actual official imports of cotton and cotton products.

## Table 6. Imports of Cotton and Products, Market Years, 1,000 U.S. Dollars

  ------ -------------------------- --------- --------- --------- --------- --------- ---------
  HS     Description                Aug       Aug       Aug       Aug       Aug       Aug-Nov
                                    98-Jul 99 99-Jul 00 00-Jul 01 01-Jul 02 02-Jul 03 2003

         52 COTTON, YARN, FABRIC    249,900   449,639   508,482   286,375   316,976   88,951

  5201   Cotton, not carded, not    183,218   378,688   410,521   215,497   236,025   59,156
         combed                                                                       

  5202   Cotton waste and yarn      0,520     0,477     1,717     1,258     2,620     0,905
         waste                                                                        

  5203   Cotton carded or combed    0,161     0,288     0,266     0,010     0,180     0,000

  5204   Cotton sewing thread       8,019     14,832    16,012    12,967    6,443     1,366

  5205   Cotton yarn (other than    13,829    12,248    21,029    8,234     14,283    9,063
         sewing thread), 85 percent                                                   
         or more of weight of                                                         
         cotton                                                                       

  5206   Cotton yarn (other than    0,181     0,625     0,360     1,386     2,181     0,785
         sewing thread), less than                                                    
         85 percent of weight of                                                      
         cotton                                                                       

  5207   Cotton yarn (other than    1,732     1,358     2,798     3,974     3,444     1,773
         sewing thread), for retail                                                   
         sale                                                                         

  5208   Woven fabrics of cotton,   14,489    12,708    20,786    15,123    18,493    5,355
         containing 85 percent or                                                     
         more by weight of cotton,                                                    
         weighing not more than                                                       
         200g/m2                                                                      

  5209   Woven fabrics of cotton,   17,340    20,984    24,596    18,371    19,283    7,093
         containing 85 percent or                                                     
         more by weight of cotton,                                                    
         weighing more than 200g/m2                                                   

  5210   Woven fabrics of cotton,   1,708     3,604     5,801     4,032     3,868     1,199
         containing less than 85                                                      
         percent by weight of                                                         
         cotton, weighing not more                                                    
         than 200g/m2                                                                 

  5211   Woven fabrics of cotton,   8,411     3,109     3,999     5,038     8,738     2,044
         containing less than 85                                                      
         percent by weight of                                                         
         cotton, weighing more than                                                   
         200g/m2                                                                      

  5212   Other woven fabrics of     0,292     0,716     0,599     0,484     1,417     0,212
         cotton                                                                       
  ------ -------------------------- --------- --------- --------- --------- --------- ---------

Source: State Customs Committee of the Russian Federation

## Table 7. Imports of Cotton and Products, Market Years, Metric Tons and 1,000 Square Meters

  ------ ------------------------- ------ --------- --------- --------- --------- --------- ---------
                                          1998/99   1999/00   2000/01   2001/02   2002/03   Aug-Nov
                                                                                            2003

  5201   Cotton, not carded, not   Tons   127,014   299,898   343,666   287,584   304,977   75,434
         combed                                                                             

  5202   Cotton waste and yarn     Tons   1,753     1,429     4,699     4,749     8,966     2,350
         waste                                                                              

  5203   Cotton carded or combed   Tons   0,170     0,207     0,240     0,000     0,241     0,000

  5204   Cotton sewing thread      Tons   6,655     20,191    24,929    9,136     2,734     0,763

  5205   Cotton yarn (other than   Tons   7,336     11,284    17,769    6,678     12,489    7,436
         sewing thread), 85                                                                 
         percent or more of weight                                                          
         of cotton                                                                          

  5206   Cotton yarn (other than   Tons   0,096     0,907     0,193     1,479     1,657     0,608
         sewing thread), less than                                                          
         85 percent of weight of                                                            
         cotton                                                                             

  5207   Cotton yarn (other than   Tons   1,045     0,848     2,505     1,908     3,584     1,832
         sewing thread), for                                                                
         retail sale                                                                        

  5208   Woven fabrics of cotton,  1000   24,423    26,692    60,379    35,229    53,704    16,950
         containing 85 percent or  SQM                                                      
         more by weight of cotton,                                                          
         weighing not more than                                                             
         200g/m2                                                                            

  5209   Woven fabrics of cotton,  1000   13,159    18,087    24,175    23,891    22,294    7,763
         containing 85 percent or  SQM                                                      
         more by weight of cotton,                                                          
         weighing more than                                                                 
         200g/m2                                                                            

  5210   Woven fabrics of cotton,  1000   1,095     4,220     5,711     5,741     10,009    6,362
         containing less than 85   SQM                                                      
         percent by weight of                                                               
         cotton, weighing not more                                                          
         than 200g/m2                                                                       

  5211   Woven fabrics of cotton,  1000   11,351    0,000     0,000     0,000     0,000     3,396
         containing less than 85   SQM                                                      
         percent by weight of                                                               
         cotton, weighing more                                                              
         than 200g/m2                                                                       

  5212   Other woven fabrics of           0,000     2,553     1,096     0,000     0,000     0,000
         cotton                                                                             
  ------ ------------------------- ------ --------- --------- --------- --------- --------- ---------

Source: State Customs Committee of the Russian Federation

While Russia imports cotton thread and yarn from many countries, the
main sources remain Uzbekistan, Tajikistan, Azerbaijan and Ukraine. The
total import of these products was changing in accord with cotton
imports, and in MY 2001/02 -- 2003/04 has stabilized at approximately
20,000 metric tons a year. Russian exports of cotton thread and yarn
decreased in sync with decreasing imports of cotton. Thus, in 2002
Russia exported slightly over 6,400 metric tons of these products, while
in 2001 this exports amounted to 8,700 metric tons. Russian imports of
cotton fabrics increased from 64.9 million square meters in MY 2001 to
over 86.0 million square meters in MY 2002, and during August-November
2003 already exceeded the level reached in the same period a year ago of
34.5 million square meters. Russian imports most cotton fabric from the
Ukraine and EU countries.

The charts below show the link between imports of cotton, cotton thread
and yarn and cotton fabrics. The increase in cotton imports in CY 2000
and CY 2001 coincided with decline in imports of cotton thread, flax and
cotton fabrics, while lower imports of cotton in 2002 and 2003 led to
increased imports of thread and yarn and a dramatic increase in imports
of cotton fabrics. Imports of cotton fabric in 2002-2003 were also
stimulated by the decline in U.S. dollar/Ruble exchange rate, because
fabric is imported from countries that use U.S. dollar in foreign trade:
China, India, Turkey, Pakistan.

## Chart 1. Imports of Cotton, Cotton Thread, Cotton Yarn and Flax, Calendar Years, Metric Tons

![](media/image2.wmf)

## Chart 2. Imports of Cotton Fabric, Calendar Years, Thousand Square Meters

![](media/image3.wmf)

# Flax

Flax is a traditional Russian crop, and considering climate, soil and
weather conditions, and agronomic traditions, would be better able to
regain its former production levels than cotton. However, the Federal
program on restoration and expansion of flax production that officially
ended in 2002 did not get proper financing, and therefore the
restoration of the domestic linen industry failed. Attempts by private
linen producing companies to invest in flax production brought few
results, because unresolved land ownership and use issues hamper
investment in Russian agriculture. However, production of linen
(including on a tolling basis) started to increase, based on imported
flax. Flax is also widely used in mixtures with cotton, and to some
extent flax imports have replaced cotton imports; when cotton prices go
up, Russian textile companies increase imports of flax. Imports of flax
increased from 2,214 metric tons in 2002 to 7,380 metric tons in
January-November 2003. Belgium and France supplied 2,830 and 1,840
metric tons of flax, processed primarily under tolling agreements. The
other major suppliers of flax in CY 2003 were Ukraine (1,260 metric
tons), Egypt (603 metric tons), and Netherlands (311 metric tons).

# Stocks

The sharp increase of international cotton prices revealed the dramatic
dependency of Russian textile production on cotton imports, and even
resulted in closure of some textile factories. In major cotton textile
producing countries producers are either use domestic cotton and/or have
stocks to keep textile factories working year around, while Russian
textile factories usually work from hand to mouth and do not have enough
money to purchase cotton in advance and store it for a year. According
to expert estimates, Russian factories maintain only two months' worth
of cotton stocks. Thus, any seasonal or yearly increase in international
cotton price is immediately reflected in an increased cotton fabric
price. At the end of 2003, Russian producers increased prices of cotton
fabric by 20 percent, reflecting an increased price of the cotton that
constitutes 50-60 percent of the fabric's cost. Of course, with this
price increase, the competitive advantage of domestically produced
Russian fabrics versus imports was lost.

# Policy

Russia does not officially stimulate imports of cotton, although there
are no restrictions for commercial imports. According to regional
information, some cotton processing factories are released from paying
the 20 percent value added tax at customs. However, this is not a
uniform policy, but rather a privilege granted to a textile factory on
the regional level in order to prevent it from going bankrupt or to
prevent stocks of raw material from spoiling if the processor cannot pay
for the cotton that had already been imported.

Domestic cotton production does not get federal support, while the
federal program to stimulate flax production faded away without any
significant results. Although the production share of mixed cotton-linen
fabric is increasing due to the efforts of local textile factories, the
total production volume of these fabrics did not increase. In many cases
flax is also imported from the European countries.

Representatives of cotton textile industry propose that the re-animation
of the cotton textile industry in Russia shall be based on the
following: first, the expansion of "geography" of barter
(inter-industry/inter-regional) contracts with the Central Asian
countries, and restoration of direct railroad transportation between
Russia and these countries; second, development of linen-cotton
production technologies with simultaneous restoration of domestic flax
production (which is technically feasible in almost every region of
Russia) and development of cotton production in the south of Russia; and
inclusion of Uzbekistan in the free trade zone with Russia. According to
information from the Ministry of Industry, Science and Technology, the
Russian Federation was planning to purchase 50,000 metric tons of Uzbek
cotton on "mutually beneficial terms". These imports were planned to
form a state reserve fund, part of which can be sold in the open market,
with the remainder used by the government for military and law
enforcement agencies.

However, all these measures are not market oriented, and if undertaken
will increase dependency on cotton imports and the existence and
development of the Russian textile industry on local authorities.