Facilitating Russia-EU Cross-Border Trade through Customs Modernization

Challenge

The CDP aimed to address two major development challenges to facilitate Russia’s economic recovery and accelerate growth in its cross-border trade, namely the need to: (a) reorient customs from a controlling national security-focused organization to a trade-facilitating, responsive public service agency comparable to its international peers, with business practices aligned with international norms (e.g., the World Customs Organization’s Kyoto Convention and World Trade Organization agreements) and (b) mobilize revenues for the federal budget to support Russia’s recovery from the 1998 financial crisis and finance basic public services. 

Solution

The World Bank’s approach to the development and institutional reform challenges of Russia’s customs administration focused on a mix of finance, knowledge and hands-on technical assistance. Access to World Bank and other international expertise on customs and institutional reform, including e-services and trade facilitation, helped Russian counterparts identify, adapt and apply appropriate international practices related to business processes, organizational restructuring, personnel policies, anti-corruption measures, user feedback and performance management. A Finnish World Bank–managed Trust Fund financed technical assistance to pilot and later mainstream “green channels” (when there is nothing to declare) and reduce reliance on physical inspections. The World Bank also facilitated knowledge transfer to the Russian customs managers and staff by sharing good practice examples and the experience of European Union (EU) and Asian countries on information technology (IT), risk assessment, user surveys for client feedback and results reporting. 

Results

The CDP contributed to increased client trust in customs services by promoting greater equity, efficiency, predictability, and transparency in implementing customs laws and regulations. Project-financed user surveys demonstrated improved stakeholder perceptions of service quality, complaint responsiveness and administrative integrity, with positive responses rising from 70 percent in 2010 to 93 percent in 2012.

The number of import declarations selected for physical inspection at nine designated sites on Russia’s northwest border declined from 30 to less than 5 percent between January 2003 and January 2014. Over the same period, the number of non-energy export declarations selected for physical inspection at these nine sites decreased from 15 to 3 percent.

The average customs clearance time at the nine border sites declined from 45 to less than 18 minutes (a 60 percent reduction) between January 2003 and January 2014, and the time between the lodging of a customs declaration to the issue of a release note at the designated sites was reduced from 40 to 6.5 hours (an 83 percent reduction).

The compliance gap measured as the difference between imports from and exports to the EU divided by imports from the EU (reported by EU) also declined from 40 to 16 percent (a 24 percent reduction) in this time frame. 

Bank Group Contribution

The project was financed by an International Bank for Reconstruction and Development (IBRD) loan of US$140 million.

Partners

Partnership with the World Customs Organization continued throughout the CDP. The project facilitated the Russian Federation’s entry into the World Trade Organization and a partnership with Finland (on behalf of the EU, as Finland was then the only EU member state sharing a common border with Russia) to modernize Russian customs procedures and administration. A US$0.7 million Bank-administered Trust Fund was established by Finland to support customs modernization. The World Bank also facilitated partnerships between Russian customs agents and their counterparts in India, South Korea and other countries on risk assessment and IT-enabled services.

Moving Forward

Russia’s customs administration is now integrating legal changes into its operations, including enhancements to project-supported information systems. Project-established institutional capacity gains provide the basis for pursuing long-term strategic goals, including the 2020 Customs Strategy, adopted in 2012, which comprises nine initiatives that build directly on project activities: customs regulations, effective implementation of fiscal functions, customs infrastructure, IT support, law enforcement and anti-corruption, international cooperation, institutional development, human resources, and social development. Project gains are likely to be sustained, and follow-on support to expand IT-enabled services and strengthen integrity is currently being explored by the World Bank and Russian customs teams.

Beneficiaries

Customs clients from Russia and its trading partners have benefited from the CDP, for example, through reduced compliance costs, a lower burden of formal and informal payments, a greater predictability of the application of laws, and fewer inconsistencies between different laws and regulations, all resulting in higher compliance rates. Two stakeholder surveys commissioned by the Federal Customs Service in 2006 and 2009 revealed the positive impact of reforms: in 2009, 61 percent of respondents stated that modernization had simplified procedures, up from 50 percent in 2006.