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. Last Updated: 07/27/2016

Aluminum Imports Face Tariff Hike

Russia is considering higher trade duties on raw materials brought in by Western commodity powerhouses for refining by huge aluminum plants, according to documents obtained by Reuters on Wednesday.

"The Russian government orders the Foreign Trade Ministry together with other interested federal parties to look into the possibility of increasing trade duties on imported raw materials," said an order signed by Prime Minister Viktor Chernomyrdin and dated July 3.

The order also proposed a single value-added tax system for both resident and non-resident firms in Russia's aluminum industry, effectively raising non-residents' costs because they pay less value added tax than residents, or none at all, officials said.

It was not immediately clear when or even if the proposals would become law. But they are almost bound to spark another row over the extent of foreign control over one of Russia's most promising industrial sectors.

Russia is the world's largest exporter of aluminum, a base metal used in applications ranging from car body parts to drink cans. It exported 2.44 million metric tons in 1996, or 85 percent of its output of 2.87 million metric tons.

But the country relies heavily on international commodity powerhouses like Swiss-based Glencore AG and London-based Trans-World Group to provide it with raw materials like alumina.

Huge refining plants, the biggest of which are in Siberia, then process the materials and hand the refined product back to the trade houses to export.

Dubbed "tolling" deals, the multibillion-dollar business accounts for around 70 percent of Russian output. Any rise in duties on imported raw materials could seriously affect tolling and make life difficult for Western trading firms.

The proposal to consider hiking duties could also fill government coffers as Moscow searches for cash to pay off salary arrears to the public sector and keep reforms on track.

Not everyone is for slamming the door on trading companies. Smelter officials say that without foreign suppliers, some plants would have ceased to operate altogether after Moscow disbanded Russia's centralized economy in 1991.

And some aluminum officials said this was still a risk.

"If the government increases duties on imported raw materials, then the financial position of our own smelters will worsen," said Alexander Isayev of Kontsern Alyuminy, a Moscow-based aluminum and alumina producers' group.