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TRADING TODAY IN RUSSIA

TRADING TODAY IN RUSSIA . Part I – Russia's Accession to the WTO Expected Impact on the Russian Economy. Alexey Aronov ITCF's International Symposium Amsterdam, 16 April 2013. Three Main Driving Forces of the International Trade Improvement in Russia.

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TRADING TODAY IN RUSSIA

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

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

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

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

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

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

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

  8. Local Initiatives Aimed at Improving Russia's Ranking for Global Trade (2)

  9. Local Initiatives Aimed at Improving Russia's Ranking for Global Trade (3) An independent measurement criteria will be officially used to assess the performance of the adopted measures – the "Doing Business" rating of the World Bank, specifically the "International Trade" index.

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

  11. WCO Background On 2005 the WCO approved the first edition of the SAFE Framework of Standards to Secure and Facilitate Global Trade ("SAFE Framework"). This was subsequently amended in 2007, 2010 and 2012. In doing so EU member states developed a regime that will enhance the security and facilitation of international trade. The aim was to establish a set of international customs standards developed by the WCO that do not duplicate or contradict other intergovernmental requirements. Two pillars of the SAFE Framework are: • Customs to customs network (including automated exchange of information aimed at controlling only a limited amount of cargo before it arrives). • Customs to business partnership (each customs administration will establish a partnership with the private sector to ensure the safety and security of the international trade supply chain). Each pillar involves a set of standards. It is unreasonable to expect that every administration will be able to implement the Safe Framework immediately. A phased approach will be required. The EU was first in that respect.

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

  13. Who Can Become an AEO?

  14. Comparison

  15. Types of AEO Certificates

  16. Proof of Financial Solvency

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

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

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

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

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

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

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

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

  25. Cooperation Agreement with the Customs Authority • The standard form of the cooperation agreement is established by Order No. 1914 of Federal Customs Service of 20 September 2011. The final text is negotiable. • Termination of the cooperation agreement will result in the suspension of the AEO certificate. • The termination provisions of the standard form refers to a closed list of situations where the customs authorities may unilaterally terminate the agreement.

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

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

  28. Contact Information Alexey AronovLegal Director T: +7 495 221 4403alexey.aronov@dlapiper.com DLA Piper Rus LimitedLeontievskypereulok, 25Moscow, 125009, RussiaT: +7 495 221 4400F: +7 495 221 4401 www.dlapiper.com

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