GRATA LAW FIRM (MOSCOW)

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1 GRATA LAW FIRM (MOSCOW) AUGUST 2014 BAN ON IMPORT OF CERTAIN PRODUCTS TO THE RUSSIA: DETERMINATION OF THE COUNTRY OF ORIGIN 1. Measures to be Taken by the Russian Customs Authorities The Decree of the President of the Russian Federation No. 560, dated 6 August 2014, bans or restricts foreign trade transactions involving import to Russia of certain agricultural products, raw materials and food originating from countries that decided to impose economic sanctions on Russian individuals and (or) legal entities, or that joined to such a decision for one year after the date of the Decree (6 August 2014). Following the Decree, the Russian Government issued Resolution No. 778, dated 7 August 2014 (effective from the date of issue and further amended by the Resolution No. 830 dated 20 August 2014) that provides for: a. The countries of origin of agricultural products, raw materials and foods (the United States of America, the EU, Canada, Australia and the Kingdom of Norway); b. The list of agricultural products, raw materials and foods banned for import in Russia (referring to the Foreign Economic Activity Commodity Classification of the Customs Union) originating from the above countries and banned for import to Russia. The ban on imports to Russia of certain products according to the above regulatory legal acts requires, first of all, to take the necessary measures to control the importation of the relevant products by the Federal Customs Service of the Russian Federation (FCS of Russia) and its regional offices. The Order of the FCS of Russia, dated 7 August 2014, No 'On Measures for the Implementation of the Decree of the President of the Russian Federation dated 6 August 2014, No. 560' orders to the heads of regional customs offices and customs directly reporting to the FCS of Russia, in particular: What we do: Legal Advice Regarding a Choice of an Organizational Form for Business Development of Constitutive Documents, Shareholders Agreements and Internal Regulations of Legal Entities Providing for State Registration of Legal Entities at Establishment and Changes to Constitutive Documents Structuring and Full Legal Support of Joint Ventures Establishment and Mergers and Acquisitions Transactions Legal Due Diligence at Acquisition and Sale of Shares, Participation Interests and Other Assets For further information and advice please contact the experts of GRATA Moscow: Yana Dianova Head of Corporate and Commercial Law Department Tel: +7 (495) ; +7 (495) ydianova@gratanet.com moscow@gratanet.com Eldar Ziatdinov Head of Tax Law Department Tel: +7 (495) ; +7 (495) eziatdinov@gratanet.com; moscow@gratanet.com 1

2 a. to ensure the determination of the country of origin of the products imported to the customs territory of the Customs Union according to the established procedure, including by actual control within the risk management system, if required; b. in case of revealing of the facts of declaring of the products, raw materials or foods originating from the United States of America, the EU, Canada, Australia and the Kingdom of Norway according to the list provided by the Order (hereinafter - the 'Banned Goods' ) to refuse in release of such goods according to the declared customs procedure and to take measures for their immediate export from customs area of the Customs Union, except for the goods which have been actually imported on the territory of the Russian Federation before 7 August In this regard, importers of the Banned Goods may be interested in the procedure and criteria for determining the country of origin of the goods in accordance with the Russian legislation. 2. The Procedure for Determining the Country of Origin 2.1. Determination of the Country of Origin by a Declarant Generally, pursuant to Article 109 of the Federal Law, dated 27 November 2010, No. 311-FZ On Customs Regulation in the Russian Federation (hereinafter- the Law No. 311-FZ ), the country of origin of goods shall be determined and declared by the declarant to the customs authorities in the course of customs declaration of the goods. Determination of the country of origin by a declarant shall be performed: in respect of goods originating from the member state of the Customs Union (i.e., Kazakhstan and Belarus) - according to the rules of determination of the country of origin of goods established in accordance with the Agreement between the Governments of the member states of CIS, dated 20 November 2009 'On the Rules for Determination of the Country of Origin of Goods in the Commonwealth of Independent States' (hereinafter - the CIS Rules ); in respect of goods originating from the countries which are not members of the Customs Union - in accordance with the Uniform Rules for Determination of the Country of Origin of Goods established by the Agreement between the Government of the Russian Federation, the Government of the Republic of Belarus and the Government of the Republic of Kazakhstan, dated 25 January 2008 (hereinafter - the Uniform Rules ) and Chapter 7 of the Customs Code of the Customs Union. The customs authority may require provision of documents confirming the country of origin of the goods, which include: a. declaration of origin, i.e. commercial or any other documents relating to the goods, provided that they reflect information allowing to determine the country of origin of the goods; or b. certificate of origin - a document clearly indicating the country of origin of the goods and issued by the competent authorities or organizations of this country or the country of export (Russia), if such a certificate is issued in the country of export on the basis of information received from the country of origin of the goods. 2

3 At the same time, if the information on the country of origin of the goods provided for in the declaration or certificate of origin is based on criteria other than those applicable under the relevant international treaties of the member states of the Customs Union, to determine the country of origin, the criteria set by the international treaties shall apply. A declarant, as a general rule, is not obliged to provide the customs authority with a document certifying the country of origin: i. when the goods imported into the customs territory of the Customs Union are put under the customs procedure of customs transit or temporary importation with full exemption from customs duties and taxes; ii. iii. iv. when the goods are moved across the customs border by individuals; when the total customs value of the goods moved across the customs border and sent at the same time in the same way by the same consignor to the same consignee does not exceed the amount set by the Customs Union Committee; in other cases provided for by the customs laws of the Customs Union. When application of the measures of customs tariff and non-tariff regulation (in particular, bans on the import of certain products) depends on the country of origin of the goods, the customs authorities shall control the accuracy of determination of the country of origin of the goods before and after the goods release. If the customs authority finds that the goods actually originate from the country, whose goods are banned for import into the customs territory of the Customs Union, or transit through its territory, the customs authority shall refuse to place the goods under the relevant customs procedure. However, as officers of FCS orally confirmed, Banned Goods being in transit through the territory the Russian Federation for delivery in Kazakhstan or Belarus will not be refused for crossing Russian border Preliminary Decision on the Country of Origin If a Russian person being the owner of the goods imported to the territory of Russia, the buyer of the goods or the declarant thereof, or a foreign person acting as a declarant, is not sure of the correct determination of the country of origin, it may submit a request to the FCS and the customs authorities authorized by the FCS for a preliminary decision on the origin of goods from a particular country. The request shall be filed together with the documents certifying that the goods was entirely made or underwent the substantial transformation in the territory if the country of origin, in particular, test reports, reports on the results of expert examinations of chambers of commerce and industry or other expert enterprises of the country of manufacturer of the goods, statements of specialists of expert organizations containing the results of examination of the goods. A preliminary decision is issued not later than in 90 calendar days from the date of registration of the request by the customs authority, and is valid for three years (unless it is changed, withdrawn or terminated by the issuing customs authority) and shall be binding for all Russian customs authorities (Article 111 of the Law No. 311-FZ). 3

4 3. Criteria for Determining the Country of Origin 3.1. Goods Originating from Countries not Being Members of the Customs Union The country of origin of such goods shall be the country where the goods were (a) entirely manufactured, or (b) subject to the substantial transformation, according to the substantial transformation criteria specified by the Uniform Rules. Goods entirely made in a particular country, as applicable to the Banned Goods, shall be: a. vegetables, fruits and nuts cultivated or gathered in that country; b. live animals born and bred in that country; c. products originating from animals bred in that country (e.g. milk); d. products originating as a result of hunting and fishing in that country; e. marine fishery and other products of marine operations produced by a sea vessel of that country; f. products produced on the board of processing vessel of that country and made solely from the above products; g. products made in that country solely from the products referred to in paragraphs a - f above (e.g., milk products). If the Banned Goods were made involving two or more countries (e.g. milk produced was in the territory of a EU Member State and then imported to Belarus or Kazakhstan for further processing into milk products and importation to the territory of Russia), the country of origin of goods shall be the country where the goods were finally processed or manufactured subject to the substantial transformation criteria. As a general rule, goods are considered as originating from a given country, when processing or manufacturing thereof resulted in the change of the classification code of the goods under the Foreign Economic Activity Commodity Classification of the Customs Union at the level of any first four digits. In order to determine the country of origin the following substantial transformation criteria are also applied (according to the procedure established by the Customs Union Committee): a. observance of certain conditions, production operations sufficient to recognize the country of these operations as the country of origin; b. a change in the goods cost when a percent share of the cost of materials used or added cost reaches the fixed share in the cost of the final goods (ad valorem share principle). The Uniform Rules provide for the list of operations that in any case fail to meet the substantial transformation criteria, in particular: mixing of goods (components), which does not lead to a significant difference between the resulting product from the 4

5 original components; slaughter of animals and cutting (sorting) of meat; scaling, partial or total bleaching, polishing and grinding cereals and rice; decoating, extracting seeds and cutting fruit, vegetables and nuts; simple grinding or simple cutting; sifting through a sieve or a sieve, sorting, classification, screening and selection (including the preparation of sets of products); bottling, packing in cans, bottles, bags, boxes and other simple packaging operations; operations that ensure safety of goods during its storage or transportation; operation that prepare the goods for sale and transportation (dividing the party, forming up, sorting, repacking), as well as for disassembly and assembly of packages Goods Originating from Kazakhstan and Belarus The Banned Goods imported to Russia from Kazakhstan and Belarus may be recognized as products originating from those countries provided that the substantial transformation criteria under the CIS Rules are met. The substantial transformation criteria may be met by observance of the following conditions: a. change of at least one of the first four digits in the commodity item under the Foreign Economic Activity Commodity Classification of the CIS which is resulted from treatment/processing; or b. observance of the necessary conditions, production operations, under which goods are considered as originating from the country of such operations; or c. ad valorem share principle, when the cost of the used materials of foreign origin reaches a fixed percentage of the price in the final product. Change ofat least one of the first four digits in the commodity item under the Foreign Economic Activity Commodity Classification of the CIS is the main condition for the substantial transformation criterion and applies to all goods, except for goods included in the List of conditions, production operations, under which the goods are considered originating from the country where those operations were performed (Appendix 1 to the CIS Rules) (hereinafter - the 'List of Conditions' ). For some categories of the Banned Goods, the List of Conditions provides also ad valorem share principles one of the conditions, both independently and in conjunction with observance of other necessary conditions, production operations (e.g., the goods of 0402 commodity item - Milk and cream, condensed with or without sugar or other sweetening substances are considered as originating from a particular country if they are made of materials of any other commodity item, 5

6 but the cost of the used materials of the same item with the finished product does not exceed 40% of the price of the final product). In application of the ad valorem share principle, the cost parameters are calculated as follows: for materials of foreign origin - on the customs value of such materials when they are imported into the country, where the final product is made, or on the documented price of the first sale thereof in the country, where the final product is made; for final product - on an ex-works price. The CIS Rules also establish a list of operations that do not meet the substantial transformation criteria similar to the list provided for by the Uniform Rules. * * * * * Information herein is effective as of 22 August Sincerely yours, GRATA Law Firm (Moscow) This information is provided for your convenience and does not constitute legal advice. It is prepared for the general information of our clients and other interested persons. This information should not be acted upon in any specific situation without appropriate legal advice and it may include links to websites other than the GRATA website. 6