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- Investment Regime
  1. The representative of the Russian Federation stated that the current policy of his Government in this area was directed to creation of conditions to promote the expansion of domestic and foreign investments, and also to the formation of transparent and stable rules in the conduct of economic activities. He added that the MED of the Russian Federation was the authority responsible for formulating and implementing the investment policy of the Russian Federation.
  2. The basic legal provisions relating to the activities of investors were set-forth in the Constitution of the Russian Federation adopted on 12 December 1993; the Civil Code Part One No. 51-FZ of 30 November 1994 and Part Two No. 14-FZ of 26 January 1996 (as last amended on 27 July 2010); relevant international treaties to which the Russian Federation was a party, and a number of other legislative acts: Federal Law No. 39-FZ of 25 February 1999 "Оn Investment Activity in the Russian Federation Pursued in the Form of Capital Investments" (as last amended on 23 July 2010), Federal Law No. 160-FZ of 9 July 1999 "On Foreign Investments in the Russian Federation" (as last amended on 29 April 2008), Federal Law No. 164-FZ of 8 December 2003 "On the Fundamentals of the State Regulation of Foreign Trade Activity" (as last amended on 2 February 2006), which provided guarantees for the protection of investors' rights and interests, and Federal Law No. 57-FZ of 29 April 2008 "On the Order of Investing by Foreign Persons in Companies Having Strategic Importance for the Ensuring of the Defence of the Country and the Security of the State".
  3. In response to questions by some Members of the Working Party, he added that, in his view, the Land Code of the Russian Federation (Federal Law No. 136-FZ of 25 October 2001, as last amended on 22 July 2010), together with a number of legislative acts on "de-bureaucratization" (Federal Law No. 128-FZ of 8 August 2001 "On Licensing of Specific Types of Activity" (as last amended on 27 July 2010), Federal Law No. 129-FZ of 8 August 2001 "On State Registration of Juridical Persons and Individual Entrepreneurs" (as last amended on 27 July 2010), Federal Law No. 294-FZ of 26 December 2008 "On the Protection of Legal Entities' and Individual Entrepreneurs' Rights in the Case of Exercise of State Control (Supervision) and Municipal Control") and the Tax Code of the Russian Federation had significantly contributed to the formation of a favourable investment climate and facilitated the investment activity of Russian and foreign companies in the Russian market.
  4. In response to further questions by some Members of the Working Party concerning conditions for attraction of foreign investors, the representative of the Russian Federation stated that Article 4.1 of Federal Law No. 160-FZ of 9 July 1999 ensured a legal basis for provision of national treatment for foreign investors' activity.
  5. He further noted that, in accordance with the Federal Law No. 160-FZ of 9 July 1999, the property of a foreign investor or a commercial legal entity with foreign investment could not be subject to forced seizure, including nationalization, or requisition, except for the cases and reasons determined by a Federal law or international treaty of the Russian Federation. If nationalization of property took place, Article 8 of this Law provided that the value of the nationalized property would be reimbursed to a foreign investor. Foreign investors had the right to freely use the revenues and profits (which had been obtained from the investment made in the Russian Federation) in the territory of the Russian Federation for any purpose, including re-investment, as long as such use did not contradict the legislation of the Russian Federation. A foreign investor could acquire stocks and other securities of Russian commercial organizations and State securities, in accordance with the respective legislation. In some cases, investments and re-investments by foreign investors could be limited or prohibited under the Russian legislation, including in cases mentioned in paragraphs and of this Report.
  6. One Member asked what compensation would be available to foreign investors in case of seizure and/or expropriation. The representative of the Russian Federation explained that the details concerning compensation available to foreign investors were provided for in the respective bilateral Agreements for the Promotion and Reciprocal Protection of the Investments referred to in paragraph  of this Report.
  7. The representative of the Russian Federation further informed Members of the Working Party that foreign investors, other than those investing in non-commercial organizations, could transfer abroad unhampered their profits and other sums of money in foreign currency lawfully gained in connection with previously made investments. He noted that this right to transfer funds abroad did not affect any obligations a foreign investor may have under the relevant legislation of the Russian Federation, including tax legislation, criminal legislation, and legislation on bankruptcy. He also explained that non-commercial organizations could not, by definition, have profit-making as their principal goal, and that such organizations included those described in paragraph of this Report.
  8. He also noted that, in accordance with tax and customs legislation of the Russian Federation, foreign investors could be granted certain privileges. Tax privileges, according to Article 150 of the Tax Code, comprised exemption from taxation of technology equipment and parts and spare parts for such equipment, imported into the customs territory of the Russian Federation, as a contribution to the assessed capital of companies. As to customs privileges, they were listed in the Government Resolution No. 883 of 23 July 1996 "On Import Duty and Value Added Tax Exemptions for Goods Imported by Foreign Investors as Contributions to Charter (Pooled) Capital of Enterprises with Foreign Investments" as following:

- Products imported to the customs territory of the Russian Federation as contribution to the assessed capital were free from customs duties under the condition that the products were: not excisable; related to the main productive funds; and, imported within the period defined by the constituent documents for assessed capital foundation.

  1. In addition, the possibility of granting other customs and tax privileges to foreign investors performing priority investment projects (more than RUB 100 million) was provided for by Federal Law No. 160-FZ of 9 July 1999. The representative of the Russian Federation also explained that the Russian Federation was pursuing the establishment of special economic zones (SEZs) which were aimed primarily at fostering high technology industries; expanding sources of investments; and, promoting the development of tourism and transportation infrastructure. He noted that the Section of the Report "On Special Economic Zones" (starting at paragraph ) provided additional information on the establishment and operation of SEZs in the Russian Federation.
  2. In response to further questions, the representative of the Russian Federation said, that some investment privileges had been granted in the field of the car and aircraft industries (those in the sector of aircraft had been abolished) which were described in the Section "Trade-Related Investment Measures" (TRIMs) (see paragraphs  through ).
  3. In response to other questions, the representative of the Russian Federation added that the Russian Federation accorded protection of foreign investment through international treaties. In particular, up to October 2010 the Russian Federation was a Party to 70 bilateral investment treaties (BITs) (49 of them were in force). In respect of investors and their investments, BITs contained, inter alia, provisions on national treatment and MFN treatment with exemptions; guarantees in case of expropriation and rules for compensation of losses; and, on free transfer of revenues and profits and dispute settlement procedures.
  4. The representative of the Russian Federation added that a wide range of investment projects was open to foreign investors. Information on investment projects was widely available, inter alia, from the Chamber of Commerce of the Russian Federation and the Russian Union of Entrepreneurs and Industrialists (Employers). To obtain detailed information concerning investment projects in the Russian Federation, foreign investors could also make an inquiry to the Federal body of executive power responsible for investment policy (currently, the MED of the Russian Federation), regional bodies of executive power, and also trade representations of the Russian Federation abroad, providing information on the possible fields and scope of investment activity and other terms of possible investment projects.
  5. In response to concerns of some Members of the Working Party related to restrictions for foreign investors, the representative of the Russian Federation replied that Article 4.2 of Federal Law No. 160-FZ of 9 July 1999 provided that restrictions of activity of foreign investors could be established only by federal laws and only to the extent, it would be necessary, to achieve the purposes of defending the bases of the constitutional order, moral, health, rights and legal interests of other persons and ensuring the defence and the security of the State. These provisions of Article 4 of the Federal Law No. 160-FZ of 9 July 1999 were in line with Article 55 of the Constitution of the Russian Federation and Article 1 of the Civil Code of the Russian Federation, which could also serve as a legal basis for establishment of restrictions of activity of all investors, both Russian and foreign. Security-related restrictions were applied, inter alia, by virtue of the Law of the Russian Federation No. 3297-1 of 14 July 1992 "On a Closed Administrative-Territorial Area" (as last amended on 27 December 2009), which set-forth certain restrictions including restrictions on entrepreneurial and economic activities; Article 15.3 of the Land Code of the Russian Federation which provided that foreign natural persons and foreign legal entities could not own land within the border territories designated by the President of the Russian Federation pursuant to the federal legislation on State Border of the Russian Federation and in other specially defined territories of the Russian Federation in accordance with Federal laws.
  6. Some Members of the Working Party asked about the rules governing investments in sectors considered of strategic importance in the Russian Federation. They requested information about the nature of possible restrictions and the procedures for their implementation. Some Members expressed concerns about the lack of clarity of specific provisions pertaining to investments in the energy sectors and underlined the need to have clear and transparent rules providing stability and clarity.
  7. In response, the representative of the Russian Federation explained that the Federal Law No. 57-FZ of 29 April 2008 "On the Order of Investing by Foreign Persons in Companies Having Strategic Importance for the Ensuring of the Defence of the Country and the Security of the State" established the general framework for regulation of foreign persons' participation in the capital of enterprises engaged in activities having strategic importance for national defence and security. This Federal Law covered 42 sectors. The screening procedures, intended to review transactions that may threaten the national security of the Russian Federation and thus not be approved, were applied when a foreign person intended to acquire control over such an enterprise. The thresholds when such control was considered to exist were established at the level of 50 per cent of participation in the capital of such a strategic enterprise or 10 per cent in case an enterprise was engaged in the use of land plots of federal importance. In cases where the intended participation in the capital of such an enterprise was by a foreign State, the thresholds for initiation of a screening review were reduced to 25 per cent and 5 per cent, respectively. The representative of the Russian Federation also explained that to implement this Federal Law, the Government of the Russian Federation had adopted Resolution No. 510 of 6 July 2008 "On the Governmental Commission on the Control of Foreign Investments in the Russian Federation". The Governmental Commission established by this Resolution decided whether a foreign investor shall be granted an authorization for the transaction to be accomplished. By the end of 2009, the Governmental Commission had considered more than 30 applications. Two refusals had been made so far. In accordance with Article 11 of the said Federal Law, the denial of approval by the Commission might be appealed in the Supreme Arbitration Court of the Russian Federation.
  8. Subsequently, on 28 April 2008, the Law of the Russian Federation No. 2395-1 of 21 February 1992 "On Subsoil" was amended making foreign investments in the capital of the legal persons, engaged in activities within the subsoil land plots of federal importance, subject to the procedures of authorization established under Federal Law No. 57-FZ.
  9. Some Members expressed concern about the potential conflicts between decisions taken as a result of the screening procedure, described above, and the commitments of the Russian Federation under the GATS. These Members asked how the Russian Federation would avoid such conflicts.
  10. In response, the representative of the Russian Federation explained that, as followed from Article 15.4 of the Constitution of the Russian Federation, in case of conflict between the provisions of Federal Law No. 57-FZ of 29 April 2008 "On the Order of Investing by Foreign Persons in Companies Having Strategic Importance for the Ensuring of the Defence of the Country and the Security of the State" and the obligations under an international agreement of the Russian Federation, such as the GATS, the obligations under an international agreement would apply. The representative of the Russian Federation further explained that all legal acts taken pursuant to Federal Law No. 57 FZ, including decisions resulting from the screening process, must be in compliance with this Law and, as described above, with the international obligations of the Russian Federation.
  11. The representative of the Russian Federation further explained that this Federal Law regulated issues connected with foreign investors or a group of persons including foreigners making investments in the form of purchasing stocks (shares) constituting the charter capital of companies having strategic importance for ensuring the defence of the country and the security of the State, as well as with making transactions resulting in foreign investors or a group of persons including foreigners establishing control over such companies. However, according to Article 2.6 of Federal Law No. 57-FZ, the Law did not apply to such issues if they were connected with making foreign investments and were covered by duly ratified international agreements with participation of the Russian Federation. The issues connected with making foreign investments in the sphere of technical military cooperation of the Russian Federation with foreign States were regulated in accordance with the legislation of the Russian Federation on technical military cooperation.
  12. In reply to the questions of some Members of the Working Party, the representative of the Russian Federation added that, in accordance with the provisions of the Law of the Russian Federation No. 4730-1 of 1 April 1993 "On State Border of the Russian Federation" (as last amended on 31 May 2010), the boundary territories were defined within border zones and/or within wards adjacent to them. The border zones were, as a rule, established within the territory of 5 kilometres (within a ward, city) adjacent to the State Border on land, to the sea coast of the Russian Federation, to the Russian banks of the border rivers, lakes and other basins and within the territories of the islands of these basins.
  13. Noting that "as a rule", border zones were established within 5 kilometres adjacent to a border, a Member asked if there were any exceptions to this "rule" for determining border zones. In response, the representative of the Russian Federation explained that the bounds of each border zone were established by the Orders of the Federal Security Service of the Russian Federation No. 75 85 of 2 March 2006, No. 149-157 of 14 April 2006, No. 237-250 of 2 June 2006, No. 275-286 of 16 June 2006, No. 193 of 17 April 2007, No. 273 of 27 May 2007, No. 355 of 10 July 2007, and No. 473 of 20 September 2007.
  14. In response to the questions of some Members of the Working Party related to rights of foreigners concerning possession of land, the representative of the Russian Federation stated that the Land Code of the Russian Federation (Federal Law No. 136-FZ of 25 October 2001) stipulated conditions of use, purchase and sale of land and provided that foreign nationals and foreign legal entities could acquire property rights and leasehold over land, with the exception of cases established by the land legislation of the Russian Federation (mentioned in paragraph of this Report).
  15. In response to further questions, the representative of the Russian Federation noted that, in accordance with Article 35 of the Land Code, owners of buildings, constructions and/or facilities located on a land plot owned by another person or the State, could benefit from a pre-emptive right of purchase or lease in respect of such land plot, unless the Decrees or Resolutions of the President of the Russian Federation prohibited the purchase or lease of those lands. This rule was applied regardless of national identity.
  16. Concerning commercial transactions in agricultural land, the representative of the Russian Federation noted that Federal Law No. 101-FZ of 24 July 2002 "On Commercial Transactions in Agricultural Land" (as last amended on 8 May 2009) permitted leasehold by foreign natural persons, foreign legal entities and legal entities with foreign participation exceeding 50 per cent for a period of up to 49 years. He added that, after the end of the 49-year period of the lease of land for agricultural purpose, the lessee could make a new contract for another term. While the contract for a new term was made on standard basis, the lessee had a right of priority in making a contract for a new term.

- Privatization and Enterprises that are State-Owned or –Controlled, Enterprises with Special or Exclusive Privileges

- (a) Privatization
  1. The representative of the Russian Federation informed Members of the Working Party that, since 1993, privatization had been carried out as provided for in legislation on privatization of State and Municipal Property. He also informed Members of the Working Party that the basics of the regulation of privatization in the Russian Federation were established by the Civil Code of the Russian Federation and Federal Law No. 178-FZ of 21 December 2001 "On Privatization of State and Municipal Property" (as last amended on 22 November 2010). Other legal acts, relative to the regulation of privatization, included, inter alia, the following:

- Article 217 of the Civil Code of the Russian Federation;

- The Budget Code of the Russian Federation - Federal Law No. 145-FZ of 31 July 1998;

- Federal Law No. 160-FZ of 9 July 1999 "On Foreign Investment in the Russian Federation" (as last amended on 29 April 2008); and

- The Conception of Management of State Property and Privatization in the Russian Federation (approved by Government Resolution No. 1024 of 9 September 1999, as last amended on 29 November 2000).
  1. The representative of the Russian Federation explained that, in accordance with the Federal Law No. 178-FZ of 21 December 2001, "privatization of state and municipal property" was a form of alienation of property owned by the Russian Federation (hereinafter: referred to as "federal property"), the regions of the Russian Federation, or municipal entities to natural and/or juridical persons that required payment to the owner of the property being privatized.
  2. Some Members of the Working Party expressed concerns regarding the transparency of the privatization process in the Russian Federation, as well as concerns regarding restrictions related to privatization and, specifically, restrictions on foreign participation in privatization provided for in the legislation of the Russian Federation. In response to the questions from Members, the representative of the Russian Federation informed Members that privatization of State and Municipal Property was based on the principles of transparency and predictability of privatization procedures. He further added that privatization for each year was carried out on the basis of a plan. The Government of the Russian Federation annually endorsed the forecast of Federal Property Privatization Plan (Programme) for a respective year. The Forecast Plan (Programme) contained a list of Federal State unitary enterprises, federally-owned shares of open joint-stock companies, and other federal property to be privatized in that year. The programmes of privatization as well as decisions on the conditions of privatization (as long as they were approved by the normative acts of the relevant executive authorities) were subject to publication in the sources of official information1.
  3. Regarding the prohibitions and restrictions on the privatization process, the representative of the Russian Federation stated, that according to the Federal Law No. 178-FZ of 21 December 2011, some property could not be privatized, because it could be owned only by the State or municipal Governments and federal laws stipulated that some property and objects could not be subject to any form of transaction. Property and objects which could not be privatized consisted, among other things, of mineral wealth, forest fund, water resources, air space, resources of the continental shelf, territorial waters and sea economic zones of the Russian Federation, budgetary and non-budgetary funds, currency and other reserves, objects of historic and cultural heritage of federal value, property passed over to State unitary enterprises (SUEs) and state institutions involved in the turnover of narcotics and psychotropic substances, nuclear stations and enterprises producing special nuclear and radio-nuclear materials, nuclear weapons, as well as property of the enterprises performing scientific research and development works in the above-mentioned areas, and property permanently used to provide social services, including orphanages. The alienation of these types of property to any natural and/or juridical persons was prohibited.
  4. In response to the specific questions of some Members in regard to joint-stock companies (JSCs) and enterprises of strategic significance, the representative of the Russian Federation clarified, that shares of "strategic" JSCs and "strategic" enterprises could be offered for privatization and be included in the plan (programme) of privatization by decision of the President (i.e., a Presidential Decree based on a proposal initiated by the Government).
  5. "Strategic" enterprises and JSCs were defined as follows:

- Federal State unitary enterprises manufacturing products (performing works, providing services) of strategic importance for ensuring the defensive capability and security of the State, protecting the morals, health, rights and lawful interests of citizens of the Russian Federation (strategic enterprises); and

- Public joint-stock companies whose shares were in federal ownership and the participation of the Russian Federation in the management thereof ensured the strategic interests of the State, the defensive capability and security of the State, protection of the morals, health, rights and lawful interests of citizens of the Russian Federation (strategic JSCs).
  1. The current list of strategic enterprises was established by Presidential Decree No. 1009 of 4 August 2004 (as last amended on 26 June 2010). The amended list contained 231 strategic enterprises and 212 JSCs. In response to a question from a Member, the representative of the Russian Federation explained that the specific percentage of state-ownership of shares in a public joint-stock company>No. 3297-1 of 14 July 1992 "On a Closed Administrative-Territorial Area" (as last amended on 23 December 2003) stipulated that only citizens of the Russian Federation permanently residing in the territory of Closed Administrative-Territorial Area and juridical persons located and registered in that territory, could participate in the privatization of the State or Municipal Property located on that territory and engage in transactions with it. These rules were set with a view to providing a special regime of safe functioning and keeping State secrets in the territory of such areas.
  2. In response to further questions of some Members of the Working Party with regard to restrictions on foreign participation in privatization of land, the representative of the Russian Federation added that there were no specific conditions for foreign investors set-out in the legislation on privatization, concerning participation in the privatization programme other than those that applied to domestic investors. Furthermore, Federal Law No. 178-FZ of 21 December 2001 established equality of rights of all customers in the process of privatization. However, certain limitations on foreign ownership were provided for by Russian legislation regulating different areas of economic relations. Such limitations were required to be observed in the process of privatization. The representative of the Russian Federation gave the example of the Land Code of the Russian Federation, providing that foreign citizens, persons without any citizenship, and foreign juridical persons could not own land plots when such land plots were situated in border territories, the list of which was set by the President of the Russian Federation in accordance with the federal legislation on State border of the Russian Federation. Additional information on this issue was discussed in the Section "Investment Regime" of this Report.
  3. Some Members of the Working Party requested information on progress achieved in the privatization process and the percentage of trade accounted for by State-owned firms. These Members noted that, in many situations, a shareholding of as low as 25 per cent could amount to effective control, and, accordingly, requested information on the economic activity of companies with 25 per cent or greater Government shareholding. Some Members requested updated information on the current privatization programmes of the Government of the Russian Federation. Responding to this request, the representative of the Russian Federation informed Members that the Privatization Plan (Programme) for the current period was established by the "Forecast Plan (Programme) for Federal Property Privatization and the main directions of the Federal Property Privatization for 2011 and 2013" which had been approved by the Order of the Government of the Russian Federation No. 2102-r of 27 November 2010. This Programme was available on the website of the Government of the Russian Federation (www.gov.ru). The Programme contained a list of 809 JSCs belonging to the Russian Federation for which shares were put up for sale in 2011-2013 as well as 114 Federal State unitary enterprises, planned to be privatized in 2011-2013. It was planned, in particular, to put up for sale 7.58 per cent minus one share of Sberbank, 100 per cent of the United Grain Company (by 2012) and 50 per cent minus one share of Rosagroleasing (but no sooner than in 2013).
  4. The representative of the Russian Federation further informed Members that a total of 1,863 enterprises had been privatized between 2005 and 2009 (see Table 1). He also provided additional information concerning privatization by sectors, reflected in Table 2. Regarding recent years, the representative of the Russian Federation provided information contained in Table 3, Table 4 and Table 5. As a result of the privatization process, the number of Federal State unitary enterprises came to 3,765 on 1 January 2009, and the number of JSCs with the participation of the Russian Federation came to 3,337 by the same date. Among these JSCs, 1,858 had 100 per cent of their shares owned by the Russian Federation; 200 JSCs had from 50 to 100 per cent of their shares owned by the Russian Federation; 510 had from 25 to 50 per cent Russian Federation ownership; and 769 JSCs had less than 25 per cent of their shares owned by the Russian Federation.
  5. The possibility of the State to use a special right was provided for in Federal Law No. 178-FZ of 21 December 2001. A decision to use/stop using this special right ("golden share") might be adopted by the Government of the Russian Federation or bodies of the Russian regions when the property complexes of unitary enterprises were privatized or when a decision was made to exclude a JSC from the list of strategic JSCs, irrespective of the number of shares owned by the State. When the decision to use the "golden share" had been taken, the Government of the Russian Federation or the bodies of the Russian regions appointed the respective representatives to the board of directors (supervisory board) of a JSC in question. Such representatives had the right to attend the general meeting of shareholders the same as the representatives of ordinary shareholder, with a right of veto when the general meeting voted on the following decisions:

- Amending the statute of the joint-stock company or endorsing the statute of the public JSC in a new wording;

- Re-organizing the open JSC;

- Liquidating the open JSC, appointing a liquidation commission and endorsing interim and final liquidation balance sheets;

- Altering the amount of authorised capital of the open JSC; or

- Accomplishing large-scale transactions and transactions in the accomplishment of which there was an interest (as specified in the Federal Law "On Joint-Stock Companies").
  1. As regards the general mechanism of participation of the Russian Federation in the management of State-owned shares of the JSCs, the representative of the Russian Federation informed Members that it continued to be through representatives of the State participating in the managerial bodies of the JSCs. The rules for managing shares of JSCs owned by the State were stipulated by the Resolution of the Government of the Russian Federation No. 738 of 3 December 2004 "On the Management of Federal Owned Shares of Joint-Stock Companies and the Use of the Special Right for Participation of the Russian Federation in Management of Open Joint-Stock Companies (Golden Share)" (as last amended on 1 December 2009).
  2. Members of the Working Party invited the Russian Federation to enter into a commitment to report on developments in its programme of privatization as long as the Privatization Programme was in existence and on other issues related to any ongoing economic reforms relevant to its obligations under the WTO.
  3. The representative of the Russian Federation confirmed the readiness of the Russian Federation to ensure the transparency of its ongoing Privatization Programme. He stated that his Government would provide annual reports to WTO Members (along the lines of the information provided to the Working Party) on developments in its programme of privatization as long as the Privatization Programme was in existence. The Working Party took note of this commitment.

- (b) Enterprises that are State-Owned or -Controlled, Enterprises with Special or Exclusive Privileges
  1. In response to the concerns of some Members of the Working Party about the possibility of the Government to control and influence the activity of State-invested JSCs, the representative of the Russian Federation answered that the legislation of the Russian Federation did not provide for the possibility of the Government (State) exercising special control or special management of the activity of those companies, where the Russian Federation or municipal authority-owned shares. As a general rule, when a State or municipal authority held shares of the JSC, it worked as an ordinary shareholder and enjoyed the rights and took the liabilities under the standard rules for shareholders stipulated by the Civil Code of the Russian Federation and Federal Law No. 208-FZ of 26 December 1995 "On Joint-Stock Companies" (as amended on 27 December 2009). Thus, except as explained in paragraph of this Report, State or municipal authorities participated in the management and activity of the JSC along with other shareholders under the same rules irrespective of the share of stock in State ownership.
  2. Responding to the questions of some Members, the representative of the Russian Federation also clarified the issue of SUEs and the mechanism of their management by the State. He said that the legal status and activity rules of SUEs were provided by the Civil Code of the Russian Federation and Federal Law No. 161-FZ of 14 November 2002 "On State and Municipal Unitary Enterprises" (as last amended on 1 December 2007). He added that a SUE was a commercial organization, not endowed with the right of ownership to the property, allotted to it by the property owner. These Laws provided that the property of the SUE must be owned by the Russian Federation, a Russian region or a municipality. In its commercial activity, a SUE was acting in the same way as other commercial organizations, except for transactions aimed at the disposition of the property of the SUE (sales, lease, transfer as bond security, giving of credits, etc.), where the approval of the property owner was required by law. This special requirement resulted exclusively from the need to preserve property of the owner (the State, the municipality) and constituted the difference between a SUE and other types of legal persons. In respect to unitary enterprises, the State had the same rights and obligations as an ordinary corporate founder, being subject to common rules of the civil legislation, which did not accord any special rights or possibility of control or rights to manage the activity of unitary enterprises to the state/municipal entity. SUEs existed and acted alongside other forms of legal persons, on the basis of principles and rules common to all commercial organizations, stipulated in civil legislation, and self-organized their activities.
  3. Summarizing the information on the possibility of State control over the activities of SUEs and State-invested JSCs, the representative of the Russian Federation stated that governmental influence and guidance of the decisions and activities of SUEs as well as state-invested JSCs was strictly defined by the legislation of the Russian Federation as indicated above. The Constitution of the Russian Federation guaranteed the equality of all forms of property (i.e., private, State, or municipal) thus ensuring that the principle of non-discrimination would be observed regarding the companies and enterprises of different forms of property rights. It also prevented enterprises from activity aimed at monopolization and unfair competition, thus giving a sound guarantee that State enterprises and State-invested JSCs would not act in a manner to distort the competitive environment. He further noted that according to Article 50 of the Civil Code of the Russian Federation, Russian juridical persons were divided into commercial and non-commercial organizations. Commercial organizations were those aimed at deriving profits as the main goal of their activity and that SUEs and state-invested JSCs were one of the forms of commercial organizations alongside with other types of commercial organizations with this goal. The status of the SUEs and state-invested JSCs as commercial organizations pre-defined the freedom of their own market behaviour which was implemented through the respective operational decisions and conclusion of commercial transactions of any kind in accordance with customary business practice and legislation in force.
  4. In addition, the representative of the Russian Federation presented statistical data
    (see Table 6), in his view, demonstrating that the actual participation of State enterprises in the economy, as well as in international trade was relatively small. The proportion attributed to the State enterprises had been declining steadily over the previous years and this trend was expected to continue. In industrial and agricultural production, the share accounted for by State enterprises amounted to approximately 10 per cent, while the share of exports and imports was negligible. Responding to a question of a Member, the representative of the Russian Federation explained that State participation in the gas production sector was higher than in other sectors. In 2009, Gazprom, which was 51 per cent owned by the State, had an 84 per cent share of the total gas production in the Russian Federation. Due to its exclusive right to export gas, Gazprom had a 100 per cent share of gas exports from the Russian Federation.
  5. Some Members requested further information on the role of marketing enterprises such as Exportkhleb, Prodintorg, and Roskhleboprodukt in agricultural trade, and a description of the legislation that had specifically ended the special rights and privileges that these organizations had traditionally received as monopoly trade or marketing entities. These Members also asked for further information on the extent to which the agricultural trade of the Russian Federation was still conducted through inter-governmental agreements between the Russian Federation and other countries, especially CIS countries, and on whether any government-to-government barter arrangements were still in place.
  6. The representative of the Russian Federation noted that some enterprises (Roschleboproduct and Roscontract) had been granted exclusive and special rights in 1993 and 1994 in the context of bilateral barter trade with some CIS countries performed under the framework of special inter governmental agreements for those calendar years. Such exclusive rights had expired completely on 31 December 1995 when the agreements expired and had never been resumed. The Government of the Russian Federation had not concluded any bilateral barter trade agreement with Governments of other countries, including CIS countries.
  7. Regarding the concerns of some Members in respect of the special export regime for wheat exported to Ukraine, the representative of the Russian Federation stated that a special Inter governmental Agreement on export supplies of wheat to Ukraine from August to October 2003 had been concluded in August 2003 in view of adverse weather conditions in Ukraine in 2003. This Agreement did not concern barter trade. Under this Agreement, the SUE "Federal Agency on the Foods Market Regulation" (FFMA) had been authorised to supply wheat on terms and in quantities provided for by the Agreement. However, this authority of FFMA had expired upon termination of the supply periods, as defined in the Agreement.
  8. A Member was concerned that FFMA appeared to operate the grain intervention system of the Russian Federation and maintained grain reserves, exclusively and at the behest of the Government, using State funds, which would appear to be an exclusive right that had a noticeable impact on prices. In response, the representative of the Russian Federation noted that under Government Resolution No. 1224 of 26 September 1997 "On the Foundation of the State Unitary Enterprise - the Federal Agency for Food Market Regulation by the Ministry of Agriculture and Food of the Russian Federation" (as last amended on 15 June 1998), the FFMA had replaced the Federal Food Corporation with a modified institutional and legal framework. A full list of activities of the FFMA was contained in Government Resolution No. 1224. Pursuant to this Resolution, the Agency was a commercial organization established in order to meet social needs and earn a profit. Its main activities included, in particular:

- Monitoring the current state of the agricultural, raw materials, and foodstuffs market, creating a system providing informational support to market entities, analysing and forecasting the situation on the market;

- Boosting competition in purchase and sale of agricultural products, raw materials, and foodstuffs;

- Organizing and carrying out purchase and sale-related intervention in order to promote stability on the market of agricultural products, raw materials, and foodstuffs;

- Ensuring guarantees in carrying out operations with agricultural products, raw materials and foodstuffs; and

- Performing the functions of the state purchaser on establishing the operative reserve of the Government of the Russian Federation and performing deliveries to polluted territories.
  1. Organizing and carrying out purchase and sale-related intervention in order to promote stability on the market of agricultural products, raw materials, and foodstuffs were regulated by Government Resolution No. 580 of 3 August 2001 "On Approving the Rules of Exercising State Purchase and Sale Intervention for the Regulation of the Market of Agricultural Products, Raw Materials, and Foodstuffs" (as amended by Government Resolutions No. 500 of 28 September 2004, No. 431 of 15 July 2005 and No. 157 of 23 March 2006). According to this Resolution, State purchases of agricultural products, raw materials, and foodstuffs (hereafter: referred to as agricultural products) were carried out for building of the Federal Food Intervention Fund. Purchases and sales of agricultural products to/from this fund were aimed at regulation of agricultural products markets. The reserves of the intervention fund had been recognised as Federal property. Purchase and sales interventions were to be carried out by a State agent selected on competitive basis by the agricultural sector regulator of the Russian Federation. The agent acted for a commission fee. The interventions themselves were carried out through a commodity exchange auction. FFMA was approved as an agent for carrying out purchase and sales interventions in 2001, 2002 and 2005, by Government Order No. 1501-r of 13 November 2001, by Government Resolution No. 756 of 11 October 2002, and by the Order of the Ministry of Agriculture No. 80 of 14 May 2005, respectively. According to Order of the Territorial Administration of the Federal Agency for State Property Management in Moscow No. 1345 of 28 December 2006, FFMA2 was privatized and acted as a Joint-Stock Company Agency for the Food Market Regulation. In 2008, the Ministry of Agriculture of the Russian Federation selected FFMA on a tender basis as an agent for grain interventions, in accordance with Government Resolution No. 580 of 3 August 2001.
  2. The Open Joint-Stock Company Agency for the Food Market Regulation, which was 100 per cent owned by the State, was renamed the "United Grain Company", in accordance with Presidential Decree No. 290 of 20 March 2009. Some federally-owned shares of the companies were transferred as a contribution to the authorised capital of the United Grain Company in order to cover the emission of additional shares. While the State currently owned 100 per cent of shares of the United Grain Company, there was a plan to privatize the United Grain Company by 2012. In 2009, grain interventions were executed by the United Grain Company on a tender basis. In addition to engaging in grain interventions, the mission of the United Grain Company was to increase grain elevator capacity, increase domestic grain trade and exports, and to develop the transport and port infrastructure of the grain market of the Russian Federation. The representative of the Russian Federation explained that United Grain Company continued to act as an agent for state purchase and merchandise interventions for a commission, as stipulated in Government Resolution No. 580 of 3 August 2001 "On Approving the Rules of Exercising State Purchase and Sale Intervention for the Regulation of the Market of Agricultural Products, Raw Materials, and Foodstuffs". He further explained that all the purchase and merchandise interventions were carried out through a commodity exchange. A participant had to confirm its sphere of activity (as "grain producer" to take part in purchase interventions and as "livestock breeder", "producer of forage for livestock", "flour-and-cereals industry company" or "livestock breeder and plant grower (composite agriculture)" to take part in merchandise interventions. A participant also had to go through an accreditation process, involving payment of an accreditation fee, making a guarantee deposit and providing the documents specified in the Bidding Procedure established in accordance with Government Resolution No. 580 of 3 August 2001 "On Approving the Rules of Exercising State Purchase and Sale Intervention for the Regulation of the Market of Agricultural Products, Raw Materials, and Foodstuffs".
  3. Several Members requested further information regarding a Government resolution that imposed licensing requirements on procurement, processing, storing, and marketing of grain and grain products for State needs, as well as on production of most grain products (bread, flour, etc.), and clarification of the purpose of these licenses and on whether both foreign and domestic companies were subject to them. Concerning reports that 150 bankrupt grain facilities (mills, storage facilities, etc.) had reverted to State control, some Members requested clarification on how this process was being implemented and what role the Government would play in the operation and management decisions of these facilities.
  4. In reply, the representative of the Russian Federation stated that Government Resolution No. 414 of 13 June 2002 "On Approval of the Regulation of Licensing of the Storage of Grain and Products Received as a Result of its Processing" approved the provision on licensing of storage of grain and products received as a result of its processing. Government Resolution No. 414 had also invalidated former Government Resolution No. 43 of 22 January 2001 "On Licensing of Purchase, Remaking, Storage and Realizing of Grain and Products Received as a Result of its Subsequent Processing which is meant for State Needs on Production of Bread, Macaroni, Flour, Groats and Other Grain Foods". He added that statements on the reversion of 150 bankrupt grain facilities to State control were unfounded. Government Resolution No. 414 was abolished on 14 December 2006, and thus, licensing of storage of grain and products received as a result of its processing was abolished as well.
  5. With regard to granting an exclusive right to import or export goods, the representative of the Russian Federation explained that, pursuant to Article 4 of the Agreement On Common Measures of Non-Tariff Regulation in Respect of Third Countries of 25 January 2008, the Customs Union Commission (CU Commission), on proposal by a member, decided on the designation of certain goods to be subject to exclusive imports/exports right. Foreign trade in such goods was subject to import or export licensing and customs clearance of such goods was provided on the basis of an exclusive licence, which was issued by the competent authority of the CU Party (in the Russian Federation, the Ministry of Industry and Trade of the Russian Federation (MIT)). Exports of natural gas from the territory of the Russian Federation were subject to an exclusive right enjoyed by Gazprom Group, pursuant to Federal Law No. 117-FZ of 18 July 2006 "On Export of Gas".
  6. In response to a question from some Members, the representative of the Russian Federation explained that while the CU Commission designated the goods subject to the measure in question, the national authorities established the specific enterprise that was granted the exclusive right, as well as rules for its operation within its territory. He said that under Article 26 of Federal Law No. 164-FZ of 8 December 2003 "On the Fundamentals of the State Regulation of the Foreign Trade Activity", an exclusive right to export and/or import certain types of goods could be granted to some organizations. The list of organizations (as well as types of goods) to which such rights should be granted should be determined by Federal laws.
  7. Pursuant to Article 26 of Federal Law No. 164-FZ of 8 December 2003, enterprises which had been granted exclusive or special rights or privileges to export and/or import certain types of goods were required in their purchases or sales, involving either imports or exports, to act on the basis of the principle of non-discrimination and in accordance with commercial considerations. Non compliance with the provisions of Article 26 or the Agreement on Common Measures of Non Tariff Regulation in Respect of Third Countries of 25 January 2008, could be considered as an abuse of dominant position or as act of unfair competition and therefore would be subject to proceedings in accordance with the Code on Administrative Offences of the Russian Federation and Federal Law No. 135-FZ of 26 July 2006 "On Protection of Competition".
  8. The representative of the Russian Federation explained that his authorities considered that only the enterprises of the Gazprom Group (natural gas) were enterprises having special or exclusive privileges with respect to export. The mentioned enterprises, while making their purchases and sales involving exports or imports, acted consistently with the principle of non-discrimination and, in particular, they were guided by in these purchases and sales solely by commercial considerations. The representative of the Russian Federation confirmed that Gazprom will be notified as an STE in accordance with Article XVII of the GATT 1994. The exclusive right of Almazyuvelir Export Foreign Trade Association (for operations in raw materials containing platinum and platinum group metals) had been abolished in accordance with the Resolution of the Government of the Russian Federation No. 268 of 30 March 2009. Detailed information on these enterprises was contained in document WT/ACC/RUS/18 and Corr.1.
  9. Some Members raised questions concerning "unitary" enterprises and their role in export and/or import of goods. In response the representative of the Russian Federation stated that, by definition, "unitary" enterprises operated as commercial enterprises. Addressing specific concerns of some Members about the way in which enterprises involved in export/import of ethyl spirits might be exercising their exclusive rights, the representative of the Russian Federation explained as follows. According to Article 9 of Federal Law No. 171-FZ of 22 November 1995 "On State Regulation of Producing and Turnover of Ethyl Spirit, Alcoholic and Spirit Containing Production" (as last amended on 5 April 2010), only unitary enterprises or JSCs where the State possessed no less than 51 per cent of the shares were entitled to export and import ethyl spirit if they had appropriate licenses for carrying out such activity. However, this provision of the Federal Law had been abolished by an amendment of 21 July 2005.
  10. Some Members were particularly concerned that the pricing practices followed by Gazprom (majority State-owned, with 50.002 per cent share controlled by the State), could not be regarded as being based on commercial considerations. Specifically, sales for export were subject to controls in relation to quantity and price, and the sale of gas for domestic industrial consumption was at a price level considerably below that applied for exports, which were linked to the prevailing world market price. Artificially low domestic energy prices could also lead to indirect subsidization of downstream industries and to exports of value-added intermediate and finished goods at prices below their normal value. In this context, those Members noted that the cost of producing natural gas for Gazprom was significantly higher than the regulated domestic price. In light of these facts, those Members requested an explanation as to how Gazprom was selling on the domestic market "solely in accordance with commercial considerations", as required by Article XVII:1(b) of the GATT 1994. Those Members noted that Gazprom, or its subsidiaries, also appeared to be a participant in the fertilizer industry.
  11. Some Members of the Working Party noted that the implication that the regulated price for gas was determined in accordance with supply and demand or that Gazprom determined the levels of internal calculated prices did not appear to be borne out by the facts. These Members asked for a description of the domestic pricing of Gazprom and delivery of natural gas, based on historical usage and how firms dealt with shortfalls of State-allocated natural gas at the regulated price. In addition to the significant trade distortion which the pricing practices of Gazprom could cause, these Members were concerned that current prices to domestic industrial customers could take place at rates that did not ensure "adequate remuneration", as provided for in Article 14(d) of the WTO Agreement on Subsidies and Countervailing Measures and thus would confer a benefit to domestic industrial users. Accordingly, in the absence of further information, it was difficult to understand the assertion that Gazprom operated on the basis of commercial considerations. More generally, Members observed that this situation gave rise to questions as regards its compatibility with WTO requirements, not only in relation to Article XVII, but also in relation to Articles XI and XVI of the GATT 1994 and the WTO Agreement on Subsidies and Countervailing Measures. These Members invited the Russian Federation to provide further information on the operation of Gazprom and its subsidiaries, particularly as regards the manner in which prices were set for natural gas, and how those pricing structures were consistent with the suggestion that those enterprises operated under commercial considerations.
  12. In response, the representative of the Russian Federation stated that the export price for gas>
  13. Additional relevant information on regulated prices of gas for internal consumption (including methodology of price-setting, principles and statistical data) was provided in the Section "Pricing Policies" of this Report.
  14. Some Members requested clarification of the current role of Alrosa in the activities of diamond production and export, its rights to export diamonds to the world market or sell its products domestically, as well as whether other companies enjoyed the same rights as Alrosa, and if so, what rights and on what basis. Members also asked whether Alrosa and other selected companies enjoyed rights to import polished diamonds on favourable terms, on the condition that those diamonds originated from their own production of raw diamonds. In response, the representative of the Russian Federation said that Presidential Decree No. 1373 of 30 November 2002 "On the Endorsement of Regulation on Imports in and Exports from the Russian Federation of Raw Natural Diamonds and Cut Diamonds" (which had entered into force on 6 February 2003 and amended on 10 March 2009) had abolished Presidential Decree No. 740 and thereby all exclusive rights of Alrosa. This Decree was the basic regulation of export and import of raw natural diamonds and cut diamonds. In accordance with the procedure established by said Decree:

- Exportation of natural diamonds (both cut and raw) with the exception of unique natural diamonds, diamonds recovered from multi-crystal diamond coated tools, waste from any type of diamonds processing, diamond concentrate, diamond dust and diamond powders, was carried out by any natural diamonds mining enterprises3 on the basis of export licenses without quantitative restrictions.

- Exportation of diamonds recovered from multi-crystal diamond coated tools, waste from any type of diamonds processing, diamonds concentrate, diamonds dust and diamonds powders could be carried out by natural diamonds mining enterprises; the SUE "Almazyuvelirexport" Foreign Trade Association under contracts with the owners of natural diamonds; enterprises producing brilliants; and, enterprises producing products and articles from natural diamonds. No export licence was needed.

- Exportation of brilliants could be carried out by enterprises producing brilliants (with respect to their own products); organizations engaged in the wholesale of precious stones (organizations registered with the bodies of federal assay supervision which engaged, in accordance with the objectives stated in their corporate charters, in purchases of diamonds and their wholesale to other participants in the market); the SUE "Almazyuvelirexport" Foreign Trade Association. No export licence was needed.
  1. Consequently, since November 2002, neither the JSC "Almazy Rossii - Sakha"(Alrosa), nor any other exporter of natural diamonds and/or brilliants enjoyed any exclusive rights or privileges with regard to the exportation of brilliants and diamonds. Regarding import of polished diamonds, Decree No. 1373 of 30 November 2002 provided that the conditions of import were equal for all participants in foreign trade activity, i.e., without quantitative restrictions or requirement of a licence.
  2. Asked about the State-invested airline Aeroflot, the representative of the Russian Federation informed Members that while the State owned 51 per cent of the shares of Aeroflot, it did not enjoy any special or exclusive rights in the exercise of which Aeroflot might influence through its purchases or sales the level or direction of imports or exports.
  3. Some Members of the Working Party requested additional information on the actions of the Russian Federation to restructure and consolidate its domestic aviation industry. These Members noted that the Russian Federation held an 81.75 per cent share in the authorised capital of the United Aircraft-Construction Corporation. In response, the representative of the Russian Federation referred Members to the information set-out in paragraph of the Section "Trade in Civil Aircraft" of this Report.
  4. Members of the Working Party stated that they expected the Russian Federation to ensure that the practices of State-owned, State-controlled enterprises and enterprises enjoying special or exclusive privileges would be brought into line with relevant WTO requirements as from the date of accession. These Members asked for confirmation that, upon accession, purchases and sales by such enterprises, whether State-owned, State-invested or enjoying any special or exclusive privileges, would be based solely on commercial considerations, without any Government influence or application of discriminatory measures.
  5. The representative of the Russian Federation confirmed that the Russian Federation had State-owned and State-controlled enterprises that operated in the commercial sphere. The Russian Federation also had enterprises with exclusive or special privileges with regard to conducting commercial activity. He further confirmed that from the date of accession of the Russian Federation to the WTO, such enterprises, when engaged in commercial activity, would make purchases, which were not intended for governmental use, and sales in international trade in a manner consistent with applicable provisions of the WTO Agreement. He confirmed in particular, that such enterprises would make such purchases and sales in accordance with commercial considerations, including price, quality, availability, marketability, and transportation, and would afford enterprises of other WTO Members adequate opportunity in conformity with customary business practice, to compete for participation in such purchases or sales. He also confirmed that within the scope of the services commitments of the Russian Federation, including the limitations, set-out in its Schedule of Specific Commitments on Services, the rights and obligations of the Russian Federation under the GATS, and the regulatory measures of the Russian Federation covered by the WTO Agreement, including pricing regulations, and without prejudice to such commitments, rights, obligations, and measures that are consistent with these commitments, rights and obligations, the Russian Federation would ensure that such enterprises would act in accordance with the provisions set-out in this paragraph. He also confirmed that, upon accession, the Russian Federation would notify enterprises falling within the scope of the Understanding on Article XVII of the GATT 1994. The Working Party took note of these commitments.