Guest Column: Russia Trade Environment

Navigating the complex relationship of government and the federal customs service


In 2007, official government policy is to diversify the national economy by focusing on domestic production and the manufacturing of value-added goods as opposed to the wholesale export of natural resources and raw materials. These objectives are supported by an aggressive program of asset acquisition by the government or government-friendly entities, the creation of government-supported research facilities, asset reacquisition and implementation of a new policy mandating State control of the "strategic industries." Industries that fall into this category include mineral extraction, energy, timber, high-technology and aviation — all industries developed and supported by Western conglomerates.

Trade with Russia — Working with the Federal Customs Service

In Russia, the Federal Customs Service serves as a primary source of federal revenue. With collection authority, the Federal Customs Service is mandated to contribute approximately 40 percent of the revenues needed to fund the federal budget. By exercising this authority, Federal Customs has become a political powerhouse whose actions indirectly control the global supply chain operations of all importers and exporters. The less-than-smooth functioning of customs operations is perhaps the most frequently mentioned problem voiced by suppliers trying to get goods to market in Russia.

In working with the Federal Customs Service, one should bear in mind that although the economic landscape of Russia has changed since Soviet days the legacy of a Soviet "top-down"-style system remains. There is nothing more conservative and stable than a bureaucracy, and in this regard Russian Customs is definitely no exception. All activities are mandated by senior leaders who discourage independent, forward-thinking, solution-oriented actions by the individual. Accordingly, no process is decided and no decision implemented without approbation from "the top." This power and authority are closely guarded and protected by an entrenched bureaucracy, one which the federal administration, with more or less success, has periodically attempted to restructure.

It is also important to understand that when seeking problem resolution in Russia and with Customs, one's perceived legal standing is often less important than the level of one's personal relationships or the ambitions of the person in charge. There are many dedicated Customs officials who would prefer to have operations be transparent to importers and exporters. However, their everyday activities are hindered by a rigid system that is difficult to understand and even more difficult to change.

Customs Code

For market participants, compliance with the Customs Code of the Russian Federation is easier said than done. Nevertheless, one should attempt by all means possible to be in compliance with the law beginning with providing proper and easily transparent transactional documentation.

Compliance is complicated by the fact that the Customs Code and procedures are at times vague and subject to interpretation. The Code, it is claimed, is often not universally applied within the Russian Federation, not readily available and subject to change without what we would deem proper notice. The confusion is exacerbated when product licensing is an issue. In such cases, the process can easily become a labyrinth involving multiple approving bodies. There are few if any economic incentives to provide a licensing determination quickly.

The departure of many senior customs officials in recent years has left the service with fewer individuals with the knowledge and willingness necessary to take Customs to the next higher level of efficiency needed to accommodate the international trade community. Russian Customs is the most frequently mentioned "broken link" in the Supply Chain mentioned by importers and exporters alike.

Modernization Efforts

Viewing Russia as a country with vast market potential, the World Bank contributed more than $140 million to support modernization of the Federal Customs Services in anticipation of Russia's accession into the World Customs Organization. The goal was to develop and implement an integrated IT system for Customs Control & Clearance, thereby enabling Russia to handle trade documentation volume on par with European Union countries.

To date, the project has produced little in the way of measurable results as evidenced by the fact that fewer than 10,000 of over one million recent entries were processed "electronically" — 1 percent. It is a widely held belief that this failure is the result of a lack of safeguards on many levels, including but not limited to lack of financial oversight and accountability.

Best Practices

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