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The strategy of regulating the Russian jewellery industry

13 june 2018

eduard_utkin_xx.jpgAt the General Meeting of the Russian Jewellers Guild Association held in April, two principally important documents were adopted: The Strategy of Regulating the Jewellery Industry of Russia and The Charter of a good faith taxpayer. Besides, the issues of restructuring the Association to become a self-regulatory organization (SRO), holding thematic conferences and roundtable discussions as well as the alteration of the Articles of the Association were discussed.

In his interview to Rough & Polished, Eduard Utkin, General Manager of the Russian Jewellers Guild Association shared his views on the changes in the statutory regulation of the entrepreneurial activities in the turnover of precious metals and precious stones as well as of the alterations of the Articles of the Guild Association.

What is principally new in the new strategies of regulating the jewellery industry? What steps will help to improve the statutory regulation of the industry?

Shortly before the General Meeting, ‘The Strategy of Regulating the Jewellery Industry’ was presented at the meeting of the leaders of the nonprofit organizations of the jewelers at the Chamber of Commerce and Industry of the Russian Federation. The draft action plan was also presented on the improvement of the jewellery industry statutory regulation where practical proposals were made on the fulfilment of the requirements in anti-money laundry, refining, mutual recognition of hallmarks by the states–members of the Eurasian Economic Union, import duties for precious stones, jewellery online trading and its export.

There was nothing principally new in this strategy. We decided to unite all the practices we consider useful for the improvement of the jewellery industry activities in one programme to get a kind of a road map. All the things that we proposed and stood for some time ago as well as those that have appeared recently made up two parts: the first one was what is required for the businesses to develop the domestic jewellery market, and the second one was the actions to promote jewellery exports.

What has changed in the statutory regulation of the entrepreneurial activities in the turnover of precious metals and precious stones?

This is the initiative proposed by the government authorities. That is, the strategy of regulating is what the business community has developed, but the alterations is what the government has prepared. Actually, the regulation strategy itself we prepared is the response to the actions already developed by the government. Well, the general trend of the government’s steps shows the tougher control, more stringent checking and putting things to order on the market. Part of these activities we consider absolutely justified and quite useful, and part of them are excessive and interfere with work. The most important and helpful steps proposed by the government are the introduction of jewellery marking and creating the IT control over the turnover of the goods made of precious metals and precious stones, including the jewellery. Why? Because nowadays, nobody can give precise measurements of the market parameters. There is different data on the volumes of the so called ‘grey zone’ – that is the reason why the government authorities start developing the laws and regulations that make the work of business operations on our market much more difficult. We would like this market to change so that – as Bulgakov’s professor Preobrazhensky told - we could have a “final paper, a real one, like an armour!” So that our products were neither counterfeit, nor illegally produced because they are registered in the marking system. It means, that the life of law-abiding and honest businessmen could be easier. We also agree that lately really there have been no checks on the market carried out by the State Inspectorate of Assay Supervision – the law on check number limit prevented to do this. We think that amendments should be introduced in this regard, and an exception made for the assay supervision to be able to check the companies more often on a regular basis.

The main thing we oppose to is the strengthening of the administrative responsibility without differentiating the degree of the public danger of the administrative violations committed. That is, the fine is increased up to ₽250,000, but it means that the draft law foresees the enhancement in any penalty in the turnover of precious metals and precious stones, but we would like it to be a differentiated one. There are socially dangerous violations of the law and there are law infringements without any danger to the public, consequently, the penalty should be different. So, if to put it in a nutshell.

What practical proposals were announced relating to the industry challenges? In particular, on the issues regarding the fulfilment of the requirements in anti-money laundering?

As for administrative measures in anti-money laundry, our official position is that today, these requirements are of excessive character; because there is an international organization, FATF, with its recommendations, and the national authorities, certainly, have the right to interpret these recommendations expansively, but we believe that the level of the requirements set for the Russian enterprises involved in the turnover of precious metals and precious stones is significantly higher than those recommended by FATF. We think there is no sense in the control over the jewellery turnover if the cashless payments are effected. It means that if one firm sells goods to any other one, the deal is already being traced by banks. If any individual person pays for a jewellery piece by his or her credit card – again, the person is identified. We think that this double identification should be eliminated as excessive. Only the cash turnover should be under control when the payment is made for the jewellery purchased by cash in wholesale or retail. This is logical enough.

The refining issue is not of great importance, and what is the problem in the mutual recognition of hallmarks?

The agreement signing is under preparation on the turnover of precious metals within the framework of the EurAsEC, and it stipulates a provision on the mutual recognition of the hallmarks. The matter is that the assay supervision system in Russia and the similar systems in Kazakhstan, Armenia, Kyrgyzstan are not equal. As for checks, there are significant differences in the checking toughness, control rigidity and statutory regulation of all the activities. And we think that today there is a big danger of importing the goods via these countries that are not manufactured in the EurAsEC countries, and for example, they are made in the South Asia. And in these countries, the goods will lose their ‘grey’ nature because these countries do not have such a strict control as Russia and Belarus have. That is why we express our concerns and think that the mutual recognition of the hallmarks is only possible after the unification of the assay supervision system in all the EurAsEC countries.

Also, what is the situation with different import duties for precious stones?

Look: If you import jewellery to the EurAsEC country, you pay a 10% duty. But if you import stones for jewellery – and stones are components to be used to make jewellery - you pay a 15% duty. It means that nowadays, the Russian customs legislation stimulated the import of ready-made jewellery and does not stimulate its manufacture – and, consequently, its export. As for jewellery gems, rough diamonds used to make polished diamonds, as well as amber, a little bit of jade are produced in our country. All other stones are not mined in our country in commercial quantities – there are no deposits, there is no production and, consequently, no cutting and polishing. The full specter of the stones makes 300, even more. That is why if we want to manufacture the goods that would be competitive to the goods made outside the EurAsEC countries, we should have this opportunity and a level playing field. The situation is that we import the stones, pay a 15% duty, and our major competitors from Turkey, Thailand, China and Brazil do not pay such a duty as they either have their own gem production and manufacture or do not pay import duties for these goods. It means they win in price as compared to the Russian manufacturers. We consider this discrepancy should be eliminated. And the main problem is that some try to import the stones using a ‘grey’ or ‘black’ schemes to evade Customs, without paying the duty. And later on, if you want to export the goods, you do not have the appropriate legal documents for the stones imported. So, it is not possible the export the goods and this also curbs Russian exports.

It seems, that the issue on the online jewellery trading and export has been already solved, hasn’t it?

Practically, yes, but unfortunately, in the Legal Department of the President’s Administration thought that except the jewellery, the operational rights should be wider for a number of product groups and recommended the Ministry for the Economic Development and Trade to complete the document and include other product groups in addition to jewellery. Now, this document is under completion and reworking - and still awaited. The government has no questions to jewellery, this issue is coordinated at all the stages.

What changes are required? And what results do you expect?

First of all, we think that it is necessary to simplify the procedure of making documents for export and the procedure of making documents for temporary export – it is of importance. The export procedure should be simplified so that the small and micro-businesses were not afraid to go through customs formalities. The next point – important for the development of exports – is the change in the currency legislation so that it would be possible to sell jewellery for cash to retail buyers at the exhibitions held abroad. Without this, it is not possible to study the demand, market and get shoppers accustomed to the ‘Made in Russia’ jewellery. It means that if you do not have an opportunity to sell to end users, you blindly try to find the way in the dark. It is necessary to have some indicators and the opportunity to sell the goods. But the currency legislation does not allow this because it is necessary to conclude a contract and physical persons do not have the right to sign contracts.

What we expect is the torrid growth in the jewellery exports. It has become overcrowded on the domestic market and the demand here is low that is why the businesses are interested in exporting their products to foreign markets and the government is interested in non-resource-based exports - so, the interests coincide: it is useful both for the government and the business. Secondly, if it is possible to simplify the import procedure… if the stone import procedure is cheaper and the cost of satisfying the Rosfinmonitoring requirements is less, then the product value can be lower, which will definitely increase the demand for jewellery on the domestic market.

What was the response of the Guild members to the Meeting results?

Voting was held and the documents ‘The Strategy of Regulating the Jewellery Industry of Russia’ and ‘The Charter of a good faith taxpayer’ were unanimously adopted by the participants in the meeting. First of all, the work on these documents has started long time ago and at first, every point was discussed in the ministries and government departments so that to remove all the points that could fail during voting.

Besides, some changes were introduced mainly into the Articles of the Association, basically, it had to do with the introduction of the co-chairman institution which will allow to response collectively and efficiently to the pressing industry questions. The participants in the meeting voted for adding a point to the Articles of the Association that allows increasing in the organization’s management number. Among other solutions adopted by the General Meeting of the Russian Jewellers’ Guild, one can note a simplified procedure of accepting to the organization and also the new membership fee set for the enterprises of a microbusiness category (it was decreased down to ₽12 000).

Galina Semyonova, Rough&Polished