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- Foreign Exchange and Payments System
  1. The representative of the Russian Federation recalled that his country had been a Member of the International Monetary Fund (IMF), since 1992. The national currency, the ruble (RUB, equal to 100 Kopeks), was convertible to foreign currencies on the basis of current market rates.
  2. Members of the Working Party noted their concerns in relation to certain foreign exchange control and regulatory measures in force, including restrictions on foreign exchange retention, restrictions on the rights of residents to acquire and hold foreign exchange and to have accounts in foreign banks, pre-payment requirements for imports, and the 1 per cent tax levied on the purchase of foreign currency by natural persons. They requested information on the nature of the requirements in place, their legal basis, their purpose and WTO justification, the circumstances that led to their introduction and whether these circumstances still existed, and the plans of the Russian Federation to eliminate restrictions which were still in place.
  3. In response, the representative of the Russian Federation stated that the CBR exercised control over timely and full transfer of export earnings to the country and over making payments for goods imported to the territory of the Russian Federation under pre-payment terms. The CBR also exercised control to enable the detection of fictitious foreign exchange operations by residents in off shore zones. Enhanced requirements in respect of establishing correspondent relations and forming reserves were imposed on operations performed by authorised banks with resident banks registered in off-shore zones. The requirements differed depending on the group and the off-shore zone they related to. Relevant requirements and the classification of off-shore zones were defined in the Instructions of the CBR No. 1317-y of 7 August 2003 "On the Procedure for Establishing Correspondent Relations Between Authorised Banks and Non-Resident Banks Registered in the States and in the Territories Granting Preferential Taxation Treatment and (or) not Envisaging Disclosure and Provision of Information in Performing Financial Operations (in Off-Shore Zones)" (as last amended on 8 February 2010) and No. 1584-y of 22 June 2005 "On Establishing and the Amount of the Reserve for Operations Performed by Crediting Organizations with Residents of
    Off-Shore Zones".
  4. The representative of the Russian Federation further explained some of the main characteristics of the new currency regulation enacted by Federal Law No. 173-FZ of 10 December 2003 "On Currency Regulation and Currency Control" (Federal Law No. 173-FZ).
  5. Federal Law No. 173-FZ, which had entered into force on 18 June 2004 (as last amended on 22 July 2008), aimed at the implementation of the single State currency policy and stability of the currency of the Russian Federation, while at the same time ensuring the progressive liberalization of the foreign exchange legislation of the Russian Federation. One of the main features of the regulation had been a shift from the previous principle "everything is forbidden except what is permitted by law" to "everything is permitted except what is forbidden by law". This trend had been reflected in Articles 7 and 8 of Federal Law No. 173-FZ, which had established a closed list of currency operations pertaining to capital movement subject to special regulation. Outside this list, all currency transactions had been conducted without restrictions. At the same time, Federal Law No. 173-FZ had provided for a clear and balanced distribution of powers between the Government of the Russian Federation and the CBR in the field of regulation of currency transactions pertaining to capital movement. Pursuant to Article 7 (which had been in force until 1 July 2006) of Federal Law No. 173-FZ, the Government of the Russian Federation had been responsible for regulating currency transactions pertaining to capital movement connected with foreign trade operations. The joint competence of the Government of the Russian Federation and the Bank of Russia had covered transactions connected with the purchase by residents of share fractions, deposits, shares in legal entities' property (authorised or ownership capital, share fund of cooperative society) from non residents or with entering deposits under simple partnership contracts signed with non-residents. The powers of the CBR in the sphere of regulation of currency transactions pertaining to capital movement had been extended to operations related to granting and raising of credits and loans; operations with securities denominated in Russian or foreign currency (including related payments, transfers and performance of obligations), and operations of credit organizations. Article 8 of Federal Law No. 173-FZ had been in force until 1 January 2007.
  6. Federal Law No. 173-FZ had also established an exhaustive set of instruments which could have been used by the Government of the Russian Federation and the Central Bank to regulate currency transactions pertaining to capital movement: (a) temporary reservation of a part of the currency transaction amount; and, (b) requirement to use special bank accounts in authorised banks.
  7. The representative of the Russian Federation further stated that currency transactions pertaining to capital movement listed in Articles 7 and 8 of Federal Law No. 173-FZ had been subject to restrictions only for the purpose of preventing substantial reductions in gold and foreign currency reserves; addressing sharp fluctuations of exchange rate of currency of the Russian Federation, as well as for maintaining the stability of balance of payments (Article 6 of Federal Law No. 173-FZ).
  8. He further noted that Federal Law No. 173-FZ had introduced a "negative list" approach: if the procedures for currency transactions and for using bank accounts (including the requirement of special bank accounts) were not established by the State bodies for currency regulation (the Government of the Russian Federation and the Bank of Russia) within the scope of this Federal Law, currency transactions could be carried out, accounts could be opened and transactions through the accounts could be carried out without restrictions.
  9. Federal Law No. 173-FZ had also stipulated that State bodies for currency regulation were not to introduce more than one reservation requirement with respect to each particular type of currency transactions simultaneously. The CBR established the procedures for the reservation and return of the reservation amount. The amount of reservation was required to be deposited in Russian currency. Residents and non-residents calculated the amount of the reservation themselves. The reservation amount for a foreign currency transaction was calculated at the official CBR rate as of the date the amount of the reservation was entered. Early return of the total or part of the reservation amount had been authorised in cases stipulated by Federal Law No. 173-FZ. Interest had not been charged for the amounts of reservation deposited in accounts of authorised banks or the CBR. According to Federal Law No. 173-FZ, reservation requirements and use of special bank accounts had been in force until 1 January 2007.
  10. The representative of the Russian Federation further explained that, pursuant to Article 7 (which ceased to be effective as of 1 July 2006) of Federal Law No. 173-FZ, the Government of the Russian Federation could use the above-mentioned instruments to regulate currency transactions pertaining to capital movement connected with foreign trade operations in the following situations: (i) delayed payment for exported goods, specified in Sections XVI, XVII and XIX of the Commodity Nomenclature for Foreign Economic Activity for the period exceeding three years (HS Codes 84 89, 93); (ii) delayed payment for the period above five years for building and construction works performed by residents outside the territory of the Russian Federation and also for delivered goods necessary for performance of these works; (iii) delayed payment (due from a non-resident to a resident) for more than 180 calendar days in connection with realization of foreign trade activity; (iv) granting commercial credits by residents to non-residents for more than a 180 calendar day period as an advance payment regarding the realization of foreign trade activity; (v) granting commercial credits by residents to non-residents for a period exceeding three years in the form of advance payment for import of goods, specified in Sections XVI, XVII and XIX of the Commodity Nomenclature for Foreign Economic Activity. In these situations the Government of the Russian Federation had the authority to introduce a temporary reservation requirement of 50 per cent of the currency transaction amount, with such measure in effect for a maximum of two years. In the situations designated in paragraphs 3 and 4 of Article 7 of Federal Law No. 173-FZ (iii and iv respectively in the above list of situations), the currency reservation requirement would not apply, if the payment was guaranteed by an irrevocable letter of credit covered for the account of payer; a bank guarantee issued by a bank situated outside the territory of the Russian Federation, given for the benefit of the resident; an insurance contract; or, a bill drawn by a non-resident for the benefit of the resident and guaranteed by a bank outside the territory of the Russian Federation. In 2005, the Government of the Russian Federation had partially exercised its powers in the field of regulation of currency transactions pertaining to capital movement between residents and non-residents, having established reservation requirements with respect to currency transactions by residents mentioned in paragraphs 4 and 7 of Article 7 of Federal Law No. 173-FZ. It had issued the following acts to that effect:

- Resolution of the Government of the Russian Federation No. 204 of 11 April 2005 "On the Procedure for Making Settlements and Transfers in Acquisition of Stakes, Deposits, Shares in Property (Authorised or Share Capital, Share Fund of Cooperative) of Legal Entities by Residents from Non-Residents, in Entering Contributions by Residents Under Contracts of Simple Partnership with Non-Residents"; and

- Resolution of the Government of the Russian Federation No. 302 of 16 May 2005 "On the Procedure for Making Settlements and Transfers Between Residents and Non-Residents When Granting of Commercial Credits by Residents to Non-Residents for the Term Longer than 180 Calendar Days as an Advance Payment Regarding Realization of Foreign Trade Activity".


In view of the absence of economic preconditions for further maintenance of the reservation requirements as an instrument of regulation of capital currency transactions, the above-mentioned normative acts of the Government of the Russian Federation had been deemed null and void, effective from 1 July 2006.
  1. In response to further questions, the representative of the Russian Federation stated that the CBR had introduced five different categories of special accounts to be used by residents and non residents while carrying out currency transactions. These related to granting and raising credits and loans and operations with securities denominated in Russian or foreign currency (including related payments, transfers and performance of obligations). Transfers and write-offs from these accounts had been subject to a different temporary reservation rate (varying from 3 per cent of the total transaction amount for 365 calendar days to 50 per cent for 15 calendar days) depending on the category of special account. The procedures for using special accounts and reservation requirements had been set up by normative acts of the CBR (Instructions No. 116-i of 7 June 2004, No. 114-i of 1 June 2004, Directive No. 1465-u of 29 June 2004). These requirements had entered into force on 1 August 2004. By its Directives No. 1540-u of 29 December 2004 and No. 1674-u of 29 March 2006, the CBR further reduced currency reservation rates. The representative of the Russian Federation noted that the prevalent macroeconomic situation in the Russian Federation characterized by a high level of currency reserves, absence of sharp fluctuations of an exchange rate of national currency, and stability of the balance of payments had created an opportunity for cancellation of restrictions stipulated by Federal Law No. 173-FZ (reservation requirements and requirements for using special bank accounts). Norms of Federal Law No. 173-FZ that had enabled the Government of the Russian Federation and the Bank of Russia to introduce reservation requirements had been in force until 1 July 2006. Thereupon, the Bank of Russia had issued the Directive No. 1689-u of 29 May 2006 "On Invalidation of Some Normative Acts of the Bank of Russia" according to which all normative acts of the Bank of Russia pertaining to reservation requirements had been deemed null and void from 1 July 2006. Norms of Federal Law No. 173-FZ regarding the requirement to use special bank accounts had been in force until 1 January 2007 with the view to ensure the smooth transition from the system of special accounts to the use of traditional accounts and to lessen the attendant burden on the authorised banks and their clients. To that effect, by its Directive No. 1688-u of 29 May 2006 "On Cancellation of the Requirement to Use Special Bank Accounts for Some Types of Currency Transactions and on Invalidation of Some Normative Acts of the Bank Of Russia", the Bank of Russia had allowed residents and non-residents to use during the transitional period between 1 July 2006 and 1 January 2007 both types of accounts (special and traditional). Starting from 1 January 2007, all normative acts of the Bank of Russia pertaining to the use of special bank accounts had been deemed null and void (paragraph 3 of the Directive No. 1688-u of 29 May 2006).
  2. He added that pursuant to Article 21 (which had been in force until 1 July 2006) of Federal Law No. 173-FZ, residents had been bound to sell a part of their foreign currency earnings at a rate not exceeding 30 per cent of the amount on the internal currency market. The mandatory surrender requirement had been in force until 1 January 2007. The mandatory surrender requirement set by the CBR had been 25 per cent in 2003 (CBR Directive No. 1304-u of 9 July 2003) and had been lowered to 10 per cent in 2004 in an effort to further liberalize foreign exchange (CBR Directive No. 1520-u of 26 November 2004). The CBR had established the list of foreign currencies subject to obligatory sale through the internal currency market of the Russian Federation. Foreign currency revenues not subject to mandatory surrender requirements (established by paragraph 3 of Article 21 which had been valid until 1 January 2007) had included:

- the amount of foreign currency received by the Government of the Russian Federation, federal executive bodies authorised by the latter, by the CBR from transactions and deals being carried out by them (or on their behalf and/or at their expense) within the scope of their competence;

- the amount of foreign currency derived by authorised banks from bank transactions and other bargains with non-residents;

- residents' foreign currency earnings within the limits of the amount necessary to fulfil their obligations under credit and loan contracts signed with non-resident entities acting on behalf of foreign governments as well as with residents of OECD or Financial Action Task Force (FATF) country members for a period exceeding two years; and

- the amount of foreign currency derived from transactions involving the transfer by residents of external emissive securities (rights to external emissive securities).
  1. Some Members noted that there had been three specific restrictions on the use of foreign exchange that had had a negative impact upon imports and had engaged WTO obligations. As the application of these restrictions had not been specifically approved by the IMF, these Members asked the Russian Federation to eliminate them by the date of its accession to the WTO and to enter a commitment not to have recourse to these measures after accession:

1. The 1 per cent tax that had been levied on the purchase of cash foreign currency operated as a de facto additional charge upon imports and had been inconsistent with the provision of Article III on non-discrimination, Article VIII on charges covering the cost of services rendered, and the requirements of Article XI of the GATT 1994, as well as Article 4 of the WTO Agreement on Agriculture, which envisaged elimination of unjustifiable restrictions to export.

2. The provision that purchase of foreign currency for making advance payments for imports required opening a deposit in the currency of the Russian Federation, as well as all formalities fees and requirements which were to be observed pursuant to the provision, tied up capital of importers that could be used to purchase additional imports. It was inconsistent with the non discrimination provisions of Article III as well as the provisions of Article XI of the GATT 1994 and Article 4 of the WTO Agreement on Agriculture. They had been discriminatory also in respect of imports from more distant countries, and, thus, had not complied with the provisions of Article I of the GATT 1994. For these reasons, several Members urged the Russian Federation to consider the use of other methods to avoid illicit capital outflow.

3. The mandatory requirement to transfer 25 per cent of the currency earnings to the domestic currency that had applied to exporters of the production from the Russian Federation effectively increased import transaction costs, and had not complied with the requirement of Article XI of the GATT 1994 on the elimination of unjustifiable export restrictions. Furthermore, due to the fact that that requirement hindered the use of the currency earnings for subsequent entry, it had been also inconsistent with non-discrimination requirements of Article 3 of the WTO Agreement on Agriculture. Some Members further noted that the discussed requirement had been especially burdensome for smaller importers and could, thus, make trade payments more difficult.

  1. In addition, Members noted in response to the statement by the representative of the Russian Federation that such measures had been necessary to ensure accumulation of foreign currency reserves, that these measures had been no longer needed. The foreign exchange reserves of the Russian Federation had been at record high levels, equivalent to 50 per cent of external debt and more than six months of import cover. Finally, the balance of payments position of the Russian Federation had improved dramatically since these controls had been imposed in 1998 during the financial crisis.
  2. In response to comments by Members, the representative of the Russian Federation stated that the 1 per cent tax levied on the amount of foreign currency in cash purchased by natural persons (not applicable to juridical persons) established by Federal Law No. 120-FZ of 21 July 1997 "On the Tax Levied on Purchase of Foreign Currency Notes and Payment Documents in Foreign Currency" (with subsequent amendments) had been abolished on 1 January 2003 by Federal Law No. 193-FZ of 31 December 2002. As for the prior import deposit requirement, introduced by the CBR Directive No. 1223-u of 17 December 2002, it had been eliminated pursuant to the CBR Directive No. 1394-u of 18 March 2004 and had ceased to exist on 18 April 2004. Concerning the mandatory surrender requirement stipulated by Article 21 of the Law that had authorised the Bank of Russia to establish a maximum 30 per cent rate of obligatory sale of the amount of currency proceeds of residents through the internal currency market, this provision of the Law had ceased to exist on 1 January 2007. Already in 2006, the Bank of Russia had lowered surrender requirements down to zero per cent (Directive of the Bank of Russia No. 1676-u of 29 March 2006 "On Introducing Amendments to the Instruction of the Bank of Russia No. 111-u of 30 March 2004 'On the Mandatory Sale of a Portion of Currency Proceeds on the Domestic Currency Market of the Russian Federation'"). As for concerns expressed earlier by some Members in relation to restrictions on the rights of residents to acquire and hold foreign exchange and to have accounts in foreign banks, the representative of the Russian Federation noted that these concerns had been addressed, since under the current foreign exchange legislation, there were no restrictions on the rights of residents to acquire and hold foreign exchange. The opening of accounts in foreign and national currency by residents and non-residents, on the territory of the Russian Federation, was carried out without any restrictions. As to the accounts of residents in the banks located outside the territory of the Russian Federation, starting from 1 January 2007, they were opened freely in any country, with the subsequent notification to the Federal Tax Service by the holder.
  3. Replying to a Member who enquired about the requirement for Russian residents to obtain an advance approval from the Ministry of Finance of the Russian Federation to convert rubles into foreign currency to make related payments of more than US$10,000 to a non-resident under a services contract, the representative of the Russian Federation noted that this measure, which had been introduced by the CBR Directive No. 721-u of 30 December 1999, had been abolished on 11 April 2004 pursuant to the CBR Directive No. 1388-u of 26 February 2004.
  4. The representative of the Russian Federation confirmed that if the Russian Federation introduced restrictions on foreign exchange or payments such restrictions would be applied in conformity with WTO requirements. The Working Party took note of these commitments.