A commentary written for the Kaliningrad Region Experts Development Association.
It becomes more evident with the time that the existing SEZ in Kaliningrad will not last for long. Other ideas and options are discussed, including other designs for the Zone as well as its complete abortion. At the end of 2003, Mr. Shuvalov, Deputy Head of the Presidential Administration, was put in charge of working on a federal development concept for the region. The ideas of the Shuvalov’s Group are heavily criticized in the Kaliningrad Oblast. Due to the exclave position of Kaliningrad, the mere repudiation of the SEZ regime presents itself as a catastrophic policy option. The question of the replacement for the current SEZ remains open. 1. The inevitability of giving up the current SEZ regime in the medium- and long-term becomes more evident due to the two main reasons. First, it is possible to assume that the specific regime of the customs preferences in Kaliningrad contradicts the GATT norms. Secondly, the impact of the SEZ on the balance of payments as well as on the whole of the Russian economy is ambiguous due to the fact that the SEZ promotes imports creating conditions for the circumvention of the customs duties and indirectly subsidizing imports from the federal budget due to the absence of the VAT. Besides, the current Russian federal economic policy is targeted at the abandoning of the non-monetary privileges in favor of the more transparent monetary schemes.
2. In my opinion, the “Shuvalov’s project” contains two correct and two incorrect policy ideas. Let us begin with the correct ones. The project provides a ten-year long transition period when both the old and the new regimes would co-exist. The idea of a prolonged transition period is to be wholly supported. The regional enterprises would need a substantial time to re-orient their production lines and business processes. Acting in a hurry can become disastrous for the Kaliningrad regional economy: it can stop overnight as it already happened once in the beginning of 2001. Securing the minimal term of the SEZ existence (25 years) in the federal Law seems to be the right measure, too.