Moscow City Commercial Bureau will meet with representatives of the Chinese Chamber of Commerce in Russia today to try to resolve a dispute over alleged smuggling that led to the seizure of Chinese goods at the city's Cherkizovsky Market last month.

On June 29, around 150 Chinese traders and a large quantity of goods were seized in a crackdown on smuggling at Cherkizovsky Market, Moscow's biggest wholesale market. It is estimated that over 60,000 Chinese firms were affected by the operation.

Xie Rongfang, secretary of the Wenzhou Shoe and Leather Making Industry Association, says the Cherkizovky incident is the 22nd time the Russian authorities have closed down Chinese commercial operations. She is demanding answers as to why Chinese traders being repeatedly targeted, and what lies behind the so-called "grey customs clearance" system that has existed in Russia for the past 20 years.

300,000-yuan stall written off

"The immigration bureau has deported over 100 Chinese. Policemen are searching Chinese traders everywhere. If you are caught, you have to pay 10,000 rubles or else they deport you; and the price is going up to 20,000 rubles in a few days," Xiao Le, a vendor from Fujian Province, told the Guangzhou Daily. Having a completely legal Russian visa doesn't help, he said.

"All our goods are in the market. Someone from my hometown paid out 300,000 yuan (US$43,918) on June 28 for a container to use as a stall. Then the market closed on June 29. He lost all his money," said Xiao Le.

Xie said angrily, "Wenzhou exports to over 150 countries, and it's only in Russia that we have these sorts of problems. The 'grey customs clearance' system exists because of corruption in Russia, but Chinese businessmen have been made the scapegoats for it and have been penalized. Why don't they clear out the customs officials?"

According to Xie, over 10,000 containers with goods worth up to US$2.1 billion have been seized. She said 80 to 90 percent were shipments of shoes and socks from Wenzhou.

Crack-down a blow to Russian oligarchs

"The rampant corruption in Russian customs department is the sticking point of the 'grey customs clearance'," said Su Fenglin, chief of the Russian Research Center of the Heilongjiang Academy of Social Sciences.

Russian police occasionally raid retail markets, confiscating goods from Chinese merchants on the grounds that they have no legal entry papers for the commodities.

The goods, however, enter the country through what is known as "grey customs clearance," a long-standing problem recognized by Russia's Customs Commission.

The practice involves intermediaries handling customs clearance for bulk commodities loaded in planes or containers trucks.

By paying so-called "customs clearance companies," the consignors of the goods avoid having to deal with Russian customs authorities directly. But crucially, neither do they receive any official customs declaration documents, Su said.

Statistics from Russia show that every year Russians buy 230 to 250 million pairs of shoes, of which around 150 million enter the country through the "grey customs clearance" system, which means only about 80 million pay taxes and are legal.

Su said, "Chinese businesses are attracted to Russian 'customs clearance companies' because they avoid language issues and simplify procedures."

"But some Chinese businessmen use the 'customs clearance companies' to avoid taxes and reduce costs. The 'companies' collude with corrupt customs officials to mark down the price and quantity or change the description of goods to gain an extra margin."

Xie disagrees, saying "Chinese businessmen spend more than it would cost to pay for clearance through the legal customs. The key point is that corrupt customs officials put obstacles in the way of legal customs clearance."

The Russians say "grey customs clearance" leads to heavy losses in tax revenues. They regard it as smuggling, pure and simple. Furthermore, many see the hand of Russian oligarch Telman Ismailov, a rival of Russian Prime Minister Vladimir Putin, behind the "grey customs clearance" system. Russian media have reported the crack-down as a blow to the high-flying Ismailov.

Searching for legal ways to trade

"It's the time to change the way Sino-Russian nongovernmental trade works. The two sides need to consult on how to put an end to the illegal 'customs clearance companies'," Su said.

A possible model is to designate special trading zones. Xie said that in 2006, a Chinese-funded economic and trade cooperation zone went into operation in the Russian city of Ussuriysk, which is near the border of Heilongjiang Province in northeast China.

The Ussuriysk Economic and Trade Cooperation Zone hosts a variety of manufacturing and processing industries, from shoes, clothing, and household appliances, to timber and automobiles.

Companies in the zone enjoy preferential tax policies and a range of legal and logistics services covering business registration, customs procedures, and visa applications.

Xie said after paying fees at the Sino-Russian border, containers of semi-finished articles are directly sent to the zone for final processing.

From April to June this year, 49 containers entered the Russian market through this legal channel. Although only a very small part of China's trade with Russia, it's a step in the right direction and points the way towards standardizing non-governmental bilateral trade and reducing business friction, said Xie.

On July 25, Chinese Vice Minister of Commerce Gao Hucheng traveled to Moscow for talks on the impact of the June 29 market closure. Afterwards, Gao said the two countries had agreed to handle the closure through amicable negotiations and will develop a joint plan to put an end to illegal activities, including "grey customs clearance."

(China.org.cn by Zhou Jing, July 29, 2009)