The FIAC discussed technical regulation issues, the lifting of administrative obstacles, improving customs legislation for investors, the development of the banking sector and financial markets in Russia, trade and the consumer sector, as well as innovations-based development.
Dmitry Medvedev’s introductory remarks
Remarks by Mark Weinberger, Global Chairman and Chief Executive Officer, Ernst & Young
Remarks by Indra K. Nooyi, Chairman and CEO, PepsiCo
Remarks by Arkady Dvorkovich, Russian Deputy Prime Minister
Remarks by Maxim Topilin, Minister of Labour and Social Protection
Remarks by Victoria Mars, Corporate Ombudsman, Mars Inc
Remarks by Tatyana Golendeyeva, Deputy Head, Russian Federal Customs Service
Remarks by Suma Chakrabarti, President, European Bank for Reconstruction and Development
Remarks by Alexei Ulyukayev, Russian Minister of Economic Development
Remarks by Anton Siluanov, Russian Minister of Finance
Remarks by Paul Bulcke, Chief Executive Officer, Nestle S.A.
Remarks by Igor Shuvalov, Russian First Deputy Prime Minister
Remarks by Hubertus von Grunberg, Board Chairman, ABB Ltd
Remarks by Ken Kobayashi, President and CEO, Mitsubishi Corporation
Transcript:
The 27th session of the Foreign Investment Advisory Council in Russia
Dmitry Medvedev: Good afternoon ladies and gentlemen, colleagues.
It has become a good tradition to meet every third Monday in October for a session of the Foreign Investment Advisory Council, which includes representatives of the largest foreign investors working in Russia.
To begin with, I’d like to express my heartfelt gratitude for your contribution to improving the business climate in Russia and for your initiatives, especially because many measures have been implemented upon your initiative, based on your ideas and with the help of FIAC members. I am sure that today we will hear many new proposals. I am asking you to put forth your ideas and to formulate them directly and openly, since the goal of our meetings is to exchange opinions on all issues of mutual interest.
Dmitry Medvedev: The Russian Direct Investment Fund has allocated some $700 million for project funding and has attracted $2 billion, and now this fund has a package of projects with expected investment exceeding $12 billion. We also expect investors, foreign investors as well, to invest another 25-30 billion roubles. We are speaking about high-tech fields, such as healthcare, TV communications, energy saving technologies, and a number of other priority projects.
A few words about the current situation and life in the country. I know that many of you discussed this issue during the Moscow meeting of the World Economic Forum, where you expressed your opinions and estimates of the global economic situation. What I am going to say is simple: the situation in the Russian economy largely depends on global developments. Frankly speaking, this is what we were striving for some time ago. And now this has happened, or is happening, since the Russian economy is part of the global system. This has its advantages and apparent drawbacks. When the global economy slows down or enters a crisis period, this undoubtedly creates some problems for us too.
You know that the leading international organisations have recently reviewed their global economic outlooks. The IMF has downgraded its forecast for global GDP this year from 3.1% to 2.9%, the European Bank for Reconstruction and Development has lowered its estimate to 1.8%, and the World Bank from 2.4% to 2.2%. As you see, estimates differ but they all reflect the general view of current developments. Hence the decline in Russia’s economic growth looks more or less logical against that background, although this is not a reason to celebrate. In the first eight months of this year, Russian GDP grew by 1.5% (they probably announced this figure yesterday as well) compared to more than 4% in 2012. We expect the year-end GDP growth to reach around 2% at best, but, unfortunately, industrial growth is hovering around zero. One of the key factors is an external economic environment, taking into account the fact that our economy is export-oriented. However, other macroeconomic indicators are generally stable: we have a low unemployment level, a small – truly small as compared to other countries – national debt, a nearly balanced budget, a stable currency, and quite decent, even substantial, I would say, gold reserves. All this is good, but frankly, it is not enough for our long-term development and new living standards. We should move forward and implement a complex system of measures aimed at establishing a comfortable business environment, attracting investment, accelerating development and eliminating various problems, including infrastructure barriers. I would like to note that of great importance here is not just growth, but the quality of this growth, as well as the structure of the Russian economy and the ability to ensure modernisation. Maybe this is even more important than numbers.
Dmitry Medvedev: A decision has been made to allocate 450 billion roubles (around $15 billion) from the National Welfare Fund to implement three major infrastructure projects, including the construction of a high-speed main line between Moscow and Kazan, the construction of the Central Ring Road (as the situation around Moscow is really difficult, and the modernisation of the Trans-Siberian Railway.
I would like to point to several priority aspects. First of all, we will focus on reducing economic expenses. This is a difficult task, as previous years have showed, but the Government has decided to freeze tariff increases of natural monopolies for a year, and in the future, starting from 2015 and 2016, this rate will be limited by the inflation rate. I would like to stress, as this is important for all of us, including foreign investors, that this represents a long-term policy in spite of some inconvenience for the development of these infrastructure monopolies.
Secondly, we should create additional incentives for large-scale investment in the real economic sector and infrastructure development. For this, we will use our development institutions, such as the National Welfare Fund, the Investment Fund, and the Russian Direct Investment Fund, which, by the way, has allocated some $700 million for project funding and has attracted $2 billion, and now this fund has a package of projects with expected investment exceeding $12 billion. We also expect investors, foreign investors as well, to invest another 25-30 billion roubles. We are speaking about high-tech fields, such as healthcare, TV communications, energy saving technologies, and a number of other priority projects.
A decision has been made to allocate 450 billion roubles (around $15 billion) from the National Welfare Fund to implement three major infrastructure projects, including the construction of a high-speed main line between Moscow and Kazan, the construction of the Central Ring Road (as the situation around Moscow is really difficult, and the modernisation of the Trans-Siberian Railway. So, these are major infrastructure projects, we are going to implement, despite the slowdown in the economy.
Thirdly, I would like to speak about an important innovation concerning a new mechanism for us: public-private partnership. It is important in order to attract private investment in infrastructure projects. Such projects can be implemented only by combining the efforts and resources of the state and businesses. Perhaps in some countries this can be done using private investment only, but taking into account the size of our country, our path is somewhat more difficult. However, it is a proven method, as it establishes a dialogue between the Government and businesses, as well as develops common approaches and solutions. I would like to inform you that the State Duma is considering a draft law, On the Foundations of Public-Private Partnership, which was approved in the first reading and will be conclusively passed soon. Hopefully, it will create the right conditions for this kind of business, and will help distribute risks between private entrepreneurs and the state.
One more tool is concession agreements. This tool has been well-tested. However we will expand the sphere of such agreements and improve law enforcement. We plan to use the mechanism of deferred payments, so-called Tax Increment Financing, where the return of private investment in the infrastructure is covered by future tax payments concerned with the use of the created infrastructure. Hopefully, this will help to implement an extensive number of projects.
The key point is the business climate, not only in Moscow but also in the regions. A year ago a decision was taken to introduce a special regional standard, and it is currently functioning. In the short-term, we will introduce a regional standard on developing competition to make the situation on regional markets more transparent. Hopefully, this will improve the investment attractiveness of regions,, will make it possible for regions to take a more active role in selecting relevant projects and will stimulate investors’ interest in regions.
Ladies and gentlemen, colleagues, I’d like to underscore once again that the Government and I are open for dialogue and joint work on any issues. I would like to conclude my speech here. Now I want to hear from you. I believe that the atmosphere is very suitable for this. I invited everybody out to the country on purpose, this is my country residence. Hopefully, we will have a productive discussion and will be able to come up with some proposals. Now let's hear from Mark Weinberger, coordinator of foreign participants at the Consultative Council for Foreign Investment in Russia, as the moderator of our meeting and Ernst & Young Global Chairman and CEO.
Mark Weinberger, Global Chairman & CEO of Ernst&Young
Mark Weinberger (moderator of the meeting, coordinator of foreign participants at the Consultative Council for Foreign Investment in Russia, Ernst & Young Global Chairman and CEO) (via interpreter): Thank you, Mr Prime Minister. Thank you for inviting me, for inviting us to this residence and for your opening remarks. We are glad to talk to you and other representatives of the Russian Government directly, in an open and honest manner, and to discuss the Russian investment climate.
Mark Weinberger: When the next Doing Business rating is published, we hope to see some Russian progress as compared to last year. Last year you climbed eight points. I know you have ambitious goals to climb much higher. These ratings reflect the results of the cooperation between the Russian Government and the international business community on improving the investment climate in Russia, but it is necessary to do much more.
Without doubt, this is a hard time for Russia. As you have said, Mr Prime Minister, the time of easy solutions has passed. You mentioned this in your article. Russia is at a crossroads. We all want Russia to follow the path of openness and reform, and we support this. We believe that the time of former solutions belongs to the past, we have discussed many things, it’s time to act rather than talk. Representing the business community of our council (the Consultative Council for Foreign Investment), we are working as part of this council, jointly with the Government, for the common goals. As you said, Mr Prime Minister, you endured the financial crisis not too badly – you have excellent gold and currency reserves and budget discipline. When the next Doing Business rating is published, we hope to see some Russian progress as compared to last year. Last year you climbed eight points. I know you have ambitious goals to climb much higher. These ratings reflect the results of the cooperation between the Russian Government and the international business community on improving the investment climate in Russia, but it is necessary to do much more. We all wish to accelerate the rate of change. Therefore we have gathered here to clarify and discuss key points, to work together to reach key points to improve the investment climate in Russia and to develop the Russian economy.
One issue of strategic importance is entrepreneurship. Unfortunately, Russian small and medium-sized businesses create only 15% of jobs, while such businesses in more efficient economies create 60%-70% of jobs. You should do more to develop small and medium-sized businesses, as well as innovations, which have been extensively discussed. Russia has a good history of developing new technology and introducing new ideas. However because of the shortage of commercialisation skills, many of these technologies and ideas have not been introduced and you are lagging behind developed nations. You occupy the 51st position in the innovation rating. As for infrastructure, foreign investors realised for the first time in 2010 that there are barriers that should be lifted. The subject of infrastructure and regions is interconnected: to develop regions it is necessary to develop infrastructure.
And the last point: education. Russian education has won respect throughout the world. However it should be more motivated to serve the business community. Language skills are poor, unfortunately. Joint programmes, exchanges and work with foreign universities are needed. We will support research and advanced development at the Skolkovo innovation centre. You should cooperate with business schools globally to attract professionals and advanced practices to your country.
Mark Weinberger: Existing customs barriers are being eliminated due to legislative changes. Bank cards for paying for customs services are now more widely used at ports and other border crossings. Electronic declarations are an effective tool as well. Progress has been made in technical regulations. In 2013, the Council’s proposals were included in the draft law in various areas. Progress is evident, and it shows that we can work together successfully.
Since last year, FIAC members have been discussing various issues with representatives of the Russian Government, and the working groups have managed to resolve many issues. I believe that significant progress has been made in some areas which will help us to increase the flow of goods and services and to lay the foundation for future economic growth. We have made progress in veterinary and taxation matters. Currently, we are not using any direct bonuses that affect trade. All-purpose bills of lading will help make customs more efficient. Existing customs barriers are also being eliminated due to legislative changes. Bank cards for paying for customs services are now more widely used at ports and other border crossings. Electronic declarations are an effective tool as well. Progress has been made in technical regulations. In 2013, the Council’s proposals were included in the draft law in various areas. Progress is evident, and it shows that we can work together successfully.
I’d like to finish my remarks by returning to the crossroads at which Russia has found itself: you need to continue on the path of reform, openness, diversification, innovation and development of an entrepreneurial spirit in order to realise the full potential of your country. We, FIAC members, investors, and friends of Russia are committed to working with you in a spirit of openness and honesty, in order to do everything we can to help you.
Thank you very much for inviting us for an honest and frank exchange of views.
Dmitry Medvedev: Mr Weinberger, usually we consider many issues during the working groups’ meetings with your participation, for which I’d once again like to sincerely thank all the participants. We have a special technical regulation group. Mr Weinberger said that it has made some progress, which I believe is a fair assessment. However there are many other issues; therefore, I turn the floor over to Ms. Indra Nooyi, Chairman of the Board and Chief Executive Officer of PepsiCo.
Indra Nooyi (Chairman of the Board and Chief Executive Officer of PepsiCo): Mr Prime Minister, on behalf of PepsiCo, which is a leading food and beverage producer, allow me to thank you for the invitation to participate in today's meeting. The Russian Government reaffirmed its commitment to an open and honest dialogue with foreign investors. We expect that this practice will continue.
Exchanging opinions and resolving problems raised by foreign investors at discussion platforms, such as this, has for many years been conducive to creating an attractive environment for business development in Russia. As co-chair of the working group for reducing administrative barriers and technical regulations, I must say that PepsiCo is involved in many projects designed to improve the investment climate in Russia. Our group comprises 20 international companies that represent a wide range of Russian industries, from consumer goods and pharmaceuticals to construction in the oil and gas sector.
Today, at the request of my colleagues in the working group, I would like to outline three key issues that need the attention of both the Government and investors in order to be resolved.
First, the most important issue is the entry into force on 1 January 2014 of Chapter 5 of Law FZ-416 on water supply and sanitation. The standards provided in this chapter will affect thousands of manufacturing companies that discharge waste water into centralised urban drainage systems operated by water utilities. On behalf of all FIAC working group members, I’d like to reaffirm our commitment to efforts designed to protect the environment in Russia. However, the provisions of this law in its current form contain clearly unrealistic demands with respect to wastewater disposal for manufacturers in terms of both financial and operational costs. Allow me to be more specific here. After Chapter 5 takes effect, enterprises that discharge more than 200 cubic metres of wastewater into the centralised sewage system per day will need to build local treatment plants within two years of the law’s entry into force. According to experts, the cost of building treatment facilities that meet the requirements for each enterprise in Russia will amount to anywhere from 6 to 10 million dollars. Such costs will force PepsiCo and all other industrial enterprises, not just FIAC members, to consider ways to streamline their production capacities, including shutting down these plants.
The main reason for this is applying to our industrial effluents water quality standards that apply to water use for fishery, meaning that the wastewater must be purer than drinking water. Industrial enterprises in Australia, the United States and Eastern Europe cannot comply with such standards for waste water either technically or economically. To resolve this problem and at the same time ensure the protection of the environment, we are asking to delay the entry of this chapter into force. In order to ensure the protection of the environment, we want to have certain changes introduced and environment-protecting regulations applied, but they should be based on actual capabilities offered by effluent treatment. In addition, we need a transition period for Chapter 5 in order to obtain the permits required by the law. Board members are making the necessary preparations for the law’s entry into force. No company will be able to comply with the prescribed standards as of the date of its entry into force. The fact is that the first chance to apply for a permit will be on 1 January. Given the number of applications that will be filed in January, and the delays involved in their consideration, we can project that most or all the industrial enterprises will work in violation of the law.
Therefore, we are asking you to postpone the entry into force of the rules for 18 months, which will allow the Government and the business community to develop more effective regulations of the disposal of industrial waste based on international experience. On the one hand, it will provide a high degree of environmental protection in Russia, and, on the other, it will be a realistic requirement for the industry. This is my first point.
The second issue that I’d like to touch upon concerns the introduction of extended producer responsibility, which is widely known as the draft law on production and consumption waste. Over the past two years, our working group has been working with the Government on this issue. I note with satisfaction that the fruitful dialogue with Deputy Prime Minister Arkady Dvorkovich, the Ministry of Natural Resources and the Ministry of Economic Development was effective, and the current revised version of the draft law includes many of our suggestions. We are extremely grateful for this.
Nevertheless, we’d like to ask you to look at certain aspects of the draft law. We believe that the draft law should stipulate equal requirements for the disposal of waste products both for Russian and imported products, including those imported from Belarus and Kazakhstan as part of the Customs Union. This draft law should be based on the principle of equivalence. We believe that the money allocated from the waste recycling fund should be used exclusively for the purpose of disposal of consumption waste, which is regulated by the law to ensure processing of specific amounts of consumption waste. Failure to introduce such a principle will result in the funds being spent on the abstract development of the waste processing industry without achieving any established waste disposal standards. Regulation must provide for the possibility of tax deductions for the manufacturers’ expenses associated with the extended disposal responsibility. Tax deductions are provided for other such expenses.
Finally, the draft law should provide manufacturers with an opportunity to independently collect and recycle waste. FIAC has sent a detailed proposal regarding the text of the draft law to the Ministry of Natural Resources. We expect that we will continue to work with Arkady Dvorkovich on the draft law. This is the second issue that I wanted to raise.
The third and last issue concerns regulation of labour relations in Russia. Two and a half years ago, the State Duma submitted a draft law to ban the so-called contingent workforce. If this document is adopted, secondment will become impossible. This ban is inconsistent with generally accepted international practices. This problem is further aggravated by the recent adoption in the first reading of the draft law on key personnel developed in accordance with WTO rules. It restricts secondment not only between different legal entities, but even between related companies. Unfortunately, these draft laws are not helping us improve labour productivity and competitiveness in Russia.
Our group fully supports the development of a new legal framework that would regulate the relationship between employees, employers and recruitment agencies. At the same time, we believe that a total ban on any kind of indirect employment is ineffective for managing the labour market. The contingent labour and secondment mechanisms, if used properly, can help us resolve problems associated with seasonal fluctuations when we need more workers or promote the sharing of experience using seconded foreign personnel. It helps companies to flexibly respond to changes on the labour market and work in full compliance with labour and tax regulations. Now both draft laws are in the second reading, and the risk of banning such forms of employment remains high. We would like to ask the Government to once again look into them as interrelated documents.
Finally, I would like to share some good news about our company.
In addition to the numerous corporate and social responsibility projects and the long-term agriculture development projects that our company has been implementing, next year the PepsiCo Foundation will launch a two-year cooperation programme with Russian universities to train a new generation of Russian agricultural specialists. We are hoping to unveil the details of this initiative in the near future. Thank you very much.
Dmitry Medvedev: Thank you, Ms Nooyi for your detailed analysis of the wastewater disposal problem and the two other issues that you mentioned – the need to promote recycling and waste disposal, and the labor market problem. The purpose of our meeting today is not just to raise issues, but to discuss them in a comprehensive manner. With this in mind, I have invited many Government members to join me in this meeting and discussion. It wouldn’t do if I were the only one to speak today. I would like Deputy Prime Minister Arkady Dvorkovich to comment briefly first, and then Labour Minister Maxim Topilin will speak on increasing the effectiveness of labour regulation. Go ahead, colleagues.
Arkady Dvorkovich: Thank you Mr Medvedev. Colleagues, both water utilisation and waste management issues are indeed very pressing and feature prominently on the Government’s agenda.
As far as water utilisation is concerned, we are currently examining this issue in an expedited manner. These are real problems, both the rigidity of the standards and the transition period, especially the transition period. This can be easily resolved through a minor amendment to the relevant legislation, which will allow for avoiding a potential conflict between the need to comply with standards from the first of the month and to obtain permits on the same date.
This will be technically impossible to do, resulting in a grey area and creating a loophole for arbitrary action by government oversight agencies. We need to deal with this problem promptly, together with the State Duma.
Dmitry Medvedev: How long will it take you?
Arkady Dvorkovich: This is just a minor amendment, and I think we can even ask the deputies to initiate it, as it only changes the timeframe for the implementation of the relevant standards.
Dmitry Medvedev: Please work this out with the legislators.
Arkady Dvorkovich: We should be able to work this out within a few days to make sure the issue is resolved during the autumn session.
The problem with the rigid standards is more substantive and complicated. We need to discuss the issue with specialists and the authors of the draft law. Indeed, our standards are stricter than in other countries in this respect, but I believe we should be able to find compromises here as well. However, no specific decision has been made yet.
With regard to the waste management legislation, the draft law is being prepared for the second reading, and quite a few amendments have been proposed. All those issues that were raised today have already been discussed and concrete solutions have been proposed, although they have yet to be included in the draft law.
This includes equal rights and responsibilities for manufacturers and importers from any country. Whether or not it is a member of the Customs Union or a Russian company should make no difference. Otherwise, it will be a violation of the WTO norms. We have already ensured equal conditions in the automobile industry.
Dmitry Medvedev: Conditions should be made equal.
Arkady Dvorkovich: We should do the same with regard to other goods.
With regard to the targeted nature of the appropriate payments, we will ensure that these payments are targeted. We agreed on this at our last meeting and a relevant amendment is being currently introduced. As for tax deductions, the Finance Ministry has had two different positions at various times, but at our last meeting we decided that the deduction from the tax base will be made when calculating the income tax to ensure a standard norm.
And, finally, regarding the various means of meeting financial obligations, all three methods have been provided for in the draft law, including an individual payment, a combined payment together with other industry manufacturers, or a payment to a relevant fund. The discussion is ongoing as to whether this will be a public or private fund (budgetary or extra-budgetary?) and how it will be managed. The final decision has yet to be made, and it will determine how these funds will be spent and to what extent the payments will be targeted.
I’d like to emphasize that the schedule for phasing in the recycling payments for various industries will be different. The Government will need to determine the industries that will start paying a recycling fee in 2015, and the industries that will have to do it later. We are not ready yet to introduce these payments for the entire product range throughout the country and we’ll need to determine in which sectors they could be introduced at this stage.
Dmitry Medvedev: Thank you. Labour Minister Mr Topilin, please.
Maxim Topilin: Mr Medvedev, colleagues. The State Duma is currently considering two draft laws. I will briefly discuss the first one, which has been initiated by the legislators and regulates issues related to precarious work.
The draft law has passed the second reading. However, to reflect all the comments that we have received from our colleagues with whom we have been constantly exploring the possibilities for recruiting personnel, including through transferring from foreign-based companies, this draft law will go through a second reading once again. We have reached an agreement with the deputies that the law should definitely go back to a second reading.
The point is not to ban, but to regulate the employment relationship, arising as a result of the transfer. We are trying to find the right forms to avoid firm time constraints and, at the same time, to ensure compliance with the labour legislation on the part of the legal entity that employs workers and allows them to maintain their labour relations with the parent company.
This dialogue is ongoing, although I can’t say that it has been easy. We need to very clearly outline all labor legislation norms to ensure that workers’ rights are protected, above all. We have had many such cases in Russia recently, and our goal is to regulate all these legal details by the end of the year. But clearly, this law will not be adopted without thorough consideration.
As regards the second draft law, this one was introduced by the Government following our accession to the Marrakesh Accords as an instrument of ratification.
Mr Medvedev, three days ago, on 17 October, we received written proposals from the Association of European Businesses. We believe that the draft law contains no restrictions that would hinder the regulation of all legal relations, including those related to secondment. The draft law has been approved in the first reading and is being prepared for the second, and we will thoroughly consider all the written proposals that our colleagues have provided. I think we can consider and discuss them.
I would like to note that we are expanding possibilities for using foreign labour as much as possible, including key personnel, and removing restrictions on quotas, which will not be required for such foreign citizens. The standard term will change from one year to three years under the standard permit – these are the general terms that apply to everyone. Necessary requirements will also be introduced for salary as well as for highly qualified personnel. We have consulted with international organisations on this draft law, including with those in Geneva, and have received positive assessments. If there are certain new details to be clarified, we will consider them within a month as we prepare the draft law for its second reading. Thank you.
Dmitry Medvedev: Thank you again for your remarks and your initiatives, including those regarding PepsiCo. Let’s proceed to other issues. A batch of questions concerns the work of customs offices and customs regulations. Now I’ll give the floor to Ms Victoria Mars, Corporate Ombudsman at Mars Inc.
Victoria Mars, Corporate Ombudsman at Mars Incorporated
Victoria Mars (Corporate Ombudsman, Mars Inc) (via interpreter): Mr Prime Minister, members of the Russian Government, colleagues from member companies of the Foreign Investment Advisory Council, thank you for this opportunity to share our views on the issues that affect the investment climate in Russia and to speak on behalf of the working group for improving customs regulations.
As we know, Russia is the world’s largest country and a major player in the global economy. As a result, a predictable and continuous supply chain is a critically important element of business activities in Russia. Customs procedures are a key driver for the supply chain’s efficiency and reliability.
We enthusiastically support the Government’s efforts in improving customs regulations and would like to express our appreciation to Russia’s Federal Customs Service and the Ministry of Economic Development for their cooperation in the work of the customs group.
Last year we worked very productively. As I have said, we worked together closely and achieved progress on a number of key issues. For instance, we worked on adjusting customs declarations following the release of goods. We also focused on expanding opportunities for the use of various credit and debit cards for customs payments. And, finally, we continue to introduce technologies for electronic customs declaration. These measures will simplify and speed up customs procedures, facilitate foreign trade process and eventually improve the business climate in Russia. Yet, there remain issues related to customs, which create actual risks to our supply chain and which, unless resolved, will hold back the emergence of a more favourable investment climate.
Today, I would like to highlight two priority areas – first, the Russian institution of authorised economic operator, and, second, customs transit safeguards. I will start with the authorised economic operator, or AEO. Members of the Foreign Investment Advisory Council acknowledge the importance of this programme. We are very glad at the fact that the Russian Government is considering the possibility of improving the AEO programme and to this end has developed amendments to Federal Law No. 311. We have several specific proposals which, we believe, will make the AEO programme more attractive for business in Russia. The proposals include a warehouse chain and veterinary and phytosanitary control. In particular, we would like to propose that authorised economic operator members be given the right to use consignment warehouses under the programme.
We also propose simplifying the import procedures for AEO members through the use of risk management system for supplies of goods that are subject to veterinary and phytosanitary control. In particular, the speed of the supply chain and the efficiency of the AEO programme will increase sharply if veterinary and phytosanitary control is performed only at the border area, without any repeated control at warehouses used by AEO members. The customs working group hopes to be able to work with Russian authorities to make the programme more efficient, including doing technical appraisals of the application of risk management in veterinary and phytosanitary control.
Second, we are particularly concerned about the expected requirements for customs transit safeguards. We are aware that starting 1 December an additional transit safeguard will be required from suppliers, in addition to the safeguards offered under the Convention on the International Transport of Goods. We believe that additional time and outlays related to this new proposed requirement will negatively affect our business here, as many companies and members of the Foreign Investment Advisory Council depend on goods imported from Europe to Russia via Belarus. We ask the Russian customs service to postpone introducing any requirements for transit safeguards until an alternative transit safeguards system is developed to allow transit across the Customs Union states under a common safeguard, not under multiple safeguards.
Mr Prime Minister, let me once again thank you and other members of the council for the opportunity to speak on behalf of the working group on improving customs regulations.
Dmitry Medvedev: Thank you very much for speaking and giving your assessment of current efforts, as well as for your proposals. I would like to ask Ms Golendeyeva, deputy head of the Federal Customs Service, to comment on these issues.
Tatyana Golendeyeva: Mr Medvedev, ladies and gentlemen, I’d like to begin by thanking Ms Mars for her positive assessment of our cooperation this past year. Indeed, we have worked a lot to optimise the customs legislation. I’d like to tell you that the Government Commission on Lawmaking is now considering amending Federal Law No. 31-FZ on customs regulation, which has been mentioned here. I hope that six innovations will be approved at the government level today to facilitate the work of the authorised economic operator. One reason for this is the simplified procedure for adding authorised economic operators to the register, but the main innovation concerns giving equal rights to the authorised economic operators working in industry and to importers.
Another major innovation to be considered today concerns the maximum possible facilitation of exports, which will benefit foreign economic operators, before the filing of customs declarations, when they will not need to compare the customs duties they are to pay with the amount of security. In other words, we will support the authorised economic operators within the framework of the roadmap and development strategy, and we will also promote the achievement of our goal, which is the transfer of customs control to the post-export stage. More simplifications will be approved later for authorised economic operators to facilitate the achievement of this goal.
As for the proposals which Ms Mars has put forth here, it is true that all types of simplification only concern those warehouses which are owned or leased by authorised economic operators. The current legislations of Russia and the Customs Union do not stipulate the use of temporary storage facilities by the authorised economic operators or for customs clearance operations, because the customs control exercised at general temporary storage facilities differs from the control procedures formalised in the regulations of the authorised economic operators.
Therefore, we need to hold consultations to clearly determine if you have a solution to this issue and if it is possible to control and identify goods left in temporary storage which belong to an authorised economic operator and third parties. To date, we have only received a request from Mars Inc. And hence, we are prepared to consider your proposal and to decide if we are prepared to support your innovation. We are inviting everyone for a more technical and constructive dialogue in order to determine if you really need this innovation. We are ready for cooperation.
Dmitry Medvedev: I’d like you to hear your approach to this issue. I understand the position of foreign investors, but what does the Customs Service think about using temporary storage facilities for this purpose?
Tatyana Golendeyeva: As it is, we are wary of this idea, primarily because it is difficult to distinguish between different goods in general temporary storage facilities, which many foreign economic operators use. We want to know how the goods of authorised economic operators can be distinguished from other goods because the control system used in these storage facilities is much simpler.
Dmitry Medvedev: If our partners propose this scheme, will you use temporary storage facilities for this purpose or not?
Tatyana Golendeyeva: Yes, we will.
Dmitry Medvedev: Good. Thank you. The next issue concerns banking and Russia’s financial markets. I give the floor to EBRD President Sir Suma Chakrabarti (EBRD, European Bank for Reconstruction and Development). Please proceed, Sir Chakrabarti.
Suma Chakrabarti (via interpreter): Thank you, Mr Prime Minister. As usual, it is a great honour for me to be here and to take part in the work of this Council.
I will begin with good news. The good news is that it is really possible to work very well in Russia, to conduct good business here. There are facts to prove this. Over the past 22 years, we have invested around 23 billion Euros in approximately 700 separate projects in Russia, and we are the only and the largest foreign investor in the non-oil and gas sector. We intend to work in Russia for much longer. The year 2013 showed that we have problems, but we will keep working in Russia. The year 2013 clearly showed that there was some slowdown, including in internal private investment. I believe that this is a very important time, the time for dealing with all obstacles which we have encountered as investors. We should use this Council as a good platform. We have worked with different banks, including Deutsche Bank, and cooperation with other investors is of key importance for boosting our growth. There are new foreign investors, but they wonder if they should enter the Russian market. We welcome the efforts of the Ministry of Economy and the Strategic Initiatives Agency to improve the business climate and to attract investment to Russia. We believe that the roadmap approach is a vital element. It will help Russia to rise, including in business ratings.
You know that our working group is focused on the key elements of business climate. They are safe transactions and their facilitation. We pointed out during the forum in St Petersburg that it was very important to create the legal framework and to implement reforms at the level of legislation on the infrastructure of public-private partnerships and so on.
In our opinion, the amendments to the Civil Code which you are discussing now are somewhat lagging behind the best market practices. They do not offer the necessary flexibility for assets and do not cut business expenses. We are working closely with the Ministry of Economy, the Transport Ministry, the Russian Direct Investment Fund and the State Duma to improve the framework for public-private partnerships in Russia. We hope that the new draft of the law on public-private partnership, which has been sent to the State Duma, will further strengthen the legal environment.
As you know, Mr Prime Minister, we have already provided financing for Russia’s two biggest public-private partnerships, which are the Pulkovo Airport and the high-speed road. EBRD continues to actively support initiatives undertaken by Russian authorities to implement these PPP projects in a transparent and competitive market environment.
Making deals within a solid framework is important for all companies, including small- and medium-sized enterprises. SMEs tend to be constrained financially. About 30% of SMEs view access to financing as a very serious obstacle for carrying out their activities. Overall, more should be done to improve the business environment. This would be a positive contribution to making our economy more balanced.
In any case, a more balanced and diversified economy could help small- and medium-sized enterprises make a significant contribution to creating jobs as well as facilitating innovations since the SME sector remains underdeveloped in Russia. Its share in GDP and employment remain relatively low compared with that in Europe, which is a matter of certain concern for medium-sized enterprises in Europe, where such companies are the cornerstone of the economy. We do not see any improvements. On the contrary, we are seeing that motivation to do business is declining. For this reason, it is necessary to improve the business climate and facilitate the growth of small- and medium-sized enterprises. This will be key in your efforts to attract foreign investors, legalise production and build solid high-quality supply chains. The bank reiterates its commitment to supporting small- and medium-sized enterprises and will assist this segment in Russia through partner banks, funds, by providing assets and direct financing.
We believe that opportunities in Russia outweigh risks and problems. However, judging by conversations I have had with entrepreneurs across the world, they are not as confident as we are, which should set alarm bells ringing for investors. They should step up their efforts to improve the business climate and remove barriers for investments. If we are able to advance in this direction, we will have every reason to be optimistic about Russia’s future.
With Mark Weinberger, Global Chairman & CEO of Ernst&Young
Dmitry Medvedev: Thank you, Mr Chakrabarti. I now pass the floor to Juergen Fitschen, Co-Chairman of the Management Board, Deutsche Bank AG.
Juergen Fitschen (via interpreter): Thank you, Mr Prime Minister. I agree with what has been already said and would like to start by sharing with you some positive developments. The working group is actively involved with our Russian colleagues in addressing certain issues, and we are efficiently cooperating with private banks. Various programmes have been devised to support foreign investors and backup our transactions by 50%, which is very good news. However, much has yet to be done. The group is working on amendments to the Civil Code. We believe that efforts to support the Russian banking sector should be enhanced. Russia currently lacks global practices, and we need to understand why. Speaking about syndicated loans, it is necessary to cooperate and work together on various levels and support guarantee agreements since these loans are crucial for development. Other aspects should also be included, such as separate loan agreements to facilitate cooperation between banks and lending. There is a certain level of support for borrowing in Russia, but it is still insufficient.
Speaking about recommendations, the issue of securitisation is discussed around the world. We have already discussed bank guarantees and trade facilitation. In this respect, the response should be appropriate to the current situation. Digital tools are not widely used. We need to work in this direction in order to make it easier for the market to operate. In this respect, I would like to make a proposal to submit this project to the State Duma. As we have already discussed with some European banks during the St Petersburg Forum, we would like to make Moscow a vibrant economic centre. We have been operating in Russian for many years and are maintaining a positive dialogue with regulators, the banking industry and other countries, since in the next several weeks… We are determined and we expect to see a new legislative framework. Russia should seek to enhance its credibility in order to avoid fragmentation in a globalised world. We would praise Russia for going hand in hand with most other countries, which implies facilitating liquidity flows so that all institutional barriers are lifted and efficiency is ensured. By doing so, Russia would get very high marks from us.
Dmitry Medvedev: I know that our Minister of Economic Development has made you get up early for a breakfast, but I hope that it was useful. I would like to ask Mr Ulyukayev to share his perspective on some of these aspects, and after that, our Minister of Finance could take the floor on this subject, if he has something to add. Go ahead, please.
Alexei Ulyukayev: Thank you, Mr Medvedev, colleagues. We have actually held an informal meeting this morning and extensively discussed the framework mentioned by Mr Chakrabarti, as well as such crucial issues as developing public-private partnerships, which is a powerful tool for drawing serious investments into Russia’s infrastructure projects and initiatives aimed at diversifying our economy. The form of public-private partnership known as concession has already been tried and tested in Russia, especially in road construction and transport infrastructure development. We are now working on other forms of public-private partnerships in cooperation with our colleagues from EBRD. The framework law on public-private partnership is currently at its second reading in the State Duma. Although a number of Russia’s constituent entities already have such laws, we would like them to be harmonised, and the framework law could be a foundation for such efforts.
The second point is certainly the development of small- and medium-sized enterprises. We are actively working in this direction, including maintaining favourable treatment for SMEs in terms of social security contributions, which are currently set at 20%, not 30%, and will remain that way through 2018. Serious efforts are also being exerted to establish a new contracting mechanism, under which at least 15% of orders placed by federal and municipal authorities, as well as development institutions and state-owned companies, will go to SMEs. Furthermore, we are making progress in creating financial prerequisites for the development of small- and medium-sized enterprises and supplementing regional guarantee funds, which are already operating in all Russian regions. We are also working on the establishment of a federal guarantee fund. Being a nonbanking lending institution, the fund would be entitled to provide guarantees and issue counter-guarantees with respect to liabilities of regional guarantee funds.
Certainly, we support modern mechanisms for certified and subordinate loan processes and primarily compulsory asset-purchase mechanisms, while cooperating with the Working Group on Civil Legislation. We hope very much that the approval of the relevant draft law by the State Duma will quickly create the required foundation for the refinancing of loans being obtained by small and medium-sized businesses. The issue of the relevant bonds in accordance with standardised loan-issue requirements for this economic sector will allow the Bank of Russia to refinance soft loans for commercial banks. This will ensure the joint structure of operations for financing small and medium-sized businesses. Thank you.
Dmitry Medvedev: Thank you.
Mr Siluanov (Anton Siluanov), do you have anything to add?
Anton Siluanov: Indeed, Mr Ulyukayev has clarified everything. I can only add that jointly with our State Duma we are preparing to examine the second version of the civil legislation amendments with regard to collateral-related issues. In an effort to create a mechanism to ensure compliance with various obligations, we are drafting regulatory documents, which would regulate collateral-related issues, as well as collateral rights stemming from a bank holdback account contract. The so-called holdback account contract allows market players to fulfill obligations and to minimise business risks. We are working in this area, and we are also ready to cooperate with our colleagues. Thank you.
Dmitry Medvedev: Thank you very much. And now let’s start discussing the development of trade, consumer market incentives, the regulation of veterinary activity and other items. I would now like to give the floor to Nestle CEO, Mr Paul Bulcke.
Paul Bulcke (via interpreter): Mr Prime Minister, ladies and gentlemen. On behalf of the Working Group for Trade and the Consumer Sector, I would like to thank you for organising this meeting. We are very happy to say that the Government of Russia is open to discussion on the main issues and problems of international companies. As a result, many members of the Foreign Investment Advisory Council (FIAC) have been operating successfully and expanding their businesses in Russia for many years now. Many companies, members of the Foreign Investment Advisory Council, operate in the consumer goods sector, including the food industry. That is why one of the major components of the national legislation influencing companies which are FIAC members, is the legislation concerning veterinary activity. In this connection, we would like to note some positive changes in regulatory documents governing this sphere. These changes are already obvious. It should be noted that administrative pressure on veterinary businesses decreased after the enactment of Customs Union legislation on food production and after Russia’s accession to the World Trade Organisation (WTO). Speaking of food market regulation, a decision to replace ineffective pre-market control with effective food control on the basis of the innovative “One Food–One Document” principle serves as a good example. We are calling on the Government to abide by these principles with regard to veterinary control. We are aware of an intention to expand the list of foods, which must receive veterinary certificates, during distribution at the expense of a large share of processed and packed foods, which meet veterinary safety standards. This initiative was deemed excessive during the assessment of regulatory impact. We are asking the Government to turn it down.
We also have some questions about the draft veterinary law. The current version contains some blank spots in terminology and definitions, as well as mechanisms for the regulation of low-risk products, including fodder for low-yield animals, ready-made foods, canned food for children, dairy products, etc. This allows an ambiguous interpretation of various provisions by regional businesses and creates unjustified business outlays.
The drawing up of veterinary documents in food exports is another disturbing issue. Today all accompanying veterinary documents for animal products are issued by regional veterinary services. For its part, the Federal Service for Veterinary and Phytosanitary Supervision (Rosselkhoznadzor) cooperates with the veterinary services of third countries, including information exchange. Consequently, regional veterinary oversight services lack essential updated information about changes in requirements for food export organisation. The mechanism for cooperation between executive agencies and businesses during the discussion of draft laws and the current veterinary regulations already exists. We hope that the Government will cooperate closely with the concerned representatives of the business community, while discussing the development of the veterinary oversight regulations. This would allow us to examine the entire list of needs and concerns of manufacturers, importers and exporters operating on the Russian market.
The second issue, which I would like to address, deals with price surcharges for children’s food being sold in various Russian regions. This issue was raised a long time ago, and it was discussed at a meeting of the Foreign Investment Advisory Council’s Executive Committee in Kaliningrad this May. After the meeting, First Deputy Prime Minister Igor Shuvalov instructed the ministries to reassess this problem and to draft their proposals. At the same time, we have asked the Higher School of Economics to study the effects of regulating the prices on children’s food in the regions. The results of this survey confirm the fact that the prices of children’s food do not depend on the regulation of price surcharges. We submitted this information to the Ministry of Industry and Trade. To the best of our knowledge, the Ministry of Healthcare and the Ministry of Economic Development support the abolition of price surcharges for baby food. The Ministry of Industry and Trade and the Federal Anti-Monopoly Service do not support this for somewhat unclear reasons. We were slightly disappointed that their stance was motivated by the possible unfavourable effect on the socially vulnerable when there is no evidence or facts to corroborate this.
It is unusual that all other arguments fully corroborate our reasoning: the regulation of price surcharges does not influence actual prices in the regions, hinders competition, complicates business processes, does not create any consumer advantages, but at the same time creates unjustified administrative and operating expenses for business and control agencies. In view of this and taking into account the facts, we ask the Government to terminate the state regulation of price surcharges on baby food in the regions. Thank you.
Dmitry Medvedev: Thank you for your very informative report, covering several issues. I’d like to give the floor either to the minister or to the head of the Federal Service for Veterinary and Phytosanitary Supervision. I think it would probably be best to let Mr Dankvert, the Head of the Federal Service for Veterinary and Phytosanitary Supervision, speak on the issue. Proceed.
Sergei Dankvert (Head of the Federal Service for Veterinary and Phytosanitary Supervision): Thank you. Mr Medvedev, colleagues. Mr Bulcke said quite correctly that many issues of veterinary and phytosanitary supervision were resolved when Russia joined the WTO and established the Customs Union, and that many other issues are partly regulated by the directives which the Prime Minister signed in September. They concern electronic certification, because businesses have many questions in particular about electronic and hard copy certification, the time it takes and the fees involved. The new veterinary legislation stipulates free veterinary certification, including electronic certification. This will lift the expenses businesses had to shoulder because in the past they had to get veterinary certificates at each stage and pay for each one.
As for the range of commodities, we accept the complaints of our Western colleagues about export from Russia. What they want from us is traceability. Our system of tracing goods differs from the European and American ones and is based on veterinary certificates. We will tackle this issue so that insufficient traceability does not hamper our exports. We will discuss the list. We regularly meet with our colleagues in veterinary control associations, on this issue. At least 18 associations have sent us their proposals demanding that we take a more strict approach to traceability. We will discuss this issue, and I think that we can do this constructively.
Regarding veterinary certification of exports, I believe that we should probably turn this matter over to the federal service, because the regional veterinary services cannot always ensure proper control of exports.
Dmitry Medvedev: You meant turn it over to your service?
With Mark Weinberger, Global Chairman & CEO of Ernst&Young and Economic Development Alexei Ulyukayev
Sergei Dankvert: Yes, because it is not properly covered by legislation. We are responsible for the lists of enterprises and their certification, but this function is not regulated. Maybe the new law…
Dmitry Medvedev: If you are ready to take it over, we will let you, but see that you have no trouble with the regions.
Sergei Dankvert: There will be no trouble because ultimately we supervise and check everything anyway. Thank you.
Dmitry Medvedev: Thank you. Now to baby food. There are many people here who are eager to say something on this matter. Let’s begin with Government officials. Mr Shuvalov, proceed.
Igor Shuvalov: Thank you, Mr Medvedev. Since someone has mentioned the council meeting held in Kaliningrad last May, I’d like to say that it addressed practical issues, some of which we are discussing today, and that it was thanks to the working groups which worked before and after the May meeting that we have progressed in resolving some of these issues. The issues which we discussed today… What I’d like to say is this. We are working together with the OECD as part of our efforts to join it, and we discussed this in May.
The strict environmental protection legislation which is being developed in Russia is mostly based on OECD standards and requirements. I’d say that it comprises the most complex part of the talks on OECD accession and standards. We are holding equally tough debates with entrepreneur unions (the Chamber of Commerce and Industry, the Russian Union of Industrialists and Entrepreneurs, Business Russia and others). We understand that environmental requirements will be the biggest burden for our enterprises, and hence we urge you to join this dialogue and to try to understand which of the OECD requirements for Russia’s new legislation may be unfair.
Mr Medvedev, agency labour was one of the issues which we discussed in detail in Kaliningrad, and now the Labour Ministry is scrutinising it. The position put forth by the Labour Minister, who said that there would be no law banning secondment, is the consolidated position of the Russian Government. But we should not forget that Russia has a strong and powerful association of trade unions…
Dmitry Medvedev: Like any other country.
Igor Shuvalov: Our trade unions have taken a different stand, and they demand that the Government take a harsher stance and that vacancies be filled in strict compliance with the Labour Code, without agency labour.
As for customs administration, we have launched experiments at several checkpoints where [people and vehicles undergo] customs and other types of control. The essence of the experiment is to see if the customs service can combine these functions. Not everyone agrees to undergo these customs formalities, but this is only an experiment. We will use the results to develop a new way of processing cargo and goods passing through the external border of the Customs Union.
Regarding baby food price surcharges, I can tell you that the issue is being coordinated by the relevant departments, and that the Government has not yet finalised its stand on this issue. Nearly all our departments are for lifting Government regulation in this sphere. But two departments – the Ministry of Industry and Trade and the Federal Antimonopoly Service – hold that the time is not right for the Government to make this decision. I believe that we will resolve this issue by the end of the year.
Dmitry Medvedev: Thank you. I suggest that we move on to innovation-based development. I am giving the floor to Hubertus von Gruenberg, ABB Chairman of the Board of Directors.
Hubertus von Gruenberg (Chairman of the Board of Directors, ABB Ltd) (via interpreter): Thank you, Mr Prime Minister. Parallel import and innovation – is there a link between the two? Yes, there is. You see, parallel import is attractive because it seems to promote competition. In reality it is not as straightforward as all that. Under the current legislation and the Civil Code, localisation of production and R/D in transnational companies are making a big contribution to the diversification and modernisation of the Russian economy. Throughout Russia, from Kaliningrad to Vladivostok, the potential to export high added value products has been growing, thanks to the involvement of many overseas companies such as Unilever, Nestle, Philip Morris, Nokia and others. Over the past 20 years they have been developing their exports not only to the CIS, but also to the European Union and the Asia-Pacific Region.
The members of the Council’s panel for innovation-driven development, together with the administrative barriers group, would like to draw your attention to the possible risks for investors if Russia reverts to the international exhaustion principles and, accordingly, legalises parallel imports. First of all, that would be a sign of instability of Russian legislation concerning foreign direct investment, the bulk of which came to Russia after 2002, when the international exhaustion principle was cancelled, and after 2006, when Article 1487, Part 4 of the Civil Code of the Russian Federation was amended, paving the way for the introduction of progressive legislation on the protection of individual property rights. We would like to say that the European Union uses the regional exhaustion principle. Nowhere is parallel import accepted without reservations. So I would like to make a comparative analysis of legalisation of parallel import and its effect. I will proceed mainly from the studies carried out by the Ministry of Industry and Trade last summer as well as by the analytical centre and the European Business Association.
Among the many risks of parallel imports are Russia’s diminished capacity to attract investments, especially related to innovation, falling production in Russia, an increased proportion of counterfeit products, the risks for end consumers and so forth. There are no concrete facts to prove the advantages of parallel import. Many believe that price cuts are mainly felt in the wholesale market and benefit the middlemen but parallel import legalisation is not supported by those who are engaged in Russia’s economic development, the Ministry of Industry and Trade, the Ministry of Economic Development, as well as Rospatent, the Russian Patent Agency. Some key players believe that imports could be reduced to stimulate domestic production in Russia. The Customs Union applies the regional exhaustion principle on its territory and Russia’s partners, Kazakhstan and Belarus, do not believe there is a pressing need to change anything. None of these countries use the international exhaustion principle without any limitations.
As for the legalisation of parallel imports, we recommend that Russia retain the current principle of national exhaustion of rights. Considering that the Russian industry needs support, it would make sense to maintain the status quo, at least until additional information comes to hand on parallel import and its impact on the rate of industrial production. It may be an odd thing for a capitalist, an advocate of the free market, to come out against legalisation of parallel imports. But I have to say that not legalising parallel import would be much better for the country, because the industrial base is not yet powerful enough to withstand the attacks that may ensue. And the instrument that Russia can use is its scientific and technical potential, which is huge, and which helps to hold off the wave of import that may flood the country. Because individual property must be protected under any trade regime (no matter how liberal it may be). These are the findings of our working group, as well as the innovations working group.
Dmitry Medvedev: Here I would like to give the floor to Mr Ken Kobayashi, President and CEO of Mitsubishi Corporation.
Ken Kobayashi (via interpreter): Thank you very much, Mr Prime Minister, for the opportunity to speak and make my comments. We at Mitsubishi Corporation are working on our task force and we support the targeted programme aimed at sustainable development and facilitating the transfer of innovative technologies, especially as regards the promotion and use of environment-friendly transport. We have already supplied 70 vehicles for the President’s Administration and they were used during the G20 summit held in St Petersburg in September of this year.
Our automobile industry serves as a good example, as it has proved its importance as a key sector for economic development. International experience shows that the most important element in developing green technologies and flexible mechanisms is the effective use of low-pollution vehicles because transport is the main source of pollution, especially in large cities. Norway, Denmark, Japan, the USA, China and other European countries are among those governments actively promoting electric transport. To stimulate demand for the import of such means of transport, customs duties are abolished, tax breaks, subsidies and other privileges and preferences are offered. Similar measures are stipulated at the federal and regional levels. State measures must also cover other types of available technologies and innovative technologies which call for the use of corresponding power industry technologies. They can be used in various sectors of the Russian industry. World leaders in the corresponding industry sectors are represented in the corresponding FIAC working groups and their experience, of course, must be used to introduce the best technologies and solutions. Thank you.
Dmitry Medvedev: I give the floor to Mr Shuvalov who will speak about parallel import and some other legal issues.
Igor Shuvalov: Esteemed investors,
Mr Medvedev,
I have this to say about parallel imports. The discussion of this issue illustrates how the investment climate and the relationship between the authorities and business are changing. We have been conducting this discussion openly for at least two years. As we promised at the very start of this discussion, we stick to our position that the Russian Government will not initiate any immediate action until we understand the implications it has for those who have already invested in our economy. You know that in the Russian Federation this discussion was started by the Federal Anti-Monopoly Service. The Federal Anti-Monopoly Service believes that the national principle of rights exhaustion has been foisted upon Russia, that today it no longer meets the interests of either Russian or foreign investors and leads to a degree of monopolisation in trade activities. It does not quite protect those who produce, but rather to the contrary, it impedes production business. On the other hand, you have rightly said that the investors who have opened an investment cycle under current legislation have seen their rights infringed upon and the adoption of these new rules could trigger the inflow of additional, probably not quite legal and sometimes counterfeit imports into the Russian market and investments would be exposed to risk… We are conducting this discussion and indeed the majority of Russian ministries and agencies are opposed to the legalisation of parallel imports. You have mentioned Kazakhstan: Kazakhstan had, as part of the formation of the Customs Union, to abandon the international principle in favour of the national principle and change its legislation and adopt our rules. Incidentally, we are still discussing with Kazakhstan whether we have done the right thing. You have mentioned both Kazakhstan and Belarus. There is no consensus in Kazakhstan that the change of the trade principle was right. We will continue this discussion and indeed the last time we discussed it at the Open Government we said that if legalisation of parallel import does, after all, take place, it would be done gradually, not earlier than 2018-2020 and with due account of the positions of investors who have major investments in the Russian Federation. We must be sure that their investments are not under threat, that their investments pay back, but if it leads to tougher competition, that is something we will support. We do not want to affect investors’ advantages until they have recouped their money, but 5-6 years is a reasonable time for the investments to be recouped. If this procedure works and the law maker backs the decision, we will have to brace ourselves for tougher competition in the market.
There are other instances when the state adheres to the international principle of rights exhaustion. The degree of competition in these countries is significantly higher than in Russia.
Dmitry Medvedev: This is quite a complicated issue. Mr Shuvalov is right that we should pass the decision without hurting anyone, because at the moment we have effectively two principles, one national and the other regional. We should make up our minds, ensuring that the final decision does not violate the rights of investors, but, at the same time, that it does streamline these relations. We will certainly continue with this discussion.
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