No winners in Russia’s smuggling clampdown

• Source: Global Times
• [00:26 July 14 2009]
• Comments

On June 29, Moscow police ordered Cherkizovsky Market – a place of business for about 80,000 Chinese – closed in a smuggling crackdown. It was reported that more than 240 Chinese were detained for allegedly breaking Russia’s residency laws and for protesting against the closure of the market.

The sudden closure left tens of thousands of Chinese businesspeople jobless and even homeless, with their money and goods sealed in the market. It is expected the total loss the closure caused to Chinese traders will exceed $2 billion.

In the Russian clampdown on Chinese businesspeople, who benefited local economies and communities, we don’t see the “unique and good neighborly relations” acclaimed by Russian President Dmitry Medvedev at a celebration of the 60th anniversary of diplomatic relations between China and Russia.

The crackdown was related to the long-standing problem of “gray customs clearance.” In the 1990s, the Russian economy was desperate for consumer goods. With cheap prices and good quality, China’s textiles and garments were popular among Russians.

This led some government-connected “clearance” companies in Russia to start pushing imported goods into the Russian market at a tax rate much lower than the official level.

These companies often undertake the whole processing of freight after goods depart from Chinese ports and deal with all procedures in Russia.

The system helps Chinese merchants save big on customs clearance fees, but makes them liable to huge losses upon inspection by the Russian authorities. It is Russian clearance companies and some customs officials who should take responsibility in the “smuggling” of Chinese goods, as it is their system which tacitly allows for the influx of undeclared goods.

With China as its biggest trade partner, Russia should take substantial steps to regulate its customs and related companies to create an agreeable environment for Chinese to do business in Russia. Being hard only on Chinese merchants by closing the market will not bring a solution to the “smuggling” problem and will seriously frustrate and even scare away Chinese businessmen.

In its efforts to end the “gray customs clearance” system, Russian authorities should seek to implement a stable and sustainable economic policy. This will make the Russian market trustworthy for all foreign businesspeople, including those from China.

Russia’s rough treatment toward Chinese traders shows the country has not clearly realized the important role China plays in its economic development. Russia has serious long-term problems that limit its economic development, such as a sparse population and a backward light industry. China’s huge population and developed light industry could be the basis of mutually beneficial cooperation between China and Russia.

At the same time, Chinese traders working in Russia should strictly abide by the country’s official regulations in customs and trade if they want a stable, prosperous business. It’s time for them to bid farewell to the “gray customs clearance” system.