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Lobbying in the Russian market of precious metals and precious stones – How does it look like?

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Part Two

From proclaiming the precious metals and precious stones (PMPS) to be the "objects of increased concentration of value" to the Order of the President of the Russian Federation issued on October 25, 2017

Strong disagreement - unexpected for the regulator - of the industry community with the first attempt to create the Federal Service for the Control over the PMPS undertaken in 2011 turned out to be a useful lesson and the authorities made the necessary conclusions.

Firstly, having appreciated the role of the active position of the sectoral public opinion, especially against the background of the system of assessing the quality of adopted laws being introduced in Russia at that time (the ARI system - assessing the regulatory impact of regulatory legal acts), the regulator “helped” create sectoral public organizations more friendly to authorities. It was achieved by strengthening them with staff of their own employees. Thus, in contrast to the former activists, “sectoral public voices” appeared quite loyal to the initiatives of the authorities.

Secondly, it was probably decided that the industry authorities should act more strictly, with even greater reliance on the opinions of law enforcement agencies. The state controlling bodies, on the one hand, and the public business organizations, on the other hand, received completely unequal opportunities to convince parliamentarians when introducing bills. Very often, explanatory notes to bills in the field of the PMPS do not contain any real argument for the need to tighten regulation.

Thirdly, since some competitiveness of the interests of the state and business was still introduced as mandatory in the process of updating the legislative framework, a condition was implicitly set for lobbyists: business should not confront the state’s core function (it means, the function of the law enforcement authorities), which is useless and definitely is a loss but can compete to mitigate the legislative impact on their interests.

And in order for lobbyists in the PMPS sphere to understand the need not to “demand too much”, the entire PMPS sphere was declared by the then curator of the industry, State Secretary and Deputy Minister of Finance of the Russian Federation Yu. I. Zubarev, as the sphere of the circulation of the “objects of increased concentration of value”, i.e. in fact - the currency values, but without a legislative basis any more.

It doesn’t matter that true currency values ​​must have a high level of liquidity without losing their value, and jewelry can be quickly sold only as raw materials, with a loss of half of their value. Besides, the precious stones cannot be quickly sold at their market price, either.

On the whole, in 2012-2017, industry authorities recognized the presence of industry lobbying as an inevitable factor that must be taken into account and be coexisted with. Lobbying in the jewelry sector is different from lobbying, say, in gold or diamond mining. The jewelers do not have players capable of standing next to such giants as Polyus Gold, Polymetal or ALROSA in terms of a financial power and a power of influence.

Fortunately for the industry, jewelers' lobbyism has no corruption risks. And the point is not in the ideality of people working on both sides in the jewelry sphere, but in objective circumstances. Firstly, none of the jewelers would like to give a bribe: industry lobbying always happens in the interests of not just a single player, but at least of a large group of companies working according to a certain business model, and therefore nobody would ever like to pay for many players. And, secondly, no one would like to take a bribe either - changing a law in the field of the PMPS is not just like a profitable construction subcontract granted to you or an allocation of anything without a tender.

From the Order of the President of the Russian Federation dated 10.25.2017 to the present day ...

In contrast to the “first run” of the creation of the Federal Service for Control over the Circulation of the PMPS, the authorities thoroughly prepared for the second run, taking into account all the tactical failures of the past.

First, this time the initiative to create a new federal service came from the very top - as it was found out later, such an point was in the Order of the President of the Russian Federation dated 10.25.2017, which had the stamp “For official use”.

Secondly, the creation of the service within the framework of this document is planned not as an end in itself, but as a technical necessity within the framework of creating a unified system of the state control (supervision) over the production, processing, use and circulation of precious metals, as well as over mining (in terms of sorting, primary classification and initial evaluation), over the use and circulation of precious stones.

Thirdly, again, as it turned out later, the RF President’s Order of 10.25.2017 gave rise to such a wave of industry rulemaking, aimed, of course, at tightening the control in the field of the PMPS, that now the jewelers do not take the forthcoming creation of the Federal Service for the Control over the PMPS as anything evil. Moreover, this question is not of concern to any of the jewelers - there appeared more serious challenges.

The new system of the state control (supervision) in the field of the PMPS should now be based on an integrated information system, subsequently called the “State Integrated Information System in the Sphere of Control over the Circulation of Precious Metals, Precious Stones and Products from them at All Steps of Their Circulation” (SIIS PMPS )

It should be noted that since 2010, the jewelers themselves have been offering the introduction of the IT-control over the circulation of jewelry, however, to replace the assay supervision. And they support the project now, of course, hoping that everything will be done without unnecessary haste, with proper preparation, and the operation of the SIIS PMPS will not lead to additional costs for jewelers. It seems that there is a correct understanding of this issue by the regulator, and there is hope for a successful implementation of the system.

Today, the lobbying activity in the jewelry sphere (as part of the general sphere of the PMPS) is confidently led by the Russian Jewellers Guild Association (Director General E. Yu. Utkin, Chairman G. G. Gevorkyan since 2014) and the Committee on Precious Metals, Precious stones, and Jewelry and the Folk-Art Crafts of the “Delovaya Rossiya” (this committee is headed by F. F. Gumerov, who is also co-chairman of the Russian Jewellers Guild Association). There are many things that can be included in the “winning asset” of the Association in recent years. Only for the last period, they managed to achieve the following:

1. As for the mitigation of the negative impact on business conditions due to newly introduced industry legislation:

- preserve the rights for small businesses in the field of the PMPS (manufacturers and traders) to apply special tax regimes: a simplified taxation system (STS) and the unified tax on imputed income (UTII) (on June 24, 2019, corresponding bill No.738437-7 was submitted to the State Duma of the Russian Federation, containing no ban on the application of special tax regimes in the field of the PMPS);

- preserve the rights of jewelry manufacturers to process - as before, without obtaining licenses - the scrap and waste of the precious metals generated and collected by them in the course of their own production, as well as products of their own production, not sold and returned (the law was signed by the President of the Russian Federation on August 2, 2019);

- coordinate the introduction of differentiation of fines for administrative offenses in the field of PMPS with the Ministry of Finance of Russia and restrain the growth of fines for minor or unintentionally committed offenses in bill No. 638854-7, which is being prepared for adoption;

- influence the decision to introduce a system for tracking the jewelry circulation free of charge for market participants in the PMPS sphere (SIIS PMPS information system of the Ministry of Finance of Russia), different from the fee-for-service system of the operator of the Central distribution service provider (CDSP) adopted for all other groups of goods.

2. In terms of improving the existing industry regulatory environment:

- achieve the introduction of a regime of voluntary (in place of the previously mandatory) assay hallmarking of silver jewelry weighing up to 3 grams, and coordinate with the Ministry of Finance of Russia the transition to voluntary hallmarking of silver products of any weight;

- achieve the development of a draft decree of the Government of the Russian Federation, fully legitimizing the Internet trade in jewelry and certified precious stones;

- achieve the development of a “Strategy for the Development of the Gem Industry and the Jewelry Industry in Russia for the Period until 2030" by the Ministry of Industry and Trade of the Russian Federation on the basis of program documents of the Association.

3. In terms of protecting the interests of the Russian jewelry manufacturers in the space of the Eurasian Economic Union (EAEU):

- achieve alignment of sectoral legislation and the regulatory framework of the EAEU countries in the field of the PMPS, which increased the competitiveness of the jewelry industry in Russia;

- achieve the development in the EEC of an “Action Plan for the Promotion of Jewelry Products of the EEC Member States on the Markets of Third Countries” unified for the EAEU.

4. With regard to the development of jewelry exports to third countries:

- achieve the allocation of subsidies for participants in large international jewelry exhibitions from the Russian Export Center (REC), the Ministry of Industry and Trade of the Russian Federation and the Government of Moscow;

- achieve the development of a bill that gives exhibitors the right to retailing the goods exhibited at international exhibitions, without concluding contracts.

It is important to note that all the achievements are the result of the Association’s joint work with the regulators, primarily with the Ministry of Finance and the Ministry of Industry and Trade of the Russian Federation, with the deputy corps and the members of the Federation Council. Fortunately, individual deputies of the State Duma and individual members of the Federation Council, as well as the industry leaders of the mentioned ministries, are now ready to take seriously the requests of the PMPS business.

Unfortunately, participants in the Russian market of precious and other gem-quality and collection stones do not have their own public organization at the federal level. Partially their interests are protected by the relevant committee of the Business Russia and the Russian Jewellers Guild Association, but it is clear that the interests of jewelers are primarily of priority to them. Public industry organization is a voluntary structure and arises from the awareness by the business of the need to create it. So, the participants of the Russian “stone” market have not yet realized such a need ...

Conclusion

The history of the development of Russian sectoral legislation in the field of the PMPS evolved so that the periods of liberalization were short and with not very deep reforms, but the periods of “tightening the screws” were much longer and more significant as for “achievements”. What is not surprising - in Russia, it has always been incomparably easier for security officials to promote their ideas than for the business.

However, even the representatives of industry business, especially of a small business, dutifully perceive any negative news about the introduction of another prohibitive norm in the field of the PMPS. Entrepreneurs in the jewelry sector and the sphere of the precious stones circulation, who show their desire even just to indicate their personal position publicly, to say nothing of their open struggle for their business interests, can be counted on our fingers. Everyone has his/her own reasons for taking no participation in the public industry life, but it is obvious that the main thing is their confidence in the “futility of fluttering” and the fear of being punished by the authorities for an “inappropriate” initiative to resist.

Of course, there are exceptions, but they are few “fighters”. All the more valuable is every person for the history of the development of the industry, who is ready, not lazy and not afraid to uphold common sense in the Russian PMPS market. Without any doubt, F. F. Gumerov, founder of the Almaz-Holding jewelry brand, can be considered the most committed fighter for the development of the domestic jewelry industry. Actively joining the sectoral public work in the late 1990s, over the past years, Flun Gumerov wrote dozens of letters to all instances involved in the PMPS sphere, including the President of the Russian Federation, and a number of his presentations made at various industry meetings is countless. It was Flun Gumerov in 2009 who presented to the authorities the first Russian “PMPS Industry Development Strategy" developed jointly with the author of this article.

Only the Director General of jewelry exhibitions and industry media holding RESTEK Junwex V.V. Budny can argue for who has been engaged in industry lobbying (the interests of jewelers) in the Russian market for a longer time. Although, at different periods of time, the role of the main driving force of industry lobbying was played by other people famous in professional circles: A. Yu. Sidorenko (Adamas Company), A. L. Guterman (Topaz Company), V. B. Radashevich (The Russian Jewellers Guild Association).

Vladimir Zboikov for Rough&Polished