Soviet Union Information Bureau

CONCESSIONS

THE vast undeveloped resources of the Soviet Union and the lack of facilities for full development in certain industrial and constructive lines afford a broad field for the foreign concessionary. The concession policy is being carefully worked out.

Concessions may be secured by responsible foreign interests from the Chief Concessions Committee (18 Malaya Dmitrovka, Moscow), attached to the Council of People's Commissars. As a rule the concessions run for a limited period of years. The concessionary furnishes the capital for development and the "know how." The Government, in addition to the valid lease, usually affords special facilities for transport and for the importation of equipment and materials. Some concessions are in the form of mixed companies, in which the Soviet Government has a participating interest. Some concessions take the form of engaging foreign engineering firms for technical assistance. Concession agreements, which are drawn up jointly by the Chief Concessions Committee and the applicant, must be ratified by the Soviet Government.

For the convenience of firms and individuals interested in obtaining concessions in the U.S.S.R. the Chief Concessions Committee has representatives in the principal European cities (Berlin, London, Paris) who are empowered to conduct preliminary negotiations.

The Amtorg Trading Corporation is the representative of the Chief Concessions Committee in the United States and is empowered to negotiate concession agreements. The Amtorg is in close touch with the Soviet Chief Concessions Committee and has detailed data in regard to a number of concession prospects in the U.S.S.R.

The Amtorg is in a position to supply American business men with complete information in regard to concessions in the U.S.S.R. and has copies of standard concession agreements which will enable prospective concessionnaires to acquaint themselves with the basic provisions of agreements covering various types of concessions in the U.S.S.R.

After the basic conditions have been determined as a result of preliminary negotiations conducted in this country, the final form of the contract is drawn up in Moscow in agreement with the Chief Concessions Committee which in turn presents it for ratification by the Council of People's Commissars.

During the five years ending November 1, 1927, the Committee received a total of 2,211 applications for concessions, of which 35 per cent came from Germany, 10 per cent from British concerns and 954 per cent from American firms.

During the same period 163 concessions were granted, of which 113 are at present in operation.

On June 1, 1928, there were 97 concessions in operation, distributed as follows:

Of the total number of concessions 40 were for mining and manufacturing, 28 for technical services, and 8 were trading concessions.

The capital invested, as of July 1, 1927, in 39 of the total number of concessions (including 5 mining, 20 manufacturing, timber and agricultural and 3 building concessions) is estimated at $30,000,000, amounting to slightly less than one per cent of all capital invested in these industries in the U.S.S.R. The number of workers employed in 27 concession enterprises (including 7 mining and 20 manufacturing concessions) was, on the same date, 19,658.

On October 1, 1927, the balance sheets of seventeen manufacturing enterprises operated through the fiscal year showed net profits of 4,752,000 rubles ($2,447,280), or 35 per cent, on a total invested capital of 13,484,000 rubles ($6,944,000).

RULEs GOVERNING CONCESSlONs.- Concessions may be granted for the construction and operation of factories, mills and mines, for the building of houses and roads, and for the development of forest, mineral and other of the natural resources of the Union. The concessionary may supply the entire capital necessary for the project or may enter into a "mixed" company in conjunction with a Soviet state organization or, in the case of technical advisers, may not be required to invest any capital at all.

Concessionaries engaged in production are usually permitted to dispose freely of their product on the Soviet market and also to export a certain specified proportion. In cases where the concession enterprise produces commodities for which there is a large demand in the U.S.S.R., the concession agreement usually contains a provision giving an option to Soviet organizations for a part or the whole of the output on conditions specified in the agreement.

The concessionary is permitted to export from the country the entire net profit of the enterprise, the transfer of money to be effected through the State Bank of the U.S.S.R. or any other bank in the country.

The policy and the practice of the Soviet Government has been to especially favor concession enterprises which can obtain the needed raw materials and semi-manufactured products within the country. In the event, however, that the required materials are not available in the U.S.S.R., the concessionary is granted the right to import such materials, the quantity and procedure of importing being specified in the concession agreement. In these cases imports are allowed until such time as the production of the required materials is begun in the country. Imports of equipment are usually exempt from customs duties for a specified length of time after the granting of the concession.

In regard to the payment of taxes and duties the concessionary is placed in the same category as similar Soviet enterprises. Exess profits are usually taxed according to a scale specified in the agreement.

One of the principal provisions of concession agreements is that the enterprise employ the most modern production methods.

The life of the concession, depending upon the nature of the industry and the amount of capital invested, is sufficiently long to allow the concessionary to utilize fully the imported equipment and to receive an adequate return on the invested capital. Upon the expiration of the term of the concession, all the concession properties are turned over to the Government without compensation.

Concession agreements, upon ratification by the U.S.S.R., have the power of a special law. The provisions of such agreements cannot be changed by any decrees or rulings of central or local government organs.

In accordance with the existing laws the Government of the U.S.S.R. guarantees that the properties of the concessionary invested in the enterprise are not subject to nationalization, requisition or confiscation. The concessionary is allowed to hire the necessary working staff on the basis of the provisions 0f the Soviet Labor Code and of the collective agreements made with trade unions. The experience of a number of years shows that concessionaries have had no difficulties in hiring and employing labor in the U.S.S.R. The concessionaries are permitted with certain limitations, to bring in foreign skilled workers and higher administrative and technical personnel. The proportion of foreign workers to the total number of workers is set forth in the agreement.

CONCESSION POSSIBILITIES.- In September, 1928, the Soviet Government announced a program of extension and liberalization of the policy of granting concessions to foreigners. The new policy included the importation of construction materials duty free and the simplification of the taxing scheme. In most cases the concessionaries may sell their products on the domestic market on their own terms and may export subject to the laws existing for external trade. The concessionaries may remit their profits abroad at current rates of exchange prevailing in Moscow.

A list of available concessions was submitted, drawn up by Gosplan to fit in with the five-year plan of industrial development. The list included the following:

Eleven concessions for land development, for the growing of cotton, sugar beets, grain and other agricultural products.

Five concessions for the building of railways, some with collateral oil and forest exploitation rights; three for the building of waterways.

Four large concessions for the exploitation of black metals in the Krivoi Rog, Magnetic Mountain, Telbess and Dnieprostroy districts. Sixteen other metallurgical concessions.

Concessions for foreign capital and technical assistance in the construction of a number of industrial plants, including: A tractor works, lathe construction works, tool-making plant, automobile and auto-truck works (xo,000 to 100,000 units per annum), wagon works, aeroengine construction works, agricultural implement plant, shipyard for river tonnage, steam boiler factory, printing machine construction plant, watch and clock factory, typewriter and adding machine plant, factory for dental and surgical instruments, factory for heat and pressure gauges, plant for sugar and distilling machinery, plant for machinery for the silicate industry, another for machinery for the leather industry, another for sawmill equipment, another for machinery for the match industry, plant for making elevators, conveyors, etc., a bicycle factory, plant for roadmaking machinery, plant for railway rolling stock repairs.

Five concessions for production of cement and one for cement machinery.

Three concessions for cellulose, one for rayon silk, one for treatment of flax for the market.

One tannery concession and a multiple concession for production of vegetable extracts used in tanning.

Four concessions for window and bottle glass, two for pharmaceutical and domestic glass.

Concessions in the mining and fuel industries as follows: iron ore (5), copper (5), lead and zinc (4), gold (3), nickel (1), graphite (1), coal (2), oil (5), asbestos (2).

Nineteen forest concessions.

Eight concessions in the electrical industry.

Eleven concessions for the construction of electric power plants, including a hydroelectric plant of 80,000 kw. on the river Svir, and a steam plant of 60,000 kw. near Cheliabinsk in the Urals.

Concessions for housing in crowded urban centers.

Public service concessions in over sixty cities and towns, including tramways, gas works, electric plants, waterworks, sewers, slaughter houses, etc. The aggregate investment involved is over 2OO,000,oco. The cities in the list include Moscow, Leningrad, Odessa, Kharkov, Tiflis, Kiev, Tashkent, Vladivostok, Novosibirsk, Sverdlovsk and Rostov-on-Don.

Full description of each concession in the above list, with capital required and approximate production, may be obtained from the Amtorg Trading Corporation, 165 Broadway, New York City.

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