CONSTRUING OF APPLICATION OF AGREEMENTS AND OTHER ACTS ON ECONOMIC ISSUES

Judgment No. 01-1/5-05 dated June 19, 2006 on construing the Rules of identification of the country of the goods’ origin, as approved by the Decision of the Council of Heads of Governments of the Commonwealth of Independent States, dated November 30, 2000regulates the issue related to probability to apply the norms stipulated in the Rules of identification of the country of goods’ origin dated November 30, 2000, to the goods imported into the customs territories of the CIS member-States from the Republic of Uzbekistan (i.e. from the State which have failed to sign the Decision dated November 30, 2000).

The CIS Economic Court has ascertained that, as of the moment of examining the case, the legal base applied for identification of the country of origin of goods within CIS was composed of the following three documents: the Decision of the CIS Council of Heads of Governments on the Rules of identification of the country of goods’ origin, dated September 24, 1993; the Agreement on creation of the free trade area, dated April 15, 1994; and the Decision of the CIS Council of Heads of Governments on the Rules of identification of the country of goods’ origin, dated November 30, 2000.

Choice of applicable rules for identification of the country of origin of any goods shall be made depending on legal effect of such mentioned acts. The Decision of the CIS Council of Heads of Governments on the Rules of identification of the country of goods’ origin, dated September 24, 1993, is an act of an intergovernmental organization (CIS) and, hence, is of a recommendation nature. According to Item 4 Clause 3 in the Agreement dated April 15, 1994, the Rules of identification of the country of goods’ origin should be contained in Annex 1 which makes an integral part to the Agreement. Nevertheless, such document has never been adopted. The CIS Economic Court believes that the Rules dated September 24, 1993 should be treated as Annex 1 to the Agreement dated April 15, 1994, as such document represented the only unified Rules of identification of the country of goods’ origin as of the moment of entering into the Agreement dated April 15, 1994, and the States regarded them as an integral part to the Agreement dated April 15, 1994. The Rules dated September 24, 1993, in their capacity of an integral part to the Agreement of April 15, 1994, are of a binding nature.

Having analyzed the procedure of coming the Decision of the CIS Council of Heads of Governments of November 30, 2000, into effect, the CIS Economic Court has come to a conclusion that such mentioned Decision is an international treaty, and the Rules of identification of the country of goods’ origin, adopted by the same, are binding.

Hence, since the country of origin of goods is identified according to the Rules established by the two active international treaties (the Agreement dated April 15, 1994, and the Decision of the CIS Council of Heads of Governments dated November 30, 2000), so the issue of applicability thereof shall be settled in accordance with Article 30 of the Viennese Convention on the International Treaty Law 1969. Accordingly, should the States sign the Decision of the CIS Council of Heads of Governments dated November 30, 2000, their relations shall be governed by the Rules dated November 30, 2000. Should one or both parties fail to sign such mentioned Decision, their relations shall be governed by the Rules of identification of the country of goods’ origin, which make Annex 1 to the Agreement dated April 15, 1994.

Judgment No. С-1/12-96/С-1/18-96 dated January 21, 1997 on construing the Agreement on cooperation in the field of investment activity, dated December 24, 1993; the Agreement on mutual recognition of rights and regulation of proprietary Relations, dated October 9, 1992 clarifies legal status of investors from the States which are the parties to the Agreement dated December 24, 1993 in the territories of the other States which are the parties to the same Agreement, in particular, whether such investors have a foreign-investor status in the territories of such States.

The CIS Economic Court has ascertained, that according to the national investment laws of the States which are the parties to the Agreement of December 24, 1993, and according to Article 16 in the Agreement dated October 9, 1992, the investors of any CIS member-State which/who make investments in the territory of any other CIS member-State shall be treated as foreign investors. They shall be granted legal treatment not less favourable than that granted to the national investors, which treatment usually provides for certain privileges.

Provisions of Article 6 in the Agreement dated December 24, 1993 provides for granting, to each other, national treatment to the investors from the CIS member-States acting in the territories of such States. Such treatment may not be less favourable than treatment granted to the national investors.

The CIS Economic Court believes that legal investment treatment, granted to each other by the States which are the parties to this Agreement, may not be less favourable than investment treatment maintained between investors of any other States which are not the parties to this Agreement.

Since Article 16 in the Agreement dated October 9, 1992, and the Agreement dated December 24, 1993 establish different investment treatments, so Article 16 in the Agreement dated October 9, 1992 has become invalid from December 24, 1993, as the above Agreement was signed by all States which were the parties to the Agreement of October 9, 1992, and has been applied temporarily from the moment of signing thereof.

Judgment No. С-1/3-97 dated January 15, 1998 on construing the Decision of the Council of Heads of Governments of the Commonwealth of Independent States on revision of Item 9 in the Rules of identification of the country of goods’ origin, dated October 18, 1996 establishes the procedure of implementation of such Decision at the national level, and analyses correlation between such mentioned act and Basics of law of customs of the CIS member-States, adopted by the Decision of the CIS Council of Heads of States of February 10, 1995, taking account of preambles, Articles 122, 130 of such Basics.

The CIS Economic Court believes that since the Rules of identification of the country of goods’ origin dated September 24, 1993, with amendments and addenda thereof, make an integral part to the Agreement on establishing a free trade area dated April 15, 1994, entering amendment s and addenda in the Rules means entering amendment s and addenda in the international treaty, i.e. in the Agreement of April 15, 1994. Hence, the Decision of the CIS Council of Heads of Governments dated October 18, 1996 adopted as an amendment to the Agreement of April 15, 1994 shall be declared an international treaty.

Since the Agreement does not stipulate for the procedure of entering amendments and addenda in the texts of such mentioned documents, consents of the States which are the parties thereto to entering such amendments and addenda in the Rules or in the text of the Agreement shall be expressed in the form provided for giving consent to the binding nature of such Agreement upon its parties. Taking account of the foregoing, the CIS Economic Court states, that revised Article 9 in the Rules of identification of the country of goods’ origin has come into effect with respect to the Republic of Azerbaijan and the Republic of Tajikistan, which States executed intra-state procedures following adoption of the Decision of October 18, 1996. Such norm in the wording of the Decision of October 18, 1993 shall temporarily apply to the other States which are the parties to the Agreement dated April 15, 1994.

The Rules of identification of the country of goods’ origin, with amendments made by the Decision of the CIS Council of Heads of Governments of October 18, 1996, may be applied until a free economic area is created to cover customs territories of all States which are the parties to the Agreement dated April 15, 1994, in the States which are the parties to such Agreement and in which territories such free economic are has been created on the basis of bilateral and other agreements.

The provision of Item 9 in the Rules of identification of the country of goods’ origin in the wording of the Decision of the CIS Council of Heads of Governments dated October 18, 1996 may be directly applied. The CIS Economic Court also believes that adoption of the Decision dated October 18, 1996  by the CIS Council of Heads of Governments does not contradict to the provisions contained in the Preamble and Articles 122, 130 of the Basics of the CIS Law of Customs as such provisions govern the issues different by their essence.

Advisory Opinion No. 01-1/2-02 dated September 10, 2002 on construing Item 9 in the Rules of identification of the country of goods’ origin, dated September 24, 1993, in the wording approved by the CIS Council of Heads of Governments on October 18, 1996, concerns the terms under which import of goods originating from the State which is a party to the Agreement of April 15, 1994 leads to tariff preferences granted to the residents from other States which also are the parties to this Agreement, and establishes need for direct economic-contractual ties between the residents of the country of origin of goods and the country of entry.

According to Item 9 of the Rules, in the wording of October 18, 1996, which establishes that “the goods shall be deemed originating from the customs territory of the States which are the parties to the Agreement on creation of the free trade area dated April 15, 1994, if such goods meet criteria of origin set by the present Rules, are exported by the resident of any State which is a party to this Agreement, and are imported by the resident of the State which is a party to this Agreement from the customs territory of another State which is a party to this Agreement.

Cancellation of customs duties, and of taxes and fees which have the same effect as the customs duties, granting of tariff preferences for mutual trade of the States which are the parties to the Agreement dated April 15, 1994, have the aim to ensure free migration of goods, services, manpower and capital. Hence, tariff preferences may be granted to the States which are the parties to the Agreement dated April 15, 1994, on the basis of such Agreement, and only for mutual trade between such States.

In the opinion of the CIS Economic Court, destination of goods for the territory of the importing State as a mandatory condition of granting tariff preferences for mutual trade between the States which are the parties to the Agreement shall be identified on the basis of contracts signed by the residents of the States which are the parties to the Agreement dated April 15, 1994, namely: directly between the resident of the State of origin of such goods and the resident of the State of import, or through an intermediary which is a resident of the State which is a party to the Agreement (e.g. a commission agreement, a contract of delivery, etc.). Here the goods shall be imported by the resident of the State which is a party to the Agreement from the customs territory of another State which is a party to the Agreement.

Statement No. 01-1/4-04 dated June 30, 2004 on refusal to entertain the action on construing the Rules of identification of the country of goods’ origin as approved by the Decision of the Council of Heads of Governments of the Commonwealth of Independent States dated November 30, 2000 pertains to issues of criteria applied to refer any materials to those used for end product manufacture.

The CIS Economic Court has refused to entertain the action due to improper jurisdiction of the CIS Economic Court, as construing of any provisions not contained in the agreements and acts of the Commonwealth is outside the Court’s jurisdiction.

In connection with the fact that the claimant was not a subject of reference to the CIS Economic Court, the CIS Economic Court has refused to consider the inquiry about construing of application of paragraphs two and three Item 3.6 Note 3 of the List of conditions, manufacturing operations, and process steps which fulfillment lets the goods to be treated as originating from the country where the same have taken place (Statement No. № 01-1/2-04 dated May 20, 2004).

Judgment No. № С-1/2-97 dated September 15, 1997 on construing the Agreement on the Customs Union between the Russian Federation and the Republic of Belarus dated January 6, 1995 pertains to:

§         Lawfulness of customs control of goods originating from any third countries and imported into the territory of the Russian Federation, by the customs bodies of the Russian Federation, if such goods have earlier undergone customs control and clearing in the territory of the Republic of Belarus and have been let out by its customs bodies for free circulation;

§         Lawfulness of application, by the customs bodies of the Russian Federation, of the provisions set forth in Item 1 Article 4 of the Agreement on the Customs Union, concerning collection of import customs duties, and of taxes and fees which have the same effect as the customs duties, on the goods originating from any third countries, which goods have been let out for free circulation in the territory of the Republic of Belarus and are sold by the sellers, which/who are the residents of the Republic of Belarus, to the purchases in the Russian Federation (or should another procedure be applied in this case, which was established by Item 2 Article 4 in the Agreement on the amounts of export customs duties, and of taxes and fees which have the same effect as the customs duties, on the goods originating from any third countries but let out for free circulation in the territory of the Republic of Belarus, — which duties, taxes and fees shall be collected exclusively in the territory of the Republic of Belarus from the organizations which are the residents of the Republic of Belarus and which sell their goods to the purchasers in the Russian Federation?).

The Agreement on the Customs Union established the procedure, according to which the common customs territory was created, and customs control of the goods transferred between the States which were the parties to the Agreement was cancelled. The common customs territory treatment applies both to the goods originating from the territories of the States which are the members of the Customs Union, and to the goods originating from the territories of any third parties and let out for free circulation in the territory of any member-State.

The CIS Economic Court has noted, that by signing the Agreement on the Customs Union the member-States have created the common customs territory and cancelled customs control of the goods transferred between the member-States, with respect to the goods originating from the territories of the States which are the members of such Customs Union, and with respect to the goods originating from the territories of any third parties which goods have been let for free circulation in the territories of such member-States.

The amounts of import customs duties, and of taxes and fees which have the same effect as the customs duties, on the goods originating from the territory of any third country, shall be paid to the budget of the State which, as of the moment of shipment, is known as the final destination country, in particular — in case of import for reprocessing — the country where such goods will be reprocessed. Since transfer of any goods let out for free circulation in the territory of the Customs Union member-State may by no means be restricted, such mentioned payments shall not be subject to subsequent redistribution.

According to Item 2 Article 4 in the Agreement of the Customs Union, “the amounts of export customs duties, and of taxes and fees which have the same effect as the customs duties, on the goods which originate from the territory of any third party and are exported from the territory of the State of either Contracting Party to the territory of the State of the other Contracting Party, — shall be payable to the budget of the Contracting Party from which territory such goods are exported”. At the same time, governing legislations in force in the States which are the parties to this Agreement fail to provide for any export customs tariff or any other taxes and duties of an equivalent nature on the goods exported from such States.

Advisory Opinion No. С-1/2-97 dated September 15, 1997 on construing the Agreement on the Customs Union between the Russian Federation and the Republic of Belarus dated January 6, 1995, clarifies the procedure of fulfillment, by the Russian Federation, of its respective obligations arising from such Agreement. Directive of the State Customs Committee of the Russian Federation ‘On Customs Clearance of Goods’ No. 01‑12/1310 dated November 28, 1996 establishes that customs clearance and customs control provided for by the customs laws of the Russian Federation shall not be carried out with respect to goods let out for free circulation in the territory of the Republic of Belarus only subject to customs payments made to the settlement account of the representative office of the Russian Custom House in the Republic of Belarus. The Russian Federation was governed by the provisions of Articles 5 and 7 of the Agreement on the Customs Union, which provided for probability to introduce any restrictive measures.

Having analyzed such measures, the CIS Economic Court has come to a conclusion that the list of restrictions specified by Articles 5, 7 is exhaustive. Such restrictions shall be caused by exception conditions of economic nature (e.g. by severe shortage of certain goods in the national market; critical imbalance) or shall be conditioned by national security, public order, health and morals of the population, cultural and historical heritage, conservation of endangered animals and plants; such restrictions shall be imposed in accordance with established procedure and be of temporary nature.

The CIS Economic Court believes that since the list of grounds specified in Articles 5, 7 of the Agreement on the Customs Union is exhaustive, so customs control and customs clearance established with respect to all range of goods originating from the territory of any third parties violated provisions contained in Articles 5 and 7 of the Agreement on the Customs Union. Therefore unilateral introduction, by the State Customs Committee of the Russian Federation, of customs control and customs clearance with respect to goods originating from the territories of any third parties and let out for free circulation in the territory of the Republic of Belarus represents breach, by the Russian Federation, of its respective obligations arising from the Agreement of the Customs Union between the Russian Federation and the Republic of Belarus, dated January 6, 1995.

Should there be a conflict between the norms contained in the Agreement and the national laws of the States which are the parties to such Agreement, the norms contained in the Agreement shall prevail as they have direct action in the territories of the States which are the parties thereto.

Advisory Opinion No. 01-1/4-98 dated November 2, 1998 on application of provisions contained in Item 1 Article 3 of the Agreement on creation of the free trade area dated April 15, 1994 clarifies the following:

-         What taxes and fees are equal to the customs duties;

-         Whether Item 1 Article 3 regulates the issues of indirect taxation, i.e. whether the value added tax and excise tax may be deemed provided for by such Item as the taxes which effect is equal to the customs duties;

-         Whether Item 1 Article 3 applies to all state taxes levied on any imported/exported goods in compliance with the national legislation.

The CIS Economic Court has come to a conclusion that the Agreement dated April 15, 1994 corresponds, in the whole, to the principles of creation of free trade areas, as approved by the world practice and established, in particular, in the General Agreement on Tariffs and Trade (GATT) dated October 30, 1947. In contrast to GATT, the Agreement of April 15, 1994 also establishes the principle of exemption of goods originating from the customs territory of any State which is a party to this Agreement and destined to the customs territory of the other States which are the parties thereto, both from import and export customs duties and fees, and of taxes which are of equivalent effect.

The customs payments which are of equivalent effect shall be deemed any customs duties, taxes and fees of tariff nature, levied on imported and/or exported goods which originate from the customs territory of either State and are destined for the customs territories of the other State which are the parties to the Agreement dated April 15, 1994, except for fees provided for by Article 5 of the Agreement. Nevertheless, in spite of the fact that value added taxes and excises are the customs payments and have a number of formal and substantial features common with those of the customs duties, the CIS Economic Court believes that they may not be regarded as payments which effect is equivalent to that of the customs duties. Since application of various tax collection principles leads to the number of substantial financial and other problems, the Court has recommended that the States which are the parties to the Agreement dated April 15, 1994 should define more exactly the wording of Item 1 Article 3 of the Agreement in accordance with similar provisions of the international treaties approved by the world practice, in particular, GAT dated October 30, 1947, and expand the Agreement by adding the norms which establish a direct taxation mechanism and procedure of unification thereof, or to sign a separate agreement on such issue.

Judgment No. 01-1/3-04 dated November 10, 2004 on construing the Agreement on common terms of goods delivery between the organizations of the States which are the members of the Commonwealth of Independent States, dated March 20, 1992 clarifies the term of “intergovernmental economic ties” and establishes whether the norms of this Agreement apply to goods delivery relationships between the economic entities of different countries within the Commonwealth not based on economic agreements, and if so, then to what extent.

The cause for the inquiry was given by the facts that the courts (arbitrages) of the member-States applied Item 17 of the above Agreement to the contracts of delivery signed between legal entities of the CIS member-States, and declared loss of contracts by virtue of absence, therein, of such an essential provision as shipping details.

The CIS Economic Court has ascertained that the subject-matter of the Agreement dated March 20, 1992 was to specify common conditions of deliveries between the organizations of the CIS member-States, and at the same time to ensure equal responsibility of economic entities within the CIS economic space. Thus, the term of “intergovernmental economic ties” covers economic relations between the economic entities from different States which are the parties to the Agreement, irrespective of the grounds of arising thereof: whether a delivery contract is signed by the economic entities independently, or a delivery contract is signed by the economic entities on the basis of any intergovernmental economic agreements.

Nevertheless, the list of essential terms of delivery contracts, contained in the Agreement of March 20, 1992, shall apply only to the contracts of delivery signed on the basis of intergovernmental economic agreements (delivery for the state needs). In any other cases the principle of freedom of contract shall apply.

The CIS Economic Court has stated that the mechanism of organization and formation of economic ties under delivery contracts signed for the state needs, as established by Items 7 to 10 of the Agreement, is not applied currently. In this connection, the Court recommends that the States which are the parties to the Agreement of March 20, 1992 should consider reasonability of either entering alterations in the agreement, taking account of new market realities, or cancellation of the same.