1. Forestry sector
The forestry sector in the Russian Federation has two main components: forestry and the timber processing industry. The forestry sector comprises about 60,000 large, medium and small enterprises located in every region of the country and employs more than a million workers. The sector accounts for about 1.3% of GDP, 4.7% of industrial output and 3.2% of export earnings.
As a result of the negative impact of the world financial crisis the performance of the forestry sector was down in 2009 from 2008.
Logging industry output in January-August was 84.9% of that in the previous year, including the production of industrial timber, 80.8%, and woodworking, 75.6%.
The output of the pulp and paper, and the publishing and printing industries was 84.1% of the level of January-August, 2008.
The output of the main types of wood and paper products in January-August, 2009 dropped on the same period of 2008 and stood at the following: timber, 80.3%; processed lumber materials, 83.5%, wood fiber board, 68.1%; chipboard, 72.2%; plywood, 72.2%; commercial pulp, 81.0%; paper, 93.5%; and cardboard, 88.8%. Thus, the most dramatic drop in output was in low added value products: raw timber and products geared to the construction market: lumber, chipboard, and plywood. The production of paper and cardboard has not dropped as much. Production of furniture in actual prices (less VAT and excise) dropped 25.5%.
Physical export volume of raw timber dropped by 43.7% compared with January-August, 2008 (including raw deciduous timber by 76% and coniferous timber by 28.6%), of plywood by 5.8%, pulp by 26.7%; the export of processed lumber materials increased by 2.1%.
Some negative trends have manifested themselves in parts of the forestry sector. Thus, the first quarter of 2009 saw a drop, on the first half of 2008, of the total proceeds from payments for the use of forests from 8.3 billion roubles to 7.2 billion roubles, i.e. 85.9% of last year's proceeds. Payment for tree-felling dropped by 2.0 billion roubles (or 31.3%).
To stimulate the implementation of projects aimed at building capacity for deep timber processing, the Government of the Russian Federation adopted Decision No. 75 of February 5, 2007 on the phased increase of export customs duties on raw timber in order to discourage export. The Resolution of the Government of the Russian Federation No.928 of December 24, 2008 extended the 2008 customs rates to 2009. The Resolution of the Government of the Russian Federation of June 30, 2007 No.419 grants preference to investors implementing such projects in the shape of allocation of tracts of forest without auction and a 0.5 coefficient reduction for minimum rate per unit of forest resources and per unit of forest area.
At this point, the Ministry of Industry and Trade has approved and included in the list of priority investment projects in forest development 75 projects costing 429.7 billion roubles involving 68.1 million cubic metres of raw timber. As of October 5, 2009 eight facilities costing 16.3 billion roubles and utilizing 3.4 million cubic metres of timber exploitation annually have begun operations and seven more projects are in the final stages.
At the same time the world economic crisis has substantially reduced the activities of investors, both Russian and foreign, including those from Finland. Thus, out of the aforementioned 75 investment projects, Finnish investors are involved in just one, Creation of Logging and Woodworking Facilities in the Village of Sheksna, Vologda Region in which 5.2 billion roubles are to be invested.
A similarly negative impact on logging volume results from the cumbersome procedure of entering forest tracts, which are parts of forestry fund lands, in the Land Cadastre.
Thus, there are a number of outstanding issues waiting to be addressed:
● the feasibility of amending the schedule of gradual increase of export customs duties on raw timber approved earlier by the Government of the Russian Federation;
● preparation of additional proposals on mechanisms to stimulate priority investment projects in forest development;
● extending the terms of use permits for tracts of forest without cadastre registration, etc.
2. Implementation of the customs and tariff policy measures aimed at supporting the competitiveness of various sectors of the economy
The customs and tariff policy in 2009 has been based on the Guidelines of the Customs and Tariff Policy for 2009 and the Planning Period of 2010-2011 approved by the Government of the Russian Federation on February 21, 2008 and the Action Plan to improve conditions in the financial sector and some sectors of the economy approved by the Prime Minister of the Russian Federation on November 6, 2008.
First and foremost, the emphasis of the customs and tariff policy has been shifted from the performance of traditional regulatory and fiscal functions toward anti-crisis measures to protect the Russian economy and support the competitiveness of domestic producers. The share of imported goods in the Russian markets had to be constantly monitored, and tracking the volume of imports had to be expedited in order to create a timely tariff protection mechanism.
To this end weekly monitoring of foreign trade and the state of the domestic market for sensitive industrial and agricultural goods most exposed to foreign competition during crisis conditions was organized and a system of interaction with the business community was implemented.
Generally this system made it possible to react promptly to signals and threats from the external market and find solutions to problems in the interests of producers and consumers.
Between January and September, 2009 the Government of the Russian Federation passed about 30 resolutions raising import customs duties. Of the 600 items for which import duties were changed in 2009, the rates were raised for 350 items. As a result imports in cost terms in January-August, 2009 amounted to $7.4 billion due to the new import duties, which is 7.5% of total Russian imports in the said period. In January-August, 2008 the share of these goods of total imports stood at 9.2% and in cost terms at $16.2 billion.
Among the key sectors in which protective customs tariffs were introduced to make them more competitive were the automobile industry, agricultural equipment manufacturing, ferrous metallurgy and machine-manufacturing. To support domestic agricultural producers, the Government of the Russian Federation passed resolutions to raise import customs duties for a number of products (rice, cheeses, dairy products, vegetable oils, etc). Along with these measures, duty-free import was introduced for a selection young chickens and incubation eggs, which increased the import of these products and had a positive impact in boosting domestic poultry production. Proposals have been prepared on the rules of the import of beef, pork and poultry meat for 2010 and the following years and for the protection of Russian sugar producers.
Measures to make domestic industries more competitive included the raising of import customs duties, and if necessary, cuts of these duties. In particular, the import duties on certain types of civilian passenger and cargo planes without analogues in the Russian Federation were set at zero.
That measure is part of the systemic decisions to support Russian air carriers. It enables domestic companies to keep their market share, to remain competitive in the world markets using foreign-made planes on par with foreign rivals as long as Russian producers are unable to meet all the demands of the domestic airlines. To ensure favourable conditions for the Russian industry a number of decisions were taken to expand the raw materials base, increase the load on production capacity in the context of the financial crisis (lifting of import duties on raw materials, parts and technological equipment not produced in Russia).
Examples of comprehensive approaches to keep Russian producers competitive are measures to stimulate the production of television sets and television technology. Along with the lifting of import duties on plasma and liquid crystal screens the duties on finished plasma and LC television sets were raised. Zero duties were also introduced on chips for the production of television sets. The introduction of zero rates on these parts for Russian television producers in January-July 2009 saved more than $6 million, which reduced production costs making domestic products more competitive.
In 2009 the customs and tariff policy was actively used to make Russian exports more competitive. Considering that export duties are important fiscally, the tactics of setting export duties were designed in such a way as to prevent the measures in this field from making Russian goods less price-competitive in the world market and from losing market share. Moreover, with regard to some goods the anti-crisis measures took the shape of the lifting of export duties which made their prices more competitive in the export markets in the context of the global crisis.
An important measure to support domestic oil producers and exporters was Federal Law No. 234-FZ of December 3, 2008 which introduced monthly monitoring and updating of the rates of export customs duties on oil and its products and expediting the introduction of new rates. These legislative amendments reduced the tax burden on the oil industry in the face of falling world oil prices.
The same category includes the decision to introduce a zero export rate on oil extracted in areas of the subsoil fully or partially located within the borders of the Republic of Sakha, Irkutsk Region and the Krasnoyarsk Territory. For this purpose the Government of the Russian Federation passed Resolustion No. 574 of July 16, 2009 ordering the development of an export-control system that would enable the oil export duty to be set at zero.
Obviously, as the economy emerges from the crisis, while the long-term goals aimed at supporting export-oriented production will remain valid, some temporary customs and tariff policy measures pertaining to export duties may be revoked. In particular, it has been decided that the zero export duty rate on liquefied hydrocarbons may be extended only until the end of 2009 given stabilized world oil prices. Decisions on zero rates on some other commodities (nickel, for example) are also being revised.
The new economic cycle Russia is entering calls for further analysis of approaches to the implementation of the customs and tariff policy. The urgent anti-crisis measures to protect the domestic market as a whole have yielded positive results. Obviously, when entering the trajectory of the post-crisis development, a reevaluation will be required for the rational protection of domestic markets.
Given the real threat for goods produced by certain sectors of the economy being pushed out of the internal market by import, protective tariffs will continue to be used in the future. At the same time artificial protection of imports reduces incentives for increasing the competitiveness of the domestic products, infringes upon the interests of the consumer and increases domestic prices. It is therefore necessary to continue monitoring the competitive environment in the commodity markets regarding the protective measures that have been taken. The objective in monitoring is to analyze the effectiveness of the measures taken and prevent possible abuses on the part of the producers covered by the protective measures whose position in the market has been supported, and the result of the monitoring should be the timely repeal or extension or amendment of the measures taken.
In addressing the problem of making the Russian economy more competitive one should proceed from the assumption that changing custom duties is an important, but not the only instrument of supporting the position of domestic producers and should be used in combination with other economic policy measures.
Assessment of the results of the customs and tariff policy measures in terms of their influence on inflation must be carefully considered. Regarding support for Russian agricultural and food producers the increase of import duties on agricultural products in some cases may lead to an increase of retail prices without increasing domestic production and create market monopolization conditions.
In addition, it is extremely important to adjust the approach to the customs and tariff policy now that the Customs Union is functioning.
3. Draft Federal Law On Introducing Amendments to Article 51 of the Law of the Russian Federation On Subsoil Resources and Article 46 of the Budget Code of the Russian Federation
The main aims of the Draft Law are:
● to make it binding on persons to compensate the damage caused to the subsoil due to violation of the subsoil legislation;
● to seal the powers of the Government of the Russian Federation to determine the procedure of assessing the damage caused to the subsoil resources due to the violation of Russian legislation on the subsoil;
● to determine the procedure of entering in the budgets of the budget system of the Russian Federation the sums (fines) charged for violation of the laws of the Russian Federation on the subsoil ascertained on the areas of the subsoil which are federal property and the property of the entities of the Russian Federation.
For reference. The practice of enforcing the Law of the Russian Federation on Subsoil Resources has revealed some flaws in the legal regulation of the issues of compensating the damage caused to the state by the activities of the users of the subsoil resources.
In particular, Article 51 of the Law of the Russian Federation On Subsoil Resources links the obligation to compensate the damage to the state only to such consequences of the subsoil users' actions as:
● selective exploitation of rich sections of mineral deposits;
● damage to mineral deposits;
● creation of conditions that fully or partially preclude further use of the subsoil resources.
In all other cases of violation of Russian legislation on the subsoil, the obligation to compensate for the damage is not envisaged.
The current language of Article 51 of the Law of the Russian Federation On Subsoil Resources does not contain provisions that make it possible to pass supporting legislative acts to determine the procedure of assessing the damage caused to subsoil resources, which prevents the use of a uniform methodology of calculating the amount of damage caused.
As a result, compensation of the damage caused to the state is either non-existent or is on a scale that falls short of the costs incurred by the state to conduct work to restore the natural properties of the subsoil, to explore and assess new mineral deposits.
The draft law also proposes an amendment to Clause 1, Article 46 of the Budget Code of the Russian Federation a new sub-clause whereby the sums of deductions (fines) for violating the subsoil legislation of the Russian Federation ascertained on the areas of subsoil that constitute federal property are to be transferred to the Federal Budget, and those on areas of subsoil owned by the entities of the Russian Federation to the budget of the corresponding subject of the Russian Federation, at the rate of 100% in both cases.
4. Draft Federal Law, Technical Safety Rules for High Pressure Equipment
At present safety requirements for equipment operating under excessive pressure are spelled out in a large number of regulatory technical documents including documents in the field of standardization, construction norms and rules, departmental ordinances, instructions, executive orders and methodological directives. The requirements contained in these documents ensure safety in the field they regulate, however, they are often redundant, overlapping and disparate, thus creating unreasonable technical barriers for business entities.
Under Clause 1, Article 9 of the Federal Law On Technical Regulation priority technical rules, including on the safety of the equipment referred to above, are to be adopted before January 1, 2010.
In this connection, in order to protect the life and health of citizens and the property of natural and legal persons, federal and municipal property and to prevent actions that mislead buyers, the draft law would set the minimum requirements for the equipment ensuring industrial safety, explosion prevention and mechanical safety.
The provisions of the law also set requirements for the processes of design, production, assembly, maintenance, use, storage, transportation and disposal, as well as rules of equipment identification, rules and forms for assessing compliance, including the schemes for confirming compliance.
The draft law sets the rules for equipment identification, the rules and forms for assessment and confirmation of the compliance of the equipment, the processes for confirming compliance as well as the circle of applicants, the composition of evidence and deadlines for assessing compliance. The draft law contains provisions to prevent actions that mislead buyers and requirements for equipment identification.
The draft law takes into account current safety requirements developed over several decades based on the analysis of the causes of accidents and incidents, scientific and technological achievements and the experience of the development of corresponding industries in Russia and abroad.
The requirements under the draft law are in keeping with the requirements applied in the European Union in accordance with European directive 97/23/EU with regard to high pressure equipment which came into force on November 29, 1999.
The adoption of the draft law would make Russian equipment more competitive in export markets, ensure safety standards that meet modern international requirements and reduce the rate of occupational injuries and accidents in the process of equipment use.
The implementation of the law will not require federal budget funding, additional allocations from the budgets of the entities of the Russian Federation or municipal budgets and will not reduce the revenues of the said budgets.
5. Draft Federal Law On Introducing an Amendment to Article 368, Part 1 of the Civil Code of the Russian Federation and On Introducing an Amendment to the Law of the Russian Federation On Regulating the Insurance Industry in the Russian Federation
The draft laws are aimed at eliminating discrepancies between the laws of the Russian Federation on insurance in the Russian Federation and the laws on banks and banking.
Under the draft Federal Law On Introducing an Amendment to Article 368, Part 1 of the Civil Code of the Russian Federation an insurance organization is stricken off the list of guarantors that have the right to issue a bank guarantee. The Draft Federal Law On Introducing an Amendment to the Law of the Russian Federation On Regulating the Insurance Industry in the Russian Federation drops the provision on the issue of bank guarantees by insurance organizations.
Under Article 368 of the Civil Code of the Russian Federation, by virtue of a bank guarantee, a bank any other lending institution or insurance organization (guarantor) issue at the request of another person (the principal) a written obligation to pay the creditor of the principal (the beneficiary) a sum in accordance with the terms of the guarantor's obligation after the beneficiary submits a written request for the payment thereof.
Under the Federal Law On Banks and Banking, the issue of a bank guarantee is a banking transaction that can be carried out only under a Bank of Russia license. Banking operations can only be carried out by the lending institutions which include banks and non-bank lending institutions which are in turn forbidden to engage in insurance activities.
Not being a lending institution, an insurer cannot obtain a Bank of Russia license to perform a banking transaction. Insurance organizations have no right to issue bank guarantees and transactions involving the issue of a bank guarantee by insurance organizations may be declared null and void as not being within the competence of such organizations.
Under Article 6 of the Law of the Russian Federation On the Regulation of the Insurance Industry in the Russian Federation the issue of bank guarantees is not an activity in which insurers are authorized to engage. Article 25 of the Law On Insurance makes it binding on the insurer to comply with the terms of financial stability of the insurer in terms of forming insurance reserves, the composition and structure of the assets to cover the insurer's own assets as well as the issue of bank guarantees.
6. Draft Federal Law On Introducing an Amendment to the Federal Law On Acts of Civil Status
The Draft Law would include territorial mandatory health insurance funds in the list of organizations entitled to obtain information on state registration of death.
7. Introducing Amendments to Resolutions of the Government of the Russian Federation on the Activities of the Ministry of Healthcare and Social Development of the Russian
The Draft Resolution of the Government of the Russian Federation would vest the Ministry of Healthcare and Social Development of Russia with additional powers to implement the provision of federal law No. 212-FZ of July 24, 2009 On Insurance Contributions to the Pension Fund of the Russian Federation, the Social Insurance Fund of the Russian Federation, the Federal Mandatory Health Insurance Fund and Territorial Mandatory Health Insurance Funds and No. 213-FZ On Introducing Amendments to Certain Legislative Acts of the Russian Federation and annulment of certain legislative acts (provisions of legislative acts) in the Russian Federation in connection with the adoption of the Federal Law On Insurance Contributions to the Pension Fund of the Russian Federation, the Social Insurance Fund of the Russian Federation, the Federal Mandatory Health Insurance Fund and Territorial Mandatory Health Insurance Funds.
The draft resolution would charge the Ministry of Healthcare and Social Development of Russia with the functions of the abolished (reorganized) federal executive bodies whose functions have been transferred to other federal executive bodies as regards preparation of decisions on the award of length of service pensions to federal civil servants of the said bodies who up until now have been unable to exercise their right to such a pension.
In connection with the broadening of authority of the Ministry of Healthcare and Social Development of Russia, the draft resolution of the Government of the Russian Federation would increase the Ministry's central staff to 106 while cutting the staff charts of the territorial bodies of the Federal Tax Service, the liquidated territorial body of the Ministry of Healthcare and Social Development of Russia and liquidated federal state institutions Federal Scientific Clinical-Experimental Centre of Traditional Methods of Diagnostics and Treatment under the Federal Healthcare and Social Development Agency and Clinical Hospital of the Federal Healthcare and Social Development Agency. The draft resolution would increase the number of departments at the Ministry of Healthcare and Social Development of Russia from 20 to 23.
The draft resolution of the Government of the Russian Federation is aimed at implementing the Guidelines of the Activities of the Government of the Russian Federation in the period to 2012 approved by Executive Order of the Government of the Russian Federation No. 1663r of November 17, 2008 in the section dealing with the transition from the consolidated social tax to insurance contributions by types of mandatory social insurance.
8. Introducing Amendments to Certain Acts of the Government of the Russian Federation on Regulating the Fisheries Industry
9. Signing an Agreement between the Government of the Russian Federation and the Republic of Abkhazia on Cooperation in Combating Illegal Immigration
The Draft Agreement envisages measures in dealing with the problems arising in the course of controlling illegal immigration.
The Agreement determines the forms and mechanism of interaction between the respective Parties in organizing immigration control, registration of persons who illegally cross the borders of the states of the Parties, of exchange of information on newly revealed illegal immigration channels, on legal and natural persons on the territories of the states of the Parties complicit in organizing and implementing illegal immigration as well as on measures to prevent illegal immigration and related criminal activities.
The implementation of this Agreement will enhance the interaction of immigration, border and law enforcement bodies of the Russian Federation and the Republic of Abkhazia in counteracting illegal immigration.
The implementation of the agreement will not require additional Federal Budget funding and will be carried out within the means allocated to the Federal Migration Service of Russia.
10. Allocation of money from the Reserve Fund of the Government of the Russian Federation to the Government of the Moscow Region for Emergencies and Natural Disaster Relief to support urgent restoration work of facilities damaged as a result of the emergency that occurred on the territory of the Moscow Region on June 3-4, 2009.
As a result of hurricane-force winds with torrential rains and hail which hit the territory of the Moscow Region on June 3-4, 2009 housing and utilities and social services have been damaged.
The Government of the Moscow Region puts the total material damage caused by that emergency at over 200 million roubles. The regional budget has spent 56.5 million roubles to clear its aftermath.
The draft executive order would allocate to the Government of the Moscow Region money from the Reserve Fund of the Government of the Russian Federation for Emergencies and Disaster Relief to cover part of the cost of cleaning up the aftermath of said emergency on the territory of the Moscow Region in the amount of 90,537,700 roubles to finance emergency work to restore housing, utilities and social services damaged.
Moscow, October 17, 2009
* The press-releases by the Department of Press Service and Information contain the materials submitted by the executive federal bodies for discussion by the Presidium of the Government of the Russian Federation.
