In modeling the impact of the ECU adopting a CET that mirrors Russia’s WTO commitments through 2020, it was assumed that those commitments would be fully implemented<sup>4</sup> ; for example, if the current CET for a product is higher than Russia's bound commitment for any given year, the applied CET would fall to the lower bound rate. Conversely, if the current CET were below the bound rate, presumably there would be no change in the tariff.

The results suggest that full acceptance of Russia’s WTO tariff bindings through 2020 would increase goods imports by about $3.5 billion (1.1 percent of total imports), measured against a 2012 baseline. Lower prices for these imports as a result of tariff cuts in affected sectors would benefit Russian consumers by some $371.39 million. The largest increases in import values are estimated for electrical and electronic equipment ($592 million, 1.7 percent increase); pharmaceutical products ($365 million, 2.7 percent); meats ($248 million, 3.4 percent); plastics and plastic products ($238 million, 2.1 percent); machinery ($151 million, 0.3 percent); iron or steel products ($139 million, 1.8 percent); aircraft ($132 million, 3.8 percent); footwear ($116 million, 2.7 percent); and cosmetics ($112 million, 3.1 percent).

While these tariff cuts would benefit Russian consumers, the associated increase in imports would also put competitive pressures on Russian producers. The latter would be very modestly offset by increases in Russian exports to ECU members, primarily Kazakhstan. These increases would result from increases in Kazakhstan’s import tariffs on imports from non-ECU sources once the CET is adopted, since there are many cases in which Russia’s tariffs, the basis of the CET, are higher than Kazakhstan’s pre-ECU tariffs. However, the effect would be temporary, because higher tariffs on non-ECU imports would eventually fall as a result of changes in the ECU tariff through 2020 that is implied by the fall in Russia’s bound WTO tariffs.

It is estimated that increases in Russian exports to Kazakhstan and Belarus would be very low—just $194 million—as a result of adopting the initial ECU CET (measured against a 2008 baseline). These effects will primarily be observed in the Kazakhstan market. The estimated increase in exports due to adoption of the CET would be less than 8 percent of the estimated increase in imports as the CET adapts to WTO tariff bindings through 2020. The estimated short-run effect is fairly consistent with the actual performance of Russia’s exports in Kazakhstan’s market over the period in question.<sup>5</sup> The largest increases in Russian exports to the ECU in the short run would be motor vehicles and parts ($56 million); electrical and electronic machinery ($29 million); other machinery including computers ($21 million); iron and steel products ($19 million); and plastics and plastic products ($9 million). As the CET declines as a result of Russia adopting WTO tariff bindings, by 2020, total Russian exports to the other two ECU countries are expected to decrease by $211.84 million (0.6 percent). This would eliminate the temporary gains in Russian exports during the early years of the ECU. Russian exports to Kazakhstan and Belarus

> 4 There have been concerns that introducing compound tariffs into the CET, adding a specific duty to ad valorem rates, may exceed Russia’s bound rates in products such as large-capacity refrigerators. The EU Market Access Database (MAD) also suggests that a total of 1,576 product lines have been “corrected” by Russia (abolished or introduced) relative to its 2007 tariff schedule, including tariff sub-codes (presumably national tariff lines below the HS-6 level). This could be characterized as “manipulation” to avoid implementing the tariff commitments. EU MAD also states that Russia’s import duties on coated paper and cardboard in the Single Customs Tariff were three times higher than its WTO commitment (15 percent instead of 5 percent).

> 5 Kazakhstan’s imports from Russia, as a share of its total imports, went up from 37.3 percent in 2007-08 to 42.2 percent in 2011-12. A portion of this increase is likely due to Kazakhstan’s adoption of the CET after Kazakhstan joined the ECU in 2010.

> RUSSIA’S TRADE POLICY CHALLANGES – THE WORLD BANK GROUP 4