Between 1991 and 1993, a distinctive model of consumer-goods importing took shape in Russia. Trading companies built their operations around international delivery terms, administrative connections, and the economic quirks of the transitional period.
Participants in Import Operations
Importing consumer goods into Russia was mainly handled by two categories of entrepreneurs. The first group consisted of former employees of Soviet foreign-trade organizations, who had gained international contacts under the old state monopoly on foreign trade. The second group included former black-market traders, who had established ties both with foreign suppliers and with officials in regulatory bodies.
Graduates of MGIMO and similar institutions held an advantage in the form of international contacts made during their studies and internships. Knowledge of foreign languages and an understanding of how international trade worked let this group quickly establish business relationships with foreign companies.
The Basic Structure of an Import Deal
A trading company would receive price lists of available goods from foreign suppliers. The range of goods depended on the founders’ network of contacts and could include anything from textiles to household appliances.
The company offered goods to Russian buyers on CIF Moscow terms. The buyer paid a deposit equal to the goods’ asking price abroad. After receiving that advance payment, the company paid the supplier and arranged shipment to Moscow.
Once the truck with the goods arrived in Moscow, the buyer was asked to pay the remaining balance. The additional payment ran to 200–300 percent of the deposit amount. That final payment covered delivery costs, customs charges, and the trading company’s fee.
How the Money Flowed
Funds received from the buyer were split across several channels. The first portion covered transport services. Delivery costs were set by the transport company separately from the price of the goods and billed to the seller, not the buyer.
The second portion covered customs payments. With the right connections in the customs service, these payments could be reduced substantially compared with official rates. The remaining sum — 100–200 percent of the deposit — became the trading company’s profit.
The Role of Customs Authorities
The customs regulatory system in 1993 was still taking shape. Russia’s State Customs Committee was working to tighten control over tax revenue from imports flowing into the budget, checking cargo movements under internal customs transit procedures.
The Moscow regional customs office began reassessing the customs value declared for goods. Assessments were based on catalog data, without physically inspecting the goods. The method for determining customs value was applied in a simplified form.
Measures were considered to introduce advance payments at the point of border crossing for cargo containing excisable goods, with final processing at the destination. The plan assumed the sender would independently determine the range and quantity of goods within the contract terms, which made it hard to pin down the exact deposit amount.
Unofficially, customs officials were considered among the most well-off segment of the population. Their financial standing outpaced the incomes of both criminal figures and commercial operators.
Customs Regimes in Russian Business Practice
Russian companies used various customs regimes to boost the efficiency of import-export operations. Applying special procedures let them achieve results that outperformed simple import or export deals.
Enterprises from the former Soviet republics actively used schemes spanning several territories. Deep production cooperation led to stamped-metal goods being shipped from Ukraine to Russia, finished off in Belarus, and the resulting product brought back into Ukraine and Russia in set proportions.
Barter deals included shipping trucks to China in exchange for textiles and footwear. Light-industry products went out to Kazakhstan, Estonia, Latvia, Turkmenistan, and Azerbaijan — carpeting, men’s sheepskin coats, winter jackets, coats, shirts, and shoes.
Chemical-industry products — low- and high-pressure polyethylene, film, polypropylene, dyes — went out to CIS countries. Food exports to Ukraine, Uzbekistan, Kazakhstan, Lithuania, and Latvia included pasta, canned meat, coffee, cocoa, tea, butter, and jam.
Inflation and the Exchange Rate
Government economic policy rested on Keynesian ideas about the stimulating effect of money supply on economic growth. Under 1991–93 conditions, flooding the economy with money fed inflationary processes.
Goods paid for in advance rose sharply in price a month or two later, once their currency value was recalculated into rubles at the current rate. Buyers of imported goods ended up paying costs three to four times the original currency price of the goods, in ruble terms.
Companies without connections in the customs service ran into prohibitive customs charges. Official customs fees and duties made import operations economically unviable for anyone lacking administrative leverage.
How Risk Was Distributed in the Import Scheme
The trading company bore no risk at any stage of the deal. The deposit came in before the supplier was paid. Final settlement happened only after the goods actually arrived in Moscow. The gap between the deposit and the final payment covered all the company’s costs and formed its profit.
The risks of currency swings and shifting customs conditions fell entirely on the buyer. The company fixed its fee in hard currency at the moment the deal was struck. The buyer took on the obligation to cover the actual costs as of the moment customs processing was completed.
Warehouse Logistics
Trading companies operated without warehouse space. Goods sat on the buyer’s premises from the moment customs clearance was finished. Having no warehouse eliminated costs for rent, storage, and guarding inventory.
Advance payment let a company build up a book of orders before physically receiving the goods. The company arranged shipments matching actual orders. Overstock and working-capital shortages were structurally ruled out by the deal’s design.
Restrictions on Private Individuals
The Customs Committee decided to eliminate duty-free import of unaccompanied baggage regardless of value. Measures were being considered to stop registering new foreign cars to private individuals.
These planned restrictions posed a threat to the retail car-sales segment. Companies specializing in selling inexpensive compact cars found themselves under pressure from administrative measures.
The Limits of Taxation
The drafters of regulations were guided by budgetary concerns. They failed to account for the tax threshold beyond which businesses resort to minimizing their tax obligations.
For many imported goods, the tax burden exceeded economically reasonable levels. Goods kept flowing into the domestic market through channels the state couldn’t monitor. Without a developed tax service, the tax authorities lacked the means to track every channel goods entered through and collect taxes in full.
The Scheme’s Competitive Advantages
The company earned profit exceeding the goods’ original cost, without taking on commercial risk. Administrative leverage reduced customs payments. Having no warehouse space eliminated fixed overhead.
Buyers accepted the deal’s terms because they had no alternative channels for accessing imported goods. Organizing an import operation independently required international contacts, knowledge of procedures, and connections within regulatory bodies. The markup was offset by the convenience of getting the goods without having to navigate every step of the process yourself.