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Minutes 1 of the meeting of the Advisory Council for Implementation of customs policy under the auspices of the FCS of Russia, held on December 27th, 2004

Address of A..Zherikhov, Head of the FCS of Russia:

 Dear colleagues,

Dear friends,

The year 2004 is coming to an end.

At the end of a year it is customary to draw conclusions, to analyze what has been done and what has not been done. Every service, association and enterprise is making its own conclusions and thinking about the future, drawing up plans; and the same is taking place in the FCS.

For us this year has been special and rather difficult in many respects. Speaking about business, you may know that starting from January 1st, we are going to work in a new format; a new Customs Code has taken effect. Many have noticed its benefits. On October 28th we had parliamentary hearings in the State Duma. Among those present today I can see many participants of these hearings. The leaders of the State Duma and of the Committee, which organized the parliamentary hearings, have evaluated them highly. It testifies that we have chosen the right way.

I have to say that we have a Customs Code standard, which lists the requirements to customs administration according to which we are supposed to process goods within three days. This standard is usually complied with, and in 99.9% of all cargo customs declarations it is processed within the time specified, within three days. This is a great achievement. We have analyzed the reasons on non-compliance with the terms envisaged for processing cargo customs declarations (GTD) and found out that they are mostly related to the failure of customs applicants to provide all the documents required for timely customs clearance.

In eleven months, foreign trade turnover rose by 32%, while growth of import duties paid amounted to 23%. I am giving you a slightly approximated amount. These numbers just illustrate that the Customs Code is not an obstacle. During parliamentary hearings there was some criticism addressed to legislators from representatives of light industry, since the standards set by legislators were not favorable to Russian manufacturers. We know this, and we agree that we need to improve the situation. We agreed as follows: in the first six months of next year together with the businesscommunity we shall analyze the problems and then make our proposals to the Ministry of Economic Development and Trade.

This year has not been easy for us since we, like all executive authorities, are in the process of administrative reforms. As of today, as you may know, we have no rights of legal regulation. Currently we face certain inconveniences due to the fact that final decisions are not made by us. Although we prepare draft regulatory documents within the established terms, these documents have not been yet issued for various reasons. I hope that some of these documents will be signed by the Ministry of Economic Development and Trade in the near future.

 In the course of administrative reform we have no authority of legal regulation, but we are still inclined towards very close cooperation with businesses. This is one of our priorities. We understand that in order to administrate and take managerial decisions, which could be related to the interests of businesses, it is necessary to have feedback.

This time, when forming the Advisory Council, a draft composition of the Council was distributed; we based representation on the fact that managers of the associations making up the Council should represent not just their specific company but a group of companies, and should be able to express a collective opinion of the association. That was our intention. We need this dialogue very much. It is like synchronization of watches. Had there been any misunderstandings in the past, we always tried to listen to the opinions of businesses, and now we are going to proceed with the same line.

 We made our proposals to the Ministry of Economic Development and Trade and it was decided that the Advisory Council should operate under the auspices of the FCS of Russia. We have named this Council as Advisory Council for Implementation of customs policy under the auspices of the FCS of Russia. I hope we shall be able to work in the regime we have chosen.

 I wish to stress that we are open not only to verbal dialogue. In the course of functioning of the Customs Service in a new format we have had two very important sessions of the Board. The first session of the Board was devoted to the Risks Management System (RMS). We are going to implement this system in customs offices. The gist of the system is simple: to do everything possible to make law abiding participants of foreign trade activities free from any obstacles related to customs formalities, and to reduce the number of inspections on the basis of analysis and management of risks. Pursuant to all our regulatory documents the goods subject to high-value duties are to undergo more detailed and meticulous administration, since there is always some danger of underevaluation of the customs value, thus creating implications for contraband.

The second session of the Board was on the topic: On introduction of electronic declaration in customs offices. I believe that we have made significant progress in this respect, already an organization in a new format: the Federal Customs Service.

We have been experimenting with electronic declaration at the Kashirsky customs terminal of Moscow Southern Customs. It was just a single experiment. In the last half of the year in the Moscow Region we have introduced 7 more customs terminals working with declaring goods in electronic form, and the customs offices where this system now works is even more widely distributed. While the Kashirsky customs terminal is working mainly with motor vehicles declarations, the Oktyabrsky customs terminal which opened recently is working with goods conveyed by railroad. It is very important when railway carriages are still on their way that the system of RAO Russian railroads allows us access to preliminary information on the arrival of containers or railway carriages. And we then may clear these goods without delay, with random selective inspections if necessary.

We have opened a declaration post at IKEA. IKEA is a foreign investor and a member of the Advisory Council on foreign investments. 40% of goods arriving to this company are declared electronically. The management of the company has pledged to declare electronically 100% of their goods next year. It is very important to us since I think most of you have visited their shops at least once, and you may imagine how huge their assortment of goods is while pricing indices are low.

Sometimes we receive complaints that customs do not accept this or another price or changes and even corrects a price; if a company dealing with us is an open company and provides us with preliminary information then we process this price, verify this price and usually there are no problems. Moreover, after goods are released into free circulation in the warehouse, we keep track electronically of such goods and see how these goods are being taken into account and how they are being sold by retail. We have special software for these purposes in our customs offices. This is what is required: post-audit, major direction and a major idea of the Customs Code. All information may be tracked electronically.

Soon we are going to open a specialized customs terminal for declaration of goods, currency, jewelry and so on. I would like to stress that the domain of declaring is not limited by automobile transportation. The present Customs Code provides wide opportunities for using preliminary, partial, and periodical declaring, and many participants of foreign economic activities are taking advantage of such opportunities. All our work is aimed at creating comfortable, standard conditions for Russian and foreign business, and let me assure you that these are not just buzzwords. We are open and ready for cooperation, but it concerns only those who are transparent and those who are working within the framework of all proper legal requirements.

You are probably aware of the problems occasionally arising with clearance of goods exported from South-Eastern Asia. You may have different information, but we are open; we say: Please, we shall process your goods without any delay. For this purpose give us preliminary information from your Chinese partners and have no problems afterwards. I have signed a Regulation, the gist of which is that goods are to be packed in accordance with definite assortment. It should be just a trunk or a bale; there must be a packing list to specify the goods within any container. When goods are conveyed in boxes there are usually no problems. But, unfortunately, many people have grown used to working with customs in a different way for a number of reasons, such as lack of a regulatory basis, or other subjective factors. We are not going to work in this way any longer. We shall do our utmost to ensure transparency, and expedient and fast processing of goods.

I do hope that you might be able to assist us with your associations in bringing our progressive methods into the practice of customs offices. I think we have been able to set up a good relationship which is proved by the implementation of the financial plan imposed on the customs service.

The State Duma of Russia had given us the goal of collecting 852 billion rubles in 2004. On November 10th, since we were ahead of schedule by 140%, the State Duma corrected the plan by 336 billion rubles. Three days ago we fulfilled the new plan and even exceeded it again. These results are not the result of high prices on oil products. The year is still going on and we have been able to allocate 100 billion rubles to the state budget collected as import duties; this means additional money for the purposes of defense and purpose-oriented social programs etc. For the next year our plan has been increased significantly; the plan for import duties has been raised by 120%, which is why we cannot work in the previous way, with gradual progress. We are inclined to increase openness, creating conditions for business, and we want businesses to perceive our requirements in the right way. We shall be honest and open with you, listening to your proposals and keeping in mind what we can do and cannot do, and if we are in error occasionally, then we will adjust our decisions to mutual benefit.

This is all I wanted to say in my address to this meeting. Our goal is to form very close cooperation with the business community. We are denoting this to the executive management of our divisions and to the management of the FCS of Russia. That is why we need to approve the Regulations for the Advisory Council, its By-Laws, and composition of the Council. You have all the draft documents to be considered.

L.A.Lozbenko, Deputy Head of the FCS of Russia speaking about the changes in the customs service:

The things Alexander Zherikhov told you about are very closely related to our everyday life and activities. I would like to stress that we are no longer in charge of such things as policy. After the administrative reforms started, the policy became the domain of the ministries and the Government, while our task is to realize their policy. There are many changes taking place in the customs world, and there is nothing to be done about it, whatever turns administrative reform is taking.

We can say that customs service is at a crossroads now. There was a session of the political Committee of the WCO in May, where Mr.Zherikhov and I were among the participants. The problem is that after the events of September 11 in the USA, after a number of terrorist attacks and threats, the most important thing now is how customs services may act in order to ensure the safe delivery of goods. The issue is not easy at all, since it is closely related to the status of customs services. A number of major foreign countries (including the USA) still employ the customs service as a major integrated agency for the protection of borders. In the USA the headcount of customs personnel has increased from 17 thousand to 44 thousand people, and they are engaged in a lot of issues related to migration control, security, agricultural control etc... The same things are being done in Canada and in other countries. The Americans have also come up with a number of initiatives, including in overseas containers transportation, directly related to seaports, and a number of other major programs related to security. All this has brought us to a more general question: What are customs supposed to do? What are customs supposed to do in other countries?

A group of high level was formed at the session of the Councils in June this year, with our participation; the group was to work out security standards. In the first speech I think we have managed to demonstrate the relevance of customs services work at this stage. It is no secret that there is a division now between the developing countries, countries with transient economies and major industrial countries, which insisted on devoting most of its attention to security, safety and once again security. It means that only those who meet all the standards of security - carriers, shippers, and owners of cargo - are going to have priorities in working with green corridors. It is not surprising that developing counties had all cried out that they were in favor of the new developments, but their next question was to find out who was going to help them with development of infrastructure, procurement of equipment, training of personnel, and all other related issues. After all, who would tell them whether to continue collecting money for state budgets or whether to just concentrate on the issues of security. All these issues were followed by discussions held at the session of the political committee.

A declaration has been adopted which would be shaped into a form of the WCO decision on standards of security to be made in June next year. The point is that the Russian legislation is based on principles which are included in conventions and recommendations of the WCO and the WTO. But all these recommendations and conventions of the World Customs Organization are of a consultative nature and whatever we do, many governments are staying indifferent to such matters, rather than giving them proper attention at government level. For example take the popular Kyoto Convention on the harmonization and unification of customs procedures, which is actually a conduct sheet for customs all over the world. Three and a half years have passed and we are still unable to adopt this Convention because it is necessary to have at least 40 countries for the quorum to ratify it. All this time the management of the WCO, including me, then Deputy Secretary General of the WCO, traveled everywhere trying to convince regional heads of customs to make them ratify the Kyoto Convention in their relevant parliaments to make this Convention compulsory. Presently 37 countries have ratified this Convention, and hopefully next year will be crucial for ratification. We really need to have 40 countries in order to ratify the Convention to make it work.

 That was the reason why on the initiative of the Russian Federation we accepted the decision at the session of the political committee to have the standards envisaged for security absorb all the necessary elements from various conventions, which would enable us to live and work resolving our tasks related to fiscal policies, statistics and defense of the market as well as on many other different positions. Such an approach was well understood and approved, and we hope that we might be able to find an even better understanding with senior political leaders. At the G8 Summit to be held sometime in April/May next year we are going to report on what customs authorities of the world are undertaking. We are going to demonstrate our security umbrella with the entire range of related customs issues.

This will be directly related to our contact with you, since in the development of customs there are two major lines: the customs-customs relationship and the customs-business relationship, i.e. which rights and obligations will be allocated for the participants of this market. What do we mean by security standards? What should we request from a carrier or an owner of cargo? What information does he need to provide in order to be included in such a scheme?

The Americans may not be regarded as an example for us in this respect since they work mostly on sea and air transportations. The most important thing for them is their seaports. Incidentally, none of Russias seaports has been included in the program of American mega ports. Until now we do not know why. Either we are not serious enough trade partners or our seaports are not good enough to be considered. We did ask our American colleagues about it. However, we work mostly on the ground; most of our goods are conveyed on the ground, hence most of our problems are here.

 Mr.Zherikhov has already elaborated on some of the aspects of our further work in this area; I on my part would like to add a couple of other issues.

 The first and most important issue is preliminary information. The second is electronic declaration. If these two aspects become the basis of our cooperation then everything will develop smoothly without problems. We have become mature enough in terms of engineering in order to realize our activity based on these two principles. There are positive examples, which we have already discussed.

My only request to you - and I also asked our colleagues when we had a meeting with the representatives of the German Business Club, Association of European Business and American Chamber of Commerce - do not buy your software on the free market. Recently we have noticed that a lot of software is being sold on the market and by this I do not mean the famous Gorbushka (a market in Moscow specializing in trading CDs, software etc., of suspicious origin). According to our private information some people are buying certain software programs which are advertised as being accepted by Russian customs. Please do not believe such statements. The shortest and most economical way to get the right software is to deal with our Main Directorate of Information Technologies of the FCS. We are absolutely open to such communication; we are equally interested in it. Otherwise we may find ourselves in a situation where we have a different format and logic of the software to be used, which cannot be acceptable.

I have yet another request for you. Recently we have accumulated a long list of the issues that need to be resolved in joint cooperation. I suggest we proceed with the scheme of cooperation which has been formed in the last two years. I am aware that many of you are quite satisfied with this scheme. The Administration of Customs Cooperation is a new structure. A relationship with business is now the domain of this Administration. The Head of this Administration is Sergey Alexandrovich Fedosov, while his Deputy, Yuri Vasilievich Kiselev, is responsible for the relationship with business. Sergey Alexeevich Kudryavtsev is in charge of this sphere on behalf of the Council - you know him well. We are ready to work with you directly, as always.

A.E.Zherikhov said that in most cases we resolve issues through the Ministry of the Economical Development and Trade, but we are responsible for preparation and drafting of the documents. Nobody but us is able to prepare such documents. We are willing to work with you in close cooperation and we are sure that this is the only way to achieve the best results.

In the last week we had a number of events with our colleagues - Eurasian Economic Cooperation Union, the CIS, Belarus; we have had many guests here including the heads of services. What do I need to tell you? Our colleagues may also boast of their successes. Since they are our closest neighbors we have to work out the things not just for courtesys sake but in the regime of specific customs technologies. My request to you is to make sure that your affiliates in the territories of our colleagues and your interests in these territories assist us in working out joint approaches for cooperation with our colleagues in the CIS, Eurasian Economic Cooperation Union and Belarus.

We have our own tasks, but Russia and its customs service is different from any other service because we need to resolve the whole complex of geo-strategic issues, which are not customary for any other country of the world. We have to resolve completely different problems in the East, South and West of the country. Nothing equals the threats we face. It is impossible just to take somebodys example and use it for our own purposes in the Russian Federation. It combines both complexity and interest of our work. I wholeheartedly invite you to join us in cooperation, to continue the dialogue which has been established in the last two and half years. Thank you.

Speech by A.Zherikhov, Head of the FCS of Russia:

Dear colleagues,

 I suggest that we finalize the issue of the composition of the Council. I hope you do not object to the fact that L.A.Lozbenko is going to be Deputy Chairman of the Council on behalf of the FCS of Russia, since according to his job functions he is in charge of these aspects, while as a Deputy Chairman of the Council on behalf of the business circles we may have Sergey  Katyrin, Vice-President of the Russian Chamber of Commerce and Industry. Unfortunately he is not feeling well at the moment. I also suggest that we elect Sergey  Kudryavtsev as an Executive Secretary you know him well. In my absence I am going to be substituted by Vladimir  Shamakhov, whose job functions are very close to mine. Do you have any objections? No objections? Let us then consider that we have agreed. Now I would like to give the floor to Sergey  Kudryavtsev, if you do not mind.

Information presented by S..Kudryavtsev, Head of Department on interaction with business circles of the Administration of Customs cooperation:

Dear Mr.Zherikhov,

Dear Mr. Shamakhov,

Dear Mr.Lozbenko,

The work of the Advisory Council for customs policy under the auspices of the State Customs Committee this year was based on schedules. Everybody has schedules so there is no point in numbering them now. On March 26th another meeting was held and at that time administrative reform had already begun; but the Advisory Council worked as usual. The front office (secretariat) of the Council prepared the following meeting planned for July 2nd, but at that time the administrative reform was at its crucial stage and we had to postpone the meeting until now. Meanwhile the Advisory Council has not operated. But we all thought it would be proper to conduct this meeting this year and I am glad that we have managed to do it.

By the way, if you have no objections, I would like you to approve the agenda we prepared for the meeting to be held in July with some adjustments as the agenda for our next meeting to be held in March 2005. The thing is that what we failed to discuss in July is still important and deserves our attention today.

After transformation of the State Customs Committee into the Federal Customs Service and its reassignment to the Ministry of Economical Development and Trade, the issues of customs policy have been referred to the competence of the Ministry of Economic Development and Trade, and accordingly the previous name of the Council (The Advisory Council for customs policy) ceased to reflect current realities. We have been thinking about a new name for the Council and have decided that the most proper name is the Advisory Council for implementation of customs policy under the auspices of the FCS of Russia.

The front office of the Council continued to work in cooperation with the Ministry of Economic Development and Trade and in particular with the Department of State Regulation of Foreign Economic Activity and customs. We wrote a letter with respect to continuation of the Advisory Council operation to the Ministry of Economical Development and Trade; the letter was considered and approved.

For your reference I would like to note that as a result of administrative restructuring the Administration for Customs Cooperation has been formed, and the secretariat of the Advisory Council is structurally included in this Administration. The Administration is headed by Sergey  Fedosov, who has prepared todays meeting.

We also continued to work with the Chamber of Commerce and Industry of the Russian Federation, which is our traditional partner. We have had consultations with respect to the composition of the new Council. You have the lists of new Council composition in your files. That is about all I have planned to report to you. Now I suggest that we start the formal procedure; approval of the Regulations, By-Laws and the composition of the Council if you do not have any objections. You know we have had preliminary discussions of these issues. But should you have any proposals, you are welcome to motion them and we shall vote. I believe there no objections to my proposal.

I would also like to ask members of the Advisory Council to provide your proposals in writing and in electronic format by February 1st for the action plan of the Council for 2005. Our contact details are as follows: the Administration is now located at Sadovo-Sukharevskaya Street, our contacts remain:          Yuri  Kiselev, Deputy Head of the Administration, who is in charge of this work, telephone 204-57-25; Sergey  Kudryavtsev, telephone 204-57-50 and Elena  Zhabko, telephone 204-57-51, fax 204-57-06.

A.E.Zherikhov, The Head of the FCS of Russia:

We have done immense work together especially during the period of development of the new Customs Code when we were working non-stop and had meetings several times a week. I want to thank Alexey Mordashev who acted like an engine on behalf of the business community; Sergey Nikolayevich Katyrin did a lot, too. Life is setting new tasks for us. Now it seems that the Code could be slightly adjusted in some ways. We are going to collect and take into account different opinions about it. We still have another four months to consider new changes and make them if required. We are now able to see how the Customs Code works in practice; it complies with the requirements envisaged by various conventions of the World Customs Organization. The business community of all post-Soviet countries is taking guidance from this Code. Leonid Lozbenko has already said that we had negotiations with the representatives of such countries last week and we see more implications for further integration. If we are to adhere to common principles then everything is going to be all right.

 I wish you all good health, and good luck. I would like customs to always remain a respected institution needed by all, rather than something artificial and harmful. We should work jointly without creating any unnecessary problems to the business community. Much has already been done to create such a relationship.

 Happy New Year to you all and let all your wishes come true.

Thank you.

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