The document summarizes the challenges that carmakers and logistics service providers are facing with the implementation of the new Customs Union Code unifying the customs procedures of Russia, Belarus, and Kazakhstan. There are discrepancies between the new code and Russia's existing customs regulations, leading to ambiguity and conflicting interpretations. Close cooperation with customs officials is key to navigating the complex customs landscape and avoiding penalties. As officials learn the new rules, the situation is improving but uncertainties remain during the transition period.

1. customs Russia
38
W
hen the new Customs Union Code
unifying Russia, Belarus and Kazakhstan
was officially enforced in July this year,
no one thought it was going to be an easy
transition.
It is the latest in a number of attempts by Russia to create
an effective trade bloc with its neighbouring countries since
the break-up of the Soviet Union, but disagreement over gas
transit fees through Belarus at the last moment highlighted the
precarious nature of the alliance.
The new procedures for the movement of goods the Union
has created is also causing confusion for carmakers and
LSPs, according to Wilhelmina Shavshina, legal expert at law
firm DLA Piper. Speaking just ahead of the Union’s official
formation at the Automotive Logistics Russia conference in
St Petersburg, she told delegates:“Your sphere of activity is
perhaps the one on which the Customs Union will have the
most impact.”
Russian Transport Line’s general director Kostantin
Skovoroda, also at the event, admitted there was little he could
say at the time about its enforcement, a significant admission
given RTL’s expertise as a customs broker. Skovoroda
recounted a recent meeting he had had on the subject with
a leading customs official at which he was told‘you can ask
anything, but if I don’t answer it is not that I don’t want to, it’s
because I don’t know what to tell you’.Apparently for the rest
of the meeting the official was largely silent.
Investment fears
At that point many were weary of what Sollers Auto’s head
of logistics, Ivan Karasev, referred to as“certain obscurities”
ahead as the new code was introduced. Not that the previous
situation for moving goods into Russia was any less complex.
The new customs procedure has compounded the often
tortuous experience of many operators in Russia and is
something that led its president, Dmitry Medvedev, to admit
in September that the thought of having to deal with Russian
customs officials was scaring investors away from the country.
With 44% of shipments inspected in Russia compared with
just 3% in Germany and 13 documents required to import
RTL’s Konstantin Skovoroda says dealing with the customs authorities in Russia
comes down to a simple choice: be against them or try to understand what they
want from you and do something about it
OCTOBER–DECEMBER10
Carmakers and LSPs getting to grips with the complexities of the new Customs Code
unifying Russia, Belarus and Kazakhstan need a good eye for detail and a close
relationship with customs officials if they are to tackle what remains a risky procedure full
of compromise and hidden costs, writes Marcus Williams
Fathoming
the new
frontier

2. customs Russia
39
goods, roughly twice what it is in neighbouring
countries to the west, customs procedures are
lengthy in comparison.
Shavshina sums up the situation by warning
logistics operators that customs is one huge risk
by itself, especially as a result of adjustments to
customs value between the three states, and the
liabilities that a provider would face if it does not
comply.Ambiguities in the regulation, particularly
between the old code and new one, will make
things even more difficult for LSPs.
So what is a logistics provider to do? For
Skovoroda it is a simple choice: be against the
customs authorities or try to understand what
they want from you and do something about it.
“We suggest using the second step [but] sometimes it is hard
to find a compromise,” he added.
Since then, RTL, like others, has made efforts at clarifying
the code with a degree of success, though the process of
finding a compromise continues as special procedures await
finalisation.
Something old, something new
The Customs Union between Russia, Belarus and Kazakhstan
went into effect earlier this year following an agreement made
the previous November when members adopted a unified
system of tariffs to take effect on July 5th. It means unifying
the legislation of the three member countries, but many
references to Russia’s national customs regulations remain,
causing some confusion. Technically, those regulations that
apply to the Russian Customs Code that are in contradiction
with the new Union Code should not be applied. However,
regulation of the new code is still awaiting final approval from
the State Duma, meaning that new and old rules are running
in conjunction.
“Before the Federal law on customs regulation is enacted,
Russian customs authorities will rely on the provisions of two
laws,” confirms Shavshina,“the customs code of the Customs
Union and the 2004 customs Code of the Russian Federation.”
This has meant that practical application of the provision
for the customs legislation has become more complicated by
discrepanicies between the two codes. In a number of cases
guidance from the Union member countries does not tally
with the same provisions provided by the new code, despite
priority being given to the Customs Union.
While some operators have said they would hold off on
imports until the procedure became clearer, for others any
lack of clarity has been quickly resolved. Priority Freight,
a specialist provider in emergency and premium freight
logistics, says the new regulations have not affected its
operation at all since its brokers have familiarised themselves
with both systems and can coordinate preliminary paperwork
with the necessary customs bodies.
Guidance is being provided by the Federal Customs Service
until the final implementation so that logistics operators
know which rules to follow from which code. But there still
isn’t a document that contains all the necessary explanations
concerning the new regulations and those provided only
partially answer the questions raised. Likewise, the hotline set
up by the customs authorities working on the Union issue is
not able to provide answers to all the questions.
RTL’s Skovoroda says that the Federal Customs Service
usually publishes many different injunctions with special
explanations but admits that“not all the injunctions and
explanation are ready”.
So while the situation is improving, the gradual
implementation of the code’s many facets means it is a
learning experience.
“Comparing the current situation to the beginning of
July one must admit that customs entities have started to
better understand and thus apply the new regulations,” says
Pavel Kolesnikov, senior customs specialist at Gefco Russia.
“However, there is still a long way to go. For instance, the
new procedure for customs duties and tax payment only
started from September 2010 and the unified form of customs
declaration will be applied from January 2011.Also the special
procedure of goods delivery to the Kaliningrad region is not
yet finalised.”
Regional risks
One of the main discrepancies is between the codes enforced
at the level of the Federal Customs Service and that enforced
by the regional customs bodies.“Regional customs often
have more relaxed or different interpretations than other
regional posts or the Federal Customs,” admits Alexander
Rogan, managing director of Priority Freight. He went on to
say that these different interpretations, often the product of
uncertainty over the enforcement of the codes themselves, can
lead to stalemate.
“On the operational level a lot of pressure is being placed
on field-level customs officers, making them risk averse
to the point that they will not make any decision at all in
situations where the law is unclear,” he says.“Customs laws are
also written with enough flexibility that the authorities can
retroactively decide that a law was bent or broken even if there
was no intent to break customs regulations and the law did not
offer specific direction.”
For RTL the lack of clear instructions for customs officers in
line with new customs union code is a problem compounded
by the poor regulation of state agencies. The absence of new
job descriptions for regional customs officers in line
with the new Customs Union Code is also confusing and
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Minsk
Astana
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3. remains so despite assurances by the customs authorities that
responsibilities would not change significantly.
What is important in overcoming these obstacles is a
commitment to regular dialogue with these officials.“Make
a specific effort to have frequent contact with the customs
officials at the operational level,” advises Rogan,“and
demonstrate that you are trying to do things correctly and
minimise the risk you present to them in terms of such things
as bad paperwork or inaccurate cargo pick.”
This is important given the coordination required by the
different customs bodies when handling signed agreements
for the supply through the new border points.
“The key success factor for smooth border passing
and then customs clearance is well-prepared preliminary
documentation and advanced information provided by
professional and experienced specialists,” says Gefco’s
Kolesnikov.
Such preparation is crucial to avoid costly and time-
consuming challenges higher up:“The most successful way
of resolving varying interpretations of the regulations is to
work with customs at the lowest possible level as soon as
the discrepancy has arisen,” adds Rogan.“Once a dispute
has become official and gone up the chain of command, the
importer will lose a lot of time.”
Money maker
The pressure on field level customs officers is also down to the
revenue made out of the customs payments, which brings in
about 50% of the federal budget, according Shavshina. RTL
estimates that vehicle duties represents about 6%.
The customs office picks particular companies from which
to extract customs duties in an effort to recoup the money it
has spent in the execution of its duty.And it is up to officers
on the ground to restore that expenditure from somewhere.
Often this is done by exploiting the existing lack of
transparency; the mistakes that are made by customs–despite
efforts at dialogue–are something compounded by a lack of
insight into the automotive industry.
“There is too little transparency, sometimes it is difficult
to approach customs authorities and sometimes difficult to
explain to them the way car manufacturers operate,” says
Jan Bures, head of group service at VW Rus.“To us it seems
that customs are more interested in making money for the
government instead of [being] the regulative force in trade.”
Gefco agrees.“Sometimes customs officers forget about the
other fundamental functions which are related to protection of
rights of foreign trade participants and acceleration of foreign
trade activities,” Kolesnikov says.“Every day we face the
subjective approach of customs bodies in regard to questions
of customs value determination and that approach in our
opinion is a result of fiscal politics.”
Coding of commodities
That said, attention to the details of such things as the coding
of commodities and the careful preparation of documentation
can prevent unnecessary costs, such as double payments
on VAT (something RTL says it has had success with in its
movement of vehicles for Toyota and Nissan).
“In practice we often come across situations in which the
companies, when they are structuring their licensed contracts
for delivery and including services provisions, divide this
into several contracts,” says DLA Piper’s Shavshina.“Here the
situation may arise in which there is double VAT–when there is
a separate contract for the delivery of equipment and one for
provision of specific services. Part of this must be allocated to
the customs cost of the equipment.”
In this case, says Shavshina, companies will have to pay
the VAT of provided services to the Russian tax authorities
and then, on the basis of the cost that has to be allocated to
the customs cost of the goods, also pay customs duties with
import VAT, meaning services are subject to VAT twice.
“We always recommend that part of services that are
obligatory to the customs cost are included in the contract
for the delivery of the equipment and exclude them into a
separate services provision.”
Reducing risk
The need for inside knowledge at this level for all aspects of
customs procedure in the new Union (not just VAT) lends
credence to the old idiom‘the devil is in the detail’. Carmakers
and LSPs alike need customs professionals on board if they are
not to fall foul of fiscal duplicity and border frustrations.
“The‘customs risk’ can be significantly reduced if
logistics, and especially customs clearance, is contracted
to the professionals,” says Gefco Russia’s head of customs
department, Igor Alyushin.“We don’t mean pure operation
of customs clearance, but a complex approach to import and
logistics, including design of information and document
flows, creation of databases, automatic data handling, and
preliminary check of all documents before goods departure.”
Professional help is also available for disputes over
procedure via a consultative body called the Scientific and
Expert Council to which companies can apply should a
decision by the customs authority appear unfair.
The simultaneous existence of two systems in Russia
complicates customs but the advice available to the
automotive sector is already bolstering the confidence of
those eager to grasp the opportunities promised by the union
and extend their activities into Belarus and Kazakhstan. q
40 OCTOBER–DECEMBER10
customs russia
Priority Freight’s Alexander Rogan says the pressure on customs officers makes
them risk averse and unwilling to make a decision where the law is unclear

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