A “Smuggler Hub” or Honest Work?

21 July 2018, 15:27

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?


"It's not my fault!"


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 nine-month 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.

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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.


What should be seen as contraband?


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.


Smuggling? Yes!


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?


How to Lose an Articulated Lorry


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.


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.

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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%.


Foggy but Real Prospects


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.

Translated by Jonathan Reilly

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