In the end of May 2010, Russia’s State Duma (Parliament) was submitted the bill “On Amendments to the Federal Law ‘On Special Economic Zones in the Russian Federation.’” The document suggests removing the ban on processing diamonds on the territories of special economic zones. It is noteworthy that state control of imported and exported gems and polished diamonds is proposed to be carried out at a specialized customs terminal within a special economic zone.
This bill was initiated in 2008 by the Yakut authorities led by Vyacheslav Shtyrov, the then President of Yakutia. Formally the bill was brought in by Il Tumen, Yakutia’s State Assembly. The bill offers to make changes to the legislation envisaging a possibility of special economic zones to develop diamond manufacturing and jewelry industries. For these purposes the bill’s Paragraph 1 of Article 1 offers to amend Paragraph 2 in Part 5 of Article 4 in the federal law permitting diamond cutting on the territory of a special economic zone described as belonging to the industrial and production type in Russia.
The first ever special economic zone of industrial and production type in this country is planned to be established in Yakutsk for cutting diamonds and manufacturing jewelry. This idea is lobbied by the local commanding elite – for instance, by Alexander Morozkin, First Deputy Chairman of Il Tumen; Pyotr Fyodorov, Chairman of the Permanent Committee of Il Tumen on Economic, Investment and Industrial Policy, Business and Tourism; Victor Yefimov, Minister of Property Relations; and Vladimir Fyodorov, Deputy Minister for Industry.
The project is designed to insure business development, create new jobs, and increase diamond jewelry output. It is also expected to decrease prime costs due to a “zero” rate of VAT for rough materials to be granted to manufacturers and also due to tax concessions (reduced income, property and land taxes), lower export and import expenses resulting from a specialized customs terminal in the territory of the Special Economic Zone. Absence of import customs duties for industrial equipment and raw materials will permit to furnish production facilities with new and more efficient equipment. Yakutia’s Special Economic Zone is planned to harbor diamond-cutting and jewelry enterprises, as well as factories producing furniture, items of art, souvenirs, and leather and fur goods. Some Yakutia’s budget funds were used to develop a business plan (feasibility study) for the project which was approved at a session of the Diamond Council under the President of Yakutia and also at a session of the Collegium of the Ministry for Economic Development. There was outlined an area for the Special Economic Zone in the north-east part of Yakutsk (in 50 Years of the Soviet Army Street.) Consultations were held with prospect residents seeking confirmation of their intent to join the project.
However, some influential officials at the federal level expressed negative opinions about this project. In particular, Sergey Sobyanin, Vice President of Russia’s Government, objects to Paragraph 2 of Article 1 in the bill which offers to extend the special economic zone mode to diamond goods sales by including such sales into the category of industrial and production activities. In other words, this will serve to introduce a preferential customs and tax mode in the field of trade and procurement which is not directly related to developing industrial production, while this mode will cover any goods. Sobyanin believes that the offered changes do not correspond to the principles of special economic zones fixed in the federal law of the Russian Federation and could lead to unreasonable expansion of tax and customs privileges. Besides, Paragraph 3 of Article 1 in the bill defined the procedure of state control over the quality of grading and evaluating natural rough and polished diamonds when imported to the territory of the Special Economic Zone from a foreign country or exported from the territory of the Special Economic Zone outside the Russian Federation. But, as Sobjanin justly remarked, “this issue is not subject to legal regulation by this federal law for it is regulated by the Federal Law “On Precious Metals and Gems.”
Experts express conflicting opinions. Thus, Yury Shelementyev, heading the Expert Examination Department at the Gemological Center of the Moscow State University, believes that if taxes and customs duties will have zero values, as in Dubai, then it will be a must for low-profit businesses (including cutting and dealing operations) to be there, otherwise taxes will devour all profit. “Import and export registration becomes simpler and it is important for cutting operations on a give-and-take basis. If manufacturing, trade and the infrastructure will be concentrated in the Special Economic Zone offering convenient environment and low taxes, there will be a quantum leap in the field of business and all entrepreneurs will rush in there since taxes and other costs shall definitely affect manufactured goods which outside of these zones will become non-competitive,” Shelementyev explains.
On the contrary, Dmitry Zverev, CEO of Euro Jewellery, is very pessimistic about the attempts to reanimate the Russian diamond and jewelry industry. According to him, “the fact that this bill is submitted to the State Duma does not mean anything: for many years they cannot solve a trifling problem - to cancel assaying light-weight silver goods, so its highly improbable there will be a quick approval granted for diamond processing in the Special Economic Zone.”
Right now the bill is submitted to the State Duma Committee for preliminary consideration.
Taking into account the universal tendency towards de-globalization (due to serious consequences of the world financial and economic crisis) and towards higher industrial protectionism it is possible to believe that this bill is facing a grievous prospect.
Vladimir Teslenko for Rough and Polished
