It is notoriously complicated to get goods across the Russian border. Will the new Customs Code change things?

The Russian Customs Code is legendary for thousands of contradictory regulations and poor legislation. Many people have called it one of the most corrupt aspects of the country’s government.

But some government and business officials are optimistic that change for the better is on the way. After almost three years of foot-dragging, the State Duma’s Budget Committee recently approved a new Customs Code.

Under the new regulations, Russia’s customs officials will lose some of the powers that critics say have created fertile ground for corruption. Measures aimed at reducing opportunities for corruption include banning customs officials from holding goods for an indefinite length of time, arbitrarily confiscating documents from importers and exporters, and deciding which customs points goods should arrive or leave through.

"The new code is a law with a direct effect," said Alexander Zhukov, head of the Budget Committee. "It meets all the World Trade Organization (WTO) requirements. More than two years of work have gone into this document. Now, the differences have been sorted out, and we’ve reached a compromise that suits everyone – [Duma] deputies, the government and the business community."

Mikhail Vanin, head of the State Customs Committee, who took part in the discussions on the new code, said the compromise takes into account the wishes of the Duma and the government to simplify procedures as much as possible, while still ensuring some control functions. "We have to transform the customs service from an agency that controls foreign trade into an agency that helps trade develop," Vanin said.

Zhukov said that only certain individual provisions remain from the original document submitted to the Duma in 1991. More than 2,000 amendments were made to the original and the Budget Committee met 181 times to discuss the code.

Valery Draganov, head of the Budget Committee’s customs subcommittee, said discussions led to compromises on more than 400 provisions.

Alexander Mordashev, head of the Russian Union of Industrialists and Entrepreneurs’ working group on customs policy and WTO entry, said the amendments respond to the needs of business.

The old draft, which is still in effect in Russia, was approved in 1993, before adoption of the new Constitution. The old draft not only fails to meet international standards, but it does not even meet all the needs of Russian reality today, experts say.

The State Customs Committee has amended it with some 3,500 instructions that would confuse even a supercomputer. That, observers say, has allowed customs officers to spring surprises on companies engaged in foreign trade and has given bureaucrats arbitrary powers to shake down firms bringing cargo across the borders or individuals traveling with cash.

Even customs officials themselves admit that the code does not encourage foreign trade and only creates obstacles for business. High customs duties encourage "gray" imports, and the complexity of customs declarations procedures means that importers and exporters lose huge amounts of money due to lines at customs.

The Duma’s Draganov said that the current system invites illegal trade, which is estimated at $7 billion-$10 billion a year. Members of the WTO, which Russia is seeking to join, have also called for change to the country’s customs legislation.

According to Draganov, the new code will be a "new stage in relations between the authorities and business, and the code will give them equal rights when it comes to customs."

Duma customs committee representatives said the new code lays the responsibility for following the regulations not only on importers and exporters, but also on state officials. The current code also contains this type of provision, but it so vaguely worded that it is nearly impossible to enforce.

In line with the new code, customs officials will have to release goods no later than three days after the customs declaration is handed in, and they will have the right to demand of importers and exporters only the documents specifically related to the delivery concerned.

"This means the Customs Committee will not be able to add its grain of salt as it feels, and it will remove opportunities for corruption," said Customs Committee Press Secretary Sergei Omelchenko.

But businesses are worried that customs officials will have difficulty adjusting to the new rules and changing their work habits. Customs officials also admit that no matter how good a code actually is, the problem is one of enforcement. Officials have already lowered customs-declaration processing times from the 10 days allowed by the old code to three days. But an importer who wished to remain anonymous told The Russia Journal that goods are still held up by customs for two to three weeks.

The result is that importers suffer losses and end up paying for containers sitting idle, while customs officials complain about lines that they can’t do anything about. A Customs Committee spokesperson told The Russia Journal that the problem of lines has nothing to do with the Customs Code and arises from the shortage of customs clearance points on the borders.

But customs officials are, nonetheless, full of promises of a brighter future once the new code is passed. Some even suggest that customs declarations could be processed in as little as 20 minutes with the introduction of electronic declarations. Importers will be able to fill out forms electronically when they sign the contract with the exporting country and then just collect the stamp at customs. Officials said this would take only a few minutes, and that the importer and the customs worker would not actually meet face to face.

Even the customs officials themselves admit that the code does not encourage foreign trade and only creates obstacles for business. Electronic declarations have been introduced on an experimental basis in some federal districts but, so far, only large companies with long experience in working with customs have been able to use the scheme. In Kaliningrad Oblast, for example, there is a list of trusted companies. Of the 72 companies wanting to take part in the experiment, only seven were selected.

Companies that made the list are allowed to use simplified customs procedures. Once the new code is passed, the list will be extended and more companies will be eligible for the fast-track procedures, as long as they have not committed previous violations of customs legislation.

It is expected that mostly brokers will get on the list, streamlining the customs procedures that will reduce direct contact between importers and officials.

"Most companies can’t afford to get deliveries directly through customs themselves because it is too complicated and expensive," one importer said.

"It’s better to go through a broker to take care of the formalities and have the cargo come through in the broker’s name."

"Of course, the broker takes a commission for this ‘help’," the importer added. "On the whole, these brokers make importers’ lives easier, but the main problem with them is that if the goods get held up at customs, it’s impossible to find the person responsible. Once, the customs post in Balashikha in Moscow Oblast closed for two weeks, and our goods were held up there for 14 days instead of three. We paid the penalties, but then there was no one we could go to for compensation."

But experts doubt that a system founded on a murky network of relations between customs officials and brokers will suddenly start playing by the rules and that companies will be able to clear formalities in 20 minutes.

Duma deputies were discussing the issue of the customs brokers along with the draft code, but people in the Customs Committee say they are exaggerating the problem. "The broker companies have no direct connection to customs," said Press Secretary Omelchenko. "It’s on the Duma deputies’ conscience that they’ve put the issue this way. Some of them, Draganov, for example, think that the license requirement for these activities should be abolished."

Most importers surveyed by The Russia Journal said this kind of liberalization would end up, in practice, only benefiting a select few large companies and "friendly" brokers. The rest would find themselves facing the same choice as they do today: Wait in the line and incur losses, or pay a broker company on the privileged list.

But for all its shortcomings, analysts said that, overall, the draft Customs Code will help encourage foreign trade. Along with the new code, it is planned to gradually lower customs duties over the next few years from the 11.1 percent rate in force in 2001 to a planned 8.7 percent by 2008, which should boost foreign trade. Later, it is also planned to lower export duties. Some officials think these duties are a relic of the past and act as a brake on Russian exports.

The Duma’s Draganov said that Russia should eventually fully abolish export duties on all goods except mineral raw materials, a proposal Draganov pushed at a meeting of the Budget Committee.

But Vladislav Reznik, the deputy chairman of the Budget Committee, said the abolition of export duties would only lead to theft. These fears are shared by Alexander Zhukov, who said, "Eventually, export duties do need to be abolished, but we’re not ready for this step yet."

The government, for its part, takes a compromise stand and plans to abolish export duties for chemical, timber, paper, and metal goods by 2004.

The draft Customs Code went through its third reading in the Duma, now it will be examined by the Federation Council, the upper house of parliament, and by June will be ready to be signed by the president. If all proceeds on course, the code would come into force on Jan. 1, 2004.