A "smug­gler hub" or hon­est work?

How have Rus­sian counter-sanc­tions im­pacted Be­laru­sian ex­ports and im­ports?

The Ukrainian Week - - CONTENTS - Syarhey Pul­sha, Minsk

How have Rus­sian counter-sanc­tions im­pacted Be­laru­sian ex­ports and im­ports?

When Rus­sia in­tro­duced counter-sanc­tions against the West, de­priv­ing its cit­i­zens of Euro­pean food, the Be­laru­sian Min­is­ter of Ru­ral In­dus­try, Leanid Zay­ats, called the de­ci­sion a "Klondike for Be­larus". It would be stupid not to take ad­van­tage of such a chance and al­most im­me­di­ately Rus­sians dis­cov­ered shrimp from the Repub­lic of Be­larus in their shops.

The im­port of sanc­tioned Norwegian salmon by Be­laru­sian pro­cess­ing com­pany Santa Bre­mor has jumped four­fold. Rus­sia started to talk about Be­laru­sian "con­tra­band" and called on Ros­selkhoz­nad­zor, its na­tional agri­cul­tural safety watch­dog, to fight with the phe­nom­e­non. But is this re­ally con­tra­band?

In fact, the prob­lem of smug­gling sanc­tioned prod­ucts through Be­larus is over-ex­ag­ger­ated and – be­lieve it or not – politi­cised. The vast ma­jor­ity of "Be­laru­sian prawns" and "Be­laru­sian ki­wis" in Rus­sia can­not be con­sid­ered il­le­gal prod­ucts. If only be­cause in that case no­body would in­di­cate Be­larus as the coun­try of ori­gin on the price tag. Who would give away their smug­gling schemes so eas­ily? In the struc­ture of Be­laru­sian ex­ports, Rus­sia ranks first for agri­cul­tural prod­ucts. And not at all those cov­ered by sanc­tions. In Jan­uary-Septem­ber last year, Rus­sia's share in the to­tal ex­port of Be­laru­sian agri­cul­tural prod­ucts was 90.4%. This is 4.4% less than in 2016, but was nev­er­the­less worth $1.7bn (again, for a ninemonth pe­riod) to Be­larus.

Ac­cord­ing to the Min­istry of Agri­cul­ture of the Rus­sian Fed­er­a­tion, the im­port of dairy prod­ucts such as cheese and cheese prod­ucts, pow­dered milk, but­ter and dry whey to Rus­sia is equiv­a­lent to 4.5 mil­lion tonnes of raw milk per year. The main sup­plier – of up to 70% of prod­ucts – is Be­larus. And all these prod­ucts are com­pletely le­gal.

It is clear that, like any rea­son­able peo­ple would, the Be­laru­sians de­cided to take ad­van­tage of the Rus­sian counter-sanc­tions. This means that it is al­most im­pos­si­ble to find do­mes­tic ap­ples on the shelves of Be­laru­sian shops, other than those of ques­tion­able qual­ity. The ap­ples in Be­larus are mainly from Poland and the Nether­lands.

Some time ago, shop­pers were sur­prised by some odd pric­ing: cheese im­ported from Lithua­nia be­came cheaper than its do­mes­tic equiv­a­lent. More re­cently, this colum­nist bought a typ­i­cally Be­laru­sian re­fresh­ment – Lid­sky kvass. And the drink un­ex­pect­edly turned out to have been pro­duced in Lithua­nia.

It is very easy to ex­plain these curve balls: Be­laru­sian com­pa­nies, tak­ing ad­van­tage of the Rus­sian counter-sanc­tions, are try­ing to cap­ture and re­tain a share in the Rus­sian mar­ket. They are in­creas­ing their ex­ports to the Rus­sian Fed­er­a­tion to the detri­ment of the do­mes­tic mar­ket. As a re­sult, there is a short­age of do­mes­tic prod­ucts on the Be­laru­sian mar­ket that has to be com­pen­sated by im­ports. The same im­ports that were hit by counter-sanc­tions in Rus­sia.

The pivot in shop­ping tourism is yet more ev­i­dence of the afore­men­tioned phe­nom­e­non. Pre­vi­ously, Be­laru­sians trav­elled to Bryansk and Smolensk to buy elec­tron­ics and home ap­pli­ances, which were cheaper in Rus­sia than in Be­larus. Now the Rus­sians come to Vitebsk and Mogilev, which are not too far away for them. More­over, while in 2011 they would buy Be­laru­sian milk, which was cheaper and bet­ter qual­ity than its Rus­sian equiv­a­lent, they are now in­ter­ested in Euro­pean salami, blue cheeses and other prod­ucts from EU coun­tries that are sub­ject to sanc­tions. Can this un­or­gan­ised shop­ping tourism be con­sid­ered smug­gling?

In the end, Rus­sian counter-sanc­tions pushed Be­laru­sian food pro­cess­ing com­pa­nies to se­ri­ously up­grade their fa­cil­i­ties and de­velop new types of prod­ucts. There have been re­ports in the press that the Be­laru­sians them­selves have started to pro­duce blue cheeses. But you will cer­tainly not see them on Be­laru­sian shop shelves – they are for ex­port and above all ex­port to Rus­sia.

Ques­tions also arise to­wards the "non-tra­di­tional" Be­laru­sian salmon, prawns, ki­wis and other ex­otic foods.

Can Norwegian salmon sud­denly turn out to be Be­laru­sian? In fact, it can and there is no con­tra­dic­tion to that, says Leanid Marinich, First Deputy Min­is­ter of Agri­cul­ture and Food. Fish pur­chased in Nor­way is pro­cessed and packed in Be­larus. Ac­cord­ing to the cur­rent rules of the Cus­toms Union that has been in force be­tween Rus­sia and Be­larus since 2010, such prod­ucts are as­signed a dif­fer­ent Trade Im­port and Ex­port Clas­si­fi­ca­tion (TRIEC) code and be­come Be­laru­sian goods.

"If the TRIEC prod­uct code changes, it then be­comes a do­mes­ti­cally pro­duced good and we have the full right to sell it in such a way. Ros­selkhoz­nad­zor has no com­plaints about this," said the deputy min­is­ter. In other words, "Be­laru­sian shrimps" have the right to ex­ist, if they were brought to Be­larus frozen and then cooked or pack­aged there.

In ad­di­tion, there are many goods that do not pro­voke such ques­tions and doubts, even though they re­ally should. For ex­am­ple,

"Be­laru­sian" dates from Iran or "Be­laru­sian" peanuts. What’s more, the coun­try of ori­gin is not even in­di­cated for the lat­ter. Mean­while, the only Be­laru­sian things in them are the roast­ing and pack­ag­ing. And maybe some salt.

You have to agree, if you have a counter-sanctioning neigh­bour next door with a huge mar­ket, it would be a sin not to make money from this. There­fore, Be­laru­sian com­pa­nies are ei­ther sur­ren­der­ing the do­mes­tic mar­ket in favour of an ex­ter­nal one or are tak­ing ad­van­tage of food pro­cess­ing op­por­tu­ni­ties. This is much bet­ter way to make money than in­vent­ing smug­gling schemes. Al­though they play a part too.

It would be wrong to say that there is no smug­gling of agri­cul­tural prod­ucts to Rus­sia through Be­larus at all. It ex­ists, but does not usu­ally make it into im­port-ex­port re­ports and is hard to dig up.

The Be­laru­sians are armed with an old method that they worked out and used on oil ship­ments quite a long time ago. In the early 2010s, this scheme made a splash when Rus­sian oil was ex­ported to the Euro­pean Union. Sol­vents and dilu­ents were not sub­ject to the oil ex­port duty that Be­larus was then sup­posed to re­turn to the Rus­sian bud­get, so oil was trans­ported to the EU un­der this guise. At the time, econ­o­mist Yaroslav Ro­manchuk sim­ply com­pared the sta­tis­tics: ac­cord­ing to Be­larus, "sol­vents and dilu­ents" were sup­plied to the Baltic states. How­ever, no such prod­ucts were men­tioned in the im­port re­ports of neigh­bour­ing coun­tries. But crude oil was, al­though Be­larus pur­port­edly did not ship any of it. Now the shoe is on the other foot.

Rus­sia in­tro­duced its counter-sanc­tions in 2014. In 2015, there was a sharp in­crease in Be­laru­sian im­ports of goods from African coun­tries – from $178 mil­lion in 2014 to $587 mil­lion in 2015. The main rea­son be­hind this growth in im­ports was the ap­pear­ance of prod­ucts with TRIEC codes 07 and 08 – fruit, veg­eta­bles and nuts. African coun­tries be­gan to de­liver peaches, cher­ries, ap­ples and pears to Be­larus, which pre­vi­ously had not been sup­plied at all or in min­i­mal amounts. And that is not the only strange thing about these ship­ments.

For ex­am­ple, ac­cord­ing to state sta­tis­tics ser­vice Bel­stat, Be­laru­sian im­ports of peaches and nec­tarines from Morocco in 2015 amounted to 48,500 tonnes for $64.5m, which is nine times more than sup­plies of these fruits from Morocco to all other coun­tries over the same pe­riod. In ad­di­tion, ac­cord­ing to UN Com­trade, there were no of­fi­cial de­liv­er­ies from Morocco to Be­larus at all!

The pric­ing of these im­ports was also rather odd. The peaches and nec­tarines were al­legedly "pur­chased" from Morocco at a price of $1331 per tonne and the same prod­ucts were ex­ported to Rus­sia for $191 per tonne. What sort of char­i­ta­ble busi­ness re-ex­ports goods for six times less than the pur­chase price?

It is clear that there were ac­tu­ally no de­liv­er­ies from Morocco. The in­flated "Moroc­can" prices for peaches and nec­tarines were sup­posed to mask the vol­ume of sup­plies from coun­tries that fell un­der Rus­sian counter-sanc­tions. On the other hand, the un­der­stated prices of sup­plies to Rus­sia were aimed at min­imis­ing tax pay­ments and as a re­sult con­ceal­ing the sanc­tioned pur­chases.

In 2016, Ros­selkhoz­nad­zor started to mon­i­tor sup­plies of fruit and veg­eta­bles more closely. In re­sponse, im­ports from Guinea, Ivory Coast, Cameroon, Liberia, Sierra Leone, Benin, Burk­ina Faso, Bu­rundi, Equa­to­rial Guinea and even So­ma­lia are de­clared in­stead of just Morocco, South Africa and Egypt. In­deed, un­til 2016 Be­larus did not im­port any­thing at all from Equa­to­rial Guinea, while its trade sur­plus with So­ma­lia, Guinea-Bis­sau and Benin did not ex­ceed a few thou­sand dol­lars.

In the first three months of 2017, Be­larus im­ported 64,800 tonnes of toma­toes. Most were from Turkey – 52,900 tonnes. Ac­cord­ing to the Na­tional Sta­tis­ti­cal Com­mit­tee, on the do­mes­tic mar­ket over the same three months Be­laru­sians bought 6220.3 tonnes of toma­toes in shops. Around the same amount again was prob­a­bly sold at mar­kets (Be­laru­sian sta­tis­tics do not take these sales into ac­count).

Dur­ing the three months, Be­larus ex­ported 10,200 tonnes of toma­toes – only to Rus­sia. State-owned food in­dus­try con­cern Bel­go­spis­che­p­rom re­ported that all of its com­pa­nies use only Be­laru­sian raw ma­te­ri­als, ex­cept for apri­cots and peaches. There­fore, the Turk­ish toma­toes could not have been pro­cessed.

Where did the other 42,000 tonnes of these Turk­ish toma­toes go?

An­other wide­spread smug­gling scheme utilises the ad­van­tages of the Cus­toms Union and Eurasian Eco­nomic Union. This is done quite sim­ply.

Let's sup­pose there is a truck with sanc­tioned Pol­ish ap­ples. Ac­cord­ing to the doc­u­ments, it is trav­el­ling from Be­larus to Kaza­khstan. Since it is in tran­sit, it can­not be turned around at the bor­der. How­ever, hav­ing ar­rived in Rus­sia, it goes miss­ing some­where in the coun­try’s vast ex­panses and never makes it to Kaza­khstan. And then it sud­denly re­turns to Be­larus, but now empty.

Hav­ing dis­cov­ered this scheme, Rus­sia tried to fight it by in­tro­duc­ing a ban on the tran­sit of Euro­pean food from Be­larus to coun­tries in Cen­tral and Western Asia. But it is very dif­fi­cult to com­bat this sort of smug­gling. Firstly, it is un­clear if the goods are go­ing to a re­spon­si­ble buyer or a fic­ti­tious one. Se­condly, such checks con­tra­dict the spirit and let­ter of agree­ments within the Cus­toms Union and the Eurasian Eco­nomic Union: ev­ery­thing that clears cus­toms in Be­larus should be able to travel to Kaza­khstan, Kyr­gyzs­tan or Ar­me­nia un­hin­dered. Thirdly, tran­sit through Rus­sia af­fects not only these "al­lies": Rus­sia bor­ders many other states, start­ing with Ge­or­gia and end­ing with China. Ac­cord­ingly, you can never guess what will "dis­ap­pear" in Rus­sia and when.

In Jan­uary-Septem­ber last year, Rus­sia's share in the to­tal ex­port of Be­laru­sian agri­cul­tural prod­ucts was 90.4%. This is 4.4% less than in 2016, but was nev­er­the­less worth $1.7bn to Be­larus

There­fore, Ros­selkhoz­nad­zor, re­al­is­ing how sanc­tioned prod­ucts can cross the bor­der, de­cided to roll out the big guns. In re­sponse to Be­laru­sian smug­gling, it finds fault with of­fi­cial Be­laru­sian sup­pli­ers, declar­ing their prod­ucts "not in line with san­i­tary stan­dards". Not a month goes by with­out news that some com­pa­nies have had ac­cess lim­ited to the Rus­sian mar­ket for their prod­ucts. Each month, equal and op­po­site news is also re­ported: "The vi­o­la­tion has been rec­ti­fied and per­mis­sion to de­liver to Rus­sia has been granted." For the most part, this ap­plies to meat and milk pro­cess­ing com­pa­nies.

The bar­ri­ers to en­try for rel­a­tively cheap and high-qual­ity Be­laru­sian prod­ucts on the Rus­sian food mar­ket look more than weird against the back­ground of Ros­selkhoz­nad­zor data that a third of dairy prod­ucts on Rus­sian shelves are fakes. For some re­gions and prod­ucts (cot­tage cheese, cheese and desserts), the pro­por­tion of coun­ter­feit goods reaches 60%. Ac­cord­ing to ex­ec­u­tive di­rec­tor of the Rus­sian As­so­ci­a­tion of Pro­ces­sors for Coun­ter­act­ing the Fal­si­fi­ca­tion of Dairy Prod­ucts, Alexan­der Brazhko, the pro­por­tion of coun­ter­feit prod­ucts among in­ex­pen­sive but­ter and cheese is as much as 90%.

So it is not com­pletely cor­rect to call Be­larus a "con­tra­band hub" for sanc­tioned prod­ucts on their way to Rus­sia. It is about 50/50. But this sta­ble equilib­rium will not last long.

The in­ter­na­tional fo­rum Eastern Europe: In Search of Se­cu­rity for All took place in Minsk at the end of May.

Dur­ing the dis­cus­sions on Rus­sian sanc­tions, ex­perts noted that the pol­icy of the Rus­sian Fed­er­a­tion could give im­pe­tus to the de­vel­op­ment of its own agri­cul­tural pro­duc­tion. In the medium term, Be­larus needs to pre­pare for this. The only ques­tion is how fast the agri­cul­tural de­vel­op­ment in Rus­sia will be.

In any case, this is a sig­nal: hon­est work is needed.

The smug­gling route. Many il­le­gal schemes for sup­ply­ing Euro­pean prod­ucts to Rus­sia are based on us­ing the rules of the Cus­toms Union

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