Competitiveness of the National Jurisdiction: Prospects and Areas for Development

Experts of the 9th St Petersburg International Legal Forum discussed ways to promote foreign investment and establish a friendly regulatory environment in an effort to ensure competitiveness of national jurisdictions.

Kicking off the discussion, Stanislav Aleksandrov, Member of the Board of the All-Russian Non-Governmental Association of Lawyers of Russia, noted that all expert opinions they voice at the Legal Forum sessions will be included in the national jurisdiction development report, titled “National Jurisdiction. Towards a Competitive Legal Framework in Russia.”

Igor Bartsits, Director of Institute of public administration and civil service at the Russian Presidential Academy of National Economy and Public Administration, said that the today's world requires jurisdictions to be open and to provide for a high-quality infrastructure. This is what makes them attractive and is key to development of the nation.  Mr. Bartits also noted that legal systems from all over the world are in competition with each other. “The development of the Russian legal framework does not proceed as fast as planned and we cannot help but see the challenges related to the gap between the progress of economic institutions and the development of the legal system. . . . The Russian system should develop exclusively in an intensive and progressive manner,” Mr. Bartits emphasized. 

Andrey Nazarov, Co-Chairman of the “Business Russia” All-Russian Public Organization, focused on how foreign investors see the Russian jurisdiction. “In the poll we conducted last year, 50% of foreign investors said that the Russian jurisdiction is unsuitable for investment. Among the reasons they quoted were: low efficiency of state governance, potential of criminal prosecution and competition with businessmen who have ‘pre-arranged support’ from law enforcement institutions,” he noted.  

Mr. Nazarov is convinced that Russia needs to have its law enforcement and judicial system reformed in a consistent and consequential manner, while relieving commercial courts by redirecting litigations to arbitration and using modern technologies. “Being a trend-setter in legal matters, England starts introducing new tools, like online justice, an electronic system where small cases can be dealt with without any additional steps. One billion pounds is allocated for the implementation of this system over six years, while our Digital Economy national project, worth 1.6 trillion rubles, does not mention justice or court system at all for some reason. Since we are competing with other jurisdictions, let's use these tools to move forward. I’m convinced that we have the potential to become one of the best jurisdictions in the coming years. We are not there yet, but we have made a huge progress compared to what we had five years ago,” Mr. Nazarov said.

Hiroshi Oda, Professor at the University of London (UCL), told the audience he had recently finished a book on arbitration in Russia and elaborated on the related issues.  “A jurisdiction is attractive for foreign investors only when the judicial system is functioning correctly. Arbitration needs support and assistance, not intervention from the courts. Unfortunately, this is not always the case in Russia. . . . The litigation practice still calls for improvement, for instance in the understanding of arbitration as such. I hope that this will be improved in the future; only in this case will foreign investors want to come to Russia,” he concluded.

Dmitriy Pristanskov, State Secretary — GR Vice President at MMC 'Norilsk Nickel' PJS, specified three prerequisites for a competitive jurisdiction: extending the potential of preferential tax treatments, ensuring consistency and integrity of the regulatory framework as well as creating a solid legal foundation for the development of the digital economy.  On top of this, Mr. Pristanskov also deems it necessary to classify all the preferential treatment regulations currently valid in Russia. “Consistency and integrity of the terms of any investment project, whether profitable, commercially successful or being in the public interest, are crucial aspects which ensure the competitiveness of any jurisdiction, including ours. . . . One of the global best practices is the grandfather clause, which protects the rights of investors. Today, Russia finally started drafting policies which will at least guarantee that ongoing investment projects will continue to enjoy the same or better tax- and tariff-related treatment and other conditions,” he explained.

Elena Bezdenezhnykh, Vice-President-GR at RUSAL, shared her opinion on promoting foreign investments to Russia and on issues with preferential treatments. “Applying our norms is challenging for foreign investors, and this does not only apply to preferential treatments. They are not able to understand it as a law nor intuitively. Their measure of justice and justness differs from what our preferential treatment and law enforcement policies are built upon,” she explained.

Ms. Bezdenezhnykh also added that foreign investors do not understand how preferential tax treatments are distinguished from each other. According to her, lawyers “should take a look at how they understand our law” and introduce a “legal Esperanto” for the businesses. “By adopting legal norms from the countries we want to attract investment from, we make that first step required to have these investors on board,” she concluded.

Aleksandr Kalinin, President of the All-Russian Non-governmental Organization of Small and Medium business OPORA RUSSIA, reminded everyone that it’s not only necessary to attract foreign businesses but also to protect Russian companies. “Our legal system keeps imposing additional costs on businesses, which is unacceptable, as it forces the businessmen to constantly revise their business models. This is what we hear from our foreign partners: ‘How are we expected to invest if the rules of the game can dramatically change within a year?’ We have seen a sharp decline in foreign investment this year. Before we start attracting foreign investors to the Russian jurisdiction, let's at least stop Russian businesses from leaving into foreign jurisdictions,” he said.

Other panel participants also included Victoria Burkovskaya, Partner at Egorov Puginsky Afanasiev & Partners law offices, Alisa Burkhard, Lawyer at Altenburger LTD, Prashant Kumar, President Elect of the Bar Association of India, Jeff Leong, Chairman of the LAWASIA Securities, Corporate and Investment Law Committee and Founder of Jeff Leong, Poon & Wong, Rustam Romanenkov, Deputy General Director for Legal, Corporate and Property Issues at Gazprom Neft Shelf, and

Felipe Santa Cruz
, National President of The Brazilian Bar Association.