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At the same time, maintaining such authorities of federal government agencies com plies with the international practice (standard rule 3.20 of the General Schedule attached to the Kyoto Convention 1999) and is aimed at improving control efficiency. Unlike the for mer regulation, the new RF Customs Code Russia provides for clear cut criteria for re stricting the number of customs clearance stations. Such measures must be justified and based on risk analysis, and abolished if they prove inefficient and have an adverse effect on operation of foreign trade participants. The number of customs clearance stations for certain categories of goods will gradually be increasing under liberalized customs regula tions and due to a wide use of IT based customs clearance and supervision procedures, as well as introduction of a system of risk assessment and management. At present, the RF Federal Customs Service has prepared proposals on reduction of restrictions imposed on the number of customs clearance stations for declaring goods imported to the customs territory in accordance with the plan coordinated with the Ministry of Economic Develop ment and Trade Russia.

The new RF Customs Code resulted in substantial changes in composition of the so called customs related organizations (customs brokers, customs carriers, owners of in terim storage facilities).

Establishing large amounts of security for entities which run the customs related business, has already ousted small and medium size companies from the market, which are unable to secure their responsibility to customs authorities. For example, organizations provided services on interim storage of goods before the RF Customs Code came into force, while 1116 companies appeared to be listed in the corresponding Reg ister of owners of interim storage facilities at the end of 2004. The number of companies operating as owners of customs warehouses and providing storage services at these warehouse was reduced from 219 (including 4 organizations established by customs au thorities), as of January 1, 2004, to 168 (including 3 warehouses established by customs authorities).

A monitoring conducted late in 2004 of the changes in the market of services pro vided by customs brokers (representatives) showed that such services were rendered by 278 organizations listed in the Customs Broker Register (representatives) and qualified for being included in such Register, as well as 122 organizations operating as customs bro kers with licenses (prior to the end of license period) issued by customs authorities prior to January 1, 2004. Thus, total number of customs brokers was 400. Prior to the new RF Cus toms Code took effect, 843 customs brokerage licenses were issued, while the number of customs brokers was reduced by 2,1 in 2004.

Section 3.

The real sector There is a threat of monopolization of broker services by a dozen of large brokers.

This may entail monopolized prices of brokerage services, encourage corruption trends in this environment, increase costs incurred by trade operators and boost up prices of im ported consumer goods. The same is true with the market of customs carriers and storage services.

Thus, a series of problems were revealed during the initial year under the new RF Customs Code, which could be resolved by making amendments to the regulatory docu ments and, in special cases, updating corresponding provisions of the RF Customs Code.

The following problems are worth mentioning:

to date, no amendments were made to the customs related laws and regulations of the Russian Federation ;

RF Law On Customs Tariff was neither brought in compliance with the new RF Cus toms Code nor the requirements of the World Trade Organization ;

no amendments were made to the RF Tax Code in regard to VAT refund, in particular on processing products exported from the customs territory of Russia ;

problems still can be found in incompliance of provisions of the RF Customs Code Rus sia with the Tax Law the Russian Federation in regard to tax base determination for as sessing customs duties and taxes, as well as in incompliance of limitation periods of customs payments enforcement with integrity checks of data provided for customs clearance after products are manufactured.

Invoice processing rules established pursuant to RF Law On Taxes and Duties, make no allowance for the fact that goods may be produced prior to submission of a customs declaration, when a state customs number is not yet assigned and consequently can not be indicated in an invoice so that the goods can be sold in the domestic market.

Tax authorities may face problems after January 1, 2005 in applying the provisions of the RF Customs Code referring to the Law On Taxes and Duties, due to the amendments made by the Federal Law of July 29, 2004 to Article 13 of the RF Tax Code under which the customs duty is excluded from the list of federal taxes.

At the same time, it should be noted that some amendments to the RF Customs Code were already made. RF Law On Amendments to the RF Customs Code was adopted, which added a new Chapter (Customs Duties) to the RF Customs Code. This was done for the purpose of ensuring a legal support in collecting customs duties.

Article 33.1 (Customs Duties) provides definition of the customs duties term and specifies a list limiting their categories: customs duties on customs clearance, carrying and storage. The Draft Law specifies the maximum rate of customs clearance duty: RUR100 thou sand. It also specifies fixed rates of customs carrying and storage of goods at interim storage facility or customs warehouses owned by customs authorities. The Draft Law specifies fixed rates of special categories of customs duties thus making it a direct effect law.

For example, customs duty for escort of goods is RUR2000 per each vehicle and each unit of rolling stock at a carrying distance of up to 50 km and RUR3 000 for that at a distance of 51 to 100 km. However, customs duty for escort of goods at a distance more than 200 km is RUR1000 per every 100 km of the road, but not less than RUR6000. The amount of customs escort duty is RUR20 000 per every sea vessel, river craft or aircraft regardless of carrying distance.

Making amendments to the Code will help Russia to meet its commitments in the field of customs duty at the negotiations on its accession to the WTO : pursuant to Article VIII of the General Agreement on Tariffs and Trade (GATT), customs duties must be col lected as compensation for customs costs rather than for fiscal purposes.

RUSSIAN ECONOMY in trends and outlooks Federal Laws On Basic Principles of Public Regulation in Foreign Trade and On Foreign Exchange Regulation and Control took effect in June 2004, which play an impor tant role in regulating foreign economic activity. These laws underwent expertise confirm ing their compliance with the corresponding WTO regulations.

RF Law On Basic Principles of Public Regulation in Foreign Trade provides updated definitions of basic terms (foreign trade, import, export, etc.) and introduces a series of new terms and definitions (transit, free trade zone, customs union). The Law contains pro visions on separate public regulation of foreign trade in goods, services and intellectual property. It also includes new provisions on regulation of foreign barter trade and on pre shipment inspection. A new procedure on counter measures is introduced.

The Law specifies basic principles of public regulation of foreign trade on the basis customs tariff and non tariff methods, including the following ones measures: establishing and abolishing import and export customs duties and dues; imposing and withdrawing re strictions and limitations in international trade in products, services and intellectual prop erty; arranging and withdrawing economic and administrative measures promoting devel opment of foreign trade; concluding international trade agreements as well as agreements on customs unions, free trade zones or regional economic integration.

The Law ensures that the Russian legislation meet the provisions of Articles I, III, V, XI, XIII, and XXIV of the GAAT of 1994 as well as the WTO Agreements on import licensing and pre shipment inspection.

Furthermore, the Law specifies regulations on imposing restrictions and limitations provided for by Articles XX and XXI of the GAAT of 1994. Special provisions of the Law are intended to ensure transparency in accordance with Article X of the GAAT of 1994.

Developing new regulations and making amendments to the applicable ones is one of the basic tasks of the present period in implementing provisions of Federal Law On Ba sic Principles of Public Regulation in Foreign Trade, in particular measures of non tariff regulations.

FR Law On Foreign Exchange Regulation and Control excludes precious metals and precious stones from the list of currency valuables, which provides for liberalization in this field and makes the Russian legislation compliant with Article XX of the GAAT of 1994 in this respect.

The Law also specifies the term for abolishing the existing restrictions, as well as re duces the number of capital transactions requiring permission of the Bank of Russia, with consideration of international agreements of the Russian Federation, including Article. VIII of the Agreement with the IMF.

The list of non commercial operations classified as current exchange transactions is largely expanded. The list is open, which provides for further liberalization of foreign ex change regulations.

In November 2002, when a new revision of RF Law On Foreign Exchange Regulation and Control was prepared, RF Minister of Finance . Kudrin pointed out that the standard of compulsory disposal by exporters of a share of foreign exchange earnings might range from 0 to 30% subject to the RF Central Bank. This standard should be reduced on a regu lar basis, while it also may be increased provided that Urals oil price drop to $12 USD per barrel. In last July, the RF Central Bank already used its right to change the standard by reducing it half as much, down to 25%.

At the end of November 2004, the RF Central Bank made a decision to sharply re duce the standard of compulsory disposal of a share of foreign exchange export earnings from 25 to 10%. This is a decision of major importance, because it was this standard that Section 3.

The real sector the Russian Government was using for a long period a tool to influence inflation and USD/RUR exchange rate.

The standard of compulsory disposal by exporters of a share of foreign exchange earnings came into force on January 1, 1992 pursuant to a Regulation On Liberalization of Foreign Economic Activity issued by President B. Yeltsin. The mechanism worked as fol lows: a republican foreign exchange reserve received 40% of foreign exchange earnings at a special exchange rate, and a foreign exchange stabilization fund of the RF Central Bank was built up on the basis of 10%. The foreign exchange reserve and special exchange rate were abolished on 1 July 1992 : the entire 50% of foreign exchange earnings was sup posed to be sold in the domestic foreign exchange market according to the procedure es tablished by the RF Central Bank: 20% in the domestic foreign exchange market and 30% directly to the RF Central Bank to replenish its foreign exchange reserves. It was only a year after, on July 1, 1993, when the RF Central Bank allowed the entire 50% of earnings to be sold in the foreign exchange market. Economic situation of that time was undoubtedly complex: downward trend in RUR exchange rate, huge inflation and short supply of con sumer goods.

The RF Government again brought up the issue after the post crisis period in 1998.

The State Duma approved a decision to increase the standard from 50 to 75% in Decem ber of the same year.

In 2001 the standard was reduced from 75 to 50% due to high oil prices. In 2004 the standard was reduced to 10% as result of ultra high oil prices in the world market.

Thus, in 2004, the Russian Government continued to bring the RF law in compliance with the WTO requirements, which above all meets the Russian national interests and is conditioned by intensive expansion of foreign trade relationships with other countries, Russias integration into the world economy and consequently the need to develop an up to date and adequate mechanism of trade policy as based on the principles and rules of international trade.

3.8. Military Security of Russia under Present Conditions:

Economic Problems 3.8.1. Military policies and military economic activities in the Russian Federation The bases of the RF state policies in the field of military organization for the period of up to the year of 2010 were determined by the Supreme Commander in Chief, the RF President, as far back as 2002 and such policies are further specified by the President in his annual addresses to the Federal Assembly. Jointly with the National Security Concept and the RF Military Doctrine, these documents define objectives and tasks of both military organization and military activities in general. Concrete programs, the Federal Target Oriented Program (FTP) for transition to a new system of army recruitment in particular, were respectively approved by the RF Government.

Adoption of the federal budget by the early 2004 permitted timely approval of the state defense order as well.

Thus, positive solution of the RF military security tasks, it would seem, was to be supported with all the necessary resources which did not augur any faults in functioning of the respective power bodies.

However, analysis of the Defense Ministry activities in 2004 construes an impression that its governing bodies proceeded basically from their own understanding of the objec tives and tasks of the said activities as stated in the Development the RF Armed Forces:

RUSSIAN ECONOMY in trends and outlooks Topical Tasks (the so called White Book of the Defense Ministry, October, 2003). This is mostly attributable to a strong wish of the Defense Ministry governing bodies to close down the question of the Russian military reform as though it has already been fully, suc cessfully and finally completed.

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