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Ukrainian Customs: Don't Forget Your Pants Before You Fly to Kiev

11:00 AM, Sep 27, 2010 • By REUBEN F. JOHNSON
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Ukrainian Customs: Don't Forget Your Pants Before You Fly to Kiev

There is a saying here in the Ukrainian capital: “The more I deal with the customs officers, the more I love the traffic police.”

The traffic police, or militsia, are the ever-present uniformed officers whose white-tipped batons are the signal to pull over to the side of the road. The process is always the same. Once a driver has stopped, a traffic offense—either real or absurd—is explained to him by the militiaman (this can include violations as trivial as “your license plate is too dirty”), money changes hands, and the driver goes on his way. The fines almost always end up in the pocket of the officer.

But as efficient as the militsia is at collecting money right and left from the public (at best this is indirect taxation and at worst it is a type of corruption) they are do-gooders when compared to the Customs Service.

The inventiveness of the Customs Service in finding new ways to collect money from companies and individuals trying to do business in Ukraine surpasses that of some of the worst kleptocracies in history. The issue finally boiled over in a July meeting between the U.S.-Ukraine Business Council—representatives of U.S. firms that have operations in Ukraine—and Deputy Prime Minister Sergei Tigipko.

The overall theme of the meeting was the irreparable harm done to the business environment by the Customs Service. But the specific focus was how their practices are a complete disaster for express mail and parcel services like FedEx, DHL, UPS, and others.

“There are only few countries in the world which ‘outperform’ Ukraine as the worst in the world. It is important to understand the impact of the shipments delayed at Customs which often result in lost revenues, additional costs for companies and the Customs Services itself. It generates numerous complaints from business community and private individuals. Last but not least it constantly deteriorates Ukraine attractiveness among potential investors,” said Vadim Sidoruk from DHL’s office here in Kiev.

“It has become common knowledge that Ukrainian Customs laws regulating express delivery are some of the most, if not the most, complicated in the world,” he complained. No other country requires payment of duties for all parcels addressed to private individuals. The duties are also—he pointed out—of doubtful value to the country's economy, as the costs of collecting them are often higher than the duty itself.

Sidoruk, like so many of us here, holds out little hope that the Ukrainian government would ever enact reforms that would rectify the situation.

“It is hard to imagine just what would lead the parliament and the Customs Committee to make the changes necessary to remove the roadblocks. However, I cannot help but think that if they understood the many development projects that have gone elsewhere in part because of the antiquated customs procedures, that alone would have a very strong impact on their thinking--and actions.”

In July, DHL moved into a new 8,000 square meter, $12 million package processing facility. It is one of the largest of its kind in the world for the simple reason that backlogs created by Ukrainian customs require this kind of capacity. Of all the packages held by customs in all of eastern and central Europe, 70 percent are being held in Ukraine, according to DHL.

The U.S.-Ukraine Business Council has compiled a list of horror stories of delays experience by shippers in recent years. It reads like a textbook of “how to destroy all interest in your country by foreign investors”:

• A major soft drink company imported samples of plastic bottle caps with their logo on them—a total of 6 pieces. The shipment was not released because Ukrainian customs required an official letter from the company stating that the bottle caps would not be used for medical purposes.

• A company imported communications equipment to Ukraine with a value $1,000,000. A CD with installation instructions was included in the shipment. Ukrainian Customs would not clear the shipment until the company produced a revised invoice with the following breakdown: $999,997.00 for the equipment and $3.00 for the CD. "This caused a delay of 7-12 days in the final delivery."

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