I. COMMERCIAL OVERVIEW

Overview of Import Market

A country of 150 million-plus people with tremendous natural
and human resources is not a market which U.S. business can
afford to neglect for long.  Russian demand is present across
the board from consumer goods to capital equipment.
Foreigners, foreign products, and foreign ideas are now common
in Russia today - a sharp contrast from a few years ago.
U.S.-Russian trade has increased significantly.  In 1993, U.S.
exports to Russia were up 41%, paced by a 114% increase of
U.S. manufactured goods exports.  This growth has slowed
recently.  In the first quarter of 1994, U.S. exports were up
only 23% over the same period a year earlier, in great part to
a decline in the export of manufactured goods.  This relative
decline is attributable to large import tariff increases.
There are no significant legal barriers to the import market,
but there are a number of factors which discourage trade.

Brief Synopsis of Commercial Environment

The Russian Federation is currently a country in economic,
political and social transition of comparable scope and
consequence to fall of the Tsarist regime in the early part of
the 20th Century.  The duration and final outcome of this
process are unknown.  As a result, uncertainty, high risk, as
well as great opportunity, characterize the commercial
environment in Russia today.  Doing business in Russia is not
for the timid, but for the bold.  Fees, import licenses,
export licenses, and other government regulations are subject
to frequent change - often without notice.  Taxes are
continually in flux and are often applied not just to profits,
but also to revenue, making business operations uneconomical.
A business legal system is lacking.  Contract law, commercial
codes, and legal enforcement of private business agreements
are almost non-existent.  An Executive-Parliament consensus
seems to be gelling to proceed with market reforms, the
liberalization of foreign trade rules and regulations and the
reduction of some taxes.  This consensus will be essential for
the commercial environment to stabilize and improve.

Russian Business Attitude Toward the United States

Russian firms and customers admire U.S. technology and know-
how and generally want to do business with U.S. companies.  In
the Russian Far East, a strong U.S. commercial presence is
viewed as a positive counterbalance to other regional economic
powers.

Major Business Opportunities

There are few products or services which are not in demand in
Russia.  A wide range of U.S. consumer goods manufacturers -
Procter & Gamble, Coca Cola, Mars - have already made Russia a
major expansion market for their companies.  In many of the
industrial sectors identified as priority by the Russian
Government, such as oil and gas, telecommunications,
aerospace, health care, mining and defense conversion, there
are numerous commercial opportunities for U.S. exporters and
investors.  Trade finance is a key to success in this market.

Major Roadblocks to Doing Business

U.S. and other foreign companies operating in this market
encounter major difficulties to both trade and investment,
including the following:

     -ownership and jurisdictional disputes;
     -financial illiquidity of a majority of Russian firms;
     -lack of a normal commercial market;
     -absence of a commercial legal framework;
     -high cost and general difficulty of doing business;
     -severe infrastructure problems (telecom, roads,
      banking system, ports, etc.)
     -payments arrears and frozen accounts;
     -frequent changes in government and firm personnel;
     -high taxes which frequently change;
     -frequent changes in the import and export regime;
     -lack of systematic and accessible credit information;
     -mounting crime and corruption.

Notwithstanding all of the above, business is being conducted.
U.S. firms are exporting and investing.  Activity at the
microeconomic level is vibrant, with new goods and services
appearing on the Russian market almost daily.  The number of
U.S. firms opening in Russia is expanding and those with the
right product or service, the right local contacts, business
associates and street smarts are making money.

Nature of Local and Third-Country Competition

Western European firms, particularly those from Germany,
Italy, Austria, France and the United Kingdom offer U.S.
business the most competition.  Direct flights by Lufthansa
from Frankfurt to the Russian Urals (Yekaterinburg) and to
Siberia (Novosibirsk) have stimulated western European
business interest in these parts of Russia.  Norwegian and
Finnish firms are active in northwest Russia and Chinese,
Korean and Japanese firms are very aggressive in the Russian
Far East.  Better credit terms often give the advantage to
western European firms.

The opening of U.S. Consulates General in Vladivostok in the
Russian Far East and in Yekaterinburg in the Urals will
facilitate U.S. firms' ability to do business in other than
the Moscow and St. Petersburg regions, and help balance the
growing Chinese, Japanese and Korean commercial influence in
the Far East and the German strength in central Russia.
American Business Centers, to be established in St.
Petersburg, Vladivostok, Khabarovsk, Novosibirsk,
Yekaterinburg, Nizhnevartovsk, Nizhny Novgorod, Volgograd, and
Chelyabinsk (and possibly another city at a later date) will
also be of significant assistance to U.S. companies exploring
the tremendous commercial opportunities in the Russian
hinterlands.