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Time to stop 'grey customs clearance'
(China Daily)
Updated: 2004-05-28 14:38

Chinese businesspeople who travel thousands of miles to the Russian capital have mixed feelings towards the local market.

"We are both thrilled and scared," shoe-producer Yu Jinhua put it with telling brevity.

Yu, the general manager of the Wenzhou Jierda Shoes Co Ltd, in East China's Zhejiang Province, says that 60 per cent of the leather shoes made by his company go to Russia. However, over the past five years, Yu has suffered great economic losses in Russia because of the so-called "grey customs clearance."

"We are subjected to 'inspections' of our market stalls and storehouses by Russian officers nearly every month," said Yu to China Daily. Normally, imported commodities without proper customs documents will be confiscated.

Yu is not alone in suffering in this unpredictable market. In February, officers from the Russian Interior Ministry raided the Emila market in Moscow and carted away US$30 million worth of commodities from Chinese outlets, charging the Chinese businesspeople with lacking the necessary customs documents.

"The markets where we rent the stalls told us that they were protected by the government and we would be OK there," said Yu, who sells US$20 million worth of shoes every year in Russia. "However, sometimes things are good and sometimes bad. It is not stable and we are exposed to high risks."

The "grey customs clearance" started in the early 1990s amidst the social confusion arising from the downfall of the Soviet Union. Faced with a shortage of commodities, the Customs Committee of Russia, in an effort to encourage import trade and simplify customs procedures, allowed its so-called "customs clearance companies" to provide one-stop services that covered both transportation and customs clearance procedures.

These companies, with close relations with Russian customs and backed up by influential figures in Russia, enjoy many privileges, according to Yu.

The result, he says, is that these companies pay customs duties on only a small portion of the imported commodities, bribing the customs officers to let the rest pass.

However, they normally do not supply customs clearance manifests, which means that importers who use their services are often suspected of smuggling.

It is not only Chinese businesspeople who go to the "customs clearance companies" in order to cut costs and, more importantly, to improve efficiency; their counterparts from Turkey, the Republic of Korea, Spain and other countries also follow the same practice.

Statistics from Russian Customs indicate that commodities entering Russia through the "grey customs clearance" route make up about 30 per cent of the private trade volume between China and Russia. Commodities involved include garments, shoes and hats, and suitcases and bags. Between 1998 and February this year, Russian police raided Chinese retail outlets more than 100 times checking for legal customs clearance documents.

The Russian economy has traditionally concentrated on heavy industry. This has meant that there is little chance for Chinese entrepreneurs like Yu to open up new factories in Russia to localize the manufacturing process and avoid the risks that go with "grey customs clearance."

"Chinese businesses already ensconced in the Russian market will do everything they can to stay here because their products sell well in Russia, but the losses they suffer from such raids have already driven some small ones out of the market," said Chen Xianchi, vice-chairman of the Chinese Entrepreneurs Association in Russia.

"But we are very much against the continued existence of such a practice ("grey customs clearance"), because it harms the interests of Chinese businesspeople," said Yu.

"We hope that the law makers of the two countries will come up with ways to promote private trade under the rule of law, so that foreign businesses in Russia will have a stable environment and can make long-term plans."

Governments urged to act

Without explicitly mentioning the term "grey customs clearance," Chairman of the Standing Committee of the National People's Congress Wu Bangguo told a forum on China-Russia border and regional co-operation during his on-going visit to Russia (May 22-28) that efforts should be made to create a fair trade environment ruled by law, so as to promote the entrance of each country's commodities, capital and services into the markets of the other.

"The essence of the market economy is the rule of law," echoed Liao Xiaoqi, vice-minister of commerce, at the same forum. "The two countries should keep on improving the laws and regulations on economic co-operation and trade, in order to encourage enterprises to do business according to the law, and to provide a relatively transparent environment for foreign capital and products to compete fairly so as to facilitate trade and investment."

"Grey customs clearance" has been sucking money from the Russian Government for years. Statistics from the two countries show a gap of US$2.21 billion in China's exports to Russia in 2003. Analysts say that during President Vladimir Putin's second term, Russia is expected to exert more effort in tackling corruption and economic crimes.

In April, Russian customs raised the ad valorem duty on Chinese exports by 30 per cent and the fixed duty from 20 US cents to US$1.40 per kilogram to US$3.50 per kilogram, in what it explained as an effort to crack down on "grey customs clearance."

The measure has been criticized by the Chinese side, saying the unilateral measure will affect China's trade with Russia. Some observers looked at it more as an action to hamper China's exports of such commodities as garments, so as to protect domestic producers.

Specialist on Russian economic issues Lu Nanquan said that it will take time to resolve such issues, which are inherited from the past.

"The best way to resolve the issue is through the trade rules of the World Trade Organization (WTO)," said Lu, an analyst with the Institute of Russian, Eastern European and Central Asian Studies under the Chinese Academy of Social Sciences. Noting that the two economies are complementary,

Lu suggested working to achieve a "soft landing," resolving the issue through talks so as to maintain the current momentum for trade growth.

According to sources with the Chinese Embassy in Russia, the two countries pledged during the prime ministerial consultations last September to set up a joint working group to standardize trade procedures.

The Ministry of Commerce will be the co-ordinator for the Chinese side, but the Russian side has not yet decided which department will act as its representative.

Official statistics indicate that bilateral trade has achieved significant annual increases over the last four years. Last year, Sino-Russian trade registered US$15.7 billion and this year the figure may reach a new milestone of US$20 billion.

While Russia has the edge in heavy industry and natural resources, such as timber and natural gas, Chinese food products and garments are welcomed by Russian consumers.

Last week, Russia and the European Union reached an agreement in which the EU will give support to Russia's entry into the WTO, the world trade club that is committed to the removal of barriers in trade. Russia's negotiations with China are still going on.

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