KALININGRAD REGION IS
THE SOLE AND EXLUSIVE
SPECIAL (FREE) ECONOMIC ZONE (SEZ)
IN RUSSIA
Legislation of Russia and of the Kaliningrad region about functioning of the regional SEZ "Yantar"("Amber" )
The regime of the Special Economic Zone in the Kaliningrad region is regulated by the following legal acts:
- The Law "On the Special Economic Zone in the Kaliningrad Region" that came into force in January 1996;
- Decree of the Russian Government "On Federal Program on the Special Economic Zone Development in the Kaliningrad Region for the Period of 1998 - 2005" that was adopted in September 1997;
- The Law of the Kaliningrad region "On the Local Free Economic Zones in the Kaliningrad Region" that came into force in October 1997;
- Regulation of the Governor of the Kaliningrad region "On Residents of the Special Economic Zone in the Kaliningrad Region" that was adopted in August 1997;
- Decree of the Russian Government "On Establishment of Quantitative Limitations on Some Types of Goods Imported from Other Countries to the Territory of the Special Economic Zone in the Kaliningrad Region" that was adopted in March 1998.
The Federal Law on the SEZ "Yantar" in the Kaliningrad region lays down legal and economic framework of development and functioning of the SEZ "Yantar" in the region with consideration of its specific geographical location (Baltic sea enclave surrounded by foreign countries) and special significance for geopolitical and geo-economic interests of Russia. This law grants privileged regime of investment and business activity including foreign trade and investment initiatives compared to the general regime in the "mainland" Russia. In terms of taxation climate (customs duties and other fiscal dues including local and federal taxes) as well as customs formalities pertaining to export/import clearance SEZ "Yantar" is legally treated as the territory enjoying the customs regime of a Free Economic Zone. The following terms and regulations are constituting the core legal basis of the SEZ "Yantar" (!):
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- Any commodity or product manufactured (assembled) on the territory of SEZ "Yantar" on the basis of foreign components is automatically recognised as being of the Russian origin (by granting the relevant Federal Certificate of origin and conferring a new product identification code and number) provided that the amount of the locally added value (indigenisation level) is not less than 30% of its ex-factory cost. It should not be less than 15% in case of electronic appliances and complex consumer electronics. Foreign assembly components are not imposed by any duties or taxes while imported to Kaliningrad region. Thus all the goods manufactured/assembled on the territory of SEZ "Yantar" and meeting the above requirements are entirely exempted from all customs duties and import taxes (customs tax and special EXIM VAT) while crossing the customs border of the "mainland" Russia.
(!) The most important development took place in summer 2001 when in view of the need of stimulating larger FDI inflow to Kaliningrad industrial sector the Government of Russia issued a Decree cutting minimum required indigenization level to flat 10% (instead of 30% and 15% required previously) for further tax-free sale of such products in the "mainland" Russia with immediate effect for the period of 10 years onwards.
- The right of land tenure for foreign private and juridical persons (i.e. commercial institutions), international organisations and Joint Ventures on the territory of the SEZ "Yantar" for the time being is granted exclusively on the basis of rent for unlimited period of time (without right of redemption). However after anticipated adoption of the new Federal law on industrial land tenure (the Bill has been approved by the Russian Parliament in two readings in summer 2001 and is expected to be finally adopted during its autumn session in October/November 2001) private investors will be allowed to buy land in the sites of location of their operational or projected industrial units.
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- The Federal Law "On the SEZ in the Kaliningrad Region" stipulates that the regulatory bodies of the Kaliningrad region should guarantee privileged conditions for relocation and settlement of the former citizens of the USSR on its territory who were living in Lithuania, Latvia and Estonia and whose native language is Russian.
- The Decree of the Russian Government "On Federal Program of the SEZ development in the Kaliningrad Region for the Period 1998 - 2005" envisaged complex measures aimed at imparting viability and high competitiveness to the regional economy and social infrastructure. The program specified a number of strategically important areas: transport, fuel and energy, agrarian complex, communications and telecommunications, machine-building and hi-tech industries.
- The Decree of the Russian Government "On Determination of the Quantitative Limitations on Some Types of the Goods Imported from Other Countries to the Territory of the SEZ" was adopted in March 1998 at the suggestion of the Administration of the Kaliningrad region with ultimate goal of protecting local manufacturers. But this decision has brought about controversial results on two reasons. First, the decision caused certain growth of retail prices in the region especially for the goods that were on the restrictive list. Secondly, the said list specified the items that were not produced in the Kaliningrad region, for instance, grape wines and vermouths, high-octane engine petrol, small passenger cars (except for locally produced BMW models that are primarily marketed in the luxury car segment in the "mainland" Russia).
International commercial and economic links
of the region
After the dissolution of the USSR Kaliningrad region with its population totalling one million became isolated form the "mainland" Russia. Enclave location of the region necessitated a new approach in planning its social and economic development. In 1994 by the Decree of the Russian Government the status of the Special Economic Zone was granted to the region. On 31st January 2001 we celebrated the 5th anniversary of SEZ "Yantar".
This decision has stimulated the growth of the regional economy. Kaliningrad region has became an economic area where the processes of transition into the market economy and integration into dynamic economies of European Union and the neighbouring Baltic states have started to yield impressive results. Structural economic changes, setting up joint ventures with foreign partners in small- and medium-scale business have provided the inflow of additional investments. In January - September 2000 the goods for the amount of US$ 360.8 million were exported to 56 countries of the world. The major importers of our products are Poland - 33.4%, Germany- 10.6%, Lithuania - 6.2%, Belarus - 5.63%. In the first three quarters of 2000 goods for the amount of US$ 558.6 million were imported to the Kaliningrad region. Among them 25.45% were of the German origin (mainly auto components for BMW car assembly plant set into operation in 2000), 18.84% of the Polish, 7.73% of the Lithuanian, 4.72% of
the Dutch and 3.89% of the British origin. The main items exported from the region were fresh and canned sea products, mineral fertilisers, mineral fuel and lubricants, cellulose, paper and carton, ferrous and non-ferrous metal products as well as commercial vessels of different tonnage, motor-boats, yachts and onboard maritime equipment. Poultry, pork, beef both fresh and frozen, wine and beer, tobacco, oil products, cars, perfumery, ferrous and non-ferrous metals, plastic materials and products have dominated in the structure of our imports.
In 2000-2001 enterprises with the foreign stake continued to play an increasingly important role in the development of the regional economy. More than 1400 enterprises with foreign equity are currently functioning in the region. 86% of them are located in the city of Kaliningrad. Foreign business partners from 37 countries have set up Joint Ventures in SEZ "Yantar". The absolute leadership to this effect is retained by Poland - 416 commercial and industrial JVs, which is followed by Lithuania - 305 JVs, and Germany - 260 JVs (among them - one of the most significant industrial projects on the Kaliningrad soil that has created more than 5000 jobs - BMW automotive factory). The share of foreign partners in the founding capital of the local enterprises amounted to 37%. In the most dynamic manner foreign capitals were invested into trade and commercial network (supermarkets, shopping moles, boutiques), restaurant and hotel business as well as into hi-tech industries. FDI inflow into
the economy of the region increased from US$ 11.3 million in 1997 to US$ 101.4 million in 2000.
Kaliningrad region is a member of the Russian North and Northwest regional Association (led by St.Petersburg and Leningrad Region) as well as Kirovsk regional Association. In 2000 the region was ranked No. 4 among the North and Northwest Association in terms of overall value of consumer goods produced by large- and medium-scale enterprises (out of 11 member-regions*). It was also ranked No. 10 in terms of volume of industrial output; No. 3 in terms of living standards, No. 3 in terms of average salary level and No. 4 in housing construction per 1 000 people among 11 regions of the said Association. At the same time it's noteworthy that Kaliningrad region has population at least twice smaller than the population of the next smallest member-province of the North and Northwest regions Association.
*)Totally the Russian Federation is composed of 89 regions (provinces) and ethnic republics.
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