#6
Transitions Online
www.tol.cz
January 11, 2002
Russian Customs, Old and New
Where does a washing machine become pasta? The answer is--or at least was--on Russia's borders.
by Vladimir Kovalev
Vladimir Kovalev is a correspondent for the St. Petersburg Times.

ST. PETERBURG, Russia--Ports and border crossings throughout northwestern Russia have been jammed with trucks and ships after federal customs officials decided to crack down on the transformation of products on Russia's borders with Scandanavia and the Baltic states. Prior to the end of the year, flowers were becoming grass, chicken legs were turning into full-grown turkeys, and--in an audacious leap of imagination--washing machines were morphing into pasta. Now, at least in one part of Russia, that may be changing.

At the start of 2001, tax duties were simplified and the previous seven tax bands replaced with four. That may have made life simpler, but the differences in tariffs--the bands are 5, 10, 15, and 20 percent--and the categorization of products continued to encourage widespread and large-scale falsification of documents. One company, a customs spokesman revealed, even tried to pass off 17,000 tons of coffee as toilet paper in an effort to halve customs duties.

Customs officials in Moscow decided enough was enough and launched an anti-fraud campaign before the winter set in, though only in the northwest. “Due to the large number of violations discovered during the inspection, a decision was made on 24 October to search all transport trucks carrying goods from what were identified as risk groups,” said Yevgeny Vensko, a spokesman for customs authorities in the northwest.

At the same time, the authorities suspended the head of the Baltics customs section at St. Petersburg's sea port, Alexander Puchkov, and dispatched inspectors to replace Vladimir Shamakhov, head of the North-West Customs Office, and his deputy, Mikhail Prokofiev. Both had resigned, reportedly for health reasons. Some Russian political analysts have interpreted the tougher line adopted in the northwest as a part of a plan by President Vladimir Putin to appoint his people to key state positions. Shamakhov's replacement, Vladimir Vyunov, was the former deputy to the president's representative in the region.

Whatever the politics, the economic results have been startling since customs officers began carrying out item-by-item checks on shipments of coffee, household appliances, furniture, tires and some other products. According to federal authorities, 30 percent of goods were falsely labeled. Prior to the crackdown, Mikhail Vanin, head of the Federal Customs Committee, was asked how much money was being lost. “I hate to think about it. I will name exact figures only to the president,” was the reply quoted by the news agency Interfax. The authorities now believe that the 13 land and sea entrance points where the checks are being implemented--several in St. Petersburg port, and the rest across the regions of St. Petersburg, Kaliningrad, Murmansk, and Karelia--were losing up to $200 million annually because of false customs declarations.

“Since the more stringent inspections started, customs duties collections have increased significantly,” said Irina Skibinskaya, a spokeswoman for the Federal Customs Committee. “I can’t give you any numbers yet, but it’s clear now that collections will be much higher than North-West Customs initially planned.” Another source indicated that, when the campaign was launched, the Federal Customs Committee had ordered the customs authorities in the northwest to collect an additional 1 billion rubles (about $33.6 million) in 2001. According to the International Association of Cargo Importers (IACI), duties collected at Russia's checkpoints account for roughly 30 percent of the entire national budget.

A TRUCK DRIVER'S NIGHTMARE

While there may be smiles and bonuses in the customs office, truck drivers and importers are suffering. “This is just a nightmare,” said Valter Velsman, head of the St. Petersburg-based IACI. “They search 50 percent of all trucks coming to the border, which means they have to be fully unloaded and then reloaded."

At two checkpoints, the results have been huge queues, sometimes stretching 15 kilometers, on the Finnish side of the border. This is making life difficult for villagers close to the border. Lidia Benetska, who lives near the crossing point in Valimaa, complains that her car was damaged as she tried to squeeze past the long line of trucks. More significantly, the perfume boutique where she works is losing money.

Tourists are also incensed. “The other day I met some tourists from Germany who had just arrived from Russia. They were tired and outraged, saying that they don’t ever want to go back to Russia after spending six hours waiting to be checked on the Russian side,” said Nadezhda Helge, who owns the perfume shop.

The biggest losers, of course, are the freight companies. Velsman said that losses per vehicle have been about $200 per day, while the total cost to the transport industry has been about $500,000 since the new regulation was introduced.

Some days in November, according to Lasse Koskela, duty chief of the Valimaa checkpoint, there were up to 400 trucks standing in a line, waiting to be allowed to enter Russia.

“That's no big surprise for me. I’ve seen how they work,” was the reaction of Sergei Ivanov, a truck driver stuck in an overloaded parking lot on the Finnish side of the border, near Valimaa. He said he had moved at an average speed of five kilometers a day over the past two days. “You pull up to the checkpoint, and there’s nobody there. One has just left, another is having tea and a third is off just walking around somewhere,” Ivanov said.

Workload, rather than working habits, is blamed by customs spokesman Vensko. “We have only 75 percent of the staff we need," he said, and in the winter months sickness is also taking a toll.

Whether the reason is sloth or understaffing or both, Velsman of the IACI believes the authorities are not using the full capacity of the checkpoints. “The best cargo checkpoint in Europe is located in Torfyanovka," he said, "but instead of having all eight lanes open, only one, two or sometimes three work. They can inspect 1,300 trucks a day, but handle only 250.” That capacity is sorely needed. According to other figures from the IACI, 250,000 trucks crossed the border at Torfyanovka in 2000, and that figure had been due to rise by 20 percent before the new inspections, suggesting that the flow of trucks over the border has dropped by more than two-thirds.

He appears to be right, at least in some places. In recent weeks, some bottlenecks have eased a little as more lanes were opened. In late December, officials claimed that waiting times were down from 72 hours to 24 hours at Valimaa and to 48 hours at another crossing point, in Brusnichnoye. “The number of trucks passing through customs has increased from 500 to 900 a day,” said Vensko.

EVEN WORSE IN PETERSBURG

In contrast, however, the situation in the St. Petersburg seaport has worsened. Ships wishing to dock were being turned back in December, with the port almost out of storage space, according to PKT, one of the largest container cargo operators in northwestern Russia. Passing through customs was taking 12 days, rather than the usual five, the company reported.

“The capacity of the storage lot is 8,500 containers, and we have 9,715 standing here at the moment. So instead of two levels there are three in some places, which makes it more difficult to process the cargo and slows done all the work,” said Alexander Svetlichny, director of the port's container terminal. Eighty percent of containers with goods on the watchlist are now subjected to item-by-item searches, up from 55 percent before 24 October.

But Tatyana Ogorodnikova, the manager of a local cargo company, Baltic Transportation Systems, said the situation looks typical to her. “These are recurring problems for the port. There were always delays at the port linked to processing automobiles, cargo, and so on,” she said.

Svetlichny fears the checks could hamper the port's development. Speaking just before the year's end, he said 80 percent more cargo--or 340,000 20-foot equivalent units (TEUs)-- had passed through the port than in 2000, while storage capacity had increased by 25 percent. The port has ambitious plans to raise the volume of cargo to 1.6 million TEUs by 2010. “Many foreign companies have asked us ... to handle more cargo, but we’ve been putting them off because we have no space. This new [customs] policy won’t help,” Svetlichny said.

Others prefer to look backwards for hope. "Everything is going to be fine as soon as inspectors from Moscow leave the checkpoints,” claims a member of the International Association of Cargo Importers. “Customs will work the same way it did before [they] showed up.”