Trading from a Suitcase - The Case of Shuttle Trade
Also published by United Press International (UPI)
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Written March 3, 2002
Updated March 5, 2005
They all sport the same shabby clothes, haggard looks, and bulging suitcases
bound with frayed ropes. These are the shuttle traders. You can find them in
Mongolia and Russia, China and Ukraine, Bulgaria and Kosovo, the West Bank and
Turkey. They cross the border as "tourists", sometimes as often as 10 times a
year, and come back with as much merchandise as they can carry in their enormous
luggage. Some of them resort to freight forwarding their "personal belongings".
They distort trade figures, smuggle goods across ill-guarded borders, ignore
international treaties and conventions and, in short, revive moribund economies.
They are the life-blood and the only manifestation of true entrepreneurship in
swathes of economic wastelands. They meet demands for consumer goods unmet by
domestic manufacturers or by officially-sanctioned importers.
In recognition of their vital role, the worried Kyrgyz government held a round
table discussion last summer about the precarious state of Kyrgyzstan's shuttle
trade. Many former Soviet republics have tightened up their border controls. In
May last year, Russian officials seized half a million dollars worth of shuttle
goods belonging to 1500 traders. When two million dollars worth of goods were
confiscated in a similar incident in fall 2001, eight Kyrgyz traders committed
suicide.
The number of Kyrgyz shuttle traders dropped in 2002 to 300,000 (from 500,000 in
1996). The majority of those who remain are insolvent. Many of them emigrated to
other countries. The shuttle traders asked the government to legalize and
regulate their vanishing trade and thus to save them from avaricious and
minacious customs officials.
Even prim international financial institutions recognize the survival-value of
shuttle trade to the economies of developing and transition countries. It
employs millions, boosts investments in transport and infrastructure, and
encourages grassroots capitalism. The IMF - in the 11th meeting of its Committee
on Balance of Payments Statistics in 1998 - officially recognized shuttle trade
as a business activity to be recorded under "goods".
But there is a seedier and seamier side to shuttle trade where it interfaces
with organized crime and official corruption. Shuttle trade also constitutes
unfair competition to legitimate, tax and customs duties paying enterprises -
the manufacturers of textiles, shoes, cigarettes, alcoholic drinks, and food
products. Shuttled goods are not subject to health and safety inspections, or
quality control.
According to the March 27th 2002 issue of East West Institute's "Russian
Regional Report", the value of Chinese goods shuttled into the borderlands of
the Russian Far East is a whopping $50 million a month. China benefits from the
serendipitous proceeds of these informal exports - but is unhappy at the lost
tax revenues.
EWI claims that Russian banks in the region (such as DalOVK, Primsotsbank, and
Regiobank) are already offering money transfer services to China. DalOVK alone
transfers $1 million a month - a fortune in local terms. But even these figures
may be a serious under-estimate. The trade between Khabarovsk Territory in
Russia and Heilongjiang Province in China - most of it in shuttle form - was
$1.5 billion in 2001. The bulk of it was one way, from China to Russia.
Shuttle trade is even more prominent between Iraq and Turkey. The Anatolia News
Agency expected it to increase to $2 billion in 2002. By comparison, the
official exports of Turkey to Iraq amount to $800 million. The then prime
minister Bulent Ecevit himself stated to the Ankara Anatolia news agency: "We
have provided necessary support to increase shuttle trade".
"The Economist" reports about the flourishing "petty trade" between China and
Vietnam. Western and counterfeit goods are smuggled to bazaars in Vietnam, owned
and operated by Chinese nationals. The border between these two erstwhile
enemies opened in 1990. This led to the rise of criminal networks which involve
border guards and policemen.
Another hot spot is the Balkan. In a report dated July 2001, the Balkan
Information Exchange describes the "Tulip Market" in Istanbul. Vendors are
fluent in Russian, Bulgarian and Romanian and most of the clients are East
European. They buy wholesale and use special vans and buses to transport the
goods - mainly textiles - northwards, frequently to destinations in the Balkan.
This kind of trade is estimated to be worth $8 billion a year - more than one
quarter of Turkey's official exports.
Bulgarian customs officials, border patrols, and policemen form part of these
efficient rings - as do their Macedonian and, to a lesser extent, Greek
counterparts. The Sofia-based Center for the Study of Democracy thinks that a
third of the Bulgarian workforce (i.e., c. 1 million people) may be involved.
Many of the traders maintain mom-and-pop establishments or stalls in public
bazaars, where members of their family sell the goods.
Some of the merchandise ends up in Serbia, which was subjected to UN sanctions
until lately. Fuel smuggling on bikes and other forms of sanctions busting have
largely ended but they have been replaced by cigarettes, alcohol, firearms,
stolen cars, and mobile phones.
The Serbian authorities often round up and deport Bulgarian shuttle traders,
provoking furious resentment in Bulgaria. Headlines like "(Serbian) Policemen
take away our countrymen's money" and "Serbs searching (Bulgarian) women's
genitals for money" are pretty common. The Bulgarians are embittered. They used
to smuggle medicines and fuel into embargoed Serbia - only to be abused by Serb
officials now, that the embargo has been lifted.
East European buyers used to reach as far as India where they shopped wholesale
in winter. Russians used to buy readymade clothes, leather goods, and cheap
jewelry in New Delhi and elsewhere and sell the goods in the numerous flea
markets back home.
To finance their purchases, they used to sell in India Russian cosmetics and
consumer goods such as watches, cameras, or hair dryers. But the 1998 financial
crisis and sub-standard wares offered by unscrupulous Indian traders put a stop
to this particular venue.
Governments are trying to stem the shuttle trade. The Russian news agency,
ITAR-TASS, reports that Sergei Stepashin, the dynamic chairman of the Russian
Audit Chamber (and a former short-lived prime minister of Russia) is bent on
tightening the cooperation between member states of the Shanghai Cooperation
Organization.
The audit agencies of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and
Uzbekistan will exchange information and strive to control the thriving shuttle
trade across their porous borders. China and Russia are poised to sign a
bilateral accord regarding these issues in October.
The WPS Monitoring Agency reported last November that the Economic Development
and Trade Ministry of Russia intends to treat cargos of more than 50 kilos as a
consignment of commercial goods, subject to import tariffs (on top of the
current tax of 30 percent).
The Ministry claimed that shuttle trade accounts for up to 90 percent of all
imported goods "in certain spheres" (e.g., furs). As late as 1994, Russians were
allowed to import up to $5000 of duty-free goods in their accompanied baggage -
a relic of communist days when only the privileged few were allowed to travel.
Up to 2 million Russian citizens may be engaged in shuttle trade and the value
of "gray" goods may be as high as $10 billion annually. Goods from Turkey alone
amounted in 2002 to $1.5-2 billion, according to then vice-premier Viktor
Khristenko, but shuttle traders also operate in the United Arab Emirates, Syria,
Israel, Pakistan, India, China, Poland, Hungary, and Italy.
A set of figures published for the first quarter of 2001 shows that shuttle
trade amounted to $2.6 billion, or 8 percent of Russia's total foreign trade.
Shuttle traded goods made up 1.5 percent of exports - but a full quarter of
imports.
But the shuttle trade's coup de grace may well be EU enlargement. Already a new
"iron curtain", comprised of visas and regulations, is rising between EU
candidates and other East European and Balkan countries.
Consider the EU's eastern boundary. More than a million people cross the busy
Ukrainian-Polish border every month. Enhanced regulation on the Polish side and
new, IMF-inspired, tax laws on the Ukrainian side - led to a massive increase in
corruption and smuggling. Truck owners now bribe customs officials to the tune
of $300 per vehicle, according to a January 2001 report by CEPS.
The results are grave. Following the introduction of these new measures, cross
border traffic fell by 50 percent and unemployment in the Polish border zones
jumped by 40 percent in 2002 alone. It has since doubled. The IMF and the EU are
much decried by the Polish minority now trapped in Western Ukraine.
The situation is likely to be further exacerbated with the introduction of a
reciprocal visa regime between the two countries. Shuttle trade may be decimated
by the resulting bureaucratic bottlenecks.
Still, it may no longer be needed now that Poland acceded to the EU. Shuttle
trade thrives on poverty. It arbitrates between inefficient markets. It
satisfies unrequited demand for goods. The single market ought to rid Europe of
all these distortions - and, thus, most probably of this makeshift though
resilient solution, the shuttle trader.
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