RUSSIAN-AMERICAN ROUNDTABLE ON CUSTOMS ISSUES

February 1998

AUTHOR: LYUBOV SAVCHENKO/JANINE BOIARSKY, ECONOMIC SECTION

Summary:The Russian-American Roundtable on Customs Legislation and Customs Duties Regulations in the Russian Federation, co-hosted by the American Chamber of Commerce in Russia (AmCham) and the Russian Chamber of Commerce and Industry, was held on January 28, 1998.

The Roundtable included three panels:

--customs legislation and perspective on its development
--practice and perspectives for future development of customs tariff regulation in the rf:
commentary from the business community on the features of customs regulations preventing the expansion of Russian-American trade and economic cooperation
--regional aspects of customs regulations.

Participants in the event included representatives of the State Customs Committee (Ms. Klochkova, Tariff Regulation, State Customs Committee, Department Head); the State Duma (Mr.Soluianov, Committee on the Budget, Taxes, Banks and Finance); the Russian Customs Academy, the U.S. Department of Commerce (Mr. Jan Kalicki, Advisor); the U.S. Embassy (Mr. Alexei Kassatkin) and the American and Russian business community. Attendees totaled more than 200 individuals.

Views of Legislators - a Fight Over Revenues

1. The Roundtable began with a discussion of current and pending customs legislation. Monsoor Syunyayev, Advisor to the State Duma Committee on Budget, Taxes, Banks and Finances, noted that the proposed law "On the Customs Tariff" gives the authority to set customs tariff rates to the Duma, and limits tariff preferences for individuals to those from a short list included in the legislation. Overall, Syunyayev appeared negative on the bill's chances of becoming a law since it assigns responsibility for setting customs duty rates to the Duma. He stressed that Russia needs an open and transparent procedure for setting customs tariffs line with WTO and other international obligations.

2. Marina Savchenko, Consultant to the Federation Council Committee on the Budget, related the regional perspective on customs legislation. Despite the fact that regions do not have the right to establish local customs duties as seen by the recent Constitutional Court decision which prohibited Krasnodar Kray from assessing a duty of 0.35 percent of the customs value of goods, regional budgets pay to support customs points, and therefore governors want a share of the customs duties.

3. Anatoliy Lisov, Secretary General of the Customs Committee, countered that it would be unfair to those regions which do not engage in any international trade. He reminded Savchenko that the customs service intends to become self-supporting in the next three or four years through the use of customs revenue. Savchenko contended that customs relations between the center and the regions need to be clearly defined in the customs code.

4. Savchenko noted the Federation Council's objections to having the Duma set customs rates. She related that Sakhalin Oblast fears that the Duma control would reduce the Russian Federation's ability to regulate foreign trade and impact negatively on shuttle traders. She noted the Duma's intransigence on PSA legislation and mistrusts the Duma's ability to make timely decisions on necessary customs matters. She added that the Federation Council supports the rules on customs preferences in the pending customs legislation.

Tariff Preferences

5. Tatyana Klochkova, Head of the Department of Tariff Regulation of the State Customs Committee, reviewed the current system of customs preferences. Customs Preferences (i.e. duty free treatment) are not applied to individual companies, but to specific commodities which are imported from a country in a customs union with Russia or from a country of the CIS, or on goods imported from the least developed countries (a twenty-five percent reduction when all proper documents are submitted).

6. Exemptions can also be made based upon international treaty or bilateral agreement such as the agreement between the US Embassy and the Ministry of Finance Regulating Technical Assistance, which, in her words, is no longer in force. According to Maria Vlasova, Specialist of the Resolutions Section of the Department of Federal Customs Collections, State Customs Committee, if the value of the assistance is greater than USD100,000, the Customs Committee requires a deposit which will be refunded when the receiver proves that the goods were used for humanitarian aid.

7. Vlasova empathized that the application of tax legislation for goods imported as part of a company's equity fund has become a problematic issue for joint ventures. She agreed that there are different interpretations of the legislation, but complained that many people simply misunderstand what are allowable goods. Vlasova briefly explained the Kaliningrad free economic zone which was established to facilitate imports into the area. Goods imported duty free must be used in the Kaliningrad zone. For the importation of certain goods and commodities, a deposit must be paid which is refunded when the goods are re-exported.

8. Klochkova further reviewed exemptions on paying the Value Added Tax (VAT) . Food products except delicacies, raw materials for food production, and products for children pay the lower ten percent VAT; all other non-exempt products pay twenty percent. Exemptions to the VAT are granted on the import of medical equipment, medicines and equipment to make medicines, goods to pay for international loans, publications, and objects imported to be part of the equity fund of a business. An excise tax on imports is levied on alcohol, tobacco, cars, jewelry, and gasoline. Exports are mostly free from excise taxes except for oil and gas.

Business Community Concerns

9. On the whole, the American business community was more concerned about the implementation of customs legislation than the legislation itself. "Customs clearance suffers from massive corruption, incompetence, and a lack of incentives for customs officers to even follow the spirit of the law" said Adam Cameron of SeaLand Trading. He noted that the length of time it takes for goods inspection is prohibitive, and the surface inspections delay legitimate shipments, but are insufficient to catch contraband. He related that the recent changes in Moscow city customs procedures have caused havoc among his customers. Large payments made in bond for goods cannot be transferred among custom's bank accounts. The payments then cannot be credited to incoming shipments which become quote stuck quote in customs. (Note: Cameron was the only participant to receive applause from the audience.)

10. American Express International related their problems with customs clearance of travelers checks. In order to clear customs, the Moscow bank-purchaser must spend three to four days filling out documents and gathering signatures at three different locations. Banks make a one percent commission on travelers check of which about forty percent goes towards customs fees. Regional banks have a harder time since their imported checks must clear customs both in their region and in Moscow, as well as wait for Moscow Customs to deliver the package to the local customs office.

11 .Other representatives of American and Russian businesses agreed that the customs procedure takes too long, Custom's technical equipment is outdated and inefficient, and there is no consensus within the Customs Service or legal authority.

12. In the conclusion of this dialogue, the co-chairs announced that an international conference on customs issues would take place in the spring of 1998, which would address many of the concerns raised at this conference. An idea of organizing an advisory committee for setting disputes and discussing customs related problems was suggested.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)