Recent investigations into the workings of the notoriously corrupt State Customs Committee have led to several top-level resignations, at least two indictments and days-long delays at key border checkpoints in the northwest. The government says a new Customs Code will help fix the problem, but others aren't so sure.
With the St. Petersburg port and checkpoints on the Latvian and Finnish borders clogged with Russia-bound goods and two high-ranking customs officials charged with abuse of power and two others retiring for "health reasons," the importance of clearing up customs regulations is as pressing as ever.
Even if they want to help, customs officers have no clear instructions on which to act. And if they don't, the vagueness of the current Customs Code allows plenty of scope for corruption.
In an attempt to sort out the mess, the Cabinet has drawn up a draft Customs Code to replace the outdated 1993 document that has helped breed corruption and stalled trade. By patching another hole in federal legislation, the government hopes to make Russia more investor-friendly and bring the country one step closer to joining the World Trade Organization.
Under the proposed new code, which was introduced to the State Duma on Nov. 19, the State Customs Committee would retain the functions of a "power ministry" but would part with its powers to produce legislation and interpret the law as it pleases. In other words it would become what it is supposed to be: a law-enforcer rather than a lawmaker.
Importers are keeping their fingers crossed -- no one knows exactly what shape the code will take if and when it clears the Duma -- but some doubt that it will bring change. Some influential legislators feel the same way.
The main problem with the current Customs Code is simply that it is not comprehensive enough. As a result, the customs committee has had to issue thousands of bylaws and instructions in cases where regulations are unclear -- the gaps in the code have left them no choice.
The power to arbitrarily interpret vaguely formulated rules has been a double-edged sword for the customs committee.
On Thursday, the head of customs inspection Alexander Volkov and deputy head of the investigations department Marat Faizulin were accused by the Prosecutor General's Office of "abuse of power bringing grave consequences" while investigating an alleged furniture-smuggling scheme.
As part of the investigation, the customs committee temporarily seized the warehouses of two Moscow furniture stores, Grand and Tri Kita, last year and charged the store owners millions of dollars in duties that they claimed the importers had failed to pay.
However, this fall the store owners won several lawsuits against the customs committee, recovered some of their money and prompted the Prosecutor General's Office to launch an investigation into the case.
The customs committee has stuck to its guns, saying it will stand by the officials and that its actions against the importers were lawful. Meanwhile, the media were awash Friday with rumors that the furniture importers were rescued by friends in the Federal Security Service, or FSB, who are at odds with the customs committee.
Whatever the outcome, the charges are an undoubted setback for the customs committee.
Valery Draganov, head of the Duma budget subcommittee in charge of customs regulations and a former customs committee chief, believes that the case emphasizes the need for changes to the Customs Code.
"This is another confirmation that in such an important and sensitive sphere as the customs, [the customs committee] should not be the regulator," he said. "Everything should be regulated by the law, and then there will be no abuse. These two officials will now have to pay not for acting of their own will but for implementing unscrupulous practices that are in place. You have to eliminate not the consequences but the causes of such phenomena."
While the government has pressed ahead with tax and judicial reform, the Customs Code has lagged behind.
"The Customs Code as it is now is not consistent with the Constitution and the Civil Code and the penal code," said Paul Quigley, head of the indirect tax department at Deloitte & Touche. "Over the years, the GTK [customs committee] has tried to iron out those inconsistencies by imposing their own regulations ... The idea was to make the best of a bad job; you try to plug gaps in the legislation and produce various directives in order to avoid the negative impact of the code ... There is hope that the new code will streamline the regulations."
The lack of clear guidelines has led to different customs posts interpreting the code in different ways.
"Each region, and even each customs post within a region, often interprets legislation differently," said one Western business executive. "The result is that an importer may have to present different types of paperwork depending on the officials at each location. This causes delays while the importer tries to understand the peculiarities of a given customs post.
"To make matters worse, once an importer has finally learned which interpretation is being made, it can be changed without notice. Besides, new customs requirements, as opposed to legislation, are frequently introduced with little, if any, notice. Naturally, this causes confusion, delays and great expense," the executive said.
The discrepancy between customs practices and the law was highlighted last week when the Constitutional Court ruled that the Customs Code provision warranting confiscation of illegally imported goods should not refer to bona fide purchasers.
This affects, for example, people who bought a car abroad or in Russia without knowing that it had been obtained or imported illegally by a previous owner. Under the present code, customs officials were able to confiscate the car, in effect punishing the car owners for somebody else's crime. Customs officials are usually the ones to hand down the verdict.
Draganov agreed with the ruling.
"I think that the Constitutional Court was fair," he said. "For the past few years, bona fide purchasers were the ones punished -- very easily. What's more, this wasn't done through courts but by the customs' own rulings, which is absolutely inadmissible and runs counter to the Constitution and the Civil Code."
If, as expected, the Duma approves a bill that would make any Constitutional Court ruling a law, bona fide buyers would have recourse to legal action, whether or not the latest ruling is incorporated into the new Customs Code.
Even if the bill doesn't pass, Draganov believes that the problem will be discussed when the draft code goes to the Duma for its second reading.
"I am sure that the second reading debate will inevitably lead to this problem and it will be thoroughly analyzed," he said. "The right to punish a bona fide purchaser also leads to corruption."
This year, the customs committee has imposed even more stringent checks at border crossings, which culminated in lines of trucks as long as 15 kilometers being stranded at the Finnish border last month.
These huge tailbacks were caused by a customs committee order to officials in its northwest branch to perform item-by-item searches of vehicles carrying certain specified goods, including household appliances, furniture and coffee.
Northwest customs officials said the Oct. 24 decision to crack down on certain categories of goods was issued as a result of an inspection carried out at northwest region border points in early October by federal customs officials. This inspection concluded that millions of dollars were being lost every year from fraudulent customs declarations.
"We discovered that northwest customs had been losing about $200 million annually," Irina Skibinskaya, a customs committee spokeswoman, said in a telephone interview. "Since the more stringent inspections started, tax collection has increased significantly."
The problem is that these clampdowns have also affected law-abiding companies, making it harder than ever for them to get their commodities into Russia.
"This year, especially the last quarter, it has been complicated. The customs procedure has been much slower," said Jussi Kuutsa, director for international operations at Stockmann, the Finnish retailer.
"I don't know why customs have tightened the screws -- probably they want to be more thorough in all sectors -- but the problem is that this also affects companies that have always operated in line with the law," he said. "Generally it has been worsening since the beginning of the year. The customs process used to take a couple of days, now it takes a couple of weeks. Of course after several weeks, there's nothing left of what were fresh foods because you are past the expiry date."
Stockmann has periodically had to warn its customers that there will be no fresh milk, as well as other products, because of customs clearance problems.
Although the customs crackdown has brought in extra revenue, many believe that overall it will negatively influence the economy.
"You should calculate net losses and consider the interests of businesses that pay taxes, which also go into the budget," Draganov said. "The interests of one ministry should not be before those of society and the economy as a whole."
"It is especially annoying that this is happening at the Finnish border," he said. "More money was invested in infrastructure on that border than on any other one. Moreover, Russia has been involved in a lengthy and effective process of unification of procedures, and the level of cooperation with the Finnish customs has always been higher than with the rest of the world. This implies that the customs procedure here was supposed to be simpler and the flow of goods faster. But unfortunately it's the other way round.
"The customs look to identify every single commodity and each one may require a certain tariff, but if you don't have a technology and a mechanism for quick processing of goods, this should not become a problem for the businessmen rather than the state. They should not shoulder the costs. This does not enhance the country's image."
Changes to the Customs Code were first mooted several years ago, but concrete proposals were not made by Duma deputies until early 1999, when the draft code was adopted in first reading. For more than two years, however, it has been in limbo as government officials wrangled over changes for the crucial second Duma reading.
The main purpose of the rewrite is to bring the code in line with World Trade Organization requirements, Quigley said. However, in the process the government is seeking to eliminate as many contradictions with other Russian laws as possible, he said.
"I hope that the new code will sweep away a lot of [loose legislation] into the new document. Hopefully, it will be drafted in such a way as to firm up all the anomalies and inconsistencies which the original code contains, and then there won't be a need for the GTK to issue as many pieces of additional legislation," Quigley said.
"The expectation is that it will provide a much clearer basis for companies doing business in Russia," he added.
Andrew Somers, head of the American Chamber of Commerce, agreed that clarity was key.
"The overriding issue for business is whether or not the code will contain clear, objective standards, on which customs officials make determinations on such matters as the value of the goods, the categories of the goods, or whether a customs official will have very wide discretion to make his own interpretation," he said.
The Customs Code is perceived as a major step toward Russia's accession to the WTO, and top officials have made statements that its basic provisions were endorsed by the organization.
This appears to be wishful thinking. WTO members say they have not yet seen the draft and that it probably won't come before a meeting of its working party until January. Some WTO members have complained that Russia did not provide them with a copy of the draft or have any consultations with WTO experts about it, a knowledgeable source close to the negotiations said.
As the latest draft code neared completion, the main area of conflict was between the customs committee and the Economic Development and Trade Ministry, with the ministry seeking to take away the customs committee's powers to exercise hard currency control and conduct investigations into alleged customs regime violations.
The dispute was finally resolved at a meeting chaired by Finance Minister Alexei Kudrin in early November.
In the meeting, the customs committee agreed that it would hold on to its enforcement functions, but would cede its authority to set the rules.
The new draft code proposes to curtail the powers of the customs committee, eliminate most references to other legislation that helped create red tape and room for corruption and bring the Customs Code in sync with other new and progressive legislation, such as the Tax Code.
Under the new Customs Code, regulations would be either stated in the code or, where needed, the power to interpret them would be delegated to the government, customs officials said.
The code has become "twice as detailed and clear," customs committee first deputy chairman Vladimir Meshcheryakov said at a Nov. 15 news conference. It will also be twice as long because most of the references to other laws are going to be replaced by actual rules to make up to 460 clauses.
There are two factors that support Meshcheryakov's confidence in the new draft code, said Galina Balandina, adviser to customs committee head Mikhail Vanin.
One is that there are 12 clauses specifying customs procedure for passage of transport, as opposed to just one clause in the current code.
The draft contains mechanisms for accelerating customs procedures, whereby goods are partially cleared before they cross the border, Balandina said. This would allow commodities to quickly clear customs.
"If a company is transparent to customs, if the officials can knock on their door at any time, the law envisages the most simple mechanisms for customs clearing," Balandina said.
Meshcheryakov said that under the new code a customs declaration will have to be processed in three days as opposed to 10 days under the current one.
The new code also adds several new chapters referring to particular spheres, Balandina said. In the current code, rules pertaining to various spheres are just lumped together.
The second factor is that the new draft code "guarantees companies protection from bureaucratic arbitrariness," by setting a precise description of customs officials' powers as well as time frames for customs procedures, Balandina said.
"Currently we set the rules of the game, practically in every sphere: for example, the rate of hard currency exchange for payments and the time frame for payment," Balandina said.
In future, the customs committee will not have the authority that it has now to apply the several customs regimes designed for different types of goods at its own discretion, Balandina said. It will have to follow the code, she said.
"Now, the GTK in essence is involved in economic regulation; the amended code would eliminate this approach," she said.
Although the customs committee would still be able to enforce the law, these powers would be restricted, officials said. The customs would have two branches -- one dealing with law-abiding businesses and the other stepping in to take care of those that do not obey the law.
"A seagull cannot fly with just one wing," Meshcheryakov said.
Reaction to the new draft code has been cautious, and many are reluctant to talk about changes to the code until it has passed into law.
"There is a good Russian saying: 'We'll live and we'll see,'" Stockmann's Kuutsa said. "The big issue is how they will implement it and control its enforcement."
"The new code is still in a draft form, so we cannot comment on specifics," said Jennifer Galenkamp, head of external corporate affairs at Nestle Food LLC.
"It's no secret that dealing with customs has been one of the tough parts of doing business in Russia," she said. "If this new code is a genuine attempt to reform both the customs process and the institution itself, then naturally we welcome the effort. As always, though, the devil is in the details of implementation. We are reserving judgement until we are convinced that there has been a drop in smuggling and more efficient and transparent customs clearing going on."
Vladimir Aksyonov, corporate affairs director at British American Tobacco Russia, a member of the prime minister's advisory council on foreign investment, was more positive.
"GTK has been changing its approach to large, law-abiding, trustworthy companies, introducing 'white lists,'" he said.
These companies -- both foreign and Russian -- receive favorable treatment, such as simplified customs procedures.
"If all this is written into the code, we can only applaud this," Aksyonov said.
Some people on the ground with a vast experience of dealing with the customs were less optimistic, however.
"Foreign companies have seen certain softening of treatment on the part of the Moscow customs," said a manager at a wholesaler for a major Western importer. "However, much of the red tape is still in place," he added.
"It is not the rules that are the problem," said Kuno Lukka, sales manager with Kareltrans transportation company. "Corruption is so deep that a law cannot change anything."
Although the customs committee is hopeful that the second Duma reading on the code will take place soon, even the most optimistic forecasts do not envisage this happening until at least mid-February.
Meshcheryakov said he expected no obstacles to the draft's passage.
He also played down the dispute with the Economic Development and Trade Ministry.
"We worked closely and productively with the ministry. This was a constructive dialogue," he said.
However, Duma budget subcommittee head Draganov foresaw problems.
"It is good that the government finally introduced the code to the Duma, but I think in essence it is little different from the previous one," Draganov said.
"The first reading on the draft was so long ago that some of its clauses lag behind economic and social changes. We live in a different era now."
The new code likely still contains over a hundred references to other, unspecified legislation, which in itself makes it "a road to nowhere," he said. The customs committee still has the authority to issue instructions that interpret the law, and customs officers' powers are still not defined clearly, he said.
"The GTK will retain the powers to interfere with the economic activities of a large number of companies," Draganov said. "Customs officers will still be able to require a company to provide a document that is not specified in the Customs Code. Here is an opportunity for abuse for you."
"The code still doesn't specify the customs procedure clearly enough to simplify it. It is custom-made for the government, not to serve business and trade," he added.
Baker & McKenzie lawyer Alexander Bychkov, who was recently asked by the Economic Development and Trade Ministry to advise on the draft code, also said that the document still retained the "spirit" of the original code, which gives officials too much room for interpretation.
"It does not differ significantly from the old code, in both wording and essence," he said.
Draganov made a reservation that he may not have seen the final version of the draft code but said he was skeptical that it had changed dramatically since the previous one was made available.
He said that the draft's passage through the Duma was not a decided matter.
"Only if the Duma does not question the whole concept of the code will there be no fight and the draft clear the Duma swiftly," he said.
With the St. Petersburg port and checkpoints on the Latvian and Finnish borders clogged with Russia-bound goods and two high-ranking customs officials charged with abuse of power and two others retiring for "health reasons," the importance of clearing up customs regulations is as pressing as ever.
Even if they want to help, customs officers have no clear instructions on which to act. And if they don't, the vagueness of the current Customs Code allows plenty of scope for corruption.
In an attempt to sort out the mess, the Cabinet has drawn up a draft Customs Code to replace the outdated 1993 document that has helped breed corruption and stalled trade. By patching another hole in federal legislation, the government hopes to make Russia more investor-friendly and bring the country one step closer to joining the World Trade Organization.
Under the proposed new code, which was introduced to the State Duma on Nov. 19, the State Customs Committee would retain the functions of a "power ministry" but would part with its powers to produce legislation and interpret the law as it pleases. In other words it would become what it is supposed to be: a law-enforcer rather than a lawmaker.
Importers are keeping their fingers crossed -- no one knows exactly what shape the code will take if and when it clears the Duma -- but some doubt that it will bring change. Some influential legislators feel the same way.
Interpretations
The main problem with the current Customs Code is simply that it is not comprehensive enough. As a result, the customs committee has had to issue thousands of bylaws and instructions in cases where regulations are unclear -- the gaps in the code have left them no choice.
The power to arbitrarily interpret vaguely formulated rules has been a double-edged sword for the customs committee.
On Thursday, the head of customs inspection Alexander Volkov and deputy head of the investigations department Marat Faizulin were accused by the Prosecutor General's Office of "abuse of power bringing grave consequences" while investigating an alleged furniture-smuggling scheme.
As part of the investigation, the customs committee temporarily seized the warehouses of two Moscow furniture stores, Grand and Tri Kita, last year and charged the store owners millions of dollars in duties that they claimed the importers had failed to pay.
However, this fall the store owners won several lawsuits against the customs committee, recovered some of their money and prompted the Prosecutor General's Office to launch an investigation into the case.
The customs committee has stuck to its guns, saying it will stand by the officials and that its actions against the importers were lawful. Meanwhile, the media were awash Friday with rumors that the furniture importers were rescued by friends in the Federal Security Service, or FSB, who are at odds with the customs committee.
Whatever the outcome, the charges are an undoubted setback for the customs committee.
Valery Draganov, head of the Duma budget subcommittee in charge of customs regulations and a former customs committee chief, believes that the case emphasizes the need for changes to the Customs Code.
"This is another confirmation that in such an important and sensitive sphere as the customs, [the customs committee] should not be the regulator," he said. "Everything should be regulated by the law, and then there will be no abuse. These two officials will now have to pay not for acting of their own will but for implementing unscrupulous practices that are in place. You have to eliminate not the consequences but the causes of such phenomena."
Inconsistencies
While the government has pressed ahead with tax and judicial reform, the Customs Code has lagged behind.
"The Customs Code as it is now is not consistent with the Constitution and the Civil Code and the penal code," said Paul Quigley, head of the indirect tax department at Deloitte & Touche. "Over the years, the GTK [customs committee] has tried to iron out those inconsistencies by imposing their own regulations ... The idea was to make the best of a bad job; you try to plug gaps in the legislation and produce various directives in order to avoid the negative impact of the code ... There is hope that the new code will streamline the regulations."
The lack of clear guidelines has led to different customs posts interpreting the code in different ways.
"Each region, and even each customs post within a region, often interprets legislation differently," said one Western business executive. "The result is that an importer may have to present different types of paperwork depending on the officials at each location. This causes delays while the importer tries to understand the peculiarities of a given customs post.
"To make matters worse, once an importer has finally learned which interpretation is being made, it can be changed without notice. Besides, new customs requirements, as opposed to legislation, are frequently introduced with little, if any, notice. Naturally, this causes confusion, delays and great expense," the executive said.
The discrepancy between customs practices and the law was highlighted last week when the Constitutional Court ruled that the Customs Code provision warranting confiscation of illegally imported goods should not refer to bona fide purchasers.
This affects, for example, people who bought a car abroad or in Russia without knowing that it had been obtained or imported illegally by a previous owner. Under the present code, customs officials were able to confiscate the car, in effect punishing the car owners for somebody else's crime. Customs officials are usually the ones to hand down the verdict.
Draganov agreed with the ruling.
"I think that the Constitutional Court was fair," he said. "For the past few years, bona fide purchasers were the ones punished -- very easily. What's more, this wasn't done through courts but by the customs' own rulings, which is absolutely inadmissible and runs counter to the Constitution and the Civil Code."
If, as expected, the Duma approves a bill that would make any Constitutional Court ruling a law, bona fide buyers would have recourse to legal action, whether or not the latest ruling is incorporated into the new Customs Code.
Even if the bill doesn't pass, Draganov believes that the problem will be discussed when the draft code goes to the Duma for its second reading.
"I am sure that the second reading debate will inevitably lead to this problem and it will be thoroughly analyzed," he said. "The right to punish a bona fide purchaser also leads to corruption."
Tightening the Screws
This year, the customs committee has imposed even more stringent checks at border crossings, which culminated in lines of trucks as long as 15 kilometers being stranded at the Finnish border last month.
These huge tailbacks were caused by a customs committee order to officials in its northwest branch to perform item-by-item searches of vehicles carrying certain specified goods, including household appliances, furniture and coffee.
Northwest customs officials said the Oct. 24 decision to crack down on certain categories of goods was issued as a result of an inspection carried out at northwest region border points in early October by federal customs officials. This inspection concluded that millions of dollars were being lost every year from fraudulent customs declarations.
"We discovered that northwest customs had been losing about $200 million annually," Irina Skibinskaya, a customs committee spokeswoman, said in a telephone interview. "Since the more stringent inspections started, tax collection has increased significantly."
The problem is that these clampdowns have also affected law-abiding companies, making it harder than ever for them to get their commodities into Russia.
"This year, especially the last quarter, it has been complicated. The customs procedure has been much slower," said Jussi Kuutsa, director for international operations at Stockmann, the Finnish retailer.
"I don't know why customs have tightened the screws -- probably they want to be more thorough in all sectors -- but the problem is that this also affects companies that have always operated in line with the law," he said. "Generally it has been worsening since the beginning of the year. The customs process used to take a couple of days, now it takes a couple of weeks. Of course after several weeks, there's nothing left of what were fresh foods because you are past the expiry date."
Stockmann has periodically had to warn its customers that there will be no fresh milk, as well as other products, because of customs clearance problems.
Although the customs crackdown has brought in extra revenue, many believe that overall it will negatively influence the economy.
"You should calculate net losses and consider the interests of businesses that pay taxes, which also go into the budget," Draganov said. "The interests of one ministry should not be before those of society and the economy as a whole."
"It is especially annoying that this is happening at the Finnish border," he said. "More money was invested in infrastructure on that border than on any other one. Moreover, Russia has been involved in a lengthy and effective process of unification of procedures, and the level of cooperation with the Finnish customs has always been higher than with the rest of the world. This implies that the customs procedure here was supposed to be simpler and the flow of goods faster. But unfortunately it's the other way round.
"The customs look to identify every single commodity and each one may require a certain tariff, but if you don't have a technology and a mechanism for quick processing of goods, this should not become a problem for the businessmen rather than the state. They should not shoulder the costs. This does not enhance the country's image."
Wranglings
Changes to the Customs Code were first mooted several years ago, but concrete proposals were not made by Duma deputies until early 1999, when the draft code was adopted in first reading. For more than two years, however, it has been in limbo as government officials wrangled over changes for the crucial second Duma reading.
The main purpose of the rewrite is to bring the code in line with World Trade Organization requirements, Quigley said. However, in the process the government is seeking to eliminate as many contradictions with other Russian laws as possible, he said.
"I hope that the new code will sweep away a lot of [loose legislation] into the new document. Hopefully, it will be drafted in such a way as to firm up all the anomalies and inconsistencies which the original code contains, and then there won't be a need for the GTK to issue as many pieces of additional legislation," Quigley said.
"The expectation is that it will provide a much clearer basis for companies doing business in Russia," he added.
Andrew Somers, head of the American Chamber of Commerce, agreed that clarity was key.
"The overriding issue for business is whether or not the code will contain clear, objective standards, on which customs officials make determinations on such matters as the value of the goods, the categories of the goods, or whether a customs official will have very wide discretion to make his own interpretation," he said.
The Customs Code is perceived as a major step toward Russia's accession to the WTO, and top officials have made statements that its basic provisions were endorsed by the organization.
This appears to be wishful thinking. WTO members say they have not yet seen the draft and that it probably won't come before a meeting of its working party until January. Some WTO members have complained that Russia did not provide them with a copy of the draft or have any consultations with WTO experts about it, a knowledgeable source close to the negotiations said.
As the latest draft code neared completion, the main area of conflict was between the customs committee and the Economic Development and Trade Ministry, with the ministry seeking to take away the customs committee's powers to exercise hard currency control and conduct investigations into alleged customs regime violations.
The dispute was finally resolved at a meeting chaired by Finance Minister Alexei Kudrin in early November.
In the meeting, the customs committee agreed that it would hold on to its enforcement functions, but would cede its authority to set the rules.
Proposals
The new draft code proposes to curtail the powers of the customs committee, eliminate most references to other legislation that helped create red tape and room for corruption and bring the Customs Code in sync with other new and progressive legislation, such as the Tax Code.
Under the new Customs Code, regulations would be either stated in the code or, where needed, the power to interpret them would be delegated to the government, customs officials said.
The code has become "twice as detailed and clear," customs committee first deputy chairman Vladimir Meshcheryakov said at a Nov. 15 news conference. It will also be twice as long because most of the references to other laws are going to be replaced by actual rules to make up to 460 clauses.
There are two factors that support Meshcheryakov's confidence in the new draft code, said Galina Balandina, adviser to customs committee head Mikhail Vanin.
One is that there are 12 clauses specifying customs procedure for passage of transport, as opposed to just one clause in the current code.
The draft contains mechanisms for accelerating customs procedures, whereby goods are partially cleared before they cross the border, Balandina said. This would allow commodities to quickly clear customs.
"If a company is transparent to customs, if the officials can knock on their door at any time, the law envisages the most simple mechanisms for customs clearing," Balandina said.
Meshcheryakov said that under the new code a customs declaration will have to be processed in three days as opposed to 10 days under the current one.
The new code also adds several new chapters referring to particular spheres, Balandina said. In the current code, rules pertaining to various spheres are just lumped together.
The second factor is that the new draft code "guarantees companies protection from bureaucratic arbitrariness," by setting a precise description of customs officials' powers as well as time frames for customs procedures, Balandina said.
"Currently we set the rules of the game, practically in every sphere: for example, the rate of hard currency exchange for payments and the time frame for payment," Balandina said.
In future, the customs committee will not have the authority that it has now to apply the several customs regimes designed for different types of goods at its own discretion, Balandina said. It will have to follow the code, she said.
"Now, the GTK in essence is involved in economic regulation; the amended code would eliminate this approach," she said.
Although the customs committee would still be able to enforce the law, these powers would be restricted, officials said. The customs would have two branches -- one dealing with law-abiding businesses and the other stepping in to take care of those that do not obey the law.
"A seagull cannot fly with just one wing," Meshcheryakov said.
Wait and See
Reaction to the new draft code has been cautious, and many are reluctant to talk about changes to the code until it has passed into law.
"There is a good Russian saying: 'We'll live and we'll see,'" Stockmann's Kuutsa said. "The big issue is how they will implement it and control its enforcement."
"The new code is still in a draft form, so we cannot comment on specifics," said Jennifer Galenkamp, head of external corporate affairs at Nestle Food LLC.
"It's no secret that dealing with customs has been one of the tough parts of doing business in Russia," she said. "If this new code is a genuine attempt to reform both the customs process and the institution itself, then naturally we welcome the effort. As always, though, the devil is in the details of implementation. We are reserving judgement until we are convinced that there has been a drop in smuggling and more efficient and transparent customs clearing going on."
Vladimir Aksyonov, corporate affairs director at British American Tobacco Russia, a member of the prime minister's advisory council on foreign investment, was more positive.
"GTK has been changing its approach to large, law-abiding, trustworthy companies, introducing 'white lists,'" he said.
These companies -- both foreign and Russian -- receive favorable treatment, such as simplified customs procedures.
"If all this is written into the code, we can only applaud this," Aksyonov said.
Some people on the ground with a vast experience of dealing with the customs were less optimistic, however.
"Foreign companies have seen certain softening of treatment on the part of the Moscow customs," said a manager at a wholesaler for a major Western importer. "However, much of the red tape is still in place," he added.
"It is not the rules that are the problem," said Kuno Lukka, sales manager with Kareltrans transportation company. "Corruption is so deep that a law cannot change anything."
Stormy Passage
Although the customs committee is hopeful that the second Duma reading on the code will take place soon, even the most optimistic forecasts do not envisage this happening until at least mid-February.
Meshcheryakov said he expected no obstacles to the draft's passage.
He also played down the dispute with the Economic Development and Trade Ministry.
"We worked closely and productively with the ministry. This was a constructive dialogue," he said.
However, Duma budget subcommittee head Draganov foresaw problems.
"It is good that the government finally introduced the code to the Duma, but I think in essence it is little different from the previous one," Draganov said.
"The first reading on the draft was so long ago that some of its clauses lag behind economic and social changes. We live in a different era now."
The new code likely still contains over a hundred references to other, unspecified legislation, which in itself makes it "a road to nowhere," he said. The customs committee still has the authority to issue instructions that interpret the law, and customs officers' powers are still not defined clearly, he said.
"The GTK will retain the powers to interfere with the economic activities of a large number of companies," Draganov said. "Customs officers will still be able to require a company to provide a document that is not specified in the Customs Code. Here is an opportunity for abuse for you."
"The code still doesn't specify the customs procedure clearly enough to simplify it. It is custom-made for the government, not to serve business and trade," he added.
Baker & McKenzie lawyer Alexander Bychkov, who was recently asked by the Economic Development and Trade Ministry to advise on the draft code, also said that the document still retained the "spirit" of the original code, which gives officials too much room for interpretation.
"It does not differ significantly from the old code, in both wording and essence," he said.
Draganov made a reservation that he may not have seen the final version of the draft code but said he was skeptical that it had changed dramatically since the previous one was made available.
He said that the draft's passage through the Duma was not a decided matter.
"Only if the Duma does not question the whole concept of the code will there be no fight and the draft clear the Duma swiftly," he said.