In early July, Belarus ratified all the contracts and agreements concerning the Customs Union. De jure, the common customs area was created. However, de facto it will be possible to speak about a full-fledged union and common customs territory of the three participating countries – Belarus, Kazakhstan and Russia - only after the common Customs Code and agreed rules of non-customs regulation will come into effect.

Many jewellers expect that the new Customs Union will give new opportunities for business. At the same time it appears obvious that within this framework there are both system incongruities and special inconsistencies as far as the circulation of precious metals and gems is concerned.

A. General problems

At the jewelry meeting in Kostroma held on June 24, 2010 it was said that currently the Russian government is rather quick to bring into agreement various issues but with the exception of those related to taxes. However, it is noteworthy that in Kazakhstan the total tax burden of GNP is significantly lower than in Russia. For example, the VAT in Kazakhstan is 12%, while in Russia it is 18%; their Personal Income Tax is 10% versus 13% in Russia; they practice a profit tax of 15%, while here in Russia it is 20%; their social tax is 21%, whereas Russia currently levies 26% and will have 34%. Besides, the Kazakh customs duty for imported colour gems (components for jewelry pieces) is set at 5% while Russia until recently had 20% (from the New Year it is 15%). As a matter of fact, it is a prohibitive duty on colour gems which are not mined and will never be mined in Russia since this country has no such deposits.

At the Kostroma meeting even Vladimir Mospan, the usually unflappable head of Russia’s Assay Chamber, looked perplexed: «Why did they do it? Comparing taxes in Kazakhstan and Russia, it turns out that inside the common customs area Kazakhstan appears a virtual offshore.”

B. Specific problems

The document entitled “On common non-tariff regulation in the Customs Union of the Republic of Belarus, Republic of Kazakhstan and Russian Federation” sets the rules for circulating precious metals and gems.

Provisions 2.9 and 2.10 establish an import order for precious metals and gems, as well as for raw materials containing precious metals to the customs territory of the Customs Union within the limits of the Eurasian Economic Community and their export order from the customs territory of the Customs Union within the limits of the Eurasian Economic Community (http://www.tsouz.ru/db/entr/Pages/polog29.aspx).

This is a rather voluminous document carrying 38 major sections and several appendices. Almost for 90% the document of the Customs Union repeats Decree of the President of the Russian Federation No. 742 as of June 21, 2001 “About import procedure for precious metals and gems to the Russian Federation and their export procedure from the Russian Federation.”

Let us consider its three most important points:

1. Tolling

Item 23 makes tolling possible.

It says: “It is permitted to use customs modes of processing in the customs territory, processing outside the customs territory and processing for internal consumption.

It is permitted to import precious metals, gems and raw materials into the Customs Union for processing.

It is permitted to import processing products in the form of precious metals specified in Appendices 1 and 2 and also in the form of raw precious metals specified in Appendix 3 to the present Regulation into the Customs Union.

It is permitted to export precious metals and gems specified in Appendices 1 and 2 to the present Regulation from the Customs Union for processing taking into account the specifics provided by Appendix 10 to the present Regulation.

It is permitted to export from the Customs Union processing products in the form of precious metals and gems specified in Appendices 1 and 2 and also in the form of raw precious metals specified in Appendix 3 to the present Regulation.

In other words, it is PERMITTED to export precious metals and gems for processing under certain procedures.

In all seriousness, it is necessary to underline that there is going to be not only an “opening” but a whole “gate” for using tolling as an illicit scheme of importing goods, evading taxes and gaining criminal incomes.

Item 25 says that “natural diamonds will be exported for processing from the Customs Union according to the customs mode of processing outside the customs territory under condition of obligatory payment of export customs duties with the subsequent reimbursement of this sum.”

It is obvious that tolling cannot be cancelled as a concept. However, it is possible to bring reasonable restrictions joining the forces of the jewelry community and civilized lobbying. It is important that jewelry tolling will not be turned into a cover-up for smuggling.

2. Special terminals

According to Item 31, establishing specialized customs terminals and specialized customs departments within the customs administrations of the states taking part in the Customs Union, which will perform customs registration of precious metals and gems, will be carried out under national legislation of the states participating in the Customs Union. This gives possible opportunities for additional freedom to business. For example, the jewellers from Siberia will be able to use the customs terminals of Kazakhstan. At the same time within the limits of agreed procedures it is quite real to initiate 3-5 additional special terminals on the territory of the Russian Federation, for example in St. Petersburg, Ekaterinburg, Novosibirsk and Yakutsk.

3. Hallmarking

Hallmarking procedure is set forth in Item 32. It says: “Hallmarking of products made of precious metals and gems and imported into the Customs Union shall be carried out only if assay supervising authorities will be submitted appropriate documents confirming paid customs duties in accordance with the declared customs mode. The hallmarking procedure of the specified products shall be defined by national legislation of the states participating in the Customs Union.”

According to insider information, it is sure for 99% that the Russian hallmarking system will not change and no mutual recognition of hallmarks will ensue. So long as in the Russian Federation there is a state monopoly for hallmarking all goods containing precious metals will by all means be subject to assaying and hallmarking.

It is quite another matter that “under the guise” of establishing and improving the Customs Union it will probably be possible to carry out the long overdue reorganization of Russia’s assay supervising administration bringing light-weight and thin-sheet jewelry and low-grade alloys (as for instance gold foil goods, silver goods under 3 grams and low-grade ligatures) beyond its competence.

Conclusion

The most part of basic documents on the Customs Union is ready. However, many procedures, quotas and criteria are not yet formulated. Besides those already considered, the following issues are not yet finally developed:

1. Establishment of special economic areas.

2. Furnishing and equipping the checkpoints on the external border of the member-states belonging to the Customs Union.

3. Counteraction measures against legalization (laundering) of criminal incomes.

So far it is not yet clear what kind of opportunities this situation may offer. But they say that expert groups have been created to develop appropriate documents. It is possible to expect that customs procedures will be simplified and customs payments for jewelry business persons will be lowered.

It is important to understand that the jewelry business and jewelry community has an opportunity to bring in important amendments, additions and improvements.

Vladimir Teslenko for Rough and Polished