No. 2, 2008

Improvement of the regulatory and legal basis constitutes a strategic factor behind the stable development of Russia's economy

Investments and business are so closely interrelated in the world today that it is quite hard to separate them and even harder to ensure their comprehensive security. The capital intensity of markets, trust between partners and the investment appeal of regions and industries depend on how stable, reliable and predictable the Russian legislation is, so one of the most pressing tasks today is to eliminate the legal gaps in the Russian Federation.

A base for investment

In the messages from the President of Russia Vladimir Putin to the Federal Assembly, the problem of eliminating legal gaps has often been referred to as one of the most important tasks for the near future. The fact is that ambiguity of the key provisions of a number of legal acts makes it possible to arbitrarily interpret the fundamental legal rules. Since any law or regulatory and legal document may be deemed unconstitutional or in contravention of the federal legislation by a court decision, a legal precedent has arisen. For instance, in 2001 alone, over 3,500 legislative acts adopted in constituent entities of the Russian Federation were identified as running counter to the Constitution of the Russian Federation or federal laws.

What do the discrepancies in the legislative base entail? Above all, they hamper the normal course of law in various spheres, particularly in arbitration practice. A number of regulatory and legal documents demonstrate informational redundancy (overloading with provisions that duplicated or contradict one another), while other normative and legal acts lack even an elementary description of the definitions introduced.

In addition, it should be borne in mind that, for domestic and foreign investors, the competitiveness and development of the Russian economy is guaranteed by a stable, predictable legal framework.

One of the fundamental regulatory and legal documents in the sphere of investment legislation is known to be resolution of the Government of the Russian Federation No. 1108, dated September 29, 1994 “On Stepping up of Work to Attract Foreign Investments to the Economy of the Russian Federation.” Yet in just ten years, the given document has come out in eight versions (dated February 20, 1995, August 20, 1997, November 30, 1998, March 29, 1999, November 14, 1999, September 28, 2000, May 22, 2002 and September 18, 2004) and undergone two sets of amendments (dated June 30, 1995 and October 31, 1996). From the point of view of the foreign investor, amendment of the regulatory and legal documents on average once a year is too frequent, since, even if the next document to come out creates a favorable environment for investment in Russian industry, there is a risk of its being lost in the next version. Besides, it is obvious that investments in the economy of the Russian Federation are still necessary, since they would facilitate growth of the GDP in the next few years and would strengthen the innovative potential and ensure strategic leadership in the high-tech industries.

Eliminating gaps

According to the effective legislation, the key role in bringing regional normative and regulatory documents into line with the federal ones belongs to authorized representatives of the President of Russia in the federal districts and the General Prosecutor’s Office of the Russian Federation and its district structures. The change in the situation has also been promoted by adoption of a number of laws improving federal relations, introduction of which has become a new landmark in state building with the formation of unified power vertical. At the same time, these measures are not sufficient, since new legislation is being issued in parallel to existing normative and regulatory documents being amended. This means that the normative and regulatory base is growing and the number of descriptions, terms, definitions and the like that are not harmonized and do not comply with one another is increasing. Elimination of the given gaps would facilitate restoration of the unity of law on the territory of all constituent entities of the Russian Federation, which, in particular, would make it possible to delineate powers of the center and those of the regions, and would also raise the effectiveness of resolutions adopted in the strategically important spheres of Russian industry, in particular the oil industry.

In the given situation, it appears appropriate to classify the main types of gap. In particular, contradictions may be identified on the horizontal plane (for example, between the normative and regulatory documents of different power structures of the same level) and vertical plane of power. Practice shows that the latter emerge most frequently at the interface of international laws and the normative and regulatory acts of the country, of the legislation of the state and of the normative and regulatory documents of regions, of the legislation of constituent entities of the Russian Federation and of the normative and regulatory documents of local authorities.

Such large-scale work as elimination of gaps in the normative and regulatory documents and discrepancies in documents adopted on their basis (such as standards) is obviously difficult even for a large team of experts. Yet it must be carried out by just a few expert groups, each operating in its own sector. Of undoubted interest in this connection is the initiative of the Ministry for Economic Development and Trade to set up expert advisory councils (EACs) at all levels of power, their terms of reference to include checking on all normative and regulatory documents on currency, land, licensing and a number of other types of state regulation and control with the exception of constitutional laws and draft budgets falling within the jurisdiction of the Constitutional Court and other authorities (such as the Security Council under the President). The EACs would verify that all normative and regulatory documents comply with the effective legislation and do not contravene any existing laws. This would assist greatly in raising the effectiveness of the normative and regulatory documents adopted and, as a consequence, in promoting further growth of the Russian economy and industry, including the oil industry.

The backbone triad

As an example of legislative discrepancies and possible ways of improving situation, let us take a look at the problem of harmonizing the legislation on intellectual property, which is relevant for the oil industry thanks to the large number of technical and technological solutions being implemented and patented. For instance, part 3, article 257 of the Tax Code of the Russian Federation “Procedure for determining the value of depreciated property,” introduces such concepts as “information about experience,” “secret formula” and so on. Since these terms are not defined anywhere else in the normative and regulatory documents, they constitute legal gaps, this presupposing the possibility of them being construed in different ways and possible problems arising in executing the documents for patenting and formalizing copyrights. This might result in infringements of the interests of Russian manufacturers and reduced effectiveness in a number of key, strategically important branches of the Russian economy, including the oil industry.

Another legislative gap in Russian normative and regulatory documents is a lack of mechanisms stimulating financial institutions and banking structures to invest in new technologies. In particular, the profit taxation system (to exempt banks investing funds in new technologies from taxation) and guarantees of investment risks are underdeveloped. These and other shortcomings result, according to the data of the RF Federal Service for Intellectual Property, Patents and Trademarks, in only about 20% of innovations being patented, owing to a shortage of funds. In the absence of investors, it is not profitable for the majority of industrial enterprises to engage in introduction of new technologies and innovative high-tech output is produced primarily at the expense of the federal budget.

It should be noted that the integration processes observed in the Russian nano-industry are largely connected with the formation of a high-tech complex in the Russian Federation, building of an innovation model of the economy and the external market situation. For this reason, development of nano-technologies, production of nano-materials and incentives to capital investment in the nano-industry by domestic and foreign investors on the state level will determine leadership and strategic partnership in the medium and long term. Correspondingly, use in the oil industry of nano-technologies will allow standards to be specifically formulated for domestic nano-education and will create the preconditions for creating within the oil complex a backbone triad consisting of legislatively protected producers and consumers of diversified output and services, as well as a normative and regulatory legislative pivot that is internally consistent and harmonized with international normative and regulatory documents.