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Interview of the Minister in charge of Internal Markets, Information Support, Information and Communication Technologies of the EEC Karine Minasyan to Tass News Agency: "The risk of innovations should be encouraged in the EAEU”

Interview of the Minister in charge of Internal Markets, Information Support, Information and Communication Technologies of the EEC Karine Minasyan to Tass News Agency: "The risk of innovations should be encouraged in the EAEU”

11/18/2016

The Eurasian Economic Union became operational in 2015 and now comprises five countries: Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. While Eurasian integration primarily focused on trade cooperation at its inception 20 years ago, since then the agenda has gradually expanded. Rapid information technology development provided the Union with new challenges. It soon became clear there was a need to regulate online trade, collaborate on legislation in the field of the Internet of Things, develop e-government communication systems, and create a venture funding market and jointly develop innovations in general.

Therefore, this year a new area of activity was established in the Eurasian Economic Commission, the regulatory body of the EAEU. One of its main objectives is to build a common digital space and develop digital technologies.

Karine Minasyan, Member of the Board - Minister in charge of Internal Markets, Information Support, Information and Communication Technologies of the EEC gave an interview to TASS New Agency on what is being done in this area at the Eurasian Week Forum and Expo in the run-up to the first anniversary of the establishment of the new direction of integration cooperation.

- The issue of regulating transboundary trade and collecting VAT from foreign online sellers is currently being actively discussed in Russia. Is it worth introducing a uniform system of collecting VAT in the EurAsEC space and how can this be achieved?

- We have an annex to the Treaty on the Union, which regulates VAT collection. It defines common approaches to VAT collection on the territory of the Eurasian Economic Union between its members. If we talk about foreign Internet platforms, then each State decides how to regulate its relationship with them. In this direction, Russia has made the most progress — as of January 1, 2017, a law on VAT taxation pertaining companies selling online content (the so-called Google tax) will enter into force. This is the reason behind the creation of simplified digital mechanisms. In other countries these issues are so far only at the discussion stage.

So far, Belarus has made the most progress in terms of online trading in comparison to the others. But when we take a deeper look at the question of the taxation of online sellers, we can see that if Russia tightens the rules, overseas stores will have the chance to enter the country via other countries of the Eurasian Union, where regulation is more profitable. For example, via Kazakhstan or Kyrgyzstan.

We therefore need to harmonise approaches and exclude those "loopholes" so that discrepancies in regulation do not create problems for the market participants, for our online sellers, who in this case would find themselves subject to unequal conditions in comparison with their foreign counterparts.

— Could the Post Offices of the countries of the Eurasian Union be VAT collection administrators?

- I think that in the digital space there is the opportunity to work directly with the States under whose jurisdictions the sellers are. This issue has been resolved in the European Union: the relevant mechanisms for accounting have been established and what constitutes a foreign purchase and whether you must pay VAT on it has been defined. Therefore, when forming common legislation, it is necessary to create digital mechanisms that sellers can use to remotely register with the tax authorities, submit reports and pay taxes.

Regarding natural persons (for example, you order goods on Alibaba and get it delivered by post), then naturally, the Post Office can act as an indirect domestic tax collection agent. It will be easier for citizens — they won't have to go to the customs or tax authorities. To simplify things, a single window mechanism could be established at the Post Office, it would be beneficial. Incidentally, Armenia has made the first steps in this direction.

- The Ministry of Communications and Mass Media of Russia, Nikolay Nikiforov, stated that software from the Eurasian Union can only be entered into the register of Russian software if Russian software will be provided with similar conditions in the countries of the Union. What preferences can Russian software make a claim to?

- In fact,the issue here is not particular preferences for the countries of the Eurasian Economic Union. It’s that the Treaty on the EAEU stated that in public procurement, national treatment is granted to economic entities. This means that software from other countries must enjoy all the opportunities available to Russian software. This is the first point. The second issue is, yes, according to the Treaty, a country can exclude certain types of goods or services from national treatment for two years. However, to do so there is a procedure in the Eurasian Economic Union that Russia did not follow. Therefore, there is a pertinent question about a certain barrier to software from countries of the Eurasian Union on the Russian market.

Furthermore, there are risks associated with foreign software entering the public procurement process in Russia via countries of the Eurasian Union. But these risks can be controlled. To do so, it is necessary to introduce joint regulatory standards that would mean all the freedoms of movement of goods, services, capital and labour could be seamlessly implemented in the territory of the Eurasian Economic Union.

I understand that the Russian Government is taking certain measures to stimulate the development of Russian software. But our position is that we need to reach an understanding that the solution of all problems linked to the digital agenda should be pursued jointly and the EAEU digital space should be formed with common approaches to regulation. Then, in the long term, we will be able to develop the Union and its competitiveness while maintaining digital sovereignty. 

As for preferential treatment, as far as I know, there are no restrictions on Russian software being involved in public procurement in other countries. But in general, it makes sense to consider the possibility of establishing a common software register in the EAEU. I think it would be much more efficient.

— Mr. Nikiforov also said that Russia will not allow foreign software to be entered into its register under the guise of software from the Eurasian Economic Union. In your opinion, does that problem exist?

— In my opinion, this problem doesn’t exist because the market is transparent enough and there is a sufficient number of experts in our countries in order to understand where software comes from. Issues of intellectual property are also relevant in this regard. The transfer of intellectual property rights on any product to the countries of the Eurasian Union already means Eurasian software is present.

On the contrary, we must encourage the transfer of intellectual rights! This doesn’t concern rights of use, but software ownership rights. Therefore, I don't think these risks exist. Rather, there is a question of forming transparent relations, and Russia is making progress in this direction.

— In 2017, regulation of the Internet of Things (both consumer and industrial) may be introduced. What features should be taken into account for its implementation in EurAsEC?

— For us, regulation of the Internet of Things is just as important as any other regulation in any other sphere concerning the digital economy, because in a global context, the share of the digital economy (most of it is made up by the Internet of Things) is constantly increasing. According to some estimates, by 2025, the share of the digital economy in the overall global economy will be about 40%. In fact, information is becoming the most valuable resource in the world. Therefore, if we advance towards forming a common digital space, we need to understand what is necessary and the legislation. Accordingly, regulation of the Internet of Things must be carried out in all five countries.

The Internet of Things requires the introduction of appropriate standards ensuring a high-quality continuous connection. However, the key element remains platforms that provide data collection and processing. They are the main digital asset where value added will accumulate in the coming years. But if we create different legislations, we will not be able to realise our goal of carrying out the digital transformation of industries.

Within the EAEU, a joint energy market, and transport, financial markets are being establishing - they are all industries where the Internet of things can be used. And if we create the relevant legislation separately in places and then start talking about a coordinated policy, then, naturally, there will be inconsistency in these matters at least.

— What do you think, will it be necessary to create a special body to oversee the Internet of Things within the Eurasian Union?

- I think the world is moving towards transparency. It is necessary to establish transparent rules so that we avoid the need for additional regulatory bodies that create more bureaucracy and more and more complexity when it comes to running a business. However, the figure should include smart regulation, a softer, intelligent, dynamic regulation, so that we do not impede the process of digital transformation in our countries under any circumstances.

— Will the “Yarovaya Law" by extended to cover the entire space of the Eurasian Economic Union?

-What is the “Yarovaya Law”? "Yarovaya Law" is anti-terrorism in nature whereas the Eurasian Union is an economic Union. And of course, we are not discussing matters of national security within the Union. Each country determines its rules or they are solved within the framework of the Collective Security Treaty Organization (CSTO) where cybersecurity issues are discussed.

However, this project has raised very important issues on the collection, processing, storage and use of data. And the main issue was, in fact, the storage of data on the territory of the Russian Federation. These themes - about storing and structuring data, regulatory legal reference information about how, and where it is safe to work with this in the Eurasian Union — we will have to discuss it together in the Eurasian space. Because if we do not regulate the exchange, storage and transmission of data, we will not achieve our objective in digital transformation.

- Will a common system of e-Government be organised within the Eurasian Economic Union?

-We do not have such an objective. We have the objective of creating a seamless electronic communication system between the governments of our countries. We are creating an integrated informational system, common standards for data format description so that public bodies can freely exchange data among themselves and, if necessary, create a common database. In terms of intellectual property, for example, we have achieved the stage that we will create a common register.

The second issue is the provision of public services and seamless data exchange between public bodies. Regarding transboundary services, for example, the common medicines market, we will seek to establish common approaches to providing G2B (government to business) services. So that it is all the same to business which window it uses - Kazakh, Kyrgyz, Armenian, Belarusian, or Russian - it enters into this business and obtains a permit.

Public authorities will exchange information among themselves and give permits to the entire market via a single window. That's our goal. From this point of view, where we have transboundary supranational services, we will strive to unite resources and establish a seamless and interactive integrated system.

- When might this happen?

- We have been creating the integrated system for three years and we hope that in the near future, it will be introduced into operation for a number of processes. To do so, the Commission has a dedicated budget, has created a Department, and are working very intensively.

- Are there any plans to develop exchange and employment programs for IT specialists living in EurAsEC countries?

- We have a free labour market and our citizens are free to seek employment in different countries of the Union. What is more relevant is the issue of establishing a system for remote working. At one of the recent conferences the topic of freelancers was discussed — it is forecast that 40% of the labour market will be freelancers in the next five years. This issue must be addressed.

Moreover, the most important thing for us is to ensure that small and medium-sized businesses in our countries have access to our common market via digitalization. The biggest potential for a small company is entering regional and global markets "digitally" without leaving the house. It is necessary that they are taught and shown the sequence of steps to take to enter global markets.

- Will there be special IT training programs for EurAsEC citizens?

- Our working group is collaborating with universities and is posing the question of the need to establish a digital economy department. It is necessary to combine efforts to create a network between institutions to exchange programs, students, and knowledge in the IT sphere, and create an ecosystem for the development of information technology throughout the Eurasian Union. Unfortunately, education is not under the purview of the Eurasian Economic Commission and the Union yet. But institutions are organising themselves, realising that the purview is different in different countries and if we unite, we will get a synergistic effect. What is being developed, for example, in Armenia, hasn’t formed in any other countries.

At the Forum recently, we listened to Israel's Minister of Science, Technology and Space. He said that for them it was manna from heaven when 1.5 million experts came from the Soviet Union and provided the breakthrough for Israel. Now our objective is to provide the same conditions for all experts that we educate so they remain and work in the Eurasian Economic Union.

— How can this be implemented?

— Of course, we are discussing how to do this, we are forming the strategy of creating the common digital space, and are trying to convey our ideas... But my personal position on this is very simple: we should provide those who are trying to work with innovations the conditions for failure. Let me explain: If you launch a startup in America and don’t succeed, no one says you're a failure, and you won't struggle to find funding for a new initiative somewhere else. On the contrary, you’ll be told that your next project will be a success.

This is not the case in our countries: if you takes funds and happen to fail, you will no longer be able to take advantage of other opportunities. Therefore, we must create a system where it isn’t very expensive for the experimenter and innovator to take risks. Risk should be encouraged! This is the only way we can create an ecosystem where highly-qualified specialists and entrepreneurs will want to work.

— Will there be a common fund in the Eurasian Economic Union like the IIDF (Internet Initiatives Development Fund) or something like the Russian Venture Company (RVC) uniting investments in Internet start-ups and innovation?

— This is probably my favorite question. I began to work on it back in 2015. As part of this concept, we are discussing the fact that we need a single ecosystem for innovation development. But this ecosystem cannot come into being unless we improve the system of its financing. It is therefore necessary to create a common market for venture funding, and if we can do so then, for example, venture capital funds in Russia will be able to finance successful or potentially successful projects in Belarus, Kazakhstan etc. If we want to create the relevant conditions for the internal migration of innovative projects, we need a single market for venture financing.

In our countries, there are various digital market and venture financing market regulators. In my view, in establishing a common financial market, we could start with a market for venture financing. This will create the conditions to support the innovation of general regulation for new financial institutions such as crowdfunding, crowdinvesting companies, for the financial digital platforms that serve a new sector of the economy. The financial market is moving towards technology and it is on this financial technology market that it is more logical to immediately create common rules and conditions.