Moscow drifts towards East Asia
The Russian authorities approved a series of projects to develop the country’s Far Eastern export-oriented infrastructure, as well as the free port status for Vladivostok. These moves appear to indicate Moscow’s continued economic drift towards East Asia against a backdrop of deteriorating relations with the West.
On July 16, the Russian federal government released a decision to include a number of projects into the federal blueprints of regional development of the Far East. The inclusion implies increased incentives for these projects. Incidentally, all these projects are export-oriented: new coal ports at Burny, Khabarovsk region and Otkrytyi, Primorie region (20 million tons/year); a new petrochemical port at Vostochny, Primorie region; and a new LNG export terminal near Vladivostok with a capacity of up to 26 billion cubic meters (bcm)/year.
The Russian authorities revised the country’s legislative provisions so as to turn Vladivostok into a free port. President Vladimir Putin signed into law the Federal Laws No. 212-FZ, 213-FZ and 214-FZ to amend provisions of the Russian legislation to give Vladivostok a free port status for 70 years. The laws granted Vladivostok new port privileges such as free customs zones and simplified visa regime, as well as profit and property tax breaks. Criteria to select free port residents are due to be approved by the federal government. The free port facilities are due to be managed by the supervisory board, appointed by the government.
The free port residents are eligible to benefit from the profit tax rates below the regular 20 percent rate (5 percent in the initial 5 years, and 12 percent in the following 5 years). The free port residents are also exempted from land and property taxes, and can pay social levies at 7.6 percent rate (or below the regular 30 percent rate). From October 1, 2015, they can also use simplified value-added tax (VAT) payment procedures. The new legislation takes effect in 90 days from its official publication on July 13.
A free port (porto franco) status involves relaxed customs regulations and less strict customs controls for transshipment. Interestingly, Vladivostok already had some porto franco privileges in early 20th century, when the Russian Empire was keen to encourage economic development of its Far Eastern lands.
More than a century afterwards, the Russian authorities conceded that these regions still needed expedited economic development. At a top-level cabinet meeting on July 15, Deputy Prime Minister and the presidential Far Eastern envoy Yury Trutnev told Putin that Vladivostok’s free port status was aimed to give a boost to economic development of Primorie region and double its GDP by 2023.
The authorities also made it clear that turning Vladivostok into a free port was aimed to encourage increased trade with neighboring East Asian economies. The implementation of Vladivostok’s free port status includes a number of projects, including construction of new Zarubino seaport with a planned capacity of 100 million tons/year, development of Vostochny container port, as well as creation of new port zones in Sukhodol Bay, Khasan district and Slavyanka Bay, Trutnev said.
The priority investment projects were also designed to increase exports of the Russian natural resources. Trutnev said the government selected six priority investment projects in the Far East: a new coal port in Vanino, Tayezhny mining complex in Yakutia, Urgaugol coal project, Ozernovsky mining complex in Kamchatka and a gold mining complex in Amur region.
Furthermore, there were plans of further development of the porto franco scheme in the Far East. Trutnev said that the regional governors suggested a free port status for Anadyr, Pevek, Magadan, as well as Kamchatka ports.
In the past, the Kremlin argued that earlier show-case infrastructure projects served to expedite the regional development, including projects, designed to prepare for the APEC summit meeting in Vladivostok in 2012. But projects associated with the APEC summit also entailed a series of corruption and embezzlement scandals.
In recent years, the Russian authorities pledged significant investment to finance the federal programs of the economic development of the Far East. In 2013, the government disclosed ambitious plans of huge financial inflows into the Far Eastern regions, up to 10 trillion rubles ($176 billion) by 2025. Officials argued that the implementation of the 10-trillion program could bring up to 20 trillion rubles ($352 billion) in terms of regional economic growth by 2025.
However, in recent months the Russian authorities faced new economic problems caused by low international energy prices and the Western sanctions. Therefore, it became far from certain whether the government could deliver on earlier pledges of unprecedented financial inflows into these remote regions. The newly-approved export-oriented projects appear to indicate the Kremlin’s intention to encourage foreign trade with East Asia as a new money-earner for the Far Eastern development.
Sergei Blagov is a Moscow-based independent journalist and researcher.
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