American Russian Law Institute
Regulating foreign economic activities: liberalization and control
The orientation of the Russian state's economic policies towards integrating the country into the world economy has brought about the necessity to liberalize its foreign economic activities. This is a process which began more than two and a half years ago with the enactment of Presidential Edict No. 213 of November 15, 1991, "On Liberalizing Foreign Economic Activities Within RSFSR Territory."
Since then, the system of Russian state control over foreign economic activities has pursued this orientation and not always consequentral to the president's edict.
During this process of development, those legal acts of most importance which were passed are: RF Law "On Customs Tariffs" (Ed.: refer to R&R No. 3-4/93) and the RF Customs Code (Ed.: refer to R&R Nos. 5/93, 6/93, 1/94). Moreover, on October 30, 1993, the government adopted Decree No. 1103 "On the Confirmation of Export Customs Duties and the List of Goods to Which They Shall Be Applied" and on March 10, 1994, No. 196 "On the Confirmation of Import Customs Duties." Note that Presidential Edict No. 628 of June 14, 1992, "On the Procedure Concerning the Export of Strategically Important Commodities and Raw Materials" (Ed.: refer to R&R No. 1/93) and the Law of October 9, 1992, "On Currency Regulations and Currency Controls" remain valid. On December 2, 1993, the government issued Decree No. 1248 "On Measures for Regulating Trade Disputes Regarding the Export of Russian Goods." Definite regulations on the International Commercial Arbitration Court (Ed.: Refer to R&R No. 3/94), customs warehouses (Ed.: refer to R&R No. 2/94), as well as a series of other decisions of legislative and executive characters have also been approved.
The character and concept of Russian normative bases for regulating foreign economic activities is determined in many ways with the goal that Russia would become a signatory to the GATT treaty (an official application was submitted in June 1993). It is, therefore, necessary that a full system of regulations be adopted, which are in accordance with GATT rules, provisions and its concept; i.e., regulations by means of tariffs and not by state "power."
One of the latest measures adopted by the Russian government for liberalizing the export regime was Presidential Decree No. 1007 of May 23, 1994, "On the Refusal to Establish Quotas and Licenses for Exporting Goods and Services" and governmental Decree No. 758 of July 1, 1994, "On Measures Towards Improving Government Control Over the Export of Goods and Services" which was adopted in order to enact Decree No. 1007.
It is evident that the export of a number of commodities and raw materials which were previously under the administrative and economic control of the state shall no longer be directly or indirectly limited - the domestic market prices for them being equal to or even greater than those on the world market. These goods also have the same sales results on the both internal and foreign market. It is necessary to mention here that under the Law "On Customs Tariffs" provisions on the period for applying quantative limitations on export and tariff regulations shall be no later than December 31, 1995. All of the factors mentioned above permit the possibility to loosen up the export regime in Russia.
The Presidential Edict No. 1007 of May 23, 1994, and Governmental Decree No. 758 of July 1, 1994, thus establish that beginning with the July 1, 1994, the setting of quotas and the issuance of licenses for supplying goods and services for export shall apply only to those goods and services which are exported out of Russia under its international obligations. Decree No. 758 furthermore provides the list of goods whose export is carried out under the RF international obligations (Annex No. 1).
This list includes the following international obligations:
- regulation of the EC Commission No. 821/94 of April 12, 1994 (silicon carbide);
- decision of the EC Commission No. 93/293/EC of April 13, 1994 (ammonium nitrate);
- agreement between EC and RF on trading textiles signed on June 12, 1993 (threads, yarn, fabrics, clothing).
It is necessary to note in particular the decision of the Russian government to limited the export of untreated aluminium in 1994. This decision was brought about due to the fact that world prices on such goods in 1993 had fallen from $2000 to $1160 per ton which was caused by the excess of aluminium on the world market. In response to this problem negotiations between trade representatives of the largest countries/exporters of aluminium (USA, Russia, Canada, Norway, Australia and EC) were held in Brussels. These negotiations resulted in an agreement for decreasing the total production of aluminium in the exportoring countries by 10% (from 1.5 to 2 mil tons) from 1994-1995. Russia agreed to reduce its annual output of aluminium by 500 thous. tons in the course of two years, or in other words by 25%. The minimum price for aluminium which will still guarantee profitable investments into production developments has been set at a rate of $1.5 to $1.6 thous per ton. Provided the price of untreated aluminium then rises to $1320-$1340 per ton, its export will once again become profitable. By decreasing output its price will increase and thereby expenses will decrease for electric power consumption and transporting the raw materials and products. Furthermore, this will result in improving the ecological situation. It is for this reason that untreated aluminium was included into the list of goods whose export is to be carried out under RF international obligations and is subject to quotas and licensing. Untreated aluminium was included in this listing by RF government Decree No. 143 of February 24, 1994.
Licenses for goods whose export is conditioned by RF international obligations are administered by the Ministry of Foreign Economic Relations (MFER).
In addition to the above-mentioned list, the government (by Decree No. 758) has established a list of goods for which a special export order must be obtained in accordance with acting legislation (Annex No. 2). This list traditionally includes separate types of specific goods and services, as well as weapons, military technology, special accessories for their production; jobs and services in the sphere of military-technological cooperation; gun powder, explosives, detinators; nuclear materials, technologies, equipment and installations, special non-nuclear materials, radioactive sources, including radioactive waste; precious metals, alloys and their products; metals plated with precious metals and their products; ores, concentrates, scraps and wastes of precious metals; precious natural stones and their products; wastes, powders and the recuperate of precious natural stones; pearls and their products; amber and its products; narcotics and psychological drugs; poison; separate types of raw materials, materials, equipment, technologies and scientific-technical information applied in the creation of weapons and military technology; materials, equipment and technologies designated for peacefull purposes that can be used in the creation of rockets, nuclear, chemical and other types of weapons of mass destruction.
The detailed list of goods for which a special export order is to be applied are included (except Annex No. 2) in Presidential Ordinances No. 74-rp of February 11, 1994; No. 508-rp of September 16, 1992; No. 298-rp of June 14, 1994; No. 827-rp of December 28, 1992 and No. 744-rp of November 19, 1993 (Ed.: refer to R&R No. 5/93).
In all other cases the setting of quotas and the issuance of licenses for exporting goods and services has been cancelled. There are however, exclusions for exporting oil and oil products which are regulated by the special Presidential Edict No. 1385 "On the Supply of Oil and Oil Products for Export in 1994" issued July 1, 1994. Under this edict current procedures concerning the supply of oil and oil products for federal purposes and by quotas distributed under licenses issued by the MFER are extended until January 1, 1995.
One of the most important provisions of Presidential Edict No. 213 of November 15, 1991, which started the liberization process of foreign economic activities in Russia, was permission for all enterprises and their associations registered in Russia, regardless of their form of ownership, to perform external economic activities, including as intermediaries ones, without any special registration. Although the procedure for registering participants in foreign economic relations was valid up to November 1991, nevertheless, it demanded from potential participants some special "forces" and to a certain degree limited their possibilities to independently perform external economic activities. By October 1, 1991, throughout the USSR about 40 thous. participants in foreign economic relations were registered. After the enactment of the edict No. 213, their number increased into the hundreds of thousands.
On the other hand, after more than 6 months of carrying out the liberalization of foreign economic activities there has been a tendency for a large number of violations and infringments to occur in this sphere, first of all - among the new participants in external economic relations. These occured due to poor qualifications in performing operations on foreign markets with many important goods, in the practice of illegal competition, and in the failure to return the specified amount of hard currency earnings into the country from export operations. In order to overcome these disadvantages legislation was adopted exemplified by Presidential Edict No. 628 of June 14, 1992, "On the Procedure for Exporting Strategically Important Commodities and Raw Materials", the Governmental Decree No. 434 of June 26, 1992 "On Confirmation of the List of Strategically Important Commodities Whose Export Is Conducted by Enterprises and Organizations Registered by the MFER" (Ed.: refer to R&R No. 1/93) and a number of corresponding normative documents. Finally, the registration procedure, even though of a limited character (regarding only exporters and a limited nomenclature of goods), was introduced once again. It is a stronger procedure, however, because it is performed not by the local authorized representatives of the MFER, but by the special registering Commission of this ministry located in Moscow, as well as it specifies the limited period of validity and obligatory re-registration.
The list of strategically important commodities and raw materials, which had been established beginning July 1, 1992, included 13 types of goods. As of September of the same year it united 15 codes representing the general volume of Russian export as follows: crude oil, including gas condensate; petrochemicals, oils and other products of high temperature processing; natural gas, oil gases and hydrocarbon gases; electric power; bituminous coal, including coke; merchantable wood, patterned lumber, cellulose, cardboard; non-ferrous metals, commodities for their production, rare and rare-earth metals, including secondary ones, their alloys, powders, semi-products, rolled non-ferrous metals, scraps and wastes of non-ferrous metals; cast iron, rolled ferrous metals, including billet for rolled products, steel pipes, ferro-alloys, the scraps and wastes of ferrous metals; mineral fertilizers, ammonia, methanol; non-organic acids; furs; grain; apatite concentrate; sulphur. This list was later changed by the Governmental Decree No. 226 of March 15, 1993, (Ed.: refer to R&R No. 3-4/93) by adding fish, fish and sea products, separate types of paper products, sodium, and aluminium products for domestic purposes. Beginning with 1994 the new list of strategically important commodities, as confirmed by the Governmental Decree No. 1102 of November 2, 1993, "On Measures for Liberalizing Foreign Economic Activities" has been made effective. This list significantly differs from those which have been in force previously and includes the following goods: crude oil, including gas condensate; products of oil processing; oilo gases and other hydrocarbons (compressed); hydrocarbon raw materials (benzene, stirene, phenole, aniline); natural gas; electric power; non-ferrous, alkali-earth and rare-earth metals, commodities for their production and their alloys, powders, semi-products, rolled non-ferrous metals; cellulose; nitrogen and phosphoric fertilizers, fertilizers containing two or three nutrients; grain of hard and soft types; soya and sunflower seeds; undenatured ethyl alcohol; fish, crustaceans and cavear; untreated diamonds; merchantable pine wood, wooden sleepers, pine wood lumber. The concrete names of these goods are determined exclusively by the foreign trade classification codes according to the Nomenclature of Goods of Foreign Economic Activities (NG FEA).
The number of organizations and enterprises entitled to export strategically important commodities after the registration of "special exporters" by MFER was estimated at 600 by the middle of 1993.
The practice has shown that even with such a significantly limited number of "special exporters" many of the disadvantages pointed out above have remained. Accounting for these conditions during re-registration the number of "special exporters" for certain categories of strategically important goods was sharply decreased. Up to the middle of 1994 their number was about 460 (as RF Informational TV Agency declared), including 15 exporters of oil and 50 exporters of oil products. (Ed. Note: on August 1, 1994, this number fell to 400).
In accordance with the Governmental decree No. 758 of July 1, 1994, the number of exporters of strategically important commodities and raw materials will be further decreased until it achieves a level at which it will be possible to provide real control over the export of such products out of Russia.
Moreover, to provide governmental control over the export of strategically important commodities this decree requires that contracts for exporting those goods listed in Annex No. 3 be registered as of July 1, 1994. After registering an export certificate will then be issued by the local authorized representatives of the MFER.
It should not be understood that such registration of contracts is a measure of direct restriction. It is only a means to provide control over the export of strategically important commodities and has the purpose to eliminate the export of raw materials and commodities at dumping prices onto foreign markets.