Communique on the 14th Session of the Foreign Investment Advisory Council

(Moscow, May 14, 2001)

The 14th session of the Foreign Investment Advisory Council in Russia was held in The President Hotel in Moscow on May 14, 2001. For the first time, it was attended by Russia's top corporate managers and business owners who are members of the Business Council attached to the Government of the Russian Federation.

The session of the Advisory Council was addressed by Mikhail M. Kasyanov, Chairman of the Government of the Russian Federation.

Mr. Kasyanov highlighted the principal development trends in the Russian economy, progress in the implementation of the economic program of the RF Government and measures designed to step up investment activities in Russia.

During the year 2000 and the first few months of 2001, developments in the Russian economy were primarily characterized by the increased output of goods and services as well as investments in the real sector, the increased surplus of federal budget revenues over expenditure, and the significant positive foreign trade balance and gold and currency reserves.

However, it is premature to speak in terms of stable economic growth. The influence of factors such as the devaluation of the ruble, low prices and tariffs for the services of natural monopolies and labor costs, and high global prices for oil which triggered intensive growth in the wake of the crisis has been almost exhausted and the mechanisms which secure long-term stable economic growth have not yet been implemented to the fullest extent possible.

The regular and consistent work by the Government of the Russian Federation has contributed to the creation of conditions promoting the freedom of economic activity, including by reducing red-tape in the economy and taking increased advantage of mechanisms, which help to develop priority sectors of the national economy and restructure it as a whole.

The Advisory Council gave detailed consideration to a wide range of issues and goals aimed at improving the investment environment and increasing the effectiveness of cooperation between State authorities and Russian and foreign investors.

Among the matters, which were subject to consideration, the following may be highlighted:

Upgrading tax legislation; currency and customs tariff-setting policy; measures involving accession to the WTO; reform of the accounting system; improving the banking system; developing the oil and gas sector and improving legislation on production sharing agreements; improving customs administration procedures; reviewing the work of government authorities responsible for coordinating investment issues (the office of ombudsman); a package of "investment-related" draft laws; the policy of exceptions from the national regime which are applicable to foreign investors; regional and institutional trade barriers; increasing the transparency of Russian monopoly entities; and protecting the rights of minority shareholders.

The members of the Council gave special recognition to the fact that certain measures have already been undertaken to alleviate the tax burden, provide guidance on customs and currency issues and protect the rights of investors.

The Russian customs authorities are introducing new forms of customs control designed to improve the integrity and transparency of import and export operations.

An open and constructive dialog has been initiated between the State Customs Committee and the Foreign Investment Advisory Council to find mutually acceptable solutions to resolve the customs clearance situation. It appears that at present an appropriate solution is to introduce so-called “white lists” to include companies which have no customs arrears and comply with the requirements of customs legislation, and exempt such companies from enhanced customs control.

The participants supported the work of the Government for developing a federal law that would establish a uniform basis of the rights and guarantees of investment activities, a system of State support for investments and the amendments to the Town-planning Code, Tax Code, currency and anti-monopoly legislation which simplify the procedure for negotiating and authorizing the implementation of investment projects and introduce the "one window" rule for the consideration of applications from foreign investors for rights, authorizations or support from the State.

The members of the Advisory Council note that the Government and Finance Ministry of the Russian Federation have taken significant steps to reform the domestic accounting system and believe that a major issue of State policy consists in helping banking entities and Russian companies which are listed on Russian stock exchanges implement International Accounting Standards. This will make it possible to resolve the key issue of improving corporate governance and will help increase the value of shares in Russian entities up to their real market value.

The participants in this session of the Foreign Investment Advisory Council in Russia appreciate the work of the Government of the Russian Federation designed to develop the Code of Corporate Governance that would be recommended for all publicly traded companies. The members of the Advisory Council will provide Russian agencies with necessary support in this work.

A key challenge for Russia still consists in completing the creation of a regulatory framework for the application of the production sharing regime applicable to the extraction of mineral resources.

The members of the Advisory Council note that the work involving the preparation of legislation in this sphere is slow. Investors deem it necessary for the Government of the Russian Federation to confirm the desirability of such foreign investment and assist in adopting a normative act concerning the composition of costs and the procedure for reimbursing the same in the course of implementing production sharing agreements and removing the contradictions between the Tax Code and Federal Law "Concerning Production Sharing Agreements", and to confirm its obligations as regards compliance with the terms of those agreements which were concluded prior to the entry of Federal Law "Concerning Production Sharing Agreements" into force.

The package of draft laws to reduce red tape in the economy which was drafted by the Government of the Russian Federation received praise from the session participants. These draft laws are based on the principle of consistency and a "one window" concept. These would simplify the procedure for registering legal entities, increase the protection of business owners subject to market controls, reduce barriers to the licensing of activity, narrow the scope of mandatory certification, develop self-regulation on the market and envisage uniform registration procedures for legal entities.

It is also advisable to adjust the process of adopting new draft laws and decrees on these and other types of administration which do not bring in additional revenues to the budget and do not affect the manufacture of illegal products, but create additional barriers to manufacturers and place an additional financial burden on consumers.

Foreign investors recognize the need to amend Decree No. 988 of December 21, 2000 and Decree No. 262 of April 4, 2001 in order to simplify control procedures over the compliance of products with established requirements.

In view of the above, the members of the Advisory Council urge cancellation of Decree No. 601 of the Government of the Russian Federation of May 17, 1997 "Concerning the Marking of Goods and Products on the Territory of the Russian Federation with Compliance Marks Protected Against Forgery" and express their readiness to provide tangible assistance in developing measures designed to make the economy less dependent on bureaucracy and impose restrictions on the State functions of regulating production in the market environment.

The participants of the 14th Session of the FIAC agreed to organize, with the European Business Club in the Russian Federation, the American Chamber of Commerce in Russia, the Petroleum Advisory Forum and the German Business Association in the Russian Federation in cooperation with the Russian Government and State Duma, seminars in major cities of the world on investment in Russia.

The members of the Advisory Council consider completion of the procedures involving Russia's accession to the WTO as an important stage of improving the Russian investment environment and are ready to continue their work involving the preparation of comments and proposals on the draft laws required for Russia's accession to the WTO.

On its part, while attaching significant importance to improving the investment climate in this country, with account taken of the discussions held at the plenary session and the meetings of working groups, the Government of the Russian Federation will focus on resolving the above issues.

The participants in the session of the Foreign Investment Advisory Council in Russia give positive assessment of the work involving the implementation of the suggestions made at the 13th session of the Advisory Council and deem it necessary to ensure that such practice is continued in the future.