Valerii KHOROSKOVSKY: “All the established contraband schemes have been eliminated”

The speed with which goods are transported abroad is the main goal and the best proof of a successful customs reform. In Lithuania, for example, the procedure of registering a large freight train at customs takes 30 minutes.

So far, Ukrainian customs officials cannot boast the same efficiency. The head of the State Customs Service of Ukraine, Valerii KHOROSHKOVSKY, talked to The Day about the way customs procedures can be accelerated and what is happening on Ukraine’s borders.

Ukraine has five years to implement the European program “Custom Service-2013.” Where should one start and will there be enough time to implement all the reforms, which took European countries 50 years to do?

“They were learning from their mistakes. We are moving along a beaten path and this is much easier. The process has already started: we have created a group that is engaged in strategic development, we have developed a program to adapt to the European system of customs control, and we are gradually moving ahead. The only problem is that the normal advancement of the Customs Service depends on the coordinated work of all the executive branches. Those who think that only the Customs Service is operating on the borders are mistaken. In reality, many diverse services and departments are involved in the procedures for registering both goods and individuals. The Customs Service will fulfill its part of the tasks in five years. But it is desirable that such a global challenge as bringing domestic customs registration procedures in line with European standards becomes a challenge for society and the government. If we try to implement these European standards without budgetary financing, our efficiency will of course be lower.”

What role in this process is relegated to the system of computerized management of transit goods?

“This is just a small part of the work connected to developing an electronic customs service. Once it appears, it will result in the creation of a system where a customs official will have minimum contact with the subject of export-import activity. Our personnel potential meets the requirements of such a system. For its implementation we lack a computer base that would enable us to work electronically. The problem is that the above- mentioned services and departments are not ready to implement a computerized system. However, we have achieved significant successes in our cooperation with them. The Customs Service is ready to implement a computerized system for managing transit goods even in one year or 18 months, on condition that proper budgetary financing is provided.”

How much money is needed?

“Our calculations show that in order to satisfy all the needs of the Customs Service in 2009 we need nearly three billion hryvnias. But this sum will be amended. How are we going to apply these resources? First of all, we will increase wages by at least 50 percent. Second, we will increase capital expenditures if we want to expand our customs borders in time for the Euro-2012. We need to increase the financing of these goals in 2009 and 2010, not in 2012, because otherwise the checkpoints won’t be ready until 2015. Third, money should be allotted for the purchase of technology, without which the Customs Service will always remain vulnerable because the total number of imported goods crossing the border cannot be physically processed. And finally, we will allot money for developing and implementing software.”

Why should radiological, ecological, medical, and other services be removed from the border?

“The Cabinet of Ministers has already adopted a resolution about this, and it has been adapted to European legislation because the number of border procedures has been reduced. In Europe all customs procedures are performed in real time and internal customs houses. Our position is based on the existence of practical and documentary control. If, for example, livestock crosses the border, there must be a veterinarian present. Speaking about document control, both the customs official and the medical staffer check the submitted documentation and see the same things: concrete certificates and seals of export permits. So, a customs official can conduct such controls on his own.”

This is another way to fight corruption on the borders. How are you fighting it within your department?

“This is a difficult question because the Customs Service practically does not have any instruments. The only thing we can do is dismiss an individual. In the extreme case, we can send documents to the prosecutor’s office, where they may act on them or not. The Customs Service has no right to conduct operations and search work; therefore we cannot issue documentation on our employees’ illegal activity. The SBU and militia deal with this. As a rule, extra power given to a customs officer strengthens border corruption instead of eradicating it. Other power structures use this kind of compromising evidence to conduct their ‘shady transactions,’ including on the borders.”

Besides strategic and intelligence work, what else can strengthen the rights of the Customs Service in the fight against contraband?

“The labor legislation should be changed. Not only the Customs Service but all state institutions need this. We inherited the labor legislation from Soviet times and it has not been revised yet. I think that once anyone becomes suspected of corruption, s/he should be fired automatically and categorically. Today I have nearly 100 legal cases concerning the dismissal of the most corrupt customs officials. Instead of dealing with real customs issues, the entire legal department is distracted by resolving these questions in court. This means only one thing: under the current labor legislation it will be impossible to resolve the question of corruption. I think that we need to switch to signing employment contracts in which all these things are mentioned. The system of dismissing customs officials should be simplified. An employee suspected of corruption should be immediately dismissed.”

Upgrading the Customs Service is impossible without introducing new ways of evaluating the customs value of goods. What other methods besides evaluations according to the declared value are you using now and planning to implement?

“There are six methods. They are all mentioned in the draft Customs Code that we have drawn up and registered in the Verkhovna Rada. We can use prices for similar goods for checking, as well the research of our customs laboratory service to ascertain the quality of goods and their classification according to a product code. There are many ways. But I want to focus on something else. It is a global mistake to consider that a customs service should define the customs value. We are doing this because of our poverty. The system for creating the economic environment does not allow us to really fight companies that transport contraband or import products in violation of customs regulations. Any sanctions of an economic character are inexistent.

“I think that when contraband products are deliberated transported, they should be categorically confiscated 100 percent, and the smugglers should pay a fine that is double the value of the goods. In addition, a company caught smuggling should be stricken from the register of subjects of foreign economic activity. The founders and directors of the company should be blacklisted, and other structures, like the prosecutor’s office, should deal with them. There should be a kind of repressive mechanism for fighting contraband. The economic environment should force out these kinds of players. We need to create a situation where contraband cannot be involved in the environment of the domestic market. What is going on today? Once smugglers manage to cross the border unnoticed, the goods are loaded into the car of a ‘butterfly- firm’ that issues documentation, and then the goods freely enter the domestic market. Today, all network companies assert that they are ‘clean’ and do not transport contraband. This is true: but their agents do.”

Will the practice of reflecting the real prices in customs declarations become widespread in the export of goods?

“According to logic, the Tax Inspectorate should deal with this question. It must control export prices because the amount of the VAT refund depends on this. On our side, we are eager to help them as much as possible. If the Ministry of Finance issues such a task, we will create a specific department within two or three months. We only need financing.”

In his interview with The Day Mykola Azarov said that today’s rate of increase in customs revenue is not higher than last year’s, if one takes into consideration the annulment of bills of exchange and the rise in oil and gas prices. Do you agree with this?

“In subtracting oil and gas revenues, we will have a rate of increase in customs revenues that is even higher than together with them. With the rate of increase in customs revenues being higher than last year’s, if we subtract the volumes received from oil and gas, the difference will be 2.3 times. This may seem paradoxical. The reason is that, unfortunately, the customs clearance of gas is done according to a different system from last year. This means that we receive much less. In addition, less oil is coming in to Ukraine than last year. In order to draw the right conclusions, one only has to look at the statistics.”

Is the border today fully closed to contraband?

“All the existing contraband schemes have been halted. I know that there is a possibility to bring contraband into our country. I can sense this from the domestic market. But its volumes are smaller than last year’s. There is nothing left of that mess, when the gate would be lifted and everything would enter in a single stream. If there were the same level of contraband, this would have had an impact on the volumes of customs payments. Where, then, will we get those additional 40 billion hryvnias in the budget expected by the end of the year? However, according to my calculations, the Customs Service will not bring 40 billion more hryvnias to the budget than last year but 50 to 55 billion.”

What impact will the revaluation of the hryvnia have on budgetary plans?

“I have encountered quite a few obstacles that should have reduced the budgetary revenue, according to all the laws of logic. First, Ukraine’s accession to the WTO envisages the loss of four billion hryvnias. Second, the change in the exchange rate means an additional reduction by at least 4-5 percent. Third, the zero rate of customs duties on specific goods was established. And finally, we have revealed attempts to transfer goods without paying the VAT according to bills of exchanges under the Ashgabat Declaration. People are trying to bring back the bill of exchange scheme in the guise of cooperation, which is the aim of the Ashgabat Declaration.

“I will give you two figures as an example. Last year the Ashgabat Declaration was also in effect, but the total cost of goods brought under this declaration was zero. Today there is a desire to bring 2.5 billion. After the Ministry of Finance processed these data, 1.8 billion remained. At the same time, nobody is introducing a method for controlling the customs value of goods or a way to control contracts: to check whether they indeed have any relation to cooperation or whether they are ordinary export-import contracts that provide a front for bringing all kinds of goods into the country. Thus, another kind of ‘hole’ is created.

“My question is: is it really the fault of the Customs Service that such and such payments differ for different subjects? Or should one look at this from the state’s point of view and understand how to create an economic environment that, as a minimum, would provide everyone with identical competitive conditions?”