Odessa Customs Post – What is the Actual Issue?

In today’s post, I am asking a question to which I do not know the answer.  But I think it is important to at least ask this question, and try to figure it out.

Was Saakashvili simply bewitched by these big blue eyes?

By now everybody has probably heard of Poroshenko’s appointment to the post of Head of Odessa Customs Office.  This occurred just yesterday.  Out of 70 applicants for the job, the winner is the young (and very attractive) woman Julia Marushevska.  She is the “It Girl”, the “I am a Ukrainian girl” girl, formerly hired by Odessa Governor Mikheil Saakashvili to work under him as his personal advisor.  [no snickers intended].  Everybody is talking about this girl and her qualifications, or lack of qualifications, for the job.  And everybody is laughing, and making (probably accurate) insinuations about Julia’s relationship with Saakashvili.

Leaving Julia alone for now, I want to focus, rather, on the actual issue involved here.  So basically, “what up” with Odessa customs office?  What’s the problem, in other words?  Even in the most corrupt system on the planet, there are still actual issues, and legitimate problems which need to be solved, and I for one would like to know what is going on here.  My research indicates that there are two sides to this story:  One one side, Saakashvili; and on other side, Yats and a guy named Roman Nasirov.  I myself don’t take sides, because I don’t know anything about economics, or customs fees.

Odessa Customs Office

In Russian language, the controlling agency is called Государственная фискальная служба (ГФС) (“State Fiscal Service”).  I’ll abbreviate it SFS.  The Ukrainian customs office falls under this SFS agency.  SFS is headed by a man named Roman Nasirov.  The link shows Nasirov’s extensive work experience in the arena of taxes, tariffs and customs (i.e., revenue generation for the state).  Within Ukrainian customs arena in general, the Odessa port is a HUGE money-maker.  Technically, Nasirov was supposed to appoint his person as Head of Odessa Customs.  But, reading between the lines, it seems like Saakashvili pulled a power play over Nasirov, and got his own candidate (=Julia) appointed to this golden-goose of a job.

Here is the chronology:

  • At the beginning of June, not long after taking the job as Odessa Governor, Saakashvili announced a competitive selection for the job of Head of Odessa Port.  When making this announcement, Saakashvili declared that the Customs Office was hopelessly corrupt.  He asserted that Odessa was losing approximately one billion dollars annually, due to corruption and incompetence.
  • SFS announced the job opening (for Odessa Port) a couple of months later, on 27 August.
  • By 18 September we learn that Julia has applied for the job.

Roman Nasirov, victim of office politics?

  • On 29 September, Saakashvili launched a political attack against  (Prime Minister) Yatsenuk, writing the following in his Facebook:

“A new wave of corruption, under the guise of reform.  Once again, the SFS is attempting to carry out a pseudo-reform, instead of establishing fair rules of the game, and this even further worsens the conditions for business.  Having ignored the hopes which importers had, for fair customs fees (цены растаможивания), the Prime Minister [Yatsenuk] signed a decree #724, according to which, all goods must now begin to pay fees, not according to the (factual) customs codex, but rather according to a previously set (by SFS) price.”

Facebook Fighting Match:  Saakashvili vs. Nasirov

Saakashvili continues:  “If, for example, an importer purchased details for his machine-building factory according to a real and transparent contract, for $100K but the Customs Office does not consider him to be ‘one of us’, and in SFS these details cost $500K then the importer will simply be faced with these facts.”

Brioni suits are very classy.

Saakashvili’s allegations were rejected by Nasirov, who appears to be aligned with Yatsenuk in this particular cat-fight.  Nasirov retorted to Saakashvili as follows, on 1 October, in his own Facebook page  “I read your cri du coeur about ‘fair prices at customs’, and in this regard I have a question for you:  What is your actual goal here?  Are you proposing absolutely equal prices on the whole territory of Ukraine?  Because if you sincerely want to help business and fight against corruption at the customs office, then you need to know this:  large shipments of Brioni suits are assessed at $5/kg.  And are sold for $3000.  And aluminum radiators are assessed at a lower price than the cost of aluminum on the market.  Perhaps we should conduct an open session of the Cabinet of Ministers and find the optimal solution for this problem.  If we are to be subject to your emotions, then we will never find a way to build an Autobahn into Odessa.”  Nasirov continued his phillipic in this angry tone:  “Or are you [Saakashvili] just trolling this decision of the Cabinet of Ministers, in order to appoint some other Gruzian, or possibly another one of your ‘Deputy Governors’, to the post of Odessa Customs?”

Well, Nasirov was wrong about one thing:  It wasn’t a Gruzian who got the job.  It was a Ukrainian girl.  Even more, it was THE Ukrainian girl!

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4 Responses to Odessa Customs Post – What is the Actual Issue?

  1. Jen says:

    Well you’d like to know what this new fees regime (that Saakashvili is complaining about) is and what it involves. Just because Yatseniuk signed it doesn’t mean it’s inherently corrupt. He signed it because he’s the Prime Minister.

    Some items on the new regime might be subject to higher fees because among other things their importation might hurt local producers of the same or similar items. Some items might attract a luxury goods tax because, well, they’re luxury goods that most people in Ukraine can’t afford. Again, the importation of luxury items might hurt local producers who would produce similar items of similar quality but without the reputation that buyers of luxury goods look for so they can look good among their friends for purchasing such things.

    If Dutch or Swiss cheeses were to retail at the same price as locally made Ukrainian cheeses but the Ukrainian cheeses don’t have the same aura of prestige and exoticism as the foreign cheeses do, guess which will be bought and guess which will be neglected and whose makers either go out of business or have to do something else with their milk?

    Also if aluminium radiators are assessed at a lower price than aluminium itself, that has more to do with the particular context in which mining for raw materials like aluminium takes place. There has to be ongoing demand that justifies surveying and exploring areas where the metal might be found, then investors must be found to fund the exploration projects and mining. Risk (incorporating a high probability of failure) is involved and that eventually percolates down into the prices to be paid for raw aluminium.

    Manufacturers of the radiators exporting to Ukraine can expect a ready market because people always need to keep warm at home over winter. In classical economics jargon, the demand for aluminium radiators is inelastic (doesn’t change much over time) but demand for raw aluminium to some extent could be elastic (changes a lot over time).

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    • yalensis says:

      Dear Jen:
      Thanks for this analysis. I still don’t know what Nasirov was trying to get at, when he brought up the issue of the Brioni suits and the aluminum radiators. Probably he was speaking in Aesopian language, or just making a point that Saakashvili is a total dope who doesn’t know squat about how to set up fees.
      I don’t know either, which is why I don’t know which cat to back in this cat-fight: Should I take Nasirov’s side? Or should I take Saakashvili’s side, in this purely technical issue?
      I guess it must be the programmer in me, but I actually want to SOLVE this problem of customs fees at the Odessa port. I just don’t have the background or intellectual tools to do it!

      Oh, and Saak is, as usual, the bull in the China shop. Just barging in, knocking down every priceless Ming vase in sight, making broad allegations of criminal corruption (which may or may not be true), and then doubly humiliating experienced men like Nasirov, by parading his unqualified harem past Nasirov’s face. Although, in this case, Nasirov as Head of the State Fiscal Service will technically be Julia’s boss, as SFS is over Customs. But, again, I have a hunch that the Odessa port is its own fiefdom, where Julia will be able to thumb her nose at her boss and hide behind Saakashvili’s skirts.

      Look forward to some delicious office politics, and all conducted openly, on Facebook!

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      • yalensis says:

        P.S. – and when it comes to Office Politics, everybody should know how to follow the rules of etiquette:

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      • Jen says:

        In this case, you don’t really know whose side to take because you need to have more information about the customs regime in Odessa, how the code of customs, taxes and tariffs operates there, and whether the bureaucracy that administers the code already works efficiently or not. I would hazard that Nasirov knows what he’s talking about, that there are good reasons why importing raw aluminium might attract a higher tariff than importing finished aluminium-based product, why Brioni suits are taxed differently from other items of men’s clothing and why generally the customs code is designed the way it is. Quite often the code has to serve other aims other than just purely economic ones like stopping dumping that would wreck local industries and put producers and suppliers out of business, or protecting baby industries against established overseas competitors that would prevent Ukraine from achieving certain economic goals.

        As a nation relying on primary industries like agriculture and mining, Ukraine probably can’t afford to import items that would bring exotic plant and animal diseases that could ruin its agricultural sector. Customs officials are often the front-line people who have to enforce any bans against the importation of certain plant or animal-based products.

        In addition to its own particular economic requirements, Ukraine also is a member of the World Trade Organisation and must abide by WTO rules relating to customs and tariffs. Also the EU-Ukraine Association Agreement binds Ukraine to another set of rules governing customs, taxes and tariffs.

        Here is a link to import and export requirements and a list of rules governing Ukrainian customs duties – note that it mentions a schedule, the Ukrainian Classification of Foreign Economic Activities, as the basis for the customs tariffs:
        http://www.ukraine-arabia.ae/investment/regimes/

        Then again, the current code could be too complex (because it has to comply with rules set by the WTO and the EU) and Saakashvili may be right in saying that it needs to be fairer and less complex. That still doesn’t excuse him from hiring his latest bit of fluff as chief customs official in Odessa port.

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