Business news from Ukraine

Ukraine sharply reduced exports of titanium-containing ores last year

Ukraine in 2023 reduced exports of titanium-containing ores and concentrate in physical terms by 96.4% compared to 2022 – to 11.648 thousand tons.

According to statistics released by the State Customs Service (SCS), in monetary terms, exports of titanium-containing ores and concentrate decreased by 85.1% to $19.426 million.

The main exports were to Turkey (38.21% of shipments in monetary terms), Japan (16.53%) and India (6.12%).

Ukraine imported 1 ton of such ore from the Netherlands for $2 ths.

As reported, Ukraine in 2022 reduced exports of titanium-containing ores and concentrate in physical terms by 41.8% year-on-year to 322.143 thousand tons, in monetary terms by 19.6% to $130.144 million. The main exports were to the Czech Republic (47.91% of shipments in monetary terms), the United States (11.94%) and Romania (9.75%).

Ukraine in 2022 imported 196 tons of similar products from Senegal (70.41%) and Turkey (29.59%) for $115 thousand.

In Ukraine, titanium-containing ores are currently mined mainly by United Mining and Chemical Company PJSC (UMCC), which has taken over Volnogorsk Mining and Metallurgical Combine (VGMK, Dnepropetrovsk region) and Irshansk Mining and Processing Combine (IGOK, Zhytomyr region), as well as by Mezhdurechensky GOK LLC and Valki-Ilmenit LLC (both located in Irshansk, Zhytomyr region). In addition, production and commercial firm “Velta” (Dnipro) built a mining and processing plant at Birzulovskoye deposit with the capacity of 240 thousand tons of ilmenite concentrate per year.

In addition, production and commercial firm “Velta” (Dnipro) built a mining and processing plant at Birzulovskoye deposit with a capacity of 240 thousand tons of ilmenite concentrate per year.

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State Customs Service issued 80 certificates for export of scrap metal to EU

In January-June of this year, the State Customs Service of Ukraine issued 80 certificates for the export of scrap metal to EU countries to enterprises dealing with ferrous scrap, according to the Ministry of Finance’s response to the letter of the Ukrainian Association of Secondary Metals (“UAVtormet”), dated July 23, 2022.
At the same time, the Ministry of Finance stated that the State Customs Service did not receive requests from subjects of foreign economic activity regarding problems in obtaining certificates.
In turn, “UAVtormet” sent a letter to the Ministry of Finance and the State Customs Service on June 20, 2022, a copy of which is in the possession of the “Interfax-Ukraine” agency, in which it pointed out the appeal of market participants regarding selectivity in the issuance of permits for export procedures, in particular, in the issuance of certificates for supply of scrap to the EU.
In the appeal of “UAVtormet” it was emphasized that the Ministry issued an order dated March 2, 2021 approving the procedure for issuing certificates. According to the Association, the procedure for obtaining a certificate is significantly complicated, it does not contain a complete list of necessary documents, and the procedure for a full or partial inspection of vehicles for product identification is used to delay the registration of export consignments.
UAVtormet believes that this creates corruption risks and causes financial losses to both the state and Ukrainian business.
The association asked the Ministry of Finance to hold an operational meeting on problematic issues in the export of scrap metal, with the involvement of experts from the ministry, the State Customs Service, the Chamber of Commerce and Industry, “UAVtormet” and “UAVtormetresurs”.
As reported, Ukrainian enterprises in January-June of this year reduced the export of ferrous metal scrap eightfold compared to the same period last year – to 28.74 thousand tons, in monetary terms, the export of scrap metal decreased by 6.8 times – to $12.24 million.
Scrap metal was exported in January-June 2022 mainly to Turkey (61.35%), Poland (12.49%) and Germany (9.45%).
In 2021, Ukraine increased the export of scrap metal by 17.2 times compared to the previous year – up to 615.69 thousand tons. In monetary terms, the export of scrap metal increased 25.2 times to $238.90 million.
Ukrainian Association of Secondary Metals (“UAVtormet”), Ukrainian Association of Scrap Metal Exporters (UAEM) and “Ukrainian Association of Secondary Metals and Resources” (“UAVtormetresurs”) operate in Ukraine.

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EXPORT OF GOODS FROM UKRAINE IN TONNES DOWN BY 44.5%, IMPORT BY 58.3% – STATE CUSTOMS SERVICE

In the first half of 2022, the State Customs Service allowed 56.9 million tonnes of goods (excluding pipeline transport) to be exported through the customs border of Ukraine, which is 44.5% less than in the first half of last year (101.1 million tonnes).
According to service’s website, the import of goods to Ukraine fell even more by 58.3%, to 17.8 million tonnes (from 42.7 million tonnes).
During the reporting period, pipelines moved 19.9 million tonnes, which is almost a third less than in the first half of 2021 (29.5 million tonnes).
The main reason for the drop in tonnage is the war and seaports blocked by Russia: the number of sea vessels allowed by the State Customs Service in January-June decreased by 64.3%, to 2,700 (from 7,600).
According to the ministry, the number of railway cars passed through the customs border of Ukraine in the first half of 2022 amounted to 800,300, which is 32% less than in the first half of 2021.
At the same time, the number of river vessels increased by 54.4%, from 6,800 to 10,500, and vehicles – by 9.8%, to 3.635 million.
The number of registered vehicles for import in the first half of the year amounted to 2.2 million, for export – 2.3 million, which almost corresponds to last year’s figures – 2.3 million each.
The State Customs Service also noted that the monetary turnover in the first half of 2022 decreased by 21%, to $48.03 billion, including exports by 24%, to $22.73 billion, and imports by 19%, to $25.3 billion.
At the same time, trade with the EU increased by 1%, to UAH 25.06 billion, including exports by 13%, to $13.41 billion, while imports decreased by 10%, to $11.65 billion.

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CUSTOMS HEAD: STATE CUSTOMS CONSIDERS IT NECESSARY TO REVISE 2 CRITERIA FOR OBTAINING AEO STATUS

The State Customs Service considers it necessary to revise the coefficients according to two criteria for enterprises-candidates for obtaining the status of an Authorized Economic Operator (AEO), Head of the State Customs Service of Ukraine Pavlo Riabikin has said.
“Today, from our experience, we see that there is a need to revise the coefficients for candidate enterprises in two positions – liquidity and solvency. They can be revised by a government decision without touching the legislation,” he said in an exclusive interview with Interfax-Ukraine.
The head of the State Customs Service added that this issue does not lie in the political plane.
“This is an objective necessity dictated by our financial and economic realities,” Riabikin said.
The AEO status provides the company with significant advantages and simplifications in its work. In particular, the implementation of customs formalities as a matter of priority (for example, an extraordinary registration of customs declarations), a simplified declaration procedure by the customs authority, the use of a specially defined traffic lane at a checkpoint, etc.
“So far, the AEO authorization has been granted to one enterprise [JTI Ukraine]. In total, five applications have been submitted, two applications are at the stage of preliminary consideration, two enterprises have been denied the assessment,” Riabikin said.

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HEAD OF UKRAINIAN CUSTOMS: WE HAVE NOT USED POLYGRAPHS YET, BUT I THINK WE WILL SOON USE

Interview of the Head of the State Customs Service of Ukraine Pavlo Ryabikin to the Interfax-Ukraine agency

Authors: Dmytro Koshovyi, Hanna Rodichkina

– Until now, only one company has got the status of an authorized economic operator (AEO) due to rather high requirements. Does it exist a political will to facilitate access to such an instrument?

– AEO status is a some kind of a “customs quality mark” for an enterprise. It is recognized as a reliable and trustworthy subject of foreign economic activity and a partner of the State Customs Service and receives significant advantages and simplifications. In particular, the fulfillment of customs formalities as a matter of priority (for example, an extraordinary registration of customs declarations), a simplified declaration procedure by the customs authority, the use of a specially defined traffic lane at a checkpoint, etc.

So far, AEO authorization has been granted to one enterprise (“JTI Ukraine” – IF). In total, five applications were submitted, two applications are at the stage of preliminary consideration, two enterprises were denied to conduct an assessment.

Without a doubt, the requirements for AEO are high. But in general they are the same as in the European Union. Today Ukraine is synchronizing the legislative framework with the EU. This is the way to establish effective relations between domestic and European enterprises. AEO is also an important link between Ukrainian and European business.

When the AEO institute was introduced in Ukraine in 2019, we tried to adapt European norms to Ukrainian realities. The legislator gave the State Customs Service three years to gain experience and make the necessary adjustments.

Today, on the basis of the experience, we see that there is a need to revise the coefficients for the candidate enterprises in two positions – “liquidity” and “solvency”. Such a revision can be carried out by a decision of the government without touching the legislation. Therefore, it is not a matter of politics and political will. This is an objective necessity driven by our financial and economic realities.

In Europe, after the introduction of the AEO institute, the business was also in no hurry at first. The new always scares, the inertia of thinking works. In Ukraine, this is also combined with business’s distrust of customs service. And today the primary task for us is to establish open and partnership relations with the business community. Then it will be easier to explain the advantages of AEO status to entrepreneurs.

– When can the collision regarding the customs regime of inward processing and currency regulation be took off? Who should solve it and what is the role of customs service in this?

– First, what is the ” customs regime of inward processing “. This is a favorable regime for external investors, which allows importing raw materials into the country without paying taxes, producing finished products and selling them for export.

The customs regime of inward processing helps to attract investments, introduce high technologies, produce products with high added value, which means high-quality development of the economy. After all, the modernization of fixed assets, better use of labor and industrial resources are stimulated.

The benefits of the customs regime of inward processing are evidenced, in particular, by the experience of China, which has widely and successfully used and uses this option. And today, thanks to this, he managed to move from “using” other people’s technologies to a qualitatively new stage – the development of his own technologies.

Obviously, you mean by collision with currency regulation what the media wrote about. I will quote an expert from the American Chamber of Commerce: “The application of the customs regime of inward processing on the basis of purchase and sale agreements is impeded by the imperfect norms of the bylaws of the National Bank, developed back in the 90s. They are outdated and do not comply with the Customs Code.”

In Ukraine, in September 2018, amendments to the Customs Code were adopted, which provided for the possibility of placing goods under the customs regime of inward processing, regardless of the type of contract and forms of payment. Today 355 enterprises process foreign raw materials in this regime on the customs territory of Ukraine.

Let me remind you: in Ukraine, the subjects of foreign exchange control are the National Bank and the Tax Service. Customs service performs a semi-technical function in this story. We participate in currency control only in terms of transmitting information from customs declarations to the National Bank in accordance with a special instruction of the regulator.

Moreover, we transmit it in a limited amount, according to 4 columns out of 54 available in the document. Now, in certain circles, they are discussing the possibility of transferring the function of currency control of the customs regime of inward processing to the State Customs Committee. But this idea seems unrealistic to me, since it is not part of the customs functionality. In addition, we have neither the appropriate specialists nor the technical capabilities.

But in order to improve interaction with the National Bank and help the regulator in currency control, in my opinion, it would be possible to consider expanding the volume of information that is transmitted from us to the National Bank.

– Business from time to time announces cargo delays under the pretext of overstating the customs value. Are you monitoring possible abuse?

– Indeed, complaints related to the customs value are regularly received by the State Customs Service. And there are cases when, unfortunately, we have to state the lack of competence of customs officials.

But more often we do not always have high-quality work of customs brokers who are responsible for the correct filling of the customs declaration and the submission of all the necessary documents.

However, let’s take a deeper look at how justified such claims to customs are. To begin with, what is “customs value”? This is the tax base, that is the amount from which customs payments are calculated as a percentage. Accordingly, the easiest and most affordable way to minimize taxes is to reduce the tax base. In our case, the customs value. With all the consequences for the state budget.

The norms of international conventions, as well as national legislation, state that the main method for determining the customs value is at the contract price for imported goods. So, this is the cost of goods indicated in the foreign economic contract. And here we are not talking about either overstating or understating the customs value.

In 2021, 91% of goods imported to Ukraine were formalized according to the main method, at the contract price. Again, without overpricing or understating. Only 9% of imports were processed using secondary methods of determining the customs value. Thus, compared to 2020, the number of adjustments to the customs value declared by the declarants, which was 12%, decreased by 3%. And this dynamics testifies to the fact that the customs service meets the importers halfway and corrects the customs value less and less.

By the way, business ombudsman Marcin Svenchitsky recently emphasized: over the six years of the existence of the Council of Business Ombudsman, almost 9 thousand business complaints have been received, and of these, customs issues do not exceed 4%.

The figures show: we should talk not so much about unreasonable delays (during customs registration – IF), but about the work of customs officials in the direction of ensuring the completeness of taxation. This is the function and responsibility of the customs authorities. It is also a component of filling the state budget and protecting national producers from non-transparent competition.

Another very effective form of control over the accuracy of the declared customs value is the exchange of information with customs and other authorized bodies of foreign states. We send requests to verify the authenticity of documents that were provided for customs registration.

According to the results of processing the replies received to the State Customs Service requests for the period from January to August-2021: 40.7% of them contain data on the non-confirmation of the information declared by the declarants. Out of 120 such answers in 53.4% ​​of cases, this is an unambiguous establishment of discrepancies. 46.4% of the answers contain differences in the terms of delivery (that is, the non-inclusion of such a component as transport costs in a certain customs value of goods) or the lack of an opportunity to unambiguously identify the data received with the information declared for customs clearance. And this testifies to the possibility of providing counterfeit documents for customs registration.

One of the many specific examples based on the results of a request to the seller (party to the contract): an answer was received that the information on the price per unit of “natural gas” was not confirmed. The total cost of imported goods, issued only for six customs declarations, is understated by EUR 1.4 thousand. As a result of such manipulations, the state budget of Ukraine could receive less payments in the amount of UAH 9.581 million.

And this is the answer to your question, do we monitor abuses in determining the customs value.

– How many employees of the State Customs Service who did not pass the test returned to their positions (for example, through court decisions)?

– In the perception of society and some media, there is a certain radical myth: the customs officer did not pass the test – and he was immediately kicked out. But labor legislation protects the rights of civil servants and dictates a different algorithm of actions.

Testing is our experiment in personnel reloading of customs, and it is designed for a year. From April 20 to May 29, we conducted the first wave of testing, which covered 94% of the employees of the State Customs Service. All employees were transferred to the new structure, a single legal entity, even those who showed low results on testing. But some were demoted, and those who had problems with integrity were transferred to positions not related to customs control and corruption risks.

The staff members were transferred to a contract form of work with a probation period of 6 months.

From September 15 to September 27, the second wave of testing was carried out – a second one for those who did not pass the first one. But already, following its results, the management of the State Customs Service will have the right (not an obligation!) to fire an employee. As well as those who passed the tests, but did not pass the six-month probationary period.

At the moment, there have been no cases of judicial appeal of the test results. There is the first case of termination of the contract – due to employee integrity problems. And in the future we will get rid of those who are caught in corrupt practices.

So far we have not used polygraphs, but there are already two devices and operators (thanks to the US Embassy and our partners NABU). And I think we will use them soon.

– What is the situation with the development of the new IT system of the customs? How will it look like – are these new modules integrated into “Inspector-2006”, or a completely new system?

– The development of a new IT system for customs was conceived as a revolution. But in complex, multifactorial and already operating systems, revolutions are hardly possible. Rather, it is about a gradual transformation.

In addition, you need to think about what will happen “after the revolution.” In particular, if you install super-modern, “fashionable” software, you need to imagine how much it will cost to maintain it. And where to get these big funds.

The IT revolutionary team set itself a tight deadline and established itself ambitious goals for developing a completely new system. As a result, they did not meet the deadlines, they were repeatedly postponed. Today they are working in another body, and the State Customs Service is completing an audit of what has been done, which will give us a complete picture of the state of affairs.

For me personally, this direction is a priority. It is here that the key to minimizing the human factor at customs and reducing the level of corruption is found.

Everyone, both the management of customs, the government, and international partners are well aware that the IT reform area is among the key ones. Automation and digitalization is a tool for introducing new customs simplifications, saving time and effort for both customs officers and customers.

Therefore, work on the transformation of the customs IT system continues. And the question is not that you need to “demolish” the old system and install a new one. The transformation will involve both the use of the existing system and the development and implementation of new processes. But we will not waste time. We cannot afford it.

The new system does not completely eliminate the old one. And it is inappropriate to talk about which system will be integrated into, the old one into the new – or vice versa. During the transitional period of development and implementation of a new IT system, IT specialists will use data from both the old and the new systems in their work.

– How would you comment on the information that the entire customs system of Ukraine is completely controlled by one person – Oleksandr Ivashkovich, the head of the IT department, who is blocking integration with the new system?

– Oleksandr Ivashkovich is the main developer of the current IT system and has the most complete amount of information about it. However, this is a conspiracy myth that emerged during the confrontation and verbal battles between two customs IT teams.

In fact, the system includes in aggregate a program code, a database, and networks, without which workers will not have access to anything. And different people are responsible for them. And the software product is both locally and in the central office. Therefore, one person cannot have full access to all components of the system.

Even theoretically, it is impossible to imagine a situation when “all buttons are in the same hands”. In practice, there is no system blocking. For example, without access to data, we simply would not have business intelligence on the site. And she is. Another example: on the site data.gov.ua depersonalized data of customs declarations are presented and this service can be freely used.

– When can you expect NCTS to be internationally deployed? What is needed for this?

– The introduction of the NCTS system is a very important area of ​​the customs reform. It allows the member states of the Convention on the Common Transit Procedure to exchange customs data in real time and to control goods at every stage of transportation. This will save a lot of time and efforts for both subjects of foreign economic activity and customs officials, and will improve the fight against fraud with accompanying documents.

At the same time, the movement of goods in the regime of joint transit provides guarantee for a mandatory. Financial guarantees can be issued by companies that have received the status of a financial guarantor. To submit an NCTS transit declaration, a company needs to register in the Personal Account on the “Single Window for International Trade” portal.

NCTS is still used in Ukraine on a national scale. At the end of the second quarter of 2022, Ukraine is expected to join the Convention on the General Transit Procedure. This will open up the possibility of international application for NCTS. Already in the third quarter of next year, Ukrainian enterprises will be able to transit with 35 countries on the principle of “one vehicle – one transit declaration – one financial guarantee.”

Enterprises that now use NCTS and have submitted 50 or more declarations can already submit documents to the State Customs Service for simplifications, which will also be valid for the international application of the NCTS system.

– How would you comment on the thesis of one of the parliamentarians and some experts that the overfulfillment by several percent of the plan of monetary proceeds by the customs service does not correlate with the volume of imports of consumer goods and general imports, and that this is evidence that there is still smuggling?

– Statistical indicators contradict this thesis. The indicative rate for January-August 2021 is UAH 271 billion. In fact, UAH 291 billion was transferred to the budget, the indicative was fulfilled by 107%, the overfulfillment was UAH 19 billion.

Compared to January-August 2020, receipts increased by 36% or by UAH 76 billion.

Meanwhile, the growth rate of imports by weight (in tons) amounted to 10%, and in terms of value (in dollars) – 31% (from $ 30.4 billion to $ 39.8 billion). And these indicators are quite correlated with the growth rates of customs payments compared to the same period of last year in US dollars – by 30% (from $ 8.134 billion to $ 10.543 billion).

Let me emphasize: the indicators of all types of customs payments, without exception, have grown: import and export duties, and excise, and VAT, and other payments. And, as the figures show, the overfulfillment of the indicative rates (by the way, they were raised by several billions per month for us) by 7% was not the result of an increase in the number of imports, but the quality of the work of customs and customs officers.

It is not so much about an increase in the volume of imports of goods, but, first of all, about a set of organizational measures. This is the provision of personnel selection and the transition to a contract form of work, the beginning of the functioning of the State Customs Service in the format of a single legal entity, improving the quality of customs formalities and customs clearance, as well as the implementation of national legislation to the norms of the EU Customs Code and international customs conventions. And of course, counteraction to customs offenses and the fight against smuggling.

Therefore, these accusations of “underoverfulfillment” of the plan of customs payments to the budget are not correct and are rather political in their nature.

– Due to what categories of goods was the increase in customs payments ensured?

– The main budget-forming goods in January-August 2021 were: oil products – UAH 53 billion; cars – UAH 34 billion, oil gases – UAH 15 billion, coal – UAH 7 billion, telephones – UAH 4.2 billion, insecticides, fungicides, herbicides – UAH 4 billion, mineral fertilizers – UAH 3.7 billion.

And the number of goods due to which there was an increase in customs payments included: cars – UAH 34 billion – an increase of UAH 11 billion or 49% compared to the same period last year, oil products – UAH 53 billion, which is UAH 11 billion or 27% more, oil gases – UAH 15 billion, which is UAH 6 billion or 61% more, oil coke – UAH 2 billion, which is UAH 1 billion or 15.5% more, tractors – 3 billion, which 1 billion or 63% more than last year.

– And for what items was there a decrease in payments?

– The decrease in customs payments was due to a decrease in the volume of imports when importing such types of goods: electricity – 416 million UAH (this is 319 million UAH or 43% less than in the same period last year), parts for equipment – 367 million UAH (by UAH 159 million or 30% less), pile canvases – UAH 99 million (UAH 148 million or 60% less), tomatoes – UAH 415 million (a decrease of UAH 134 million or 25%), corn – 356 million UAH (by UAH 111 million or by 24%).

What negatively affects the state of receipts of customs payments? Among these, I would single out the following. First, there is a discrepancy between the actual exchange rate and the “forecast” one: the result is a shortfall of UAH 14.8 billion. The Law of Ukraine “On the State Budget for 2021” sets the summer average US dollar exchange rate at the level of UAH 29.1 / $. In fact, the average US dollar exchange rate was UAH 27.57 / $.

Secondly, the establishment of additional benefits for goods necessary to overcome COVID-19 played a role. The rate of privileges on customs payments amounted to UAH 1.8 billion.

The third factor is the fulfillment of Ukraine’s international obligations in terms of the next reduction in import duty rates within the framework of free trade agreements concluded by Ukraine with the EU, EFTA, CIS, Canada, Macedonia, Montenegro, Britain, Georgia, Israel.

Also it was influenced by restrictive measures in trade between Ukraine and the Russian Federation and other factors.

– What reserves do you see for a further increase in customs payments?

– To increase the number of payments, first of all, qualitative changes in the work of customs are required. The main reserves include, first of all, measures to automate customs control and customs clearance procedures, the use of scanners, “Rapiscans”, weighing complexes, modern technical means of customs control for the identification of goods transported across the customs border of Ukraine.

Another reserve is the provision of the State Customs Service with the status of a law enforcement body, the right to operational-search activities and pre-trial investigation, as well as the digitalization of customs clearance processes, the development of modern information products and their effective application.

But a qualitative improvement in the work of customs officers can be achieved only through material incentives. Therefore, among the main priorities of the management of the State Customs Service is the formation of a special fund of the State Budget and an increase on this basis of remuneration for labor.

– In this regard, the last (but not in importance) question: how do you assess the draft state budget for 2022 as applied to the needs of customs?

– The question of the budget for customs remains acute. We have developed a plan for reforming the State Customs Service, designed for three years and containing fundamental changes in the following areas: firstly, personnel reform, secondly, the introduction of new IT technologies, thirdly, infrastructure provision of a new quality of checkpoints, and finally – changes in legislation (in particular, the criminalization of commodity smuggling, granting the State Customs Service the right to operational-search activities and preliminary investigation) and the introduction of new customs simplifications that are close to European practice (AEO, NCTS, etc.).

The first three points require additional funding.

Today we have created very severe personnel control system. But for balance, it is necessary to create a system of material incentives and remuneration, which would make it possible to interest qualified and decent workers. An honest employee is unlikely to agree to a difficult, exhausting job for less than 11 thousand hryvnyas, which the inspector receives in his hands today.

Therefore, I consider it necessary to increase the salaries of customs officers and, accordingly, increase the salary fund at least twice.

IT and infrastructure are in need of a major overhaul. We have developed an action plan to equip and bring priority checkpoints to modern standards. The estimate for the implementation of this plan provides for the need for more than UAH 3.9 billion, and only UAH 1 billion has been allocated to the customs.

We presented our calculations, which show that through the implementation of the reform plan of the State Customs Service in all its aspects, we will receive in three years, provided that the turnover base is maintained, an increase in customs payments of UAH 100 billion.

Therefore, I believe that the draft budget-2022 requires an increase in the expenditure side to implement the tasks set for the customs service.

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