Distinguishing Features of the Defi nition of Foreign Economic Activity

Vladimir A. Bublik, Doctor of Law, Professor, Department of Entrepreneurial Law, Ural State Law University,

Anna V.Gubareva, Candidate of Law, Associate Professor, Department of Entrepreneurial Law, Ural State Law University, Yekaterinburg, Russia

The authors analyse substantial elements of the “foreign economic activity” concept that refl ect its public and private law characteristics. The authors suggest their understanding of the “foreign economic activity” concept, its properties and specifi c features.

Key words: foreign trade legislation, foreign trade-related risks, foreign economic activity, participants of foreign economic activity.

1.1. In terms of philosophy, activity is a specifically human attitude towards the world, a process of reproduction and creative transformation of the nature by a human being that makes him an active subject of his activity and the processed natural phenomena – the object of this activity[1].

Nevertheless, this definition does not take into account that the human being interacts not only with the nature and objects but with other equally active people. It does not concern the inner activity when a personality is formed and developed[2]. There is an opinion that not every interaction with the nature should be regarded as activity (for example, the act of behavior in certain situations – handshake, courtesy bow etc.)[3].

We consider the most appropriate definition to be the one by M.S.Kagan, who viewed activity as a historical phenomenon that “appears, changes and develops together with the development of social relations which are served and constantly changed by it”[4]. At the same time, he says that the human activity “absorbs biological vital functions which, in turn, are based on the form of activity that is characteristic for vegetation”.[5]

According to this approach, the human activity includes everything that a human being does. In our opinion, this is correct, since a human being who differs from animals only by his consciousness depends both on consciousness and biology. Hence, every action and activity bear the imprint both of reasoning and biological vital functions. It is inadmissible to exclude from the definition of activity interactions with the world that are, at first sight, done spontaneously and without reasoning. A human being does nothing without reasoning and only after gaining results of his actions or activity assesses them in the light of achievements and afterwards labels them as deliberate or unconsidered.

Still, Kagan’s concept, in our opinion, has a number of shortcomings because he equates a human[6] being with the subject. This makes all interactions be considered within the subject-object scheme. Therefore, the possibility of mutual influence between individuals during counter-activities is negated.

To sum it up, the common approach of philosophers towards the definition of activity is that it is a specific human form of relationship with the world.

The legal science also lacks unity in definition of activity for legal reality.[7] But we share the researchers’ view that, for legal purposes, social activity is equal to social relations[8]. Therefore, for the legal purposes, the foreign economic activity should be understood as a complex of social relations.

1.2. Recognition of foreign economic activity as a kind of economic activity corresponds both to the current legislation of the Russian Federation and еру opinion of legal scholars[9]. But neither Russian legislation nor legal doctrine can definitely determine whether foreign economic activity is entrepreneurial or not.

A deep and comprehensive definition of entrepreneurship was given by V.S.Belykh[10]. Having analysed the legal definition of entrepreneurship (Article 2 of the Russian Civil Code), studies ин V.F.Popondopulo[11], I.V.Ershova, T.M.Ivanova[12], O.V.Tishanskaya[13], V.A.Semeusov[14] and others, he suggests the following normative attributes of entrepreneurship. Mandatory attributes are: profit-oriented and venturous activity. Optional attributes are: autonomous, systemic and state-registered activity. Considering the deep analysis of the issue and well-reasoned approach, we adhere to this understanding.

The analysis of current legislation shows that foreign economic activity only relatively matches the normative attributes of entrepreneurship.

Entrepreneurs’ activity has the purpose of systematic profit-gaining, but this is not considered by the Russian legislation to be a mandatory attribute of foreign economic activity. One of the purposes for concluding and fulfilling foreign trade contracts by economic agents is to receive currency proceeds. The difference between the currency proceeds and profits is reflected both in administrative procedures (obligatory issuance of transaction passport[15],  compulsory sale of foreign currency proceeds on the Russian internal currency market[16], a special procedure for proceeds entry to the residents’ bank accounts[17]) and in the fact that receiving proceeds means income but not necessarily profit. Therefore, it is correct to speak about the reciprocal base for foreign economic activity rather than about profit-gaining.

Risks are a substantial attribute of entrepreneurship. V.A. Oigenzicht defined risks as “a psychological attitude of subjects towards the results of their own or other people’s actions, or a possible consequence of objective incident and incidentally impossible acts, expressed in conscious assumption of negative, even irreparable, outcomes”[18].

Indeed, the existence of risk, i.e. a potential possibility of negative material consequences, is particularly relevant to foreign economic relations. These are risks associated with instability of currency exchange rates[19], application of foreign law[20], price fluctuations on commodity markets, bank transfers, shipment[21], etc[22].

But one of the most important peculiarities of certain risks in foreign economic relations is their non-commercial nature. Some risks in foreign economic sphere differ essentially from the internal ones. R.Bradgate and N.Savage determine several kinds of risks in the sphere of trade, including physical, commercial, legal and political risks.[23] These risks are insignificant or even extrinsic for internal trade.

It is special (political and non-commercial) and not common (commercial) risks that are prevalent for a foreign right holder in his activity on the Russian territory[24]. Since foreign economic deals include payment in the form of international transactions, therefore, the usage of foreign currency in these transactions is an inherent attribute that determines the international character of foreign economic deals[25]. Hence, the important peculiarity of a foreign economic contract is the existence of “currency reservation” – the term included to protect the creditor and exporter from the currency risk (a fall in exchange rate of the payment currency in the period between the making of a contract and actual payment). This kind of risks is of commercial nature and may be minimised either by usage of stable currency to designate the payment or by anchoring the price of commodity to the currency exchange rate or by usage of basket of currencies[26].

At the end of the 1960s-the beginning of 1970s, the International Economic Law elaborated the concept of “country risk” based on determining the risk of international business as instability of profitability of international commercial operations due to events in a certain country. “Country risks” appear for foreign business people or investors during their activity on the territory of other countries. For a business person, “country risks” mean the possibility of non-fulfillment of concluded international contracts, material or financial injuries or losses as a result of some social, political or economic events[27]. A striking example of this risk was the conflict between the shareholders of “Belarus Potassium Company” in autumn 2013[28]. As a classic example of a “country risk” we can mention the abandonment of the “New Economic Policy” in the USSR that led to the annulment of all concession agreements with foreign investors.

But it is not only economic actors who fall under the risks of economic activity abroad. The state organs which control foreign economic activities of business entities are also prone to risks[29]. Therefore, it goes without saying that foreign economic activity is risk-attached, but the nature of these risks differs substantially from those related to the ordinary entrepreneurship.

The current legislation does not include the condition of systemic exercise of foreign economic activity. It could be once-only and, furthermore, non-professional.

Foreign economic activity is independent. Even when the participants fulfil an international agreement, they determine the terms of concluded contract by their own will and in their own interests.

1.3. Participants of foreign economic relations could be Russian and foreign persons. A Russian person is a legal person established under the Russian legislation, or a natural person constantly or predominantly residing on the Russian territory, a Russian citizen or Russian resident, or an entrepreneur registered under Russian legislation. A foreign person is a natural person, a legal person, or another organization that is not a legal person under foreign law, which is not a Russian person.

As a rule, foreign economic activity is fulfilled by a person who was registered as an entrepreneur. But the current legislation[30] allows participation in the foreign economic activity by non-commercial organizations, persons that are not registered as entrepreneurs, and also public entities and international organizations.

The intensive development of Internet commerce resulted in active participation of non-entrepreneurs in cross-border trade. According to the study of PayPal company “Modern Spice Routes: The Cultural Impact and Economic Opportunity of Cross-Border Shopping”[31], the turnover of consumer cross-border market in the USA, Great Britain, Germany, Austria, China and Brazil in 2013 was estimated at 103 billion USD. By 2018, it will have grown 200%, the turnover will have reached 307 billion USD and the number of customers will be 130 million people. The study underlines that in 2012 the Russian cross-border trade market was one of the world’s five fastest growing markets for sellers from the USA, Great Britain, Germany, Austria, China and Brazil. The study resumes that in cross-border shopping, the whole world is open for the consumer, he/she is not restricted by borders, and the use of Internet saves money and gives access to the merchandise worldwide. An increase in cross-border trade forced China to regulate this market and adopt the first law on regulation of Internet commerce. The complete package on Internet trade is to be ready by mid-March 2014. By that time, the turnover of the market is expected to double[32] (in comparison with 2013) and reach 356,1 bln USD[33].

The Russian market of cross-border trade grows fast. The President of Association of Internet-Trade Companies Mr. Sergey Rumyantsev said that according to their preliminary prognosis, the size of cross-border trade will have reached 100-120 bln rubles by the end of 2013, which is double the size of 2012; therefore, this market cannot be ignored[34]. Indeed, this market cannot be ignored, because the estimates of the Russian Customs point out that 80% of international parcels coming to Russia contain the merchandise bought in the Internet[35]. The swift growth of cross-border shopping in Russia made it “one of the most important forms of merchandise movement, comparable to shuttle-traders business”, according to the head of the Russian Customs Service[36]. It is believed that the reason for this growth is a high limit for customs-free postal import. According to paragraph 16 of Supplement 3 to the Russia-Belarus-Kazakhstan Agreement on the procedure of movement of goods by natural persons for personal usage through the customs borders of the Customs Union, signed on June 18, 2010[37] Russian citizens do not pay customs duties and taxes for personal goods sent by international postal services unless they exceed the equivalent of 1000 euro and the weight of 31 kilo within one month.

The annual size of cross-border shopping by the Russian citizens without legal status of entrepreneur is currently comparable to federal budget expenses for building sports infrastructure for the Sochi Winter Olympics 2014[38]. We believe that this kind of shopping should be considered as a foreign economic activity and fall under an applicable legal regime. Respectively, buyers should be treated as subjects of foreign economic activity.

Still, professional entrepreneurs are the bulk of participants in foreign economic activity. The bilateral or multilateral economic character of these relations means that at least one side acts as an entrepreneur.

Therefore, foreign economic activity should be considered quasi-entrepreneurial, because it has substantial differences from any other kind of entrepreneurship.

1.4. Quite often relationships in the foreign economic sphere are determined as civil relationships with a foreign element. The definition of “foreign element” is widely studied in International Private Law, and it is not always equal to foreign citizenship of participants. Relations with the foreign element include relations with a foreign participant, or relations with the object abroad, or relations started or concluded by concerning a legal fact that happens to be abroad.

But this definition can be used only for the purposes of International Private Law. For example, currency legislation regulates relations between Russian residents and non-residents concerning circulation of currency values, Russian rubles and securities. It also regulates[39] relations between residents concerning the circulation of currency values[40] which lack a foreign element as it is understood in International Private Law. But both kinds of relations deal with the movement of resources (money) between national economic systems. The legal regulation of customs relations is also centered on imports and exports of commodities through the Russian border[41]. The main goal of exports control is to prevent illegal export from Russia of goods, information, services and intellectual property that can be used for weapons of mass-destruction, means of its delivery, other kinds of armament and defense technologies, or for terrorist acts[42]. Therefore, the norms of public law regulate foreign economic activity regardless of the presence of foreign element, because they are intended for control over movement of resources between national economic systems.

         Hence, the criterion of foreign element is inapplicable for definition of foreign economic relations. This makes us disregard a foreign element as an attribute of foreign economic activity.

         Foreign economic activity is a kind of economic activity. It means that all spectra of relations in foreign economic activity are united by their economic nature rather than by the legal status of its participants. The economic nature of foreign economic activity implies that it includes movement (migration) of economic resources between national economic systems. For legal purposes (as it is stressed in all legal definitions), foreign economic activity deals with the objects of civil rights and not just with any kind of economic resource.

         Considering the abovementioned, we offer the following definition of foreign economic activity – social relations appearing in the course of international movement of objects of civil rights.

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