The protection of intellectual property rights, trademarks and copyrights are hot topics for the Russian Federation as it tries to join the World Trade Organization. Anybody who has ever spent any time in Russia walking through the barakholki, or clothing and sundry markets, knows first-hand that the Land of the Firebird is also the Land of Imported Chinese Knock-offs Sold at Really Low Prices. In St. Petersburg, the Apraskin Dvor, right off Sennaya (Haymarket Square) sells quasi-brand items like Calven Klein shirts, Christian Diar ties, Donna Kaban NY dresses, and Lei Jeans in row after row after row of overflowing, privately run stalls. If the quality is dubious compared to the original, the design is often good enough to fool the non-attentive observer for a few minutes, or at least until the second or third round of vodka is drunk (after which, who cares).
Then there is the music scene, where only one or two reputable stores (such as M Video) offer anything resembling factory-produced and certified compact discs. They usually cost twice as much as pirated versions, and even if the quality isn’t quite so good, most Russians make the trade-off willingly. The losses to western copyright owners measure in the billions of dollars annually, and since Russia imports most of its counterfeits from China, it’s no wonder that the Federal Customs Service subjects Chinese imports to a 70% full inspection regime (i.e., seven out of ten shipping containers are inspected physically).
Lately the Russian government appears to be paying more attention to the problem of counterfeits – although it should be noted, that on this point, the official opinion diverges sharply from the opinion of the average Russian consumer, who earns around $1000 per month and looks on the knock-offs as a necessary evil. As the Russian saying goes, isskustvo trebyet zhertv, art demands sacrifices, and few nationalities more willingly sacrifice for fashion than Russians do. In any case, the Russian government clearly wants to fall into line with the world’s main trading nations in terms of respecting intellectual, trade and copyrights.
One of the main directives for handling counterfeits can be found on the Russian Federal Customs Service’s website under the “For Business” category. Entitled “The Regulation on protection of intellectual property rights by customs authorities” the directive sets down in 74 laborious statutes of stultifying bureaucratese just exactly how the FCS must handle violations of intellectual property rights on Russia’s borders.
The Regulation boils down to a few key points; the FCS can stop goods from entering Russia upon petition of the trademark holder; the procedures to stop the import of counterfeit goods are elaborate, involving a substantial body of proof; the FCS registers trademarks, copyrights and intellectual property into a centralized Registry only upon submission of a very specific information; and the FCS has broad authority to interpret the Regulation and enforce it.
The final point is the most important one for importers to Russia. The Regulation does not specify that the cargo may only be held upon appeal from the copyright or trademark holder, or by the owner of the intellectual property. Instead, it puts the decision into the hands of the customs post supervisor (head). He may delay (suspend) the import for 10 days, during which time the importer may appeal the suspension. The importer further may ask for a single 10-day suspension. The decision to release the cargo ultimately rests, again, with the customs post supervisor.
The system could not be better designed for abuse. First, when cargo is arrested, Russian Customs regulations permit the arrest of the ‘means of transportation’ along with the cargo. To look at this as a practical matter, assume that your cargo is detained at the Torfyanovka customs post on the Russian-Finnish border. The FCS officer who just arrested your cargo essentially just told you that you will pay at least 10 days’ for holding a truck, with driver, chassis and container, at the border – an expense that can easily be $1000 per day, or a minimum of $10,000. Whereas the ‘unofficial tax’ for ‘expedited service’ at Torfyanovka is $2000. Do the math and ask yourself which option you would choose. Add in the pressure coming from your buyers, who are waiting for their cargo to get to market; and the fact that your truck may be carrying dairy products or some other cargo with a short expiration date, and it’s not hard to understand why most importers are not going to make any trouble, or fuss and fight.
The Regulation stipulates that goods arrested under suspicion of counterfeit remain under control of the FCS until the cargo is either released into free circulation, destroyed, renounced in favor of the state, transferred to state ownership, or exported out of Russia. I know from personal experience that getting cargo destroyed requires an amazing amount of time and energy, including getting a court resolution. The entire process can take up to two years. Most importers won’t bother with renouncing their ownership rights, since this is also a very bureaucratic process, and prefer just to walk away. This leaves the final option as the most viable – allowing Customs to take ownership of the cargo, and sell it through the Russian Federation State Property Committee.
Which leads us back to an earlier blog, Administrative Arrest – Russian Customs Scam? Does it seem like the FCS will arrest counterfeit goods at the Russian border to protect trademark and copyrights – or will dishonest officers use the Regulation as an excuse to line their own pockets?
http://www.customs.ru/en/fbusiness/ENGCustomsrelatedissues/?id695=2959&i695=1
Saturday, March 14, 2009
Friday, March 13, 2009
Can $160 Million Clean Up Russian Customs?
One of my favorite things about the internet is that it makes recent history so accessible. I don’t have a hard time remembering research before the web came along – I spent too many long hours in libraries, getting lost in the stacks in pursuit of obscure texts – but I love the ability to conjure these reams of information into my Anchorage office by just hitting a button.
Looking into the activities of the Russian Federal Customs Service takes a little ingenuity and digging but sometimes it yields fascinating and wonderful bits of insight. I ran across a nice little nugget the other day on the World Bank website entitled “A+ for Russian Customs!” The short piece – really little more than just a blurb – dated from 2006 and outlined the successes of a $140 million dollar World Bank program to “modernize the infrastructure for clearing goods.” This is part of a six year Customs Development Project “to modernize the operations of 800+ customs posts manned by the 62,000 staff.”
Since we are already in 2009, the target completion date for the Customs Development Project, it might be a good idea to look and see if the Federal Customs Service indeed earned an A+, which, the World Bank site says, “In early 2005, the Russian business community rated…as the best government agency in terms of openness and transparency.”
First off, rating the FCS as Russia’s best agency in terms of openness and transparency is faint praise for a country rated among the worst for government corruption in the world. During all of my travels to Russia, I can think of any number government agencies that are more transparent than the FCS. The GAI, or Federal Automobile Inspectorate, for example, is a paragon of transparency and openness – when one of their officers, or gaishniki, stops you for a traffic violation, it’s pretty clear that you can bribe him on the spot or fight the ticket in court. Whereas an FCS officer invokes any number of little-known or ambiguous rules when delaying cargo, requiring appeals by letter, and thirty-day response periods for rulings.
The World Bank program involved 24 offices out of over 800, or about .003% of all FCS posts; and with $140 million dollar spread around them, or about $5.83 million per year for 6 years, a little more than $971 thousand dollars per year per FCS post. For a significant customs post, such as Torfyanovka on the Russian-Finnish border, this is chicken feed – the post processes hundreds, sometimes thousands of trucks per day, and with the standard bribe to let a truck through standing at $400 per truck, the incentive to keep taking bribes far exceeds any monies laid out by any foreign agencies.
The program intends to introduce e-filing for customs declarations; this apparently, will help speed up clearance times, as well reveal patterns that can help pinpoint contraband and fight corruption. Electronic systems are hardly a panacea, however, especially in a place like Russia, and particularly in an agency like the FCS. Any electronic system is prone to gaming – how hard would it be, for example, for a corrupt businessman and a corrupt FCS officer to agree on the information put into the e-declaration, and then between them ensures that the cargo gets steered to a single officer or group of officers, for customs clearance? In late 2006, the Russian Federal Transportation Militia raided a series of container carrier offices searching for materials relating to the falsification of data in Bills of Lading. It turned out that corrupt employees in the carriers’ own offices were changing the origins and cargo types for containers of meat. If western companies, with their own internal security systems, can be corrupted, then it is a sure bet that the FCS can be corrupted, too.
In another famous case in St. Petersburg, a Baltic Customs officer was shot dead in his office in 2005. He had been in charge of entering information on 30 shipments of meat into an FCS database. The containers of meat disappeared after leaving the port.
The World Bank website further states, “By the end of 2004, the implementation of a new Customs Code had reduced the processing time inland customs offices from 10 days to 3 days, for 98 percent of the declarations.” At the risk of offending the employees of the World Bank, who are no doubt well-meaning and competent people, this statement just seems dubious. Maybe their target 24 offices were in locations with little or no foreign trade, like Tigil or Diksi in the Russian Far North.
Certainly, they were not in the places where customs declaration processing needs improvement the most, like the First Container Terminal in St. Petersburg, or on the Russian-Finnish and Russian-Latvian borders. In these locations, containers with meat are subject to 100% full physical inspection of their contents, which means a delay of at least one day per shipment but usually winds up being much more (over 10 days, for example, in the port of St. Petersburg). Imported Chinese goods are subject as well to a 70% inspection, slowing down their processing.
That said, even baby steps and small achievements are positive – but we should not get our hopes up too high for the success of reforming the FCS any time soon. Many observers are skeptical that e-filing plans will not work unless there is sufficient political will behind them to really root out corruption. It may already be too late for the current generation, who, in the words of one observer, are incapable of changing. “It's too late," he said. "These guys are used to driving a Mercedes and are used to going on holiday four times a year, and you aren't going to change this."
http://go.worldbank.org/5PNUC2GS90
http://www.templetonthorp.com/en/news172.html
Looking into the activities of the Russian Federal Customs Service takes a little ingenuity and digging but sometimes it yields fascinating and wonderful bits of insight. I ran across a nice little nugget the other day on the World Bank website entitled “A+ for Russian Customs!” The short piece – really little more than just a blurb – dated from 2006 and outlined the successes of a $140 million dollar World Bank program to “modernize the infrastructure for clearing goods.” This is part of a six year Customs Development Project “to modernize the operations of 800+ customs posts manned by the 62,000 staff.”
Since we are already in 2009, the target completion date for the Customs Development Project, it might be a good idea to look and see if the Federal Customs Service indeed earned an A+, which, the World Bank site says, “In early 2005, the Russian business community rated…as the best government agency in terms of openness and transparency.”
First off, rating the FCS as Russia’s best agency in terms of openness and transparency is faint praise for a country rated among the worst for government corruption in the world. During all of my travels to Russia, I can think of any number government agencies that are more transparent than the FCS. The GAI, or Federal Automobile Inspectorate, for example, is a paragon of transparency and openness – when one of their officers, or gaishniki, stops you for a traffic violation, it’s pretty clear that you can bribe him on the spot or fight the ticket in court. Whereas an FCS officer invokes any number of little-known or ambiguous rules when delaying cargo, requiring appeals by letter, and thirty-day response periods for rulings.
The World Bank program involved 24 offices out of over 800, or about .003% of all FCS posts; and with $140 million dollar spread around them, or about $5.83 million per year for 6 years, a little more than $971 thousand dollars per year per FCS post. For a significant customs post, such as Torfyanovka on the Russian-Finnish border, this is chicken feed – the post processes hundreds, sometimes thousands of trucks per day, and with the standard bribe to let a truck through standing at $400 per truck, the incentive to keep taking bribes far exceeds any monies laid out by any foreign agencies.
The program intends to introduce e-filing for customs declarations; this apparently, will help speed up clearance times, as well reveal patterns that can help pinpoint contraband and fight corruption. Electronic systems are hardly a panacea, however, especially in a place like Russia, and particularly in an agency like the FCS. Any electronic system is prone to gaming – how hard would it be, for example, for a corrupt businessman and a corrupt FCS officer to agree on the information put into the e-declaration, and then between them ensures that the cargo gets steered to a single officer or group of officers, for customs clearance? In late 2006, the Russian Federal Transportation Militia raided a series of container carrier offices searching for materials relating to the falsification of data in Bills of Lading. It turned out that corrupt employees in the carriers’ own offices were changing the origins and cargo types for containers of meat. If western companies, with their own internal security systems, can be corrupted, then it is a sure bet that the FCS can be corrupted, too.
In another famous case in St. Petersburg, a Baltic Customs officer was shot dead in his office in 2005. He had been in charge of entering information on 30 shipments of meat into an FCS database. The containers of meat disappeared after leaving the port.
The World Bank website further states, “By the end of 2004, the implementation of a new Customs Code had reduced the processing time inland customs offices from 10 days to 3 days, for 98 percent of the declarations.” At the risk of offending the employees of the World Bank, who are no doubt well-meaning and competent people, this statement just seems dubious. Maybe their target 24 offices were in locations with little or no foreign trade, like Tigil or Diksi in the Russian Far North.
Certainly, they were not in the places where customs declaration processing needs improvement the most, like the First Container Terminal in St. Petersburg, or on the Russian-Finnish and Russian-Latvian borders. In these locations, containers with meat are subject to 100% full physical inspection of their contents, which means a delay of at least one day per shipment but usually winds up being much more (over 10 days, for example, in the port of St. Petersburg). Imported Chinese goods are subject as well to a 70% inspection, slowing down their processing.
That said, even baby steps and small achievements are positive – but we should not get our hopes up too high for the success of reforming the FCS any time soon. Many observers are skeptical that e-filing plans will not work unless there is sufficient political will behind them to really root out corruption. It may already be too late for the current generation, who, in the words of one observer, are incapable of changing. “It's too late," he said. "These guys are used to driving a Mercedes and are used to going on holiday four times a year, and you aren't going to change this."
http://go.worldbank.org/5PNUC2GS90
http://www.templetonthorp.com/en/news172.html
Tuesday, March 10, 2009
Thoughts on the new Shushary Terminal in St. Petersburg
One of the more welcome pieces of news to come out of the Russian transportation market in recent months was the announcement that Russia’s National Container Company is opening an off-dock container terminal in Shushary, St. Petersburg. The Shushary Terminal occupies a prime piece of logistics real estate – at the intersection of the Moscow Highway and St. Petersburg Ring Road, near the main center of western investments in the auto industry (Ford, Toyota and Nissan all have plants nearby) and right next to Pulkovo airport.
Even better news is that the Federal Customs Service included the Shushary Terminal into the Baltic Customs zone of authority; according to the NCC press announcement:
”This will provide a unique possibility to transport containers from FCT to the off dock facility in Shushary in bond under the simplified scheme of internal customs transit. Such scheme does not require presentation of any additional commercial documents by either shipping line or consignee apart from those readily available at the time of vessel’s arrival at FCT, i.e., freight manifest and bill of lading.”
Shipping lines and freight forwarders will now be able to move containers directly from the First Container Terminal by truck or rail shuttle to the Shushary Terminal under bond and with minimal documentation. The cost for the service is now under negotiation with NCC, but the cost for moving a 40’ container the 17 kilometers to the off-dock from the port will likely be somewhere between $200-$300 including container lifts.
The move is a good response to the long-awaited desire for Russia to provide more capacity for the booming container cargo market; carriers, importers and exporters have clamored for additional space for years, as market growth outstripped the capabilities of the First Container Terminal to handle it. The complaints became especially vocal after the great reefer crisis of 2006-2007, when carriers scrambled to import thousands of containers of beef and pork before a quota deadline expired on the New Years. The Shushary Terminal adds storage space for 10,000 TEU of laden containers and 4,500 TEU of empty boxes, and NCC estimates its annual throughput at 200,000 annually.
The only immediate drawback is, of course, the drastic drop in the need for the excess capacity. With 2009 volumes at FCT down almost 30% compared to 2008, there doesn’t seem to be much immediate need for the space at Shushary. However the market is bound to rebound when the price of oil rises again, and when it does the additional throughput will be very much appreciated.
Looking at the longer term, the availability of new capacity in St. Petersburg presents container carriers and cargo importers with a host of interesting issues that will determine the shape of the market for years to come. By now, carriers probably will have negotiated space commitments for Shushary, and if the historical patter obtains, Maersk Line will pursue aggressively a large share of the 10,000 TEU available slots to support its major clients in the automobile industry. Competitive logic dictates that MSC, OOCL, CMA-CGM and the other majors match the move by securing their own quotas. The interesting question will be to see if the costs for holding these spaces are passed along to customers while the market remains flat.
Assuming the market recovers in 2010, carriers will face further challenges managing their policies for using the Shushary Terminal. For example, if there is a 2010 congestion crisis, will a carrier force a customer to move his box from FCT to Shushary and then recover the cost before releasing the cargo? Contract of carriage terms allow for just this but it would be a tough sell in the Russian market, and probably wouldn’t fly with global or key customers.
A few other questions arise immediately from contemplating the new off-dock Shushary Terminal. As I’ve discussed in my other blogs, the major cause of congestion in the port of St. Petersburg (among other places) is the awkward and opaque paper mill of clearing cargo through Russian Customs. Certainly, Baltic Customs bears a large responsibility for the fact that over 50% of all containers passing through the First Container Terminal in 2008 took 6 days or more to leave the port.
This being the case, it is hard to see any real advantage to creating the capacity for more container storage space in St. Petersburg. A container carrier needs to turn his equipment about six times per year to make a profit; anything less, and lost time begins to eat into profits. Although it seems counter-intuitive, there is a real danger that additional capacity in a situation of slow turn-times exposes a container carrier to greater financial risk, not less; more of his equipment is tied up for longer periods of time.
I don’t believe this is an idle speculation. There is plenty of speculation about corruption in Baltic Customs, and its liberal use of administrative arrest ties up to 10% of all cargo shipping containers at one time in tangled webs of bureaucracy. A container carrier could very well ask what advantage there is to having even more of his containers sitting idle while consignees negotiate with Baltic Customs, or go to Arbitration Court, to get their cargo released.
In other words, without addressing the main cause of congestion in the port of St. Petersburg – the Federal Customs Service – the new off-dock may prove to be nothing more than a Band Aid.
http://www.container.ru/English/Company/News/20081230.html
Even better news is that the Federal Customs Service included the Shushary Terminal into the Baltic Customs zone of authority; according to the NCC press announcement:
”This will provide a unique possibility to transport containers from FCT to the off dock facility in Shushary in bond under the simplified scheme of internal customs transit. Such scheme does not require presentation of any additional commercial documents by either shipping line or consignee apart from those readily available at the time of vessel’s arrival at FCT, i.e., freight manifest and bill of lading.”
Shipping lines and freight forwarders will now be able to move containers directly from the First Container Terminal by truck or rail shuttle to the Shushary Terminal under bond and with minimal documentation. The cost for the service is now under negotiation with NCC, but the cost for moving a 40’ container the 17 kilometers to the off-dock from the port will likely be somewhere between $200-$300 including container lifts.
The move is a good response to the long-awaited desire for Russia to provide more capacity for the booming container cargo market; carriers, importers and exporters have clamored for additional space for years, as market growth outstripped the capabilities of the First Container Terminal to handle it. The complaints became especially vocal after the great reefer crisis of 2006-2007, when carriers scrambled to import thousands of containers of beef and pork before a quota deadline expired on the New Years. The Shushary Terminal adds storage space for 10,000 TEU of laden containers and 4,500 TEU of empty boxes, and NCC estimates its annual throughput at 200,000 annually.
The only immediate drawback is, of course, the drastic drop in the need for the excess capacity. With 2009 volumes at FCT down almost 30% compared to 2008, there doesn’t seem to be much immediate need for the space at Shushary. However the market is bound to rebound when the price of oil rises again, and when it does the additional throughput will be very much appreciated.
Looking at the longer term, the availability of new capacity in St. Petersburg presents container carriers and cargo importers with a host of interesting issues that will determine the shape of the market for years to come. By now, carriers probably will have negotiated space commitments for Shushary, and if the historical patter obtains, Maersk Line will pursue aggressively a large share of the 10,000 TEU available slots to support its major clients in the automobile industry. Competitive logic dictates that MSC, OOCL, CMA-CGM and the other majors match the move by securing their own quotas. The interesting question will be to see if the costs for holding these spaces are passed along to customers while the market remains flat.
Assuming the market recovers in 2010, carriers will face further challenges managing their policies for using the Shushary Terminal. For example, if there is a 2010 congestion crisis, will a carrier force a customer to move his box from FCT to Shushary and then recover the cost before releasing the cargo? Contract of carriage terms allow for just this but it would be a tough sell in the Russian market, and probably wouldn’t fly with global or key customers.
A few other questions arise immediately from contemplating the new off-dock Shushary Terminal. As I’ve discussed in my other blogs, the major cause of congestion in the port of St. Petersburg (among other places) is the awkward and opaque paper mill of clearing cargo through Russian Customs. Certainly, Baltic Customs bears a large responsibility for the fact that over 50% of all containers passing through the First Container Terminal in 2008 took 6 days or more to leave the port.
This being the case, it is hard to see any real advantage to creating the capacity for more container storage space in St. Petersburg. A container carrier needs to turn his equipment about six times per year to make a profit; anything less, and lost time begins to eat into profits. Although it seems counter-intuitive, there is a real danger that additional capacity in a situation of slow turn-times exposes a container carrier to greater financial risk, not less; more of his equipment is tied up for longer periods of time.
I don’t believe this is an idle speculation. There is plenty of speculation about corruption in Baltic Customs, and its liberal use of administrative arrest ties up to 10% of all cargo shipping containers at one time in tangled webs of bureaucracy. A container carrier could very well ask what advantage there is to having even more of his containers sitting idle while consignees negotiate with Baltic Customs, or go to Arbitration Court, to get their cargo released.
In other words, without addressing the main cause of congestion in the port of St. Petersburg – the Federal Customs Service – the new off-dock may prove to be nothing more than a Band Aid.
http://www.container.ru/English/Company/News/20081230.html
Monday, March 9, 2009
St. Petersburg Volumes Down 30% Since 2008
The economic downturn is hitting Russia hard these days, and the downward trend is especially notable in the container shipping industry, which is suffering from falling rates and volumes for the first time in over a decade of growth. According to the website for the National Container Company, owner of the First Container Terminal (St. Petersburg’s largest container terminal),
“The throughput of First Container Terminal (FCT, St. Petersburg) in the reported period equaled 124,608 TEU (-24.7% comp. to 2008). In February, FCT handled 61,301 TEU (-27.3% comp. to Feb 2008).”
To get an idea of just how bad the situation has become, compare the weekly throughput numbers for 2008 with those of 2009. Figures are expressed in TEU (twenty foot container units).
Week 1
2008: 7,868
2009: 3,873
Percentage change: (51%)
Week 2
2008: 10,027
2009: 8,563
Percentage change: (15%)
Week 3
2008: 10,120
2009: 9,263
Percentage change: (8%)
Week 4
2008: 11,548
2009: 8,058
Percentage change: (30%)
Week 5
2008: 11,547
2009: 9,118
Percentage change: (21%)
Week 6
2008: 12,326
2009: 10,066
Percentage change: (18%)
The numbers represent a sea change from 2006 to 2008 (when I worked in St. Petersburg). Then, the hottest topic among container carriers was the lack of capacity to meet the demand at FCT. Now the market turned around 180 degrees.
The situation, it would seem, has benefits for container carriers and cargo shippers alike; with so much excess capacity on the market, and ships running at less than full capacity, cargo moves as scheduled, with key clients as well as spot customers all but guaranteed space. And once at port, customs processing should theoretically happen faster since there is less cargo for Baltic Customs to work on.
The result should be much faster turn times for cargo. This is important for container carriers since they are in the business of selling container space. A container carrier generally expects to get up to 6 export loads per year per shipping container – meaning that the container loads at a shipper door, delivers the container to the consignee, takes back an empty container and re-positions it for another load, 6 times during the course of a year. A cycle would then be about 60 days from export load to export load.
Without congestion, the Russia cargo market should be able to accomplish this. At present most containers in Russia take up to 30 days to turn around – but, as we have seen in previous blogs, over half of all containers take between 6-15 days to clear FCT, and 15% of all loads take more than 16 days. And with a high percentage of shipping containers leaving Russia empty (about 70%, as can be seen by FCT data); these boxes have little chance of finding their next load of export cargo within 60 days. Every day is critical – time is money, always, in the shipping industry.
Therefore, it would seem that a slowdown in volumes would mean boxes turn faster. But as we all know, Russia is a land of paradox and contradiction. Russian Customs clearance procedures remain complex and opaque, and corrupt officers in the Federal Customs Service – including many of those in Baltic Customs – look at cargo as a source of personal enrichment. For them the situation may be – in the unforgettable formulation of V.I. Lenin – the worse, the better (tem khuzhe, chem luchshe).
Russian Customs brings in over 40% of the revenues for the Russian state. These revenues are collected on imports and exports, and over the past few years, oil exports provided a lion’s share. Now, as one Russian Customs officer told the newspaper Novaya Gazeta,
“The customs clearance system for import cargo has practically fallen apart! Only a handful [of importers] are determined to bring in consumer goods. Whoever used to import cargo now says, who needs you and your Customs? Right now oil duties account for 45% of the Federal Customs Service budget, but the price of oil is falling. We’ll probably be forced to revoke them altogether by spring. Then how does Customs think it can take care of itself, if the only import that’s left is illegal? All of the duties are going right into the hands of the [Customs] chiefs.”
A likely scenario is that, under pressure to collect more revenues from import cargo to compensate for the loss of revenues on oil exports, and unwilling to give up their personal income streams, Russian Customs officers will put import cargo under more intense scrutiny than ever before. They will ask more, not less, questions about the correct valuation, weight and volume of all cargo, intending to maximize the amount of duty.
Will cargo turn faster now that the days of congestion are over in St. Petersburg? We will follow developments closely in the months to come.
http://www.container.ru/English/FCT/About/Stat/index.html
http://www.novayagazeta.ru/data/2009/004/22.html
Wednesday, March 4, 2009
Bribes for Brands
For visitors to contemporary Moscow, it is hard to conceive of the city without a cornucopia of expensive imported goods – shops filled with Gucci, Prada, Naf Naf and Benneton line Tverskaya Ulitsa, the supermarkets overflow with imported French and Dutch cheeses, prime cuts of meat, oranges, grapefruits, kiwi, pineapples…it looks, to a westerner, just like the West. Brand names are an omnipresent fact of life in most big Russian cities now, and this is by no means a bad thing. I remember all too well the Russia of the 1980s and early 1990s, when the stores were barren and black-market traders, fartsovshiki, ran the streets in little leather-jacket gangs and literally followed you for blocks, trying to get you to part with some coveted article of clothing.
As Russia grew into its economic potential, the fartsovshiki grew up too; they got smart, and many of them brought their hustle, intelligence and street smarts to foreign trade. Roman Abramovich, one of Russia’s richest oligarchs, got his start back in 1987 by parlaying a 2000 ruble wedding present into a black-market business in perfume, toothpaste, tights and deodorant. I know plenty of Russian friends and professional acquaintences with similar biographies.
Yet few westerners actually think about where their brand name goods come from, how they get into Russia, and how they cross the border. Transportation is one of those things that people take for granted, like water or electricity – you just go into a Moscow supermarket, and there are Chiquita bananas in produce and Huggies diapers in baby supplies. But questions of branding, trademarks and intellectual property rights are matters of hot debate in Russia, and still being sorted out between importers, the courts and in the Federal Customs Service. In true Russian form, much of the decision-making is arbitrary, and decided in the breach by money changing hands.
A recent article in Novaya Gazeta called “From Huggies to Levis” discusses in fascinating detail the affect attempts by western companies to guard their trademarks on imports to Russia. Western companies tend to have no mercy on copyright infringement, seeing it righty as theft. Apparently the European Business Association (representing some of Europe’s biggest brand names) recently appealed to the Russian Federation Arbitration Court to limit the import of brand-name goods to licenced importers. According to the article, “The object is that even authentic goods imported into Russia without the trademark owner’s permission must be considered contraband.”
For an official dealer, the situation presents no problem. The Customs Code grants a trademark owner the right to enter its trademark into the customs register as its intellectual property. The company then decides which companies have the right to be their dealer and requests their names be entered into the customs register of approved importers. This is a hard blow to the many small and medium Russian businesses, for whom it may be impossible to obtain permission from a trademark holder.
But the law and its interpretation is not yet clear. The article cites a case with the Moscow-based company AVTO-Logistika, an autoparts company whose cargo was arrested by request of the auto manufacturers Honda and Nissan at the Vyborg Customs Post on the Finnish border in February. AVTO-Logistika markets itself as speedy and reliable parts supplier, and it hurt them to have their cargo tied up while customers were waiting. Vyborg Customs decided the cargo was contraband – not counterfiet, because there was no doubt the parts were genuine Honda and Nissan – but contraband. The law appeared to be on the side of Honda and Nissan but AVTO-Logistika decided to argue Customs’ decision and went to Moscow Arbitration Court. Judge Anatolij Erokhin – in a ruling that shocked many observers – found in favor of AVTO-Logistika. AVTO-Logistika indeed was within its rights to import spare parts without permission from Honda and Nissan.
However other judges have ruled the exact opposite way, in favor of trademark holders, even when the cargo is not for re-sale but for municipal use. For example, the electric company for the city of Vologda, Vologdaoblcommunenergo imported 172 rolls of European produced building insulation. Officers at the Vologda Customs Post arrested and confiscated the cargo because the electric company was not listed in the customs registry as an official dealer of the insulation.
The general rule seems to be that the Customs Service allows trademarked cargo into Russia only with official permission from the trademark holder. But experienced importers know that the Federal Customs Service has two unwritten rules; the first is, nelzya, no esli ochen khochetsa, mozhno – it is prohibited but if you really want to, you can; the second, money talks. As the article comments, “…the standard bribe at the border for an opening – that is, for allowing a truck laden with cargo through [customs] is $400. The trucking company quietly includes this cost into his services. But if a foreign trademark licence holder decides to look out for his interests and puts his trademark into the customs register, the ‘tax’ goes up to $3,000 per truck. The cost is immediately passed along to consumers of imported goods.”
Of course, it would be interesting to find out where the 172 rolls of confiscated insulation finally wound up, who sold them, and at what price. Knowing what I do about the Federal Customs Service, contraband, and confiscation, it would be easy to draw a cynical conclusion.
Citation: http://www.novayagazeta.ru/data/2009/002/12.html
As Russia grew into its economic potential, the fartsovshiki grew up too; they got smart, and many of them brought their hustle, intelligence and street smarts to foreign trade. Roman Abramovich, one of Russia’s richest oligarchs, got his start back in 1987 by parlaying a 2000 ruble wedding present into a black-market business in perfume, toothpaste, tights and deodorant. I know plenty of Russian friends and professional acquaintences with similar biographies.
Yet few westerners actually think about where their brand name goods come from, how they get into Russia, and how they cross the border. Transportation is one of those things that people take for granted, like water or electricity – you just go into a Moscow supermarket, and there are Chiquita bananas in produce and Huggies diapers in baby supplies. But questions of branding, trademarks and intellectual property rights are matters of hot debate in Russia, and still being sorted out between importers, the courts and in the Federal Customs Service. In true Russian form, much of the decision-making is arbitrary, and decided in the breach by money changing hands.
A recent article in Novaya Gazeta called “From Huggies to Levis” discusses in fascinating detail the affect attempts by western companies to guard their trademarks on imports to Russia. Western companies tend to have no mercy on copyright infringement, seeing it righty as theft. Apparently the European Business Association (representing some of Europe’s biggest brand names) recently appealed to the Russian Federation Arbitration Court to limit the import of brand-name goods to licenced importers. According to the article, “The object is that even authentic goods imported into Russia without the trademark owner’s permission must be considered contraband.”
For an official dealer, the situation presents no problem. The Customs Code grants a trademark owner the right to enter its trademark into the customs register as its intellectual property. The company then decides which companies have the right to be their dealer and requests their names be entered into the customs register of approved importers. This is a hard blow to the many small and medium Russian businesses, for whom it may be impossible to obtain permission from a trademark holder.
But the law and its interpretation is not yet clear. The article cites a case with the Moscow-based company AVTO-Logistika, an autoparts company whose cargo was arrested by request of the auto manufacturers Honda and Nissan at the Vyborg Customs Post on the Finnish border in February. AVTO-Logistika markets itself as speedy and reliable parts supplier, and it hurt them to have their cargo tied up while customers were waiting. Vyborg Customs decided the cargo was contraband – not counterfiet, because there was no doubt the parts were genuine Honda and Nissan – but contraband. The law appeared to be on the side of Honda and Nissan but AVTO-Logistika decided to argue Customs’ decision and went to Moscow Arbitration Court. Judge Anatolij Erokhin – in a ruling that shocked many observers – found in favor of AVTO-Logistika. AVTO-Logistika indeed was within its rights to import spare parts without permission from Honda and Nissan.
However other judges have ruled the exact opposite way, in favor of trademark holders, even when the cargo is not for re-sale but for municipal use. For example, the electric company for the city of Vologda, Vologdaoblcommunenergo imported 172 rolls of European produced building insulation. Officers at the Vologda Customs Post arrested and confiscated the cargo because the electric company was not listed in the customs registry as an official dealer of the insulation.
The general rule seems to be that the Customs Service allows trademarked cargo into Russia only with official permission from the trademark holder. But experienced importers know that the Federal Customs Service has two unwritten rules; the first is, nelzya, no esli ochen khochetsa, mozhno – it is prohibited but if you really want to, you can; the second, money talks. As the article comments, “…the standard bribe at the border for an opening – that is, for allowing a truck laden with cargo through [customs] is $400. The trucking company quietly includes this cost into his services. But if a foreign trademark licence holder decides to look out for his interests and puts his trademark into the customs register, the ‘tax’ goes up to $3,000 per truck. The cost is immediately passed along to consumers of imported goods.”
Of course, it would be interesting to find out where the 172 rolls of confiscated insulation finally wound up, who sold them, and at what price. Knowing what I do about the Federal Customs Service, contraband, and confiscation, it would be easy to draw a cynical conclusion.
Citation: http://www.novayagazeta.ru/data/2009/002/12.html
Tuesday, March 3, 2009
At the Trough
United States and Russia trade averaged almost 22% per year over the past decade or so, and hit $26 billion in 2007. Direct U.S. investment into the Russian economy – mostly in airline, automobiles, cosmetics and consumer goods manufacturing reached $11 billion in 2006. Trade relations between the two countries may never be as warm or collegial as those between, say, America and England or America and Germany, but even that may be only a matter of time; after all, the sight of Russian businessmen in American offices is hardly a novelty, and American expatriates in Moscow are a common sight. Even with an economic downturn hitting companies hard on both sides of the ocean, Russian-American trade is a safe bet to grow for decades to come.
I may sound optimistic, but with good reason. I worked at the United States Embassy in Moscow from 1987-1989, and remember very well the CIA reports and political analysts back then predicting the Soviet Union would persist for another 20 years easily. Anybody back in the 1980s guessing that by the new millennium Moscow would rank among the world’s most important business cities would have been laughed out of town.
But, for all the phenomenal growth and changes to Russia over the past 30 years, though, her society retains ancient elements – historical constants that color trade relations with all of her partners, including the United States. It is easy to overlook the persistence of the past when doing business with Russia; a transportation professional sees a recognizable physical infrastructure of ports, cranes, trucks, trains and warehouses, and can infer that that the regulatory and administrative infrastructure will be somewhat recognizable. We can forget that the cultural and social contexts in which countries trade are critical too.
For example, it is easy to dismiss the current formulation of Russia’s economy – state capitalism, as described by Vladimir Putin, or oligarchy – as some sort of an aberration of history, a reaction to the chaos and banditry of the Yeltsin era in the 1990s. But in fact, in my view, Russia’s acceptance of the strong hand of the state under Putin (and now Medvedev) is nothing more than a return to the state monopoly over the economy – foreign trade included – that Russia developed over centuries of imperial Tsarist and Soviet rule. In the long view, Russia has always been dominated by a small group surrounding power – either the Tsar or the General Secretary – and accepts it, so long as power provides political and economic stability.
Serious actors in foreign trade are limited to those closest to state power – ministers under the Tsars, and oligarchs at present; minor players are tolerated provided they do not get big enough to pose any threat to power. Foreign trade was never a game open to all, but a tightly constrained practice, even seen as a dangerous source for the possible infection of society by foreign ideas. While the latter notion may have died out in its most obvious form, foreign companies operating in Russia usually find that their success or failure depends on the ability to adapt to local conditions far more than in other countries.
That patronage, informal networks and family relationships are the important prime movers in Russian business truly comes into the forefront when considering business decisions like staffing and choosing partners. A western perception that hiring a person solely based on connection is wrong turns on its head; the wrong move is not to hire a connected person.
In this context, topics that I have addressed in earlier blogs – bribery and corruption – are perceived very differently in Russia. In the United States, these are serious legal offences with strong connotations of shame. Here again the perception gets turned on its head, and to understand why, take a look back into history, to the venerable Russian principle of the kormushka, or trough. The kormushka was system whereby the Tsar allowed a bureaucrat, such as a provincial governor, to take a portion of the goods or revenues he collected for the state, and use them to feed and finance his administration and family. The kormushka was especially attractive for governors working far beyond Moscow, in hardship areas such as Siberia and the Far East, and its efficacy was a key factor in the rapid expansion of the Russian empire in the 17th and 18th centuries.
The only drawback in the system was that it tempted unscrupulous governors to fudge the revenue collections and keep more than their share. Moscow is far away, and God is in Heaven, went the old saying. Russian historical records are littered with chronicles of greedy governors and explorers who lost their lives betting it would be a good idea to skim the Tsar’s profits and keep a little extra for themselves, only to be ratted out later by jealous partners. Later, under Soviet power, the falsification of economic data was endemic to the system; according to many economists, by the late 1980s the gray and black-market economy made up close to fifty percent of the gross national product.
Playing to type, when they demand a bribe or kickback from a business partner in foreign trade, the modern Russian bureaucrats and administrators seek what may very well be in the their minds the dues of office. None of them is rich by dint of salary, or will ever even approach a facsimile of wealth without dipping into the kormushka of foreign goods passing through their hands. The whole point of getting a senior position, from their perspective, is to get access to the big bucks (and by the way, this type of Horatio Alger story – which seems like something out of Bizarro world to us – demands no less hard work, intellect, personal risk, and drive than our American version).
For an officer in the Federal Customs Service, getting to the kormushka involves little more than finding a lower valuation for some goods, charging a little less customs duty, and taking back some of the balance for himself. It’s quick, easy and nobody is going to blow the whistle. No wonder anti-corruption legislation goes nowhere in Russia; the very people who need the laws most benefit from breaking them; and no raise will ever equal the sums they can collect on the side. Taking away what we call corruption keeps them from feeding themselves, and their families, at the trough.
I may sound optimistic, but with good reason. I worked at the United States Embassy in Moscow from 1987-1989, and remember very well the CIA reports and political analysts back then predicting the Soviet Union would persist for another 20 years easily. Anybody back in the 1980s guessing that by the new millennium Moscow would rank among the world’s most important business cities would have been laughed out of town.
But, for all the phenomenal growth and changes to Russia over the past 30 years, though, her society retains ancient elements – historical constants that color trade relations with all of her partners, including the United States. It is easy to overlook the persistence of the past when doing business with Russia; a transportation professional sees a recognizable physical infrastructure of ports, cranes, trucks, trains and warehouses, and can infer that that the regulatory and administrative infrastructure will be somewhat recognizable. We can forget that the cultural and social contexts in which countries trade are critical too.
For example, it is easy to dismiss the current formulation of Russia’s economy – state capitalism, as described by Vladimir Putin, or oligarchy – as some sort of an aberration of history, a reaction to the chaos and banditry of the Yeltsin era in the 1990s. But in fact, in my view, Russia’s acceptance of the strong hand of the state under Putin (and now Medvedev) is nothing more than a return to the state monopoly over the economy – foreign trade included – that Russia developed over centuries of imperial Tsarist and Soviet rule. In the long view, Russia has always been dominated by a small group surrounding power – either the Tsar or the General Secretary – and accepts it, so long as power provides political and economic stability.
Serious actors in foreign trade are limited to those closest to state power – ministers under the Tsars, and oligarchs at present; minor players are tolerated provided they do not get big enough to pose any threat to power. Foreign trade was never a game open to all, but a tightly constrained practice, even seen as a dangerous source for the possible infection of society by foreign ideas. While the latter notion may have died out in its most obvious form, foreign companies operating in Russia usually find that their success or failure depends on the ability to adapt to local conditions far more than in other countries.
That patronage, informal networks and family relationships are the important prime movers in Russian business truly comes into the forefront when considering business decisions like staffing and choosing partners. A western perception that hiring a person solely based on connection is wrong turns on its head; the wrong move is not to hire a connected person.
In this context, topics that I have addressed in earlier blogs – bribery and corruption – are perceived very differently in Russia. In the United States, these are serious legal offences with strong connotations of shame. Here again the perception gets turned on its head, and to understand why, take a look back into history, to the venerable Russian principle of the kormushka, or trough. The kormushka was system whereby the Tsar allowed a bureaucrat, such as a provincial governor, to take a portion of the goods or revenues he collected for the state, and use them to feed and finance his administration and family. The kormushka was especially attractive for governors working far beyond Moscow, in hardship areas such as Siberia and the Far East, and its efficacy was a key factor in the rapid expansion of the Russian empire in the 17th and 18th centuries.
The only drawback in the system was that it tempted unscrupulous governors to fudge the revenue collections and keep more than their share. Moscow is far away, and God is in Heaven, went the old saying. Russian historical records are littered with chronicles of greedy governors and explorers who lost their lives betting it would be a good idea to skim the Tsar’s profits and keep a little extra for themselves, only to be ratted out later by jealous partners. Later, under Soviet power, the falsification of economic data was endemic to the system; according to many economists, by the late 1980s the gray and black-market economy made up close to fifty percent of the gross national product.
Playing to type, when they demand a bribe or kickback from a business partner in foreign trade, the modern Russian bureaucrats and administrators seek what may very well be in the their minds the dues of office. None of them is rich by dint of salary, or will ever even approach a facsimile of wealth without dipping into the kormushka of foreign goods passing through their hands. The whole point of getting a senior position, from their perspective, is to get access to the big bucks (and by the way, this type of Horatio Alger story – which seems like something out of Bizarro world to us – demands no less hard work, intellect, personal risk, and drive than our American version).
For an officer in the Federal Customs Service, getting to the kormushka involves little more than finding a lower valuation for some goods, charging a little less customs duty, and taking back some of the balance for himself. It’s quick, easy and nobody is going to blow the whistle. No wonder anti-corruption legislation goes nowhere in Russia; the very people who need the laws most benefit from breaking them; and no raise will ever equal the sums they can collect on the side. Taking away what we call corruption keeps them from feeding themselves, and their families, at the trough.
Monday, March 2, 2009
Administrative Arrest – Personal Experience
In my last blog, (Administrative Arrest – Russian Customs Scam?), I discussed the Russian Federation State Customs Service practice of administrative arrest and its possible link to a system of kickbacks and organized crime in the port of St. Petersburg. While any definitive link between administrative arrest of cargo and corruption is speculative – and ultimately, almost improvable without a signed confession from a participant in the scheme – the material that I have cited dovetails with many of my own experiences in shipping cargo to St. Petersburg.
In fact, while at Maersk, administrative arrest was a huge issue for the company as a container carrier. Shippers and consignees change the information on the contract of carriage, or Bill of Lading, constantly; this is expected in international trade, and corrections to this information are accepted as a matter of course. A carrier usually charges a fee for an amendment to the Bill of Lading, and this raises no red flags in Customs at the country of destination unless the change is radical or something that would give an alert officer pause.
International container carriers generally accept shipper-packed containers as is, and refuse to make representation to the weight, contents, measure, quantity, quality, description, condition, et cetera of the container. They require the legal signatories of the Bill of Lading, or contract of carriage – the shipper and consignee – to warrant and take responsibility for the accuracy of these facts. This is normal international shipping practice.
Remember that Russian Customs requires ocean carriers to submit a vessel manifest for any vessel arriving in St. Petersburg 48 hours before docking at the First Container Terminal. But Russian Customs also holds the ocean carrier responsible for the accuracy of the cargo measures – an absurd conflation of two distinctly different documents, a Vessel Manifest and a Bill of Lading, that leads not only to high additional costs for shipping companies, but for Russian importers and consumers.
For example, one of Maersk’s clients was a major international sports shoe manufacturer. The Russian importer had continual problems with his cargo falling under administrative arrest. The problems began because the shipper loaded his cargo at different warehouses in China, and at the request of the Russian consignee, asked for a separate Bill of Lading for each portion of the cargo. This is a perfectly normal cargo consolidation practice. Unfortunately, at that time the Maersk line information systems did not support sufficiently the consolidation data – at the first trans-shipment port en route to Russia, they would ‘drop’ all of the Bills of Lading, except for the first alphanumeric one. So a container with six Bills of Lading associated to arriving in Bremerhaven would arrive and during loading onto a Baltic feeder into St. Petersburg, would ‘lose’ all but one Bill of Lading. This one Bill of Lading would duly be entered into the vessel manifest and submitted to Russian Customs.
Upon arrival in St. Petersburg, the importer presented his six Bills of Lading to Customs for clearance, and the inspecting officer would immediately place his cargo under arrest, since the vessel manifest had shown only one Bill of Lading associated with the container, not six. Our best efforts from Maersk to explain the situation, and find a way to handle it besides having Customs open a case and place the cargo under administrative arrest, went nowhere.
I discussed the matter with officers of Baltic Customs more than a few times. Their initial position was that shipping companies should actually station their own representatives to supervise and verify all containers that they carry. That this would require a company the size of Maersk Line to hire thousands upon thousands of additional workers worldwide went right past them. Objections included, Maersk Line is a rich company, and can afford it; we don’t care what international shipping law is, this is Russia and we have our own laws; and the ever-popular, if you don’t like it, you can leave the market. There was no effort to meet us halfway, much less attempt to find a way to mitigate the problem; Baltic Customs was among the least business-friendly government bodies I have ever encountered anywhere.
A few officers were sympathetic, of course, and understood the ridiculousness of the situation. However, they complained their hands were tied, and that the regulations would have to be changed in Moscow by Central Customs. And they certainly were not going to go to bat for western shipping companies. Meanwhile, though, Customs held the cargo for weeks at a time while administrative cases were laboriously opened, shipping documents examined, explanations heard and rulings made. Each one of these cases cost Maersk $3000, hurt relations with the importer and took up dozens of hours of staff time for our in-house lawyer.
Eventually staff found a number of work-arounds; I assigned a few of the better Customer Service associates to monitor, audit and scrub the data for all of the importer’s containers before they loaded on the Baltic feeder, since it was possible to find data by looking in other systems to confirm the number of Bills of Lading per container. In late 2007, Maersk introduced an improved system that integrated shipping data completely, and the problem thankfully disappeared.
Following up on the thought from the kompromat.ru blog written by Vitya, administrative arrest benefits everybody – Customs shows its value by intercepting possible contraband, and by closing arrest cases before they reach court. This second point is very important; Customs always has a chance to lose its case when brought to court, and a lost case is counted as a black mark against performance. By closing the case before it reaches court – that is, without dispute from the importer – Customs shows it is acting correctly. The offender confessed and paid his fine.
The legal sleight of hand is the breeding ground for conspiracy and kickbacks. In the heated and highly competitive St. Petersburg market, only a few freight forwarders or ocean carriers are willing to fight Customs. When they do act, it is usually alone, quietly, and to request the resolution of a single case rather than to change the underlying principle. Raising the issue loudly offers no certain outcome, and carries with it the risk of losing clients and business.
Meanwhile, as Vitya’s blog explains, unscrupulous businesses are eager and active participants in the plan, especially when they can buy back their own goods at a fraction of the cost.
In fact, while at Maersk, administrative arrest was a huge issue for the company as a container carrier. Shippers and consignees change the information on the contract of carriage, or Bill of Lading, constantly; this is expected in international trade, and corrections to this information are accepted as a matter of course. A carrier usually charges a fee for an amendment to the Bill of Lading, and this raises no red flags in Customs at the country of destination unless the change is radical or something that would give an alert officer pause.
International container carriers generally accept shipper-packed containers as is, and refuse to make representation to the weight, contents, measure, quantity, quality, description, condition, et cetera of the container. They require the legal signatories of the Bill of Lading, or contract of carriage – the shipper and consignee – to warrant and take responsibility for the accuracy of these facts. This is normal international shipping practice.
Remember that Russian Customs requires ocean carriers to submit a vessel manifest for any vessel arriving in St. Petersburg 48 hours before docking at the First Container Terminal. But Russian Customs also holds the ocean carrier responsible for the accuracy of the cargo measures – an absurd conflation of two distinctly different documents, a Vessel Manifest and a Bill of Lading, that leads not only to high additional costs for shipping companies, but for Russian importers and consumers.
For example, one of Maersk’s clients was a major international sports shoe manufacturer. The Russian importer had continual problems with his cargo falling under administrative arrest. The problems began because the shipper loaded his cargo at different warehouses in China, and at the request of the Russian consignee, asked for a separate Bill of Lading for each portion of the cargo. This is a perfectly normal cargo consolidation practice. Unfortunately, at that time the Maersk line information systems did not support sufficiently the consolidation data – at the first trans-shipment port en route to Russia, they would ‘drop’ all of the Bills of Lading, except for the first alphanumeric one. So a container with six Bills of Lading associated to arriving in Bremerhaven would arrive and during loading onto a Baltic feeder into St. Petersburg, would ‘lose’ all but one Bill of Lading. This one Bill of Lading would duly be entered into the vessel manifest and submitted to Russian Customs.
Upon arrival in St. Petersburg, the importer presented his six Bills of Lading to Customs for clearance, and the inspecting officer would immediately place his cargo under arrest, since the vessel manifest had shown only one Bill of Lading associated with the container, not six. Our best efforts from Maersk to explain the situation, and find a way to handle it besides having Customs open a case and place the cargo under administrative arrest, went nowhere.
I discussed the matter with officers of Baltic Customs more than a few times. Their initial position was that shipping companies should actually station their own representatives to supervise and verify all containers that they carry. That this would require a company the size of Maersk Line to hire thousands upon thousands of additional workers worldwide went right past them. Objections included, Maersk Line is a rich company, and can afford it; we don’t care what international shipping law is, this is Russia and we have our own laws; and the ever-popular, if you don’t like it, you can leave the market. There was no effort to meet us halfway, much less attempt to find a way to mitigate the problem; Baltic Customs was among the least business-friendly government bodies I have ever encountered anywhere.
A few officers were sympathetic, of course, and understood the ridiculousness of the situation. However, they complained their hands were tied, and that the regulations would have to be changed in Moscow by Central Customs. And they certainly were not going to go to bat for western shipping companies. Meanwhile, though, Customs held the cargo for weeks at a time while administrative cases were laboriously opened, shipping documents examined, explanations heard and rulings made. Each one of these cases cost Maersk $3000, hurt relations with the importer and took up dozens of hours of staff time for our in-house lawyer.
Eventually staff found a number of work-arounds; I assigned a few of the better Customer Service associates to monitor, audit and scrub the data for all of the importer’s containers before they loaded on the Baltic feeder, since it was possible to find data by looking in other systems to confirm the number of Bills of Lading per container. In late 2007, Maersk introduced an improved system that integrated shipping data completely, and the problem thankfully disappeared.
Following up on the thought from the kompromat.ru blog written by Vitya, administrative arrest benefits everybody – Customs shows its value by intercepting possible contraband, and by closing arrest cases before they reach court. This second point is very important; Customs always has a chance to lose its case when brought to court, and a lost case is counted as a black mark against performance. By closing the case before it reaches court – that is, without dispute from the importer – Customs shows it is acting correctly. The offender confessed and paid his fine.
The legal sleight of hand is the breeding ground for conspiracy and kickbacks. In the heated and highly competitive St. Petersburg market, only a few freight forwarders or ocean carriers are willing to fight Customs. When they do act, it is usually alone, quietly, and to request the resolution of a single case rather than to change the underlying principle. Raising the issue loudly offers no certain outcome, and carries with it the risk of losing clients and business.
Meanwhile, as Vitya’s blog explains, unscrupulous businesses are eager and active participants in the plan, especially when they can buy back their own goods at a fraction of the cost.
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