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For Business
Cooperation with business community
Meeting of the Advisory Council held on March 25th 2005.
25.03.2005

Address by A.E.Zherikhov, Head of the FCS of Russia at the meeting of the Advisory Council for the implementation of customs policy under the auspices of the FCS of Russia, dated March 25th, 2005

 Dear members of the Council,

 We are happy to welcome you to the first meeting of the Advisory Council this year.

I am absolutely sure that our joint cooperation is of great interest and that it is instrumental in strengthening the economy of the state. I hope that you will listen to the Concept of development of customs authorities in Russia while keeping in mind this particular attitude.

The idea of the Concept is that customs should work on the basis of the approved standards, and mostly on the basis of the approved international standards. Russia is planning to join the International Convention on Simplification and Harmonization of Customs Procedures. The principal points of the Concept are: preliminary informing, electronic declaration, risks management analysis, and exclusion, if possible, of human factors.

I wish to note that adoption of such a program document is going to be a significant event for the Russian Customs Service. I hope that you are going to have a constructive approach to major principles of the Concept.

 I would also like to inform you that we have a new member on the Advisory Council, Alexey Alexandrovich Kaulbars, Director of the Department of State Regulation of Foreign Economic Activity and Customs of the Ministry of Economic Development and Trade of Russia. We all know Alexey Alexandrovich well and appreciate his input into strengthening customs. We are looking forward to his active participation in the activities of the Council, both as an experienced customs officer and as a responsible executive officer of the Ministry.

 The Agenda for todays meeting is to deal with two principal issues.

 The first issue is related to the practice of the Customs Code of Russia application, and application of the subordinate legislation based on the Code. I think that it has already been proven that the Customs Code is a solid document. We do not regard the issue of amending the Code as a revision; it is, rather, a desire to further enhance this legal document.

 I understand that I do not need to specifically highlight the importance of the second issue on the agenda, the international transit.

 I hope that the speakers - Anatoly Valentinovich Galaktionov, Head of Main Administration of Customs Control, and Valery Ivanovich Aliseichik, President of the Association of Forwarders of the Russian Federation - are going to give detailed accounts of the existing problems and possible solutions to such problems.

If you do not mind I suggest we also listen to the report on the functioning of customs check-points at the state border of the Russian Federation.

 I am sure that once again this meeting is going to proceed in its usual businesslike and constructive atmosphere.

Speech by Leonid Lozbenko, Deputy Head of the FCS of Russia On the Concept of Development of Customs Authorities of the Russian Federation at the meeting of the Advisory Council on implementation of customs policy under the auspices of the FCS of Russia, on March 25th, 2005

 Dear members of the Advisory Council,

I would like to introduce to you the Concept Development of Customs Authorities of the Russian Federation for 2005-2010 and further years. I would like to stress that Russian customs authorities work in compliance with the international standards with unconditional adherence to the legislation of the Russian Federation. This is going to remain our major goal. Our major task is law enforcement and it is supposed to be based on these major principles. We have defined a number of issues to be positively resolved in order to achieve this goal. These issues include raising the quality and efficiency of governmental regulations in the sphere of foreign economic activity, improving customs administration on the basis of the international standards, including the development of the risks management system, strengthening interaction with national and international organizations in the fight against terrorism, contraband of arms, drugs, counterfeit items and provision of security.

What are these activities going to result in? Eventually, the implementation of these tasks, aimed at achieving the goal described above, should make customs administration highly efficient with outward simplicity and expediency of processing passengers, goods and transport vehicles. Thus we confirm the theory that we are still exercising control since customs are a controlling agency. This control is exercised as the rendering of a service. The general goal for the economy of the country is to create a service state. You all know this since it has been written in all basic documents. We, as part of the governmental structure, participate in the process and are achieving the set goals utilizing our methods.

 We have carried out major analytical work, detailing the problems which we and participants of foreign economic activity confront in the course of our everyday activity. We have carried out monitoring and talked to many people in order to size up the situation.

What are these problems? We have tried to give a short description of such problems. In the fist place, the potential of customs administration is not quite realized. In the second place, there is the absence of unified customs standards (this is the topic of many of our discussions), facilitating the implementation of trade-logistical chains. In the third place there is the insufficiently developed system of informing about pricing, countries trade-industrial specializations and world trends in division of labor, and an insufficient information-analytical base for our law enforcement activity. One of the most important issues for us is the low material well-being of customs officers. This issue should not be undervalued because it is of principal influence upon all the aspects of our work.

 So these are the problems which we are confronted with. What principles are we going to use in realizing the Concept? There is no need here to invent something which has already been invented. The matter is that there are a number of practical recommendations from the World Customs Organization used by all 164 member-states of the organization. The most important is that, as we believe, realizing the tasks and goals presupposes the provision of a stable legal regime for foreign trade throughout the territory of the Russian Federation. This legal regime, which we must put in place from Kamchatka to Kaliningrad, is to be based on a number of basic principles. Absolute standardization of procedures is to be achieved, so that actions of a customs officer under any situation are fully understood. This will exclude surprises for business. Next are transparency and predictability, a balance between customs control in terms of provision of security and measures assisting the development of trade, minimum interference, and orientation to a clients needs, cooperation and partnership. These are basic principles which we have not invented. They are in conceptual documents of the World Customs Organization. These principles are going to be used in our further activity.

In order to realize these principles, it is necessary to have a powerful, well-equipped and well-organized customs service. Some people say that customs are not fulfilling their functions 100%. We do not argue over whether this statement is fair. Customs are supposed to be able to do everything. But we need to pose a question: Is it possible to do everything? We have maintained an open dialogue with you in the last two or three years; we have no secrets from you. We have been telling you what we can do, and what we cannot do; we are consulting with you on the majority of issues. There are four recognized criteria used to evaluate any customs administration. This could be done on all levels. These are customs infrastructure, information technology, personnel and legal base. If you analyze these criteria you will then be able to define the percentage of readiness of the customs authority for implementing the tasks I told you about at the beginning of my speech. Traditionally, when visiting any country, officers of the WCO make their assessments according to these four criteria. If we take Russia, then we have to say that our first and major problem is our customs infrastructure.

Customs Infrastructure

We have borders with the fifteen countries; we work in almost 11 time zones. No other customs administration works in similar conditions. We cannot be compared with anybody. We cannot share in the similar experience of others. The problems we are dealing with in the Far East are very different from those we are dealing with in the South. If the Far East presents problems and challenges related mainly to contraband of sea products, wood, coal, scrap metal, then the southern borders present problems with drug trafficking. More than 70% of Afghanistan drugs traffic comes through Kazakhstan. At the same time the problems we are dealing with in these regions are definitely different from those we have in the Western regions. The western borders are the borders with the European Economic Union (EEU). There we have to resolve completely different tasks. There we have more than 50% of our trade turnover. I will be talking about this later.

The North-Western region is presently one of the most trouble-free directions, both in terms of infrastructure and in terms of neighbors. There are more predictable regimes with more developed infrastructures; one can easily work there and make experiments without any haste. I think you have a pretty good idea about these borders since you convey goods through customs checkpoints located there. However, a lot must be done in terms of improving customs infrastructure with significant material investments. Discussion of these topics never ends on different levels; we have our own ideas how to do it. I would like to inform you that the Prime Minister at the meeting of the commission on borders has already issued instructions in this field to the Federal Customs and Federal Border Services. Presently we are working with them to define exactly the list of checkpoints in order to specify where such checkpoints are to be international or two-sided, what needs to be eradicated, etc.

There is a variety of views among the governors, heads of regions, transportation organizations, customs and border officers. It is very beneficial that we have a commission on the borders now where at the Prime Ministers level these issues have started to be resolved. This is one of the most resource-intensive elements of the development of customs infrastructure.

Information Technology

Much has been done in this field and you know about it. We keep you informed all the time. The government has taken the loan of 140 million United States dollars for informatization of the customs service. The money is being invested in a stable, positive regime. The goal is to have 45% of all work performed by the customs service performed using information technology, i.e. in electronic format by 2008. Then by 2010 we want 85% of all work transferred to electronic data processing and IT operation. I see no point in giving too many details about this since this important, basic direction of development has been widely publicized already.

The Legal Base

Much has been done in terms of legal base; you all participated in developing the Customs Code and you remember how difficult it was. However, judging by the information we receive from the participants of foreign economic activity, the Customs Code works, and works well. It does not mean that the government is not going to make amendments to the Code. It means that by September, after a series of special meetings and negotiations with all interested parties, it is expected that some amendments will be made. We, in the Federal Customs Service, have enunciated 13 major directions; the figure 13 is unlucky, but we are not superstitious people. We believe that we still need to agree on conceptual development within our customs service and after that we will ask you again for your opinion. In terms of legal base we have made certain progress; we keep on reducing regulatory documents and I think that by 2008 we shall arrive at the index we have planned. One Customs Code of direct effect and not more than 100 major law-making instruments will be enough in our opinion to make everybody speak the same legal language.

Now I would like to speak about the problem which is the most important in my opinion.

Human Resources

The Russian Customs Service is the second largest in the world. The Customs of India are the largest, with 72 thousand personnel. But as I said earlier we are working in 11 time zones in a variety of border-customs infrastructure regions. That is why we need personnel who are able to understand the specifics of the goals set for customs. We have adopted the Customs Code, the law of direct effect. The Customs Code today is targeted at the level of customs terminal, customs office if we are to speak about work with a client. Our customs inspector practically becomes a major player. But our progress in this has been too fast for our personnel to catch up. We are aware of our shortcomings. Sometimes the decisions made do not correspond to the level of the requirements proposed by you, the business community engaged in export/import operations. The Concept presupposes development of a whole complex of measures directed towards the expedient preparation of the customs system in the sphere of human resources.

It has been proposed to adopt the Code of Ethics and Honesty for the whole of the customs service, and to set up branches of the Academy (Russian Customs Academy - RCA) in all seven Federal Districts of the Russian Federation in order to resolve the problem as soon as possible. These are major directions of customs development requiring the greatest spending of resources. The business plan is being completed now; all the expenses are being calculated, and after the business plan is ready it will be presented to the Government.

 What are the major directions of development for the customs authorities in the next ten years? The first is division of trade flows and the flow of documents. I want to say that there is nothing to be afraid of. Yes, this is something new, but we also know that many things we are speaking about are being used by the customs of many other countries. It does not mean that goods are no longer going to have any documents attached. On the contrary: the thing is that the information in the documents should reach the control authority before the goods and attached documents arrive physically at that control authority. This is done to enable us to conduct relevant control measures in advance through the system of risks management. That is why we have so many problems related to processing goods and documents now, since we work in a closed circle: goods - documents. Before the decision is taken the delays are going to persist. We are working on that now and we trying hard to improve the situation and to work with preliminary informing.

So far we have named the new method The Center of Operative Decisions; it could also be renamed The Center of Analysis and Management of Risks. The task of the Center is to collect as much information as possible from all various sources in order to issue specific recommendations for customs authorities. There are such centers in a number of developed countries. The Americans have set up a counter-terrorism specific center. The cost of that Center was 200 million US dollars; it is equipped with modern processors and manned by 200 people. It is used for the online control and release of information downstream.

Now I would like to speak more about the transfer from total control of goods to control of information about goods, and the electronic flow of documents. Actually I have already told you about it when speaking about the one stop and one window principle.

 People who are unfamiliar with the concept would probably think of one stop as a tramway stop and of one window as a hole in the border. To put it in other words, one stop means that one may not go to various places, and one window means one authority at the border receives information from all the other authorities so that it may fulfil a definite function on behalf of the other authorities. That is the one window principle. There are 7 control authorities working at the border now. According to the Concept the line of control should be represented only by two of them: border and customs services. I would like to make it clear that we have no intention of pressing anybody out from the border. It is not correct, and it should not be. What we are saying is that there will remain only two authorities at the line of control. The rest are expected to provide information about what is to be controlled, according to which documents this control is to be effected and, if required, their representatives are to be invited to participate such control on expert level staying close to the line of control. But they should not remain at the line of control. We need to avoid the situation when some goods or transport means are to make rounds going from one authority to another. That is the idea behind this particular proposal.

Now I would like to speak about setting up favorable conditions for goods to be conveyed across the customs border, and assistance to the implementation of generally accepted trade-logistical technologies. This is what we have been speaking about for the last two years. You deal with your logistics. These logistics are supposed to be provided for in terms of security and securing the interests of the state. That is why logistics are included here as one of the subjects of direction of discussion.

And finally let us consider the provision of the final level of quality by means of quality assurance control of each specific customs operation. There is no point in talking about general technology: each of you and each of us should know where a standard starts and where such a standard ends. What are the actions as per standard? All this is to be based on the principles of the International Standardization Organization (ISO). That is where we take the standard from.

The next thing is the complex strategy of training personnel, and methods of program-oriented control in case of setting up organizational-management structures of customs authorities. All this refers to budgeting. There is no point in discussing it in detail as information about it can be found in newspapers.

The next issue is very important in terms of conceptual outlook. Let me now elaborate on the transfer of the emphasis of customs authorities operation in terms of security to the state border of the Russian Federation. So what we are talking about? We mean that a large amount of cargo and passengers crossing the border, are to be processed in terms of customs resolving two problems: one commercial and one of law-enforcement. So, law-enforcement is moved closer to the border, while everything else related to fiscal and commercial aspects are to be resolved within the country. Let me explain what this might lead to. The Americans, with whom we are usually compared, have decided that unless there is no electronic information about a ship prior to 25 hours of its arrival at the sea port, this ship will be berthed, end of story. No one will search the ship, and no one will work with this ship. The Canadians use the same practice. This system has been adopted by another 5 countries, but not in the capacity of a compulsory system. We are about to use the same method. We continue to work, dear colleagues, mainly on the ground. We have major turnover on the ground. Here we are quite close to our colleagues from the European Union. They accept such an approach to counter-terrorism and drugs trafficking, but at the same time they say that one has to work at the border with such issues as provision of security so that nothing inappropriate is let in and nothing inappropriate is let out. It is understood that the remaining tasks may be achieved through other schemes.

We wholeheartedly support such an approach.

Now I would like to speak about operational search actions and intelligence activities. I would like to reassure you that we are not going to change the profile of our organization and compete with the Foreign Intelligence Service (SVR) and Federal Security Service of Russia (FSB), as there is no need. Every agency is supposed to be engaged in its prescribed activities; nonetheless, collection of economical information, economical intelligence is a prerogative of all the states in the world, and customs authorities are to participate in such activities too. That is what we mean: provision of high quality, economical, preliminary and analytical information.

Another issue is very important conceptually from the standpoint of the logic of todays discussion. Participation in the implementation of the Concept of All-European Economic Space, the transfer to using a single administrative document, integrated into the transit systems of the European Economic Community. We need to talk more about transit today. Here I would like to note that yesterday we received from the European Community a tentative, 70-page action plan. We have more than 50% of commodity turnover with the countries of the EEC. That is why the goal is set to integrate customs control methods, including documentary control as well as other types of control in the Western direction with 25 countries of the EEC. We have two major programs in the process of implementation with the EEC. The first program is the Program of single administrative document integration, which is in use in their countries and our cargo customs declaration. The first part of the Program has been completed. We have conducted expert analysis, identified discrepancies and expect within two years to try to bring these things to a single standard.

 Later on we shall start working out a program for the integration of transit systems. We should not allow ourselves to have different transit systems between Kazakhstan and China, between Ukraine and other countries. It is necessary to come to single standards. We have already carried out preliminary work with our colleagues: recently we had a meeting of IT experts from all the countries, where it was decided for the first time to work out single information engineering standards, so that we may proceed in the same direction.

The next stage of implementation of the program is the unification of standards and regulations of customs procedures in the countries of the C.I.S., Eurasian Economic Cooperation Union, and Common Economic Area and in the Union of Russia and Belarus. These two things are very closely linked.

What will our priorities be in the sphere of customs administration? Let me brief you on the priorities to make things easy to understand, even for those who are involved with customs on a daily basis. It includes preliminary informing, electronic declaration, the risks management system, simplified customs procedures, selective control, post-audit methods, single PC-aided data acquisition, storing and processing system of all types of control, etc. So we are coming back to what I started with. All agencies together present a one window principle for customs clearance.

How is this Concept going to be implemented, how do we see it? The implementation of the Concept, in our opinion, is going to be carried out in two stages: between 2005 and 2008, and between 2008 and 2010 and later, because to resolve problems related to infrastructure, personnel, etc. a lot of time and investment is required. We started to work on the enhancement of our business plan after we received comments and proposals from ministries, agencies and the business community. We shall finalize our business plan. We assume that the cost of our business plan is going to increase greatly, but we have no intention of scaring any one with such an impressive amount. We are absolutely sure that in order to earn an additional ruble one has to work harder; should any one wish to have free trade, please invest in customs.

At the preliminary stage a complex set of measures is envisaged to work out major approaches, and to implement practical measures aimed at providing the state with plausible customs procedures. We have not listed these measures here, since there is a whole complex of such measures. We know what they are. They are listed and detailed in the Program of development of customs authorities prior to 2008. We have not included these measures here but shall hand out these materials later.

Implementation of these programs is going to be on the basis of budget purpose-oriented programs. These programs have already been introduced. These programs are The State Border, Administration and Control and Institutional development. These programs are to be target specific and are to be supported by the budget.

 The second stage will take place during the period of 2008-2010 and the following years. It is expected that construction of the customs infrastructure will have been completed by this time. I may appear too optimistic in view of the length of our border, but I am telling you of our concrete plans of construction. We have marked the year 2010 in our plans as a milestone. Now I would like to speak about the documents regulating the relationship of the competence of state authorities and self-regulating organizations, a topic which we have already started to discuss and which is of great interest to you. We are talking about this openly for the first time. We are saying that customs are to be engaged only in what is within the competence of customs. Customs should be involved only in control, while issues related to the acquisition of information for realizing this control, in our opinion, are to be assigned to you, our colleagues.

 We want the Association of brokers, bankers, and all those working within the infrastructure of customs to undertake the obligations and responsibility to provide us with the information in the format and within the time period specified by the controlling state authority - customs.

In the last fifteen years we have worked according to the proverb of Jack of all trades: We have built houses, we have laid communications, we have abated crime, and we have been responsible for everything. Now the time has come when we should say that we should be busy only with what is our own business control. And we shall exercise control as rendering a service.

In the second stage it is planned to organize the work of customs pursuant to the principle of one stop and one window. I am sure that by this time we shall be able to reach sufficient coordination with our colleagues in terms of IT support, especially tax service, so that we might work together in full contact all the time. By this time we expect to finish the development of governmental function execution procedures.

The Concept shall be implemented at the expense of the Federal budget, as well as from other funds, envisaged by the plan of implementation of the Concept on the basis of legislation of the Russian Federation. We are a state authority, and we intend, by implementing all these new organizational methods, to have a real opportunity to make substantial progress in our development in the next five years.

 Now I would like to elaborate on one issue without direct relation to the previous topics. At the end of June at the session of the World Customs Organization a special document will be adopted. This document is expected to radically change the attitude of customs to their operation. The document is called Standards of security and assistance to trade. This is a fundamental document; on the basis of each information will be passed in relevant format from a country of export to a country of import, according to which the security of supply logistics will be assured. In addition, it will enable the use of major principles and standards, minimization of various formalities at the border and inside the country and the acquisition of weighted information.

The Russian Federation, as Vice-President for the European Region of the World Customs Organization, is taking part in the development of this document. So far we have been able to contribute to paragraph 16 specifying the contents of messages to be exchanged. This paragraph describes pricing information, and we proposed to have this information based on invoices rather than to be price specific. Americans as well as some other countries strongly objected to our proposal. They considered our proposals unacceptable and wanted to base pricing information on the concept of pure security. We have explained to them that our service and customs of a number of other countries with transient economies are kept responsible for earnings in the budget. Compared with the USA customs, which make up 0.82% of state income, ours makes up 42%. The difference is enormous. That is why we need somewhat different information. So far we have been able to defend our standpoint but we shall still have to return to this in June. However, with acceptance of these standards we expect a breakthrough in the field of organization of interaction between customs administrations. Accordingly new standards of work will be accepted on the principles of: customs to customs, customs to business, etc.

In relation to the above on May 12th we expect Mr. Michel Danet, Secretary General of the WCO, to visit our country. Now he is visiting major trade companies. He is going to meet the representative of the business community of Russia at our request. On May 12th we shall answer all the questions businesses may have on the above matters.

This is all I wanted to tell you. The new aspects included in the Concept, even if not yet adopted, signify a new attitude towards the next decade. Thank you for your attention.



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