Ukraine has been going through ambitious structural reforms aimed to strengthen its democratic institutions and human rights protection, impose rule of law, and develop modern market-oriented economy. Customs reform is among key reforms in Ukrainian policy agenda in 2019.

This is a very complicated reform; it affects different interests, which are sometimes controversial even among the representatives of the same group or stratum of society. Nevertheless, this time there is every reason to talk about success, because civil society, which traditionally is the engine of successful change in the country, will be involved in the case.

After years of unsuccessful attempts to reform customs, in 2019 Ukraine has another chance to “re-launch” customs. Implementation of customs reform is among the requirements of the IMF, necessity to conduct customs reform in 2019 is part of the agreed decision of the 5th meeting of the EU-Ukraine Association Council. At the same time, business surveys show that Ukrainian business supports institutional reform of the customs authorities.

Customs reform has many stockholders with different and even controversial interests. Let me give you a simple example.

In January 2019, business faced a situation when customs clearance stopped at many customs points. Representatives of business associations explained the reason of such a situation by illegal pressure on business to increase the customs value of cargo, which caused delays. In its turn, customs officials point out that measures that lead to delay in custom clearance are an effective tool to fight smuggling and grey imports.

Both parties are correct. The level of regulatory pressure is still high. According to IER survey conducted within the framework of the Trade Facilitation Dialogue Project in 2018¹, 39% of importers complain about complexity of customs legislation, 23% of exporters talk about customs bureaucracy.

At the same time, the Ministry of Economic Development and Trade assessments indicate that 40% of economic activity in Ukraine occurs in the shadow. The problem of smuggling and “grey imports” is one of the most important. Moreover, corruption at the customs is an obstacle to doing business in every fourth foreign trade business, according to the survey mentioned above.

Such kaleidoscope of interests forms different groups of stockholders of customs reforms. There are three big groups of stakeholders: business engaged in foreign trade, state authorities responsible for the customs and customs related issues and civil society as a driver of changes in the country.

The first group is business engaged in foreign trade. The main goal of this player is to simplify customs procedures, reduce its value, which ultimately should lead to a reduction in the cost of doing business and, accordingly, increase profits of the company. This group is not homogeneous.

Subgroup 1 is “white” business. This business works by the rules, is interested in simplifying procedures and rules, but also is interested in ensuring that all members of the sector comply with the same rules.

Subgroup 2 is the so-called “grey business”. This is a business that violates the rules through various “quasi-legal” mechanisms, including artificially lowering the customs value or re-classifying goods. Because of this, this kind of business receives some sort of comparative advantage over a rule-compliant business. Usually, such violations of the rules require a close “connection” to the customs officials, which is a vivid example of corruption.

Subgroup 3 is the “illegal business” — business that moves prohibited goods across the border.

The second group is representatives of the state authorities. This group also consists of two large subgroups. One of them is representatives of the authorities responsible for the formation and implementation of customs policy with the aim of collecting revenues to the state budget. These include the Ministry of Finance, the State Fiscal Service, and the newly established State Customs Service.

Another subgroup is representatives of the security and law enforcement agencies. In particular, these are the Security Service of Ukraine, which is responsible for fighting against offenses affecting the country’s economic security, like smuggling certain groups of goods, and the National Police, whose representatives since August 2018 may be present at customs posts and have the right to check cargo.

The third group is civil society. Civil society is interested in advancing reforms in Ukraine, combating corruption, creating a supportive business environment. The society as a whole is the beneficiary of the customs reform, because the reform will contribute to the welfare of different segments of the population. It will create a favorable business environment that will promote economic growth, increase revenues to the budget and create new jobs.

Previous attempts at customs reform were unsuccessful precisely because of vested interests and the lack of dialogue among all stakeholders. The IER surveys show that business does not feel involved in the dialogue; in 2017, 76% of surveyed firms said that they were not involved in the dialogue with the authorities regarding trade facilitation issues, in 2018, 80% of enterprises participating in the survey believed that they were not included in the dialogue regarding trade facilitations.

At the beginning of 2019, there are signs that the situation will change. The Government learned lessons and now tries to involve different stakeholders in the dialogue. The Ministry of Finance formed a working group with the participation of stakeholders to discuss the design of the reform.

In addition, civil society as a promoter of the reform takes an active position on this issue. In 2018, within the framework of the project “Trade Facilitation Dialogue”², a Public Initiative for Transparent and Fair Customs under the leadership of the Institute for Economic Research and Policy Consulting (IER) has been launched. The initiative united 18 civil society organizations from different regions of Ukraine. The initiative aims at monitoring the implementation of the customs reform and promoting dialogue between the authorities, business and other stakeholders in implementing the institutional reform of the customs.

However, recent consultations with representatives of business associations in which the IER participated indicate that not all stakeholders are well informed and included in the dialogue.

Therefore, public control over the development and implementation of the reform remains a topical issue. The challenge here will be the continued participation of the CSOs in such a dialogue. Such participation will be a significant contribution to the quality and success of the reform.

On the other hand, involvement in the dialogue will show the CSOs a good example of how to succeed in collaboration efforts.