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Presentation on theme: "TRADING TODAY IN RUSSIA"— Presentation transcript:

Part I – Russia's Accession to the WTO Expected Impact on the Russian Economy Alexey Aronov ITCF's International Symposium Amsterdam, 16 April 2013

2 Three Main Driving Forces of the International Trade Improvement in Russia
Russia's accession to the WTO on 22 August 2012. Recent establishment of the Customs Union with Belarus and Kazakhstan followed by the forming of Free Economic Space and creation of common markets for goods, services, capitals, and labor. The implementation of package of local initiatives aimed at improving Russia's ranking for global trade. 16 April 2013

3 WTO Impact (1) All necessary changes to Russian legislation were made during the preparation stage, which lasted 18 years. Owing to this reason no significant changes to Russian law are anticipated as a result of Russia's accession to the WTO. Further development is expected primarily in the law enforcement sphere. The main question is now is how Russia intends to meet the WTO requirements documented in the accession package. Leading economists think that 5 -7 years are necessary before we see the first effects of the accession. 16 April 2013

4 WTO Impact (2) Russia will have to discontinue its protectionist policy, where high import customs duties and tough restrictions and limitations are often applied to protect local manufacturers in various sector of economy. Average weighted rate of import customs duty will be gradually reduced from the current 10.3% to 5.3% by 2018. The tariff escalation principle shall remain as the main rule: higher rates of import customs duty apply to finished products; lower import tariffs apply to raw materials, parts and components. Most production equipment remains to be subject to zero import customs duty. 16 April 2013

5 Customs Union Impact (1)
Stage 1 - The Customs Union was established on 1 July 2010 between Russia, Belarus and Kazakhstan (common market for goods). Stage 2 – The Common Economic Space was created on 1 January 2012 (common markets for capital, IP, services and labor). Stage 3 – Eurasian Economic Community (EvrAzEC) is planned to be formed on 1 January 2015 (further integration with Kyrgyzstan, Tajikistan, Uzbekistan, Armenia, Moldova and Ukraine). 16 April 2013

6 Customs Union Impact (2)
Unification of technical regulations 14 common technical regulations of the Customs Union are already effective and 17 more have been adopted but will only become effective in two years. Many more are expected. Mutual recognition of CU Certificates on the whole territory of the Customs Union. Recognition of European certificates is not planed, however European protocols of tests will be acceptable provided that the same or similar regulations apply in the EU and the Customs Union. Codification of Legislation in Future Current legislation of the Customs Union consists of 64 treaties, 911 resolutions of the CU commission, over 500 legislative acts of the Eurasian Economic Commission. 16 April 2013

7 Local Initiatives Aimed at Improving Russia's Ranking for Global Trade (1)
On June 2012 the Russian Government introduced an ambitious plan aimed at improving regulation in the sphere of international trade and customs - the "Road Map". The Ministry of Economic Development was appointed to be responsible for the Road Map's implementation. The Road Map consists of 40 measures which must be taken. The measures are aimed at the reduction of bureaucracy and the quantity of documents required for customs clearance, shortening timeframes for customs operations and converting to electronic documentation. 16 April 2013

8 Local Initiatives Aimed at Improving Russia's Ranking for Global Trade (2)
Parameter Actual (2013) Target (2018) Number of documents required for customs clearance 10 4 Average number of days required to prepare all necessary documents 25 7 Average time required for customs clearance from the moment of a cargo's arrival 96 hours 4 hours 16 April 2013

9 Local Initiatives Aimed at Improving Russia's Ranking for Global Trade (3)
An independent measurement criteria will be officially used to assess the performance of the adopted measures – the "Doing Business" rating of the World Bank, specifically the "International Trade" index. Rating Started at 2012 Target for 2015 Target for 2018 International trade 160 79 17 16 April 2013

Part II – Authorized Economic Operator – Runway to Customs Simplifications Alexey Aronov ITCF's International Symposium Amsterdam, 16 April 2013

11 WCO Background On 2005 the WCO approved the first edition of the SAFE Framework of Standards to Secure and Facilitate Global Trade ("SAFE Framework"). This was subsequently amended in 2007, 2010 and In doing so EU member states developed a regime that will enhance the security and facilitation of international trade. The aim was to establish a set of international customs standards developed by the WCO that do not duplicate or contradict other intergovernmental requirements. Two pillars of the SAFE Framework are: Customs to customs network (including automated exchange of information aimed at controlling only a limited amount of cargo before it arrives). Customs to business partnership (each customs administration will establish a partnership with the private sector to ensure the safety and security of the international trade supply chain). Each pillar involves a set of standards. It is unreasonable to expect that every administration will be able to implement the Safe Framework immediately. A phased approach will be required. The EU was first in that respect. 16 April 2013

12 European Background The concept of AEO was introduced as one of the main elements of the security amendments in the Community Customs Code ("CCC") in 2005. Detailed provisions were laid down in the amendment of the Customs Code Implementing Provisions ("CCIP") in 2006. An AEO is defined as an economic operator who is deemed reliable in the context of its customs related operations and therefore is entitled to enjoy benefits throughout the EU. 16 April 2013

13 Who Can Become an AEO? In the European Union: In Russia:
A person who, in the course of his business, is involved in the activities covered by customs legislation (Article 1, Point 12 of CCIP) A legal entity registered under Russian law which imports goods in connection with its production or other commercial activity and exports goods from Russia (Article 85 of the Law on customs regulation) Individuals Legal entities (Article 4 (1) of CCC) Russian legal entity only Manufacturers, exporters, customs brokers, agents, freight forwarders, carriers, consolidators, port operators, warehouse operators, importers etc. Importers / Exporters only 16 April 2013

14 Comparison European Union: Russia:
The international supply chain is viewed as a single process Focus on a discrete identifiable entity: Russian importer or exporter When a group of companies apply, all subsidiaries must submit applications in their countries, although the questionnaire may be completed by the parent company A group of companies is not envisaged at all Mutual recognition of AEO status in all EU Member States Russian AEO status is not recognized in other CU Member States. European AEOs are not recognized in Russia AEO programs are opened for small and medium size enterprises Significant cost of "entry ticket" 16 April 2013

15 Types of AEO Certificates
European Union: Russia: Three types of AEO certificates: A single type of AEO certificate AEO C – fewer customs controls except those related to security and safety; their status is not recognized in third countries outside of the EU --- AEO S – fewer customs controls including those related to security and safety when goods move from/to outside of the EU AEO F – is entitled to all benefits available to AEO C and AEO S 16 April 2013

16 Proof of Financial Solvency
European Union: Russia: The applicant is not subject to insolvency proceedings The applicant has provided security for customs payments to the customs authorities The applicant has fulfilled his obligations regarding the payment of all import/export duties and taxes within three years The applicant can demonstrate sufficient financial resources to meet obligations The applicant has no negative assets 16 April 2013

17 Customs Simplifications Available for an AEO in Russia
Temporary storage of goods in the premises or territories of an AEO (without obtaining the status of a bonded temporary storage warehouse). Release of goods before submitting a customs declaration in accordance with Article 197 of the CU Customs Code. Local customs clearance in premises or territories of an AEO, including closing the transit procedure for imported goods. Other simplifications including a 'preliminary declaration' with the further periodical submission of a summary declaration. 16 April 2013

18 Customs Simplifications Recommended to a Manufacturing Company
Local customs clearance in the factory's warehouse. Immediate release of goods upon each truck or container arriving at the factory's warehouse, before submitting a customs declaration. Periodical filing of a summary customs declaration for all goods delivered at the factory's warehouse. * * * Raw materials, parts, components: All the abovementioned simplifications apply to materials imported for production purposes. Finished products: Importer will not be able to bill clients (issue factura-invoices) for finished products before obtaining a customs declaration number. Nevertheless such products can be resold and can physically leave the AEO's warehouse before the periodic declaration is filed. 16 April 2013

19 Benefits for Manufacturing Company
Direct benefits No need to deliver imported goods to a customs terminal – they go directly to the AEO's warehouse (the AEO will save time and logistical expenses). Immediate release of goods upon their arrival which may enable the importer to reduce its trade stocks by switching to the 'just in time' supply model. Reduction of man-hours and, as a result, customs brokerage fees owing to filing a periodic declaration once a few days later, replacing a number of regular declarations each day. Regulations that establish places of customs clearance for certain categories of goods do not apply to the AEO. Indirect benefit Obtaining AEO status will increase the customs rating of the company which may result in the appliance of fewer physical and document-based controls for imported shipments. 16 April 2013

20 How Much Is the Security for Customs Duties and Taxes for an AEO in Russia
EUR 150,000 - for an AEO involved in the production or export of goods EUR 1,000,000 – for all other AEOs _____________ An AEO is deemed 'involved in production' if such AEO (i) has production facilities (either owned or rented or in operation) or (ii) performs manufacturing activities itself. An AEO is deemed 'involved in export' if (i) its annual export volume is at least EUR 500,000, and its annual number of export operations exceeds 12 (excluding goods subject to export customs duties). 16 April 2013

21 How Can Customs Duties Be Secured in Russia?
By a cash deposit. By a pledge of property (except foreign property, stocks, and certain other categories of property); this is currently not possible in practice, as the customs authorities do not sign pledge agreements. By a non-returnable bank guarantee issued by a Russian bank included in the register of banks (Order of the FTS 2117 of 19 October 2012), whose guarantees are acceptable for the Russian customs authorities (maximum 36 months). By a third party guarantee – on the basis of a guarantee (suretyship) agreement; this is currently not possible in practice as the Russian government has not established the criteria for a guarantor, as required by Article 146 (4) of the Law on Customs Regulation. 16 April 2013

22 Other Requirements for an Applicant
An applicant must have: More than a year's experience in international trade. No debt in respect of customs duties, taxes, or late penalties. A clear record regarding administrative offences in the customs sphere (no administrative offences related to a violation of customs law for one year prior to the application). A satisfactory system of managing commercial, accounting and transport records which allows appropriate customs controls. No criminal records in respect of the AEO head and employees involved in customs operations. Premises and territories owned, rented or in operational control. 16 April 2013

23 Unloading Border Customs stamp for completion of the transit procedure
AEO consignee warehouse Customs Loaded Empty Border AEO notifies the customs 3 hours prior to the goods' arrival unloading is only forbidden if the customs authority wishes to inspect the goods 16 April 2013

24 Steps for Obtaining AEO Status
Step 1. Internal customs audit as preparation for the field check by the customs authorities (30 days, can be done in parallel with Step 2). Step 2. Preparing an application and collecting supporting documents (in practice approximately 60 days). Step 3. Submitting the application and supporting documents to the Federal Customs Service. Step 4. The FTS delegates the performance of a field check to the local customs authority (10 days from the date the application is received by the FTS). Step 5. The local customs authority issues a decision regarding a field audit of the applicant (in practice approximately 30 days from step 4). Step 6. Field Check (60 days plus an optional 30 days to eliminate incompliances). Step 7. The local customs authority issues an act upon the results of the field checks and sends it by mail to the FTS. Step 8. The applicant and the local customs authority make necessary arrangements regarding cooperation procedure, documents turnover, negotiate a draft of cooperation agreement. Step 9. The FTS takes a preliminary decision and notifies the applicant accordingly. Step 10. Within 30 days the applicant provides the FTS with documents evidencing the security for customs payments. Step 11. The FTS enters the applicant in the AEO Register and issues a certificate. Step 12. The applicant and the customs authority sign the cooperation agreement specified in Step 8. Step 13. The AEO certificate enters into force 10 days after its date of issue. 16 April 2013

25 Cooperation Agreement with the Customs Authority
The standard form of the cooperation agreement is established by Order No of Federal Customs Service of 20 September The final text is negotiable. Termination of the cooperation agreement will result in the suspension of the AEO certificate. The termination provisions of the standard form refers to a closed list of situations where the customs authorities may unilaterally terminate the agreement. 16 April 2013

26 Indirect Benefits of Obtaining AEO Status
The Federal Customs Service shall introduce a "trustworthiness rating" which will be assigned to each importer/exporter. Such rating will depend on many factors, each of them will amount to a certain 'score'. It is expected that obtaining AEO status will increase such rating significantly. Fewer physical and document-based controls will be applied to those importers/exporter with a high rating. 16 April 2013

27 DLA Piper - Facts and Figures
Global Over 4,200 lawyers across more than 30 countries in Europe, Asia Pacific, the Middle East and the Americas Ranked 1st by number of lawyers (New York Law Journal, 3 May 2011) Ranked 3rd by revenue (Legal Business Global ) Ranked 1st globally and in the UK by volume of M&A deals (Mergermarket 2012) CIS One of the largest multi-disciplinary law firms in the CIS 21 partners, over 150 lawyers in the CIS; 15 partners, over 100 lawyers in Russia Offices in Moscow, St Petersburg, Tbilisi, Kyiv Experienced teams of local and foreign practitioners with English, German, US and French training/qualification Extensive experience in serving clients in the South Caucasus (Azerbaijan, Armenia), Central Asia (Kazakhstan, Turkmenistan, Uzbekistan, Kyrgyzstan), the Baltics and Belarus In addition to English and Russian, our lawyers speak French, German, Italian, Ukrainian, Georgian, Byelorussian, Uzbek and Hebrew 16 April 2013

28 Contact Information Alexey Aronov Legal Director T: DLA Piper Rus Limited Leontievsky pereulok, 25 Moscow, , Russia T: F: 16 April 2013


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