Exclavity under globalization. Selected works

The development strategies of the Kaliningrad region

In the aforementioned table there are 16 conceptions of the regional development showing various combinations of economic and political scenarios. Actually, some combinations are impossible to implement, so they have never been seriously considered. For instance, an independent state could be developed only according to the D 4 scenario, which presupposes the region’s leaving the common economic space of Russia. That is why, the D1 – D4 variants have not been considered. It is impossible to imagine a Russian region, an entity of the Russian Federation leaving allRussia economic space (the B 4 scenario). At the same time, a special political status cannot be granted, given a common economic regime (C 2). In reality, only one from the abovementioned scenarios is unfolding now – the B3 scenario. In accordance with it, politically, the Kaliningrad region is a region of the Russian Federation, one of many equal regions, while economically, Kaliningrad is granted the status of a special economic zone.

Four approaches to the development of the regional strategy

1. An ordinary region of the Russian Federation enjoying strong federal support

This approach takes as read that the region is be treated as an ordinary region of the Russian Federation that requires strong federal support. Special attention should be given to the position of the region within the all-Russia economic space, as well as to enhancing economic security of the region. This approach highlights the necessity of retaining the region in the all-Russia economic space and solving the problems of its economic security. Finally, it presupposes enhancing the role of the federal centre in the region. These views achieved great popularity in the late 1990s, when the economy of the region experienced a deep crisis and it was difficult to propose a way of overcoming it. Many researchers got disappointed in the mechanism of a special economic zone, and seriously considered it to be unacceptable. They emphasised that a fur-

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ther destabilization of the economic situation in the exclave and lack of attention to the Kaliningrad region from the federal authorities posed a direct threat to the national security. “The conclusion is quite obvious: a special regime of state administration, with enhanced functions of the federal authorities, the regime, different from other regions, should operate in any area granted a special economic status”1.

It was proposed that new territorial bodies be established with the aim of enhancing the federal presence in the exclave:

a plenipotentiary representative of the Government of the Russian Federation in the SEZ

(the rank of a minister of the federal government) directly subordinate to the Prime Minister; his functions are to supervise the activities of the Directorate of the Federal Special Programme of the Development of the SEZ, as well as exercise control over the implementation of the federal programmes in the region;

a territorial interdepartmental council of federal executive bodies (as a permanent advisory body under the plenipotentiary representative).

Similar ideas of enhancing the federal presence in the region (while retaining the mechanism of the SEZ) were supported in a

number of publications prepared on the basis of research carried out by Kaliningrad experts2. These ideas were included in the draft law on the Special Economic Zone in the Kaliningrad region that posited centralized management of the federal programme of the regional development.

V.S. Bilchak points to possible threats to the normal viability of the region’s economy, which may affect energy, transport, food provision, information, as well as military, political and ideological

1Smorodinskaia N., Kapuspian A., Maligin V. Kaliningradskaia oblast kak svobodnaia economicheskaia zona (otsenka resultatov I uslovii razvitia v 1994—1998 godah). Voprosi economiki, 1999. № 9. P. 107

2See: Abramov V.N. Perspectivi Kaliningradskoi oblasti// Doscussionnie voprosi regionalnogorazvitia/ region sotrudnichestva. 2001. .№ 17. P. 4— 21; Khlopetskiy A.P. Kaliningrad kak “zona svobodi”: vzgliad iznutri. Kaliningrad: Iantarniy skaz, 2000.

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The development strategies of the Kaliningrad region

aspects. These threats constitute a danger to the national security of Russia. The author proposes elaborating “a strategy aimed at ensuring economic security of the exclave and elaborating mechanisms of its provision in order to avoid the threats”3.

V.V. Ivchenko rejects the “uniqueness” of the region as a factor necessitating the adoption of the law on the SEZ. He proposes that the region be considered similar to other border region of Russia facing similar problems (the exclave position is thus considered to be similar to the position of a border region). The author enumerates the main strategic aims of Russia in the Kaliningrad region:

retaining the region within the common economic and political space of Russia;

ensuring sustainable economic development of the region in the interests of the development of the whole country;

retaining the presence of the military contingent in the region4.

Direct federal political, legal and economic support of the regional development aimed at ensuring the region’s economic growth and providing a high level of employment in the region is the basis for the implementation of the regional development strategy.

Considering the prospects of the SEZ, V.V. Ivchenko believes that introduction of export-oriented production is impossible in the next 8—10 years. So, the scholar substantiates the advisability of the import-substituting strategy of the regional development in the next 10—12 years. The author considers the maritime complex (including the fishing industry and marine transport) one of the main priority branches for the regional development. Another priority is the development of transport links between Kaliningrad and St-Petersburg. Besides, scrupulous attention is given to a pos-

3 Bilchak V.S. Prigranichnaia economika. Kaliningrad: Iantarniy skaz,

2001. P. 271.

4 Ivchenko V.V. Programmno-strategicheskoie razvitie primorskogo regiona Rossii. Teoria, metodologia, praktika. Kaliningrad: Izd-vo KGU, 2003. P. 72.

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sibility of establishing joint Russian and foreign science and technology parks, provision of support for the development of SMEs, and setting up local special economic zones, as well as to implementation of educational and ecological projects.

2. A region with special regulations regarding its economic activity

It is necessary to consider the Kaliningrad region as a special region within Russia, resolving issues of the regional development by means of a special federal economic policy regarding the Kaliningrad region. The programme includes a set of special economic tools - a special economic zone regime and financial support provided by the Federal Special Programme aimed at the development of the Kaliningrad region.

In fact, this is exactly how the strategic aims of the regional development were viewed by the regional authorities. Since the beginning of the 1990s this very course aimed at combining the federal and regional interests has been implemented. International aspects are taken into account when urgent issues that may influence the viability of the region arise (e.g. the problem of passenger and cargo transit that has become particularly acute after the accession of Lithuania to the EU).

The Free Economic Zone «Yantar»

On July 14, 1990 the Supreme Council of the Russian Federation declared the Kaliningrad region (together with 5 other regions of the Russian Federation) a zone of free entrepreneurship. The regional executive committee was asked to provide the necessary documents for the legal registration of the zone within a 2 month period. The chairman of the Supreme Council of the Russian Federation signed the order “On the economic status of the Free Economic Zone in the Kaliningrad region” on July 3, 1991. Then the decree of the Council of Ministers of the RSFSR from 25.09.1991 № 497 “The regulations on the Special Economic Zone in the Kaliningrad region (the SEZ “Yantar”) was approved and put into

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effect. The SEZ covered the territory of the whole region with the exception of the defence facilities located in the region.

According to the decree on the SEZ “Yantar” the mechanisms of the special economic zone regime included:

the regime of a free customs zone, i.e. exemption of all duties on export and import operations;

free trade between the region and other Russian regions (including duty free delivery of goods produced in the region to other regions of the country);

attracting investment (especially foreign investment) and boosting economic activity, including:

taxation benefits for enterprises-residents of the SEZ, especially joint-ventures and foreign enterprises;

registration of enterprises (with a share of foreign investment up to 75 million roubles) directly by the Committee on the Development of the SEZ «Yantar»;

unhampered export of profit for foreign investors;

guarantees for foreign investment in the form of a property deposit of the Kaliningrad region (although appropriate rules were not elaborated, and for this reason, the mechanism has not been implemented in practice);

centralized financing of the zone infrastructure development and tax credits for financing investment project; in 1994—1996 the region was given a 200 billion tax credit for 5 years (in current prices).

The procedure of obtaining a Russian visa and its registration in the Kaliningrad region was simplified for foreign citizens.

Unfortunately, the provisions of the Decree on the Special Economic Zone were not fully or even partially taken into account by the State Customs Committee, the Ministry of Finance, and the Ministry of Foreign Trade. So, the regional authorities focused their effort on the elaboration and lobbying of a special law which was to ensure stability of preferential economic regime in the oblast.

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The Law ØOn the Special Economic Zone in the Kaliningrad regionø

The federal law “On the Special Economic Zone in the Kaliningrad region” of 22.01.96 had a positive impact on the elaboration of documents regulating the development of the economy of the region. The law provided favourable conditions for the social and economic development of the region. The SEZ and its mechanisms were to be elaborated on the basis of the Federal Programme of the Development of the Kaliningrad region. According to the law and the resolution adopted earlier on the SEZ «Yantar», the SEZ covers the territory of the whole Kaliningrad region, with the exception of defence facilities. The administration and management of the SEZ are responsibilities of the regional authorities. At the same time, this law is less detailed compared with the Resolution on the SEZ «Yantar», as the law does not sufficiently tackle ways of attracting investments.

The law primarily regulates import and export operations by providing customs benefits. It was decided that customs duties and other customs fees for the registration of goods are not to be imposed on certain kinds of goods: firstly, on goods produced in the SEZ and exported to other countries and to the rest of the RF (including the territory of the Customs Treaty); secondly, on goods imported from other countries to Kaliningrad for the regional consumption or for export to foreign countries (i.e. processed goods as well as non-processed goods).

All import customs fees and other duties for customs registration are imposed on goods which are imported to the region and then exported to other Russian regions. The non-tariff state regulations of international trade can be imposed on such goods as well. The quota mechanism protecting the internal market has been used for imported goods since 1998. Quotas on tax free import are sold at auctions and the revenue thereof goes to the regional budget (although in practice it goes to the federal budget because there is no established practice as to how the money should be spent).

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The process of defining the origin of goods manufactured in the SEZ is established by the State Customs Committee of the RF in agreement with the regional authorities. Goods are regarded as having been produced in the SEZ if the added value of their processing exceeds 30 percent (15 percent for electronics and high-tech household appliances). Apart from that, processing will lead to a change in the goods code according to the List of Goods of the RF - any of the first 4 digits of the goods code can be changed and for certain goods - any of the first 5 digits. Simple assembly operations, preparation of goods for sale and their transportation do not meet the criterion of “sufficient processing” that would allow to enjoy the benefits of the Special Economic zone.

However, the law on the SEZ is not a law of “a direct impact”, and some of the regulations originating therein require additional coordination. The law should not contradict the newly adopted laws. Some regulations ceased to function after the adoption of the Customs Code and the second part of the RF Taxation Code (benefits on excises and taxes on added value on imports, and investment benefits for income taxation). The economic mechanism, defined by the law, resulted in tax benefits, quotas on tax free import and changing the order of defining the origin of locally produced goods .

The Special Federal Target Programme of the Development of the SEZ in the Kaliningrad region for the period 1998 — 2005 was adopted in accordance with the law on the SEZ in 1997. However, the programme was not sufficiently financed (only 3 percent of the planned sum was received during 1998 - 2001). For that reason the Special Federal Programme “The development of the Kaliningrad region for the period up to the year 2010” was adopted by the RF Government Decree on December 7, 2001. More than 93 billion roubles is necessary for its implementation. 19 percent of the sum is allocated from the federal budget and 5 percent - from the regional one. The rest, actually the bulk of the investment, should come from enterprises' assets, bank credits, foreign credits etc. Particular attention in the framework of the programme is paid to the branches of the regional economy which are of federal importance,

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as well as the ones which are of great importance for the economy of the region. The priority areas emphasized by the programme are transport, energy, communications, the fish processing industry, the amber processing industry, tourism and recreation, agricultural and industrial complexes. The level of financing planned in the programme has not been reached yet. Nevertheless, the region receives considerable financial support from the federal budget in order to implement infrastructure projects, which are important for the region.

3. A region with a special political status

Since Russia allegedly does not possess sufficient resources to ensure appropriate conditions for regional development, it is proposed that the assistance to the region from western countries (first and foremost, the European Union) be enhanced and that the Kaliningrad region be assigned a special political status.

This approach is characterized by a variety of conceptions formulated in different ways but having one common goal — the separation of the region from Russia. A large number of similar projects were proposed in the past (especially in the first half of the 1990s):

migration of Russian Germans to the region and the transformation of the region into a Baltic German Republic within Russia;

the region's joining Poland and (or) Lithuania;

the region’s returning to Germany;

restoration of East Prussia (as a sovereign nation) on the former Prussian lands that currently belong to Russia, Poland and Lithuania;

establishment of a condominium over the region — a joint administration with various members (the European Union, Russia, Germany, Poland, Lithuania, Sweden were suggested);

the region's transformation into the fourth independent Baltic

State.

Initial proposals from western states concerning the future development of the region were not based on any scientific research and resembled a simple declaration of intentions. So, at the begin-

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ning of 1988 a member of the council of “Deutcshe Bank” (FRG) V. Christians proposed that the Soviet Government establish a special industrial zone called “K” (“Kaliningrad” and “Koenigsberg”) with tax and investment privileges as a common Russian-German joint project to be implemented in the years to come5. Concepts of “the Kaliningrad industrial zone” with special investment and tax privileges for GDR enterprises and, at a later stage, for enterprises of other states, were published in the Russian press. These plans were not implemented, but they encouraged a certain popularity of the concept of the free entrepreneurship zone (later the SEZ «Yantar»).

The work of the company IEDC USA (International Economic Development Corporation) on an agreement with the regional and city administration which was signed in 1991 was the first attempt of an in-depth study of the region by foreign specialists. The essence of the ideas stated in the report on “the prospects for economic restoration of the Kaliningrad region” is the establishing of economic control over the region, which was supposed to be exercised through setting up a corporation of economic development under international patronage, facilitating investment policy implementation and ensuring enhanced privatization.

Ideas of the setting up of the financial corporation for the region's development with foreign participation and even control prevail in many other conceptions. For example, in his project of 1992 Mr Schtolz (Germany) considers the establishment of an EU protectorate over the region as the most efficient of all numerous scenarios.

The report of the international researchers' group ordered by the Estonian Council “The Hanseatic Baltic region” proposed integration of the region into the Baltic Community which includes Estonia, Latvia, Lithuania and the Euro-region Koenigsberg. The idea of economic integration itself is worthy of attention. However, the authors of the report substantiate an attempt to separate the Kaliningrad region from Russia and create the so-called Koenigsberg euroregion. So, this or any similar conception is not acceptable for the Russian Federation.

5 Christians F. Wilhelm. Wege nach Russland. Hamburg, 1990. S. 180.

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There were other proposals (e.g. a financial corporation proposed by IEDC) made by Russian research groups concerning the creation of a monopoly in the sphere of financing the regional development. The Russian Political Conjuncture Centre proposed establishing a regional section of the state administration in the form of “Russian state concerns” (RSC) limited companies. Their assets in form of land, natural resources, federal and regional shares in privatized state enterprises, buildings and capital equipment are owned by the RF and the Kaliningrad region. Some RSC shares were supposed to be allocated to the “state ownership of the bordering states” and representatives of their governments were to be included into the RSC Management, thus “creating a precedent of international governance of the territory without infringing on the sovereignty of Russia”6.

The suggestions of the so-called “Baltic Republican Party” to create “the fourth Baltic Republic” in the region (and later suggestions to transform the region into a republic within the Russian Federation) were offensive, odious and lacked any scientific basis.

At present the proposals are less odious. Nevertheless, political aspects prevail in the approach of many western authors. The drawbacks and difficulties of the regional development are exaggerated, and the region’s proneness to conflict is emphasized7. As a solution, the researchers propose a more active economic integration of the region into the Baltic economic space, the establishment of an international investment and financial corporation under foreign control (sometimes with Russia's participation) and enhanced adaptation of the region's economy to the norms of the EU8. The basis for such offers can be formulated in the following way:

6Konepcia reginalnogo razvitia Kaliningradskoi oblasty Rossiiskoy Federatsiy // Centr politicheskoi konkunkturi Rosii. M., 1994. P. 28, 116.

7See: Wellman Chr. Kaliningrad als Konflitsyndrom // Die FriedensWarte (Berlin). 2000. Nr 3—4. S. 391—406.

8The concept of the pilot region was suggested and is elaborated by the East-West Institute, the Kaliningrad regional development agency and other organizations, including groups of experts, forming the Association of international experts on the development of the Kaliningrad region.

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