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. Last Updated: 07/27/2016

Customs To Lower Tariffs on Imports

In what is being billed as a simplification of the rules and a dropping of barriers to foreign trade, customs officials are following orders from the Cabinet to reduce import tariffs on thousands of items.

The government says the new rules — which will kick in on Jan. 1 — will make moving goods through customs cheaper and less Byzantine, bringing savings that will be passed on to consumers in the form of lower prices.

It also hopes the simplified rules will end a common practice of dickering over the exact definition of a particular import in hopes of getting it a cheaper tariff.

But officials at the State Customs Committee say they do not know what effect the changes will have on the billions of dollars in revenues their service traditionally earns for the budget — about 40 percent of the federal budget is funded by customs alone.

They also admit frankly they are changing tariffs in the absence of any clear policy on whether there are domestic industries that the state wants to protect from foreign competition.

Be that as it may, government decree No. 886, issued Monday, mandated the new tariffs and they are on the way.

As it is now, customs officers sort imports into one or the other of 11,031 categories and those categories pay one of seven sliding tariffs: zero, 5 percent, 10 percent, 15 percent, 20 percent, 25 percent or 30 percent.

That changes in about a month, when there will just be four principal tariffs: 5 percent, 10 percent, 15 percent and 20 percent. Some exceptions include foreign-made cars (now taxed at 30 percent), cigarettes and white sugar, all of which will be assessed a 25 percent tariff.

In the past, many importers have sought a cheaper rate by claiming an item in question was something else. The classic example is poultry producers, who began labeling chicken as turkey, back when the tariff on chicken was 30 percent and turkey was 15 percent.

Under the new rules, similar items are grouped under similar tariffs: chicken and turkey, flowers and herbs, furniture and furniture parts — all are now to be taxed alike.

All told, new tariffs will be coming in on about 3,500 categories of goods. An exact list is to be published shortly in the government newspaper Rossiiskaya Gazeta, said Andrei Kudryashov, head of the customs committee's department of tariff and nontariff regulation.

Kudryashov told a briefing Thursday about just some of the tariff changes, saying tariffs on foreign-made televisions would drop from 30 percent to 20 percent, while tariffs on cotton would remain at zero.

"Also, we dropped some tariffs on juice concentrates, so our [domestic juice] producers could more actively use them, and at the request of our industrialists we set lower rates for some technological equipment and for fur pelts," Kudryashov said.

The government has talked of lower tariffs as likely to rev up the economy, please consumers and end rampant customs evasion. "We will open up the market," pledged Finance Minister Alexei Kudrin last week, introducing the lower tariffs on car imports.

Some are not so sure they want that, however.

"When we saw the tariffs being offered by the government in September, we were shocked. Heads of enterprises were saying that dropping import tariffs would strangle domestic producers," Sergei Katyrin, vice president of the Russian Chamber of Commerce, said two weeks ago at a customs committee meeting.

Another critic has been former customs chief Valery Draganov, who is now head of the customs committee in the State Duma. Draganov complained to Profil magazine in late November tariffs were being tinkered with but the industry-by-industry consequences were not being studied.

Some importers have claimed chicken as turkey in order to get the lower tariff.

"In the last two years, many producers have started to manufacture competitive goods. We don't now need the additional pressure of cheap imports," Draganov said.

"The government, instead of holding a thoughtful discussion of the tariffs with large layers of interested parties, mechanically increased rates on some items and dropped them on others."

Kudryashov of customs frankly agreed customs was making such decisions in the absence of clearly defined government goals about which industries, if any, to protect from foreign competition.

"We don't know whether we need our own television industry. Do we need our own production of machine tools with digital program management? Do we need our own grain production? And how much grain do we need? Should we grow it ourselves, or import it?" Kudryashov said.

Alexander Yukish, president of the Grain Union, exploded in anger when told by telephone of Kudryashov's comments.

"What he said is just stupid," Yukish fumed. "It looks like those people are defining our customs policy … hmm … without thinking.

"Only a dilettante who knows nothing about the economy could say this. Of course we have a grain policy and it is to achieve independence in grain production!"

Yukish said customs has already hurt domestic rice producers by dropping tariffs on rice last year. "The country needs about 530,000 tons of rice a year and in the Krasnodar region about 250,000 tons of rice is produced. The costs of the domestic producer are high — and when last year about 520,000 tons of rice were imported thanks to low tariffs, [more expensive] Krasnodar rice ended up rotting in the warehouses."

This week, Valery Kiselyov, an official who works with corporate members of the Russian Chamber of Commerce, said "some of the major disagreements" local producers have with the new tariffs had been settled "after several rounds of discussions with customs."

"But I can't comment on the concrete tariffs — no one has seen them yet!" he added.

Nor can anyone say whether the new lower tariffs will mean more or less federal budget money. "I don't think anyone could give you such figures," said Kudryashov of customs.

But he did cite an example in which lower tariffs actually brought in more money and not less: poultry.

The tariff on chicken at the beginning of 2000 was 30 percent, while it was a mere 15 percent for other poultry, including duck, geese and turkey. In April, however, those categories were unified under a single 30 percent tariff, which in turn was dropped to 25 percent in August.

The result? Kudryashov said in the first quarter of 2000, only 52,500 tons of poultry was declared and paid for, while by the third quarter that had risen 445 percent, to 234,000 tons.

"Customs clearance fees increased by 297 percent!" he said. "The legality of imports increased. We think that now 95 percent of poultry is cleared legally — while in the past that business was so criminalized it made our hair stand on end."