Communique on the 19th Session of the Foreign Investment Advisory Council

(Moscow, October 17, 2005)

Foreign Investments Advisory Council in Russia held its 19th session in Moscow on October 17, 2005.

The session was addressed by the Chairman of the RF Government M. Fradkov. He spoke about the current trends in economic development and the steps to be undertaken to create conditions for mid-term sustainable development.

It was stressed that the FIAC plays an important role in the establishment of favorable investment climate in Russia and that its recommendations and proposals are used in the preparation of draft laws and other regulatory documents.

This year Russian economy has been developing at a high rate. The RF Ministry of Economic Development and Trade estimates that GDP will grow by 6.2 %, industrial production by 4.7%, investment in fixed assets by 10.3%, and real wages by 8.8% in the second half of this year as against the same period last year. Foreign investments and, which is even more important, foreign direct investments steadily grow at high rates.

The RF Government has been persistently following the strategy of reform and creating conditions for investment attraction. President of the Russian Federation signed laws "On special economic zones in the Russian Federation" and “On Concession Agreements”, and Part II of the RF Tax Code was amended to improve the procedure of VAT refund and to change the specific excise tax rates. The Government of the Russian Federation brought in a draft federal law to the State Duma of the Federal Assembly of the Russian Federation to improve the tax administration.

The newly adopted acts include the antimonopoly acts, laws intended to remove administrative barriers, laws on licensing, use of mineral resources, licensing, and small business development. Numerous draft laws intended to improve the entrepreneurship environment are being developed.

It was noted that the Government's critical current and strategic goals include the vital task to more fully utilize the potential of the processing industries and the agricultural sector by encouraging innovations and investments.

FIAC members welcome the RF Government's continuous commitment to the path of reform and implementation of measures to improve the investment environment and removal of barriers to investments.

FIAC proposes to focus on the formation of conditions to encourage investment processes and free enterprise in Russia through implementation of the following steps.

I.  State regulation of the Russian economy:

  • develop proposals to improve the state administration and update the state regulation system e.g. rationalization and simplification of the rules for the issue of employment permits, migration cards, and residence registration for foreign businessmen; and proposals for the development and implementation of the E-Government Concept;
  • finalize the draft law on foreign investments in the strategic industries;
  • develop proposals based on the world best practice to improve the RF laws concerning state secrets with regard to Russian companies with foreign capital;
  • develop steps aimed at creating conditions for the use of electronic signature in the document flow;
  • finalize the development of recommendations for the customs authorities with regard to the application of the RF Government Resolution “On Introduction of Amendments into the Customs Tariff of the Russian Federation Applicable to the Automotive Components Imported for Industrial Assembly and Procedure of "industrial assembly" by foreign automobile companies engaged in the manufacturing of automotive equipment in Russia.
  • ensure compliance with the Principles of Free Trade between the CIS countries, and
  • continue the work on the removal of the existing exemptions from Free Trade between Russia and Ukraine applicable to the supply of confectionery products

II.  Improvement of the tax policy, currency policy, accounting and reporting systems:

  • develop draft amendments to the existing draft regulating the contents, procedure and terms of desk and field audits;
  • develop proposals to simplify the existing tax reporting forms;
  • analyze the law enforcement practice for tax administration of VAT refund and present proposals regarding facilitation of the relevant procedures;
  • elaborate a joint proposal on amendments to Articles Nos. 20 and 40 regarding transfer pricing with account taken of international best practices;

III.  Development of banking and financial markets in Russia:

  • develop proposals for the development of non-government pension, including those aimed at the enhancement of attractiveness of pension plans as long-term investment tools;
  • develop proposals for systemic strengthening of the banking sector
  • develop proposals for the amendment of the provisions on derivative financial instruments in the Civil Code of the Russian Federation, Tax Code of the Russian Federation, and Federal Law "On Insolvency (Bankruptcy)".

IV.  Industry Development, construction and high-tech:

  • subsequent to adoption of the law on restricting the participation of foreign investors in strategic industries, conduct monitoring and analysis of its enforcement practices, and, if necessary, present proposals for their improvement;
  • develop joint proposals on the package of draft laws intended to improve innovations;
  • review the obstacles preventing the implementation of the "one window" concept in the approval of investment projects in the industrial sector and develop proposals to remove the identified barriers;

V.  Development of the food industry and agriculture in Russia:

  • develop proposals with regard to the reduction of customs duties on the agricultural raw materials which are not grown or produced on the territory of Russia;
  • review the best practices in the segregation of raw animal materials into the materials fit for consumption by human beings and by household animals and introduce the required amendments into regulations, if necessary;
  • develop proposals for improvement and re-equipment of the veterinary and phytosanitary defense service.

VI.  Improvement of the use of natural resources in Russia:

  • consider including a number of new provisions in the draft Federal Law On Subsoil Reserves that would more clearly establish a transparent, stable and non-discriminatory basis for awarding and regulating subsoil use rights, including:
  • provisions that more clearly define the process and legal basis for classifying subsoil areas as "strategic" and for limiting foreign participation in such "strategic" subsoil areas.
  • provisions that assure meaningful stability of subsoil user rights by providing that the new Subsoil Law will not worsen existing subsoil user rights (including the existing PSAs) and that subsoil users with foreign ownership will have exactly the same rights as all other subsoil users, except as otherwise specifically provided in the new version of the Federal Law On Subsoil Reserves.
  • provisions that provide clear definition of what constitutes "geologic data" and to establish provisions that would resolve data access, export and other data usage issues that regularly occur under existing legislation.
  • develop recommendations to improve the attractiveness of investments into the survey, exploration and production of offshore hydrocarbon resources and in remote areas in the continental part of the country.

VII.  Improvement of Russia's investment image:

  • complete the preparation and organize the presentation of the book Invest in Russia and launch a promotional campaign in the Russian and international media;
  • perform studies into the problem of corruption in Russia that will demonstrate openness of the Russian policy towards foreign investors and create tools necessary to eradicate corruption;
  • FIAC appreciates the commitment and efforts of the RF Government aimed to improve the entrepreneurship and investment environment and will build up its presence in the events and developments aimed to intensify the investment processes in the Russian economy.
  • The RF Government acknowledges the FIAC efforts to improve the Russian laws and enforcement practices and believes that FIAC is a key instrument for implementation of the international best practices in the area of entrepreneurship and investments in the economic reform in Russia.
  • The regular FIAC session will be held in Moscow on October 16, 2006. Subsequent sessions to be held annually, every third Monday in October.