The practice of foreign countries and in particular that of Canada and South Africa proves there is a special interest on the government part to the circulation of precious metals and gems (PMG) in those countries where these products are produced in substantial amounts. In relation to these goods, the state takes on special functions. PMG are singled out from similar groups of goods (ferrous and non-ferrous metals, ceramics and bijouterie) by special law regulations and bylaws.
Generally, it may be said that state laws and policy serve to encourage deep processing of precious raw materials on one’s own territory and limit business opportunities to circulate these values due to various considerations.
There are national distinctions as far as the supervising state agencies are concerned. May be they are not due to some personal decision of functionaries (or functionary), but happen to be the collective product of multiple compromises of legislative ideas with stable traditions of informal (non-legislative) practices. This is especially brightly manifested by the problem of state hallmarking related to jewelry made of precious metals. The absence of obligatory state hallmarking does not mean some vacuum in trade regulations or some “bazaar unruliness”. Evidently, there are other arrangements protecting the rights of precious metal and gem consumers. In the U.S.A. and Canada, for example, the absence of state hallmarking is offset by the trust-based culture of retails sales, remedial activity of self-regulating jeweller associations as well as by the threat of heavy and inevitable penalties within the frames of strict judicial practice aimed to protect the rights of consumers. The majority of population in South Africa evidently makes no significant reckoning of jewelry alloys hallmarking (like in India).
As a sovereign country, Russia is distinguished for its acute sensitivity to the value of gold and diamonds considered “the black day currency”; low-formalized business practice in dealing with mass consumption goods; and historic distinctions of folk traditions in terms of valuables. This is why Russia should find its own way in adequate regulation of precious metals and gems circulation taking into account its intense economic development in general and the industries in question in particular.
In the run-up to the elections of a new President of the Russian Federation, it is worth to cast a fresh glance on economic functions of this state in the field of PMG. In particular, it seems vital to delegate some part of state functions to business entities and authoritative public organizations.
Today, the state authorities in the Russian Federation consider their responsibility in the field of PMG to maintain 32 functions, exercising them through the Administration Department of the Finance Ministry of the Russian Federation and through dedicated bodies – the State Depository for Precious Metals, Assay Chamber and Almazyuvelirexport – as well as through the Federal Customs Service and a department of the Central Bank of the Russian Federation:
1. State trade operations with PMG from the stock of the State Depository for Precious Metals and from that of the Central Bank.
2. State control over production of precious metals and gems on the territory of the Russian Federation.
3. Control over extracting precious metals and gems on the territory of the Russian Federation from ores, technologic and secondary sources.
4. Control over processing precious metals and gems on the territory of the Russian Federation.
5. Control over use of precious metals and gems on the territory of the Russian Federation.
6. Control over circulation of precious metals and gems on the territory of the Russian Federation.
7. Control over accountability of precious metals and gems on the territory of the Russian Federation.
8. Control over safekeeping of precious metals and gems on the territory of the Russian Federation.
9. Federal assay supervision.
10. Expert examination of museum and archival items containing precious metals and gems and control over their safekeeping.
11. Sale of check segments from gem-quality diamond export lots.
12. Organizing transportation of valuables kept in the State Fund of Russia, state depositories, museums, etc.
13. Control over transactions involving precious metals and gems.
14. Participation in organizing scientific, research, experimental and other works aimed at efficient use and saving precious metals and gems.
15. Study and application of advanced domestic and foreign experience in the field of classification, sorting, processing and evaluation of gems.
16. Study of domestic and foreign market environment for precious metals and gems.
17. State control over the quality of sorting, classification, evaluation and sale of natural rough diamonds, including those in the mining organizations of the Russian Federation.
18. Participation of state inspectors in the activities of mining and other organizations of the Russian Federation and specialized customs terminals in cases envisaged by the legislation of the Russian Federation.
19. Permanent state control at the stage of initial classification as well as in the process of sorting and evaluating gems in the mining industries.
20. Export of platinum-group metals.
21. Issuing licenses for temporary export of gold for processing purposes.
22. Issuing permissions for gem cutting.
23. Evaluation and sale of confiscated materials.
24. Control over affinage of precious metals.
25. Gem certification services rendered to public.
26. Customs clearance paperwork in case of imported and exported PMG.
27. Selling check segments of export diamond lots in foreign markets.
28. Paperwork related to issuing Kimberley Process Certificates.
29. Control over manufacturing and assembly of jewelry items.
30. Control over wholesale and intermediary transactions involving jewelry items and semi-finished products.
31. Control over retail sales of jewelry items and other household products containing PMG.
32. Management of gold and foreign-exchange reserves of the Bank of Russia.
This list appears to be a double record breaker. In the first place, nowhere in the world the state takes on so many functions in the field of PMG. In the second place, not a single group of goods in unlimited circulation on the territory of the Russian Federation is subjected to such minute treatment reaching the level of maniac custody (there is nothing akin to this even with regard to socially sensitive medicines, alcoholic beverages and passenger planes).
In the light of the Russian President’s Messages to the Federal Assembly, where PMG subjects are invariably put outside the frames of priority directions of economic activity, these “records” look not only useless, but straightaway harmful since they serve to decrease the competitive ability of domestic entrepreneurship in the PMG field to a substantial extent.
There is a mature necessity to review the functions of our state authorities in the field of PMG and maybe even to abolish outdated state agencies and to formulate new types of state activities in the field of PMG, setting up a special body for them controlled by the Finance Ministry of the Russian Federation.
Some functions may be handed over to non-government bodies. There are such precedents: firstly, the Diamond Chamber handles pre-export sale procedures within the frames of lawful 15% from purchased lots of rough diamonds and, secondly, OOO TBSS performs customs clearance paperwork related to PMG export.
There can be singled out three groups of functions, whose reforming is pressing and mature, if not overmature:
1. Cancellation of functions to liberalize the industry:
1.1. Reporting procedures (according to Order No. 68H of the Finance Ministry of the Russian Federation “In reference to approving the instruction on record-keeping and safekeeping related to precious metals, gems and products containing them as well as record-keeping in the process of their manufacturing, use and circulation” dated 29.08.2001).
2. Transfer of functions from the Finance Ministry to non-government self-regulating public organizations (the Jewellers Guild of Russia, Russian Association of Diamond Manufacturers and Diamond Chamber):
2.1. Compilation and publication of price indicators and price-lists for precious metal alloys, rough and polished diamonds (in particular, Order No. 418 of the Finance Ministry of the Russian Federation “On procedure to establish and approve ex-works and accounting prices for precious metals” dated 01.10.97 should be changed).
2.2. Setting up limiting diamond characteristics, which could serve the basis to determine economic inexpedience of processing diamonds at factories belonging to the cutting industry of the Russian Federation (Order No. 58 of the Finance Ministry of the Russian Federation “On setting up limiting diamond characteristics, which will serve the basis to determine economic inexpedience of processing diamonds at factories belonging to the cutting industry of the Russian Federation” dated 22.02.2000 should be cancelled).
2.3. Record-keeping related to entities engaged in processing PMG (Order No. 51н “On special record-keeping related to organizations and sole entrepreneurs engaged in transactions with precious metals and gems” dated 16.06.2003).
2.4. Study and application of advanced domestic and foreign experience in the field of classification, sorting, processing and evaluation of gems.
2.5. Control over precious gems cutting.
2.6. Control over manufacturing, assembly and repair of jewelry and domestic products containing PMG.
2.7. Control over wholesale and intermediary transactions involving jewelry items and semi-finished products.
2.8. Control over retail sales of jewelry items and household products containing PMG.
3. Transfer of functions from the Finance Ministry to business (by way of tenders):
3.1. Control over extracting PMG should be transferred to the Diamond Inspector and Gold Inspector (Order No. 201 of the Finance Ministry of the Russian Federation “On providing permanent state control over extraction, production, processing, use, record-keeping and safe-keeping of precious metals and gems” dated 28.07.99 should be changed).
3.2. Expert examination of museum and archival items containing precious metals and gems.
3.3. Developing and introducing modern information processing technologies in state organization departments.
Thus, the number of state functions may be almost halved leaving to state bodies only vitally important and money-saturated links in PMG circulation, as for instance permanent control at the stage of initial classification and in the process of sorting and evaluating gems in extracting industries, as well as affinage of precious metals, etc. Taking command over key “valves” of the Diamond and Gold “Pipeline” the state will not only save funds, but also will increase management efficiency due to minimized corruption baits and reduced criminal opportunities.
The transfer of functions to public organizations, as for instance the Jewellers Guild of Russia Association, will not only relieve state agencies of minute concerns, but will also improve the international image of Russia as a developed democratic society with powerful self-regulating institutions. Attracting business entities will bring about incomes due to tax payments and possible fines for intentional or unintentional blunders.
The released forces of the state machinery and supervision and control experts should be re-directed to combat abuse in the socially sensitive groups of goods, as for example 1) test control over foodstuffs and medicines, 2) marking vitally important parts and assemblies produced by the power engineering and transport engineering industries.
In case of a radical re-organization of the state control system, the PMG business, having obtained strategic and tactical freedom, will independently acquire stable acceleration even if this country will joint the WTO. Already in a year or two through taxes and dues and new jobs, it will multiply the benefits given to it by reformers of the evidently obsolete system of state control over PMG.
Vladimir Teslenko
