Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

New Export Licenses: The Elusive Element

Three weeks ago, Trading Places reported comments by the deputy minister for foreign economic relations, Sergei Glazeyev, on the licenses which must now be obtained for the export of such goods as oil, timber and metals which are on the list of strategically important raw materials.

Glazeyev said licenses would be granted almost automatically to foreign ventures to export whatever they produced.

If only it were that simple.

Jay Cuclis, resident partner at law firm Vinson & Elkins, says that while the law allows all joint ventures to apply for licenses, technical requirements make it almost impossible for new joint ventures to obtain them.

Applicants for a license must supply evidence of their activities for the last two years and examples of past contracts covering the strategic material in question. Newcomers will obviously not be able to comply with this part of the law.

One possible solution, Cuclis says, is that the ministry may consider waiving the rules in exceptional circumstances. Failing this, the alternative for new joint venturers is to export through a Russian firm that already has a license.

Sadly, the licensing law also sets low commissions for intermediaries. Most Russian licensed exporters will want some additional incentives, either legally in Russia or illegally overseas, before they can persuaded do business.

Export licenses are only one of the legal problems encountered by foreigners trying to export from Russia.

Another controversial area has been the export duties which have hobbled many export-oriented plans since their introduction in April.

Despite talk of a $6-a-barrel tax on crude oil, all export duties are denominated in European Currency Units per ton. A rate is set for each category on the list of strategic materials - 10 ECU per ton of copper, 150 per ton of sawn timber, 38 per ton of oil.

The categories themselves are not always well drawn. Some timber firms have complained that the same export duties apply to timber products of widely different qualities and world prices. This means cheap timber in one category will be more severely affected by the duty than expensive timber.

Steven Sandelweiss of Arthur Andersen says the application of the duty is uncertain in other key areas. First, the law stipulates a rate of export duty that is 30 percent higher for all firms with more than 30 percent foreign participation.

The handicap of a higher rate of export duty was supposed to compensate for the advantage joint ventures and foreign firms enjoyed under the currency laws. They did not have to sell their currency earnings back into rubles.

This was changed from July 1 and foreign firms today face the same currency rules as local ones. But the law says they still have to pay the extra 30 percent.

Second, the law stipulates that barter transactions are also covered by the duty. Indeed, the same special rate 30 percent above the standard rate applies to all barter transactions and this will rise to 50 percent on Jan. 1. Nevertheless, several firms continue with apparent success to avoid the export duty by using barter transactions.

But the most controversial area of the export duty relates to the granting of exemptions. Three western oil firms. White Nights, Polar Lights and KomiArcticOil, were granted exemptions from the duty on an ad hoc basis in June and July.

The Moscow Times recently reported on two joint venture's - Hyundai's Svetlaya timber venture and oil refiner TMR - campaigns for relief from the duty. Both report the finance ministry has successfully blocked any further exemptions.