The Red Corridor: Which Cargoes Should Be Considered Undeclared?

Ambiguous application of the legislation by customs services leads to unpleasant situations in seaports. In some cases, a ship undergoes inspection smoothly, performs loading and unloading operations, and departs on its journey. In other cases, customs inspectors file a report alleging violation of customs regulations because the fuel reserves and marine equipment are onboard the ship.

In a column for the YurLiga information analysis portal, the LeGran.TT law firm’s Director Tatiana Titarenko explains the nuances of the customs legislation during clearance of ships’ cargoes, equipment, and stores.

Why do customs authorities have no objections to a ship’s stores in some cases but file protocols of violations in other cases? The LeGran.TT law firm’s Director Tatiana Titarenko discusses conflicting interpretations of the legislation by regulatory bodies.

Border control has always been a standing joke in the maritime industry. For more than twenty years, Ukraine has procrastinated and put off the introduction of the “single window” principle for clearance of goods. This, along with infrastructural problems, does not help make Ukrainian seaports attractive to cargo owners. Therefore, when possible, customers prefer Black Sea ports like Constanta to Ukrainian ports. Some headway was made in 2015, when the Ministry of Infrastructure began deregulation and the State Fiscal Service began making changes in some regions.

Traditionally, however, regional divisions do not adopt a uniform approach during a transitional period. To illustrate this, I will cite two recent examples. The Customs Code’s Article 472 stipulates liability for failure to declare goods or vehicles intended for commercial use. For this, the offender is required to pay 100% of the cost of the goods and the goods are to be confiscated.

However, the question is what should be regarded as undeclared goods. For some reason, customs inspectors considered ships’ stores – fuels and lubricants, paints and lacquer, and rope – as undeclared goods. In the first example, two vessels left the Odessa commercial seaport for neutral waters to replenish their stores of paint and oil, which were intended for maintaining the ships in proper technical condition. All the information about the ships’ stores was provided in the customs declarations.

After the ships returned to the port, customs inspectors began filing reports of violation of Article 472. However, after talks with the management of the Odessa customs, we managed to reach an understanding and resolve the conflict out of court. The regulatory authorities considered the filing of the reports unnecessary and the ships successfully completed the customs clearance procedure.

In the second example, a tugboat left the Nikolayev port for neutral waters to replenish its stores of diesel fuel. In addition, the owner of the vessel bought a polypropylene rope for towing operations, after which the vessel returned to the port.

The tugboat had 11 tons of fuel on board before leaving the port, as reflected during the course of customs clearance. After returning to the port, the captain of the tugboat filed a Ship’s Stores Declaration, which indicated, among other things, the exact amount of diesel fuel on board (98 tons). Since a polypropylene rope is considered a ship’s equipment, it was not declared. The Nikolayev Customs accepted all the declarations without objections and the border was opened to the tugboat.

However, two days later, the captain of the tugboat was handed a protocol of violation of Article 472 of the customs rules. The Nikolayev Customs decided that since the tugboat’s sole purpose of crossing the border was to purchase fuel, the fuel should be considered a cargo and customs fees levied accordingly. In addition, the polypropylene rope was also considered undeclared goods because it was new and had not yet been used on the vessel. The case was sent to court.

Who is guilty and who is right? As we can see, the approaches of Odessa and Nikolayev customs officials are different. However, the law is the same for everyone. Therefore, we turn to Article 472 of the Customs Code. It stipulates liability for failure to inform the regulatory authorities in the established manner about commercial cargo or vehicle that is subject to mandatory declaration.

What did the captains of the vessels do? They notified customs inspectors about the exact quantities of ship stores on board their vessels. Goods that are declared to inspectors in full before the start of an inspection (even if the owner does not specify them in the customs declaration) cannot be considered subjects of violation of customs rules. Goods on vessel are divided into three types:

  1. Ship’s equipment
  1. Cargoes
  1. Stores

The annex to the Convention on Facilitation of International Maritime Traffic defines each of these terms:

Ship’s equipment: articles, other than ship’s spare parts, on board a ship for use thereon, which are removable but not of a consumable nature, including accessories such as lifeboats, life-saving devices, furniture, ship’s apparel and similar items;

Cargo: any goods, wares, merchandise, and articles of every kind whatsoever carried on a ship, other than mail, ship’s stores, ship’s spare parts, ship’s equipment, crew’s effects and passengers’ accompanied baggage;

Ship’s stores: goods for use in the ship, including consumable goods, goods carried for sale to passengers and crewmembers, fuel and lubricants, but excluding ship’s equipment and ship’s spare parts.

That is, stores may be kept only on means of transport, they can be used for maintenance or repairs, but they are not intended for sale. It should also be remembered that the Ministry of Finance’s order No. 308 dated 10 March 2015 states that the captain of a vessel that is being processed should give an undertaking that the vessel’s stores that were purchased abroad will not be taken out of the vessel.

However, for some reason, customs officials and courts sometimes stubbornly ignore these rules despite the fact that stores exist on every ship, and ships simply cannot operate without them. Moreover, unfortunately, the law is applied differently in different regions. The State Fiscal Service and the courts require a uniform approach that involves compliance with all legal requirements. Our company appealed to the Specialized High Court, and the head of the court upheld the view that there is only one correct application of Article 472 of the Customs Code. That is, failure to declare goods is a direct violation of the article but there is no reason to file a protocol of violation if the goods are included in the declaration of goods or stores.

Customs officers are taking advantage of the contradictions in the legislation that contains provisions on commercial vehicles for transportation of goods or passengers. At the same time, there is no mention of such a vessel as a tugboat, which does not transport goods or passengers and is used only for towing operations.

The actions of the regulatory authorities are having a negative impact on the economic potential of Ukraine as a maritime power. The country is suffering serious reputational damage, which will eventually result in a fall in the number of ships calling at Ukrainian ports and a reduction in income from port charges.

To avoid similar incidents in the future, it is necessary to standardize the application of Article 472 of the Customs Code. To this end, the State Fiscal Service, as a central executive government agency, needs to make the relevant clarifications of this provision to its regional divisions.

In addition, we expect an official clarification of Article 472 from the Specialized High Court following our appeal to the court. In particular, the Specialized High Court should clarify that prosecution under Article 472 of the Customs Code is impossible if goods are presented to a customs inspector before a customs inspection, even if the goods are not included in the customs declaration.

In addition, it is necessary to explain the distinction between the terms “goods,” “stores,” and “equipment” to employees of the regulatory authorities. In each individual case, inspectors should determine the exact category to which goods belong based on these criteria. However, in practice, these rules are often not taken into account.

We also expect the Specialized High Court to confirm that the customs cannot prosecute the captain of a ship based only on the assumption that the ship’s stores or equipment will be used for purposes other than the intended purpose. Speculation and intuition cannot be a reason for filing a protocol of violation in a country based on the rule of law. The unlawfulness of such actions must be proven in court and disciplinary action taken against those found guilty.