Logistics and customs clearance in Russia

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Published: 16th October 2012
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Logistics industry is one of the most affected sectors by economic and financial developments. The downward and upward movements of this industry seem to be dependent on the developments in the world trade in general and foreign trade in particular. In parallel with such trade developments, logistics industry displays an upward development and expansion as the world trade develops and foreign trade increases, and it records a downward movement together with contraction during the periods of contraction and crisis encountered in economy.

After the crisis of 2008, a lot of problems appeared in the logistics sector. There was a sharp decline in transportation volumes in 2008 and not a year had to pass to change the situation. But by the end of 2011-2012, the number of shimpents increased again. For example, Russian imports were worth 26.8 Billion USD in June of 2012. Historically, from 1994 until 2012, Russian imports averaged 10.84 Billion USD reaching an all time high of 30.50 Billion USD in December of 2011 and a record low of 2.69 Billion USD in January of 1999 .

Russia imports mostly vehicles, machinery and equipment, plastics, medicines, iron and steel, consumer goods, meat, fruits and semi finished metal products

Russian exports were worth 40.8 Billion USD in June of 2012. Historically, from 1994 until 2012, Russian exports averaged 17.88 Billion USD reaching an all time high of 51.00 Billion USD in December of 2011 and a record low of 4.09 Billion USD in January of 1994.

Metals and energy make up more than 80 percent of Russia's exports. The country is the world’s largest oil producer and the biggest exporter of natural gas, nickel and palladium.

According to the World Trade Organization, Russia's exports by main destination points were as follows:
1. European Union (27) 58.7
2. China 5.2
3. Ukraine 5.0
4. Turkey 4.7
5. Belarus 4.3

Russian imports by origin are:
1. European Union (27) 44.6
2. China 9.4
3. Ukraine 6.7
4. Japan 5.7
5. Belarus 5.0

The total transport turnover in Russia increased by 3.4% - to 4.9 trillion ton-km. in 2011. According to Rosstat, Inland Water Transport achieved the highest rate for this indicator (13%). In general, during the navigation season of the last year 127.8 million tons of cargo were transported, it is almost 25% more than the navigation of previous years.

It should be noted that sailors gained this result with great difficulty, as today is not the best time for the industry. In spite of the low cost of transportation, traffic volumes have decreased 3 times, due to worn-out fleet, poor infrastructure of inland waterways and the season influence on them. These circumstances are successfully exploited by competitors - rail and road transport.

Vehicles, in turn, promptly compensate for the loss derived from the crisis. Cargo turnover in 2011 grew by 11.8%, to 222.8 billion ton-kilometers, carried 5.6 billion tons of cargo. According to the latest data of Rosstat the growth rate of freight cars has increased and now stands at 10.2%. This is also supported by the data of multimodal logistics companies in practice. So, for example, TLT GROUP, an international logistics company, points out that about 80% of all their freights are carried by trucks.

Railroad transport shipped 1.24 billion tons of cargo in 2011, an increase by a modest 3%, which corresponds to the initial forecast of top managers of JSC "Russian Railways".

Transport by sea, according to Rosstat, is only a small part of the total volume of transported goods in Russia - 33.9 million tons in 2011. However, these figures don’t reflect the real picture of the market, as most of the sea merchant ships, even if they belong to the Russian carriers, are usually registered in the other countries. Foreign flag carriers are not included in statistics of the state bodies.

In August, 2012, Russia accessed to WTO so this volumes can increase greatly in the next few years.

Efforts for lifting the existing restrictions against Russian exports will start as early as this autumn. As of July 1, 2012, 19 countries (Australia, Azerbaijan, Armenia, Belarus, Brazil, India, Indonesia, Kyrgyzstan, China, South Korea, Mexico, Moldova, the USA, Thailand, Turkey, Turkmenistan, Uzbekistan, Ukraine, and the EU as a single customs territory) were implementing preventive measures against Russian goods.

At the same time, one should not forget that conditions for accession to the WTO include actions to lower import customs duties, and limit State support for a number of sectors, which may result in a rise in the competitive power of foreign commodities.

In general, after a transitional period for the liberalization of market access, which is 2-3 years, and for the most sensitive products 5-7 years, reducing the weighted average import tariff rates on industrial goods will be 3 percentage points, and on agricultural products 4.4 percentage points. About 30 percent of the rates will be reduced by no more than five percentage points.

Among the three main advantages Russia will derive from joining the WTO is stability of foreign trade terms, a decrease in customs and administrative barriers, and the opportunity to participate in working out the rules of international economic cooperation," said the official who led the Russian delegation at the WTO talks.

The rates of duties on foreign-made medicines will be lowered from 15 to 6.5 - 5 percent during the transitional period and those on medical equipment and medicinal substances will be lowered at a priority rate (down to 2-3 percent).

In the course of three years after accession, duties on computers, means of their production, and circuitry will be abolished. Duties on household electrical and electronic appliances will be lowered from 15 percent down to 7-9 percent.
Acession to the WTO has to much change one of the most important parts of the logistics chain – the customs clearance process.

Now customs procedures in Russia and other CIS countries are already undergoing signicant changes which aim to simplify and clarify the customs clearing process.

Russia has adopted free trade agreements with countries of the Commonwealth of Independent States (CIS). Goods originating from CIS countries (e.g.Ukraine) are exempt from customs duty for import to Russia (subject to certain conditions). Russia, Belarus and Kazakhstan have formed a Customs Union, and goods moving within and between these countries are not subject to customs clearance.

Relocation of customs clearance procedures to the borders, introduction of Electronic Controls, Unied Tariff and Unied Technical Requirements for Customs Union and other new practices are all designed to modernise customs systems and facilitate superior market access procedures. However, the speed of all these changes is leading to failures in quality assurance and causing signicant disruption.

So there are still many formalities in the process of customs clearance in Russia.
How does this process look like? At first when you decide to clear your shipment you have to do all pre-customs formalities.

Customs formalities in Russia are governed by the Customs Code of Russian Federation. Every incoming shipment undergoes 5 stages of customs control:
• Declaration (freight is registered, documents accepted by customs official)
• Documentary verification (papers are checked and actual shipment is verified against accompanying documents)
• Monetary control (the declared value of shipment is proven and customs duties are debited from consignee’s account)
• Physical check of the freight (not necessarily 100% must be checked by the inspector, normally it is a visual check or a spot-check)
• Goods release (final stamp is put on the AWB and the customer has the right to pick up the shipment from the warehouse)

In addition to it, Customs Code of the Russian Federation states that customs clearance cannot be completed without the finalization of the following kinds of control:
• Sanitary-epidemiological control;
• Obligatory certification;
• Veterinary control;
• Other kinds of import or export control in Russia if the goods are subject to that kind of control.

Shipments need to have a specific consignee in Russia and this entity should be listed on the Waybill. If the consignee is a legal entity, it must be registered with Russian customs at the post where the shipment is cleared. Russian laws may override the seller’s responsibilities in some types of sales contracts by requiring that the consignee pay for customs clearance and import duties. Not all the companies have possibilities to become participants of the foreign-economic activity because of huge expenses for qualified personnel and opening of special department. So some logistics companies that provide full logistics services offer the possibility on behalf of a company to clear the goods through the customs.

According to Russian legislature customs clearance cannot last longer than 3 days. Any formal delay requires an explanation in written form, which would be the ground for suing the guilty party for the compensation of the financial losses incurred.

Customs clearance process in Russia is considerably different than that in most of the other countries. Buyer and Seller or their nominated customs broker have to prepare a huge list of miscellaneous documents, differing each time depending on the nature of the goods, type of customs mode, place of clearance and many other factors.

But the first and one of the main documents is a Declaration form (called "GTD" in Russia). You should have it for all types of goods. It is important to know some facts about it.

Import Declaration Form is handed in no later than 15 days after the submission of goods to the customs bodies at the point of their entrance into the Russian customs territory or the day after the closing of internal transit customs regime if the declaration process takes place away from the point of the goods’ entrance.

Export Declaration Form is submitted before the goods leave Russia.
Submission of a Declaration Form is closed at the moment when the customs bodies accept the Form. The moment the Form is accepted, it becomes a document having legal force; the customs bodies accept the submitted Form the same day they receive it.

Although most products can freely be imported into and exported from Russia, some products such as pesticides, weapons, self-defence items, explosives, precious metals and stones, radioactive materials, narcotics and psychotropic substances require a license.
For all other products, customs regulations and tariffs are one of the first and main concerns for companies doing business in the Russian Federation.

Goods must be declared upon import to Russia in accordance with the customs regime selected (e.g. import for internal consumption, temporary import, etc.) As a rule the goods are declared by the Russian importer or a customs broker. When the goods cross the Russian border the carrier submits to the border authorities basic documentation on the goods. Following this, internal transit of the goods continues on under customs control to the customs terminal at the final destination where they are cleared through customs.

The main documents are the following:
- Cargo customs declaration (CCD):
The CCD is a uniform document used to declare the goods to Customs and contains basic information on the goods (description, weight, number of units, etc.), the customs regime selected, the importer, consignor and consignee, the class and customs value of the goods, their country of origin and the transportation of the goods.
- Declaration of customs value:
This document confirms the value of the goods and serves as a basis for the calculation of the customs payments. There are various methods to calculate the customs value, and Customs may request additional documentation depending on the method used. The customs value includes the cost of transport.
- Transportation documents:
These depend on the type of transport (road, rail, air, sea): bill of lading, FIATA bill of lading (combined transport bill of lading), railway bill, airway bill, truck waybill (CMR).
- Commercial documents:
The commercial documents (contract, commercial invoice, pro forma invoice, insurance certificate, etc.) are important for the calculation of the customs value.
- Certificate of origin:
A certificate of origin is required to benefit from preferential customs tariffs. Certificates of origin are issued by special institutions in the country of the manufacturer.

List of Customs Clearance Risks
Here we sum up the most common mistakes taking place during the customs clearance of goods and services in Russia. Having read that, you could avoid additional time and financial losses on the Russian border:
• Data difference in the electronic notification, received from the forwarding customs toll as well as shipping documents with the one declared in the Declaration Form[1] if that difference leads to the reduction of the customs fees and taxes due;
• Declaration of goods, shipped in several auto vehicles, rail wagons or containers, in the same declaration form (with the exception of the liquid and poured goods, shipped in rail wagons with an open top);
• Declaration of the same lot* of goods, shipped in the same auto vehicle, rail wagon or container in different declaration forms. (splitting a solid lot of goods);
• Application for customs clearance at the customs bodies, which are different from the ones, stated in the shipping documentation;
• Contradicting information on the goods weight, names, value and origin in the shipping documents;
• Correction marks in the shipping documents, which had not been notarized as proper;
• Lack of one of the documents, needed for customs clearance;
• The receiver of the goods is subject to a number of customs orders on the violation of customs procedures;
• Declaration of goods, which belong to the so called "risk or hide groups"** (customs authorities submit the lists) as well as second hand products no matter what volume of them is declared for the same auto vehicle, rail wagon or container;
• Lack of registration card, given to a participant of foreign economic activities;
• Significant difference between gross and net weight (more than 20%), shipped in the same auto vehicle, rail wagon or container.
* As the same lot one should consider the goods, sent to the same addressee on the same vehicle, according to the same customs control documentation.
** Hide groups consist of both expensive and cheap products with further declaration of the cheap part only, which leads to the reduction of customs fees and taxes for the expensive ones and the whole lot as a result of it.

Summing up, logistics is a steadily developing industry, and following the statistics forecasts, the number of shipments will grow constantly over the next years. We expect overall reduction of trade barriers for goods and services due to Russia’s WTO accession and simplification of the existing system.

As for now, one should be aware of a certain specific character of the Russian customs system, which is often rated as very difficult and having many formalities. Speaking of projects dealing in imports of sophisticated high-tech equipment to Russia, it should be noted that their implementation is often a process that requires special attention. According to TLT GROUP’s observations, most of the investors and importers faced certain difficulties when importing such equipment to Russia due to the fact that they lacked necessary expertise on the process. Only by working carefully and attentively many problems can be prevented. Specialists of logistics companies can also help you, in this case you won’t need to study all the details.

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