Eagerly Anticipated Russian Customs Reform Passes Duma Vote

by Tatiana Smolenska, Tax-News.com, Moscow

24 April 2003

The Russian Duma last week finally passed the second reading of the eagerly anticipated customs code. It brings the country closer into line with international practices and is seen as a key stepping stone on the road to World Trade Organisation membership.

The new code was passed by a resounding majority, with only 1 member voting against the measures, and 396 approving the change. This has had the effect of simplifying the former code - which was seen as hideously complex - although the new law still runs to hundreds of pages, according to reports.

The reforms have been designed to encourage economic activity and remove bureaucratic barriers for importers and exporters. Examples of new measures include the reduction of customs clearance time from ten days to three, and the streamlining of the thousands of 'clarifying bylaws' necessary under the old code. There will also be a 90 day notice period before any regulations are changed, rather than new rules taking immediate effect, which confused businesses further under the old regime.

However, some have criticised the new code for not going far enough, especially with regard to the powers of the customs department, or the GTK. The agency has gained a reputation for arbitrary decision making and an aggressive approach, and according to some observers it will retain this ability to interpret the law as it sees fit.

Alexei Zernov, vice president of the Kaliningrad Association of Forwarding Agents suggested to the Moscow Times this week that little material change will take place as a result of the reforms.

"Everyone has been deceived. ... Only two or three changes have been introduced in the 2,000 pages of suggested amendments, and the number of documents required in the customs process can still be determined by the GTK," Zernov observed.

"That means that if you do not have the extra information about a given good that a customs office thinks to ask for, then it has the right to extend its inspection indefinitely. With such a code, who would trade with us? A smart business will say: 'Better trade with China. They have a code of direct application and just 40 articles,'" he went on to warn.

One measure which did not make the final draft however, was the outlawing of so-called 'tolling', which sees a producer "borrow" raw materials from an offshore company, then return them as finished goods, thus avoiding export levies. The exclusion of this measure from the amended code has been attributed to a concerted lobbying campaign by Russian Aluminum, (RusAl) against the move. The firm warned that the provision would cost 48,000 jobs and lose the industry $400 million a year.

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