STATE CUSTOMS SERVICE OF UKRAINE

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ECONOMIC INDICATORS

STATE CUSTOMS SERVICE OF UKRAINE

IN THE 21ST CENTURY S UMMING UP AND THE ROAD-MAP

THE NEW CUSTOMS CODE

DURING EURO-2012

WHAT ARE THE CUSTOMS SERVICE OF UKRAINE’S PLANS FOR THE NEAREST FUTURE?

COOPERATION WITH UKRAINIAN-AMERICAN BUSINESS COUNCIL, AMERICAN CHAMBER OF COMMERCE

“RAPID TRIDENT – 2012” AND “SEA BREEZE – 2012”

OPERATION OF COMBINED TRANSPORTATION TRAIN “VIKING”

PROVISION OF INTERNATIONAL TECHNICAL ASSISTANCE

COOPERATION OF THE STATE CUSTOMS SERVICE OF UKRAINE WITH U.S. EMBASSY IN UKRAINE

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including:16 million passenger cars2.6 million commercial vehicles400 thousand buses

UKRAINE HAS A FAVORABLE GEOGRAPHICAL POSITION in terms of international trade

The following international transport corridors are going through the territory of Ukraine:

We see the implementation of the Ukraine’s transit potential in combination of the following aspects:— development of road and logistics infrastructure;— improvement of customs checkpoints infrastructure;— maximum simplification of customs procedures.

In 2011 the border of Ukraine was crossed by:

500 million tons of cargo;

19million vehicles

85million persons

Pan-European no.3:

Brussels – Dresden – Krakow – Lviv – Kyiv

Transport Corridor Europe — Caucasus — Asia (TRACECA):

Kazakhstan – Kyrgyzstan – Tajikistan – Uzbekistan – Turkmenistan – Azerbaijan – Armenia – Georgia – Ukraine

Pan-European no.5:

Venice – Budapest – Bratislava – Uzhgorod – Lviv

Pan-European no.7 Danube (water corridor):

Austria – Hungary – Serbia – Bulgaria – Romania – Moldova – Ukraine

Pan-European no.9:

Helsinki – St. Petersburg – Kyiv – Odessa – Bucharest

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Kraków

St Petersburg

Helsinki

Lviv

Odesa

Leipzig

Kustanaj

Krasnovodsk

BerlinWarsaw

Moscow

Kiev

Bratislava

Budapest

LjubljanaZagreb

Ashkabad

Tbilisi

Baku

Belgrade

Vienna

KishinevHUNGARY

MOLDOVAAUSTRIA

SLOVAKIA

GERMANY

BELARUS

UKRAINE

GEORGIA

AZERBAIJANTURKMENISTAN

KAZAKHSTAN

UZBEKISTAN

POLAND

ROMANIASLOVENIIA

YUGOSLAVIA

ITALY

R U S S I A

BULGARIA

Bucharest

So�a

International transport corridors of Ukraine

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UKRAINE’S TRANSIT AND ECONOMIC POTENTIAL MAKES it one of the key players in the global market of goods trade

Ukraine occupies

39 place in the world by foreign trade volumes.

Import

83,8 billion $

Export

68 billion $

Balance

15,4 billion $

Товарообіг

152 млрд. $

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The main trade partners of Ukraine are:

Russia, Germany, China

Ukraine is one of the world leaders in some goods production:

International trade is being rapidly developed. The total turnover of Ukraine in 2012 makes up USD 100 billion already.

In 2012 223 million tons of cargo, 17 million vehicles and 62 million persons crossed the customs border. During the last 20 years the country has been developing dynamically, the market did not remain at the same place, serious processes have occurred in the world economy.

Evidently that during this time the customs legislation of Ukraine has become essentially out of date. Ukrainian customs legislation has not been updated for about 10 years (the previous Customs Code was adopted on 11.07.2002 and entered into force on 01.01.2004).

Barley Sun-flower oil

The volume of mutual trade between Ukraine and the United States In 2011 it makes up

3,7 billion $

In 2012 it makes up

2,8 billion $

Investments from the United States to the economy of Ukraine amounted to USD 1 billion.

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THE NEW CUSTOMS CODE REFLECTS THE TENDENCIES

OF FOREIGN TRADE

DEVELOPMENT THAT

HAD TAKEN PLACE

DURING THIS TIME

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New Customs Code is the unified view of the customs procedures from the point of view of the State, Business and Citizens.Therefore the new Customs Code’s objectives are the following:

• providing a powerful new incentive to business development;

• creating conditions for the predictability and stability of business development;

• clear and democratic conditions for border crossing by the citizens.

New Customs Code has become a logical continuation of the Customs Reforming Concept “Facing the people”.

It actually fixed the innovations and simplifications which the Customs Service of Ukraine began to implement in 2010 on the legislative level.The New Customs Code provides a significant simplification of customs procedures, in particular by:

• implementing the full electronic declaring;• 13% of customs declarations are submitted in

electronic form there is Keys Certification Authority where any entity may obtain an electronic digital signature on a free of charge basis.

In addition together with the Ministry of Interior, Tax Service and National Bank we are working on the question of making the electronic declaring the basis for:

• vehicles registration by the the Ministry of Interior;• confirmation of the actual export of goods by tax

authorities (for VAT reimbursement);

• taking foreign trade operation from the exchange control, and an opportunity for a resident to purchase foreign currency.

• fixing time limits for customs clearance• the Code provides for all procedures completion

within 4 hours.

To date (excluding special kinds of control): Import — 1 hour 27 minutes; Export — 42 minutes.

In addition the Customs Service on its own initiative implemented the information terminals which:

• prevent the groundless refusal to accept the declaration;

• clearly fixe the timing of customs clearance.• implementation of risk analysis system;

Definition of the customs control’s depth based on the automated system decisions;Goal: to select only the most risky goods from the total trade turnover;

Comparing with 2009 the number of customs inspection has been reduced in 5 times.

In 2012 — 19% of goods were subject to customs inspection (in 2009 — 69%; in 2010 — 42%; in 2011 — 22% and in 2012 — only 14%).

Almost half of these 14% is based on the results of risk management activity.

It fully complies with International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention) and other international instruments.

Principal International Conventions the provisions of which were implemented in the Customs Code:

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Імпорт

10 год. 40 хв.

Зменшення у 7,4 разів

2 год. 09 хв.

2011 2012серпень

2010жовтень

1 год. 27 хв.

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2 ЕкспортЗменшення у 2,5 рази1 год. 44 хв.

42 хв.1 год.

2011 2012серпень

2010жовтень

01. Convention on the Simplification and Harmonization of Customs Procedures, Kyoto, 1973

03. Convention concerning the Simplification of Formalities in Trade in Goods, Interlaken, May 20, 1987

06. International Convention on the Harmonized Commodity Description and Coding System, Brussels, 1983

04. Convention on Temporary Admission, Istanbul, 1990

02. Convention on Common Transit Procedure, Interlaken, 1987

05. WCO Framework of Standards to Secure and Facilitate Global Trade, Brussels, 2005

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During import: in 2009 - 80%, in 2010 - 52%, in 2011 - 30%;

During export: in 2009 - 64%, in 2010 - 34%, in 2011 - 15%;

During transit: in 2009 - 14%, in 2010 - 12%, in 2011 - 6%.

Legislative fixation of the post-audit control:• checking the legality of goods shipments which are

not under customs control anymore;• re-focusing the customs control to the stage when

the goods are released in free circulation.

The new Code also includes the rule concerning the procedure of preliminary documentary control which entered into force on December 15, 2011. Goods subject to other forms of state control (ecological, phytosanitary, sanitary and epidemiological) are checked today by customs officers in 97% by the documents.Other state control is carried out already inside the country by the customs offices of destination.

Thus the entities do not need to undergo burdensome bureaucratic procedures at the border.

Settlement of question related to the customs value determination:

• precise regulation of the customs officer’s actions;exhaustive list of reasons to correct the customs value;• harmonization of customs value control procedures

with international regulations (GATT / WTO).• today 90% of goods are cleared according to the

1st method (agreement price).

Reducing the number of permits,—there were 86 permits in 2010 — whereas in 2011 their number was reduced to 65— According to the rules of new Customs Code the

customs authorities will control 24 documents issued by state authorities. And only those which must be submitted according to the law.

Reducing the number of documents submitted for the customs clearance. Only 3 documents must be submitted for customs clearance:

1 customs declaration;2 customs value declaration3 invoice or other document confirming

the value of the goods. Information on all other documents will be only specified by declarants in the customs declaration.

The documents shall be kept by the declarant during 3 years.

In addition, the Customs Code also contains a number of innovations which meet:

• current trends in the development of customs administrations;

• best international and European standards.

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The limits are different for different means of transport in order to avoid a so-called goods “batch splitting”.

Since someone can make a few trips by car and if there are five persons therein, in this case the goods that could be jointly brought by these persons with higher rate of duty free admission would be quite enough for a small industrial batch of goods.

It is economically unfeasible for some potential offender to use the same scheme on air transport.

And if the person brings the goods for a higher amount, the tax base is only a part of the imported goods value which exceeds the limit of duty free admission at this checkpoint (EUR 500 or EUR 1,000).

For example if an

individual brings some goods to Ukraine amounting to EUR 1,500 then he will have to pay the tax and the duty charged on EUR 500 at the checkpoint open for air traffic.But in all other checkpoints the tax and the duty will be charged on EUR 1,000.

The new Customs Code has several times increased the limit for duty-free goods movement across the border of our country (previously it was EUR200). Moreover its value depends on the type of transport used by an individual to arrive in our country.

If he arrives by plane, in this case he is entitled to bring the goods equal to EUR 1,000. If an individual crosses the border by any other means of transport or on foot, in this case the limit of goods transportation makes up EUR 500. At that the goods weight should not exceed 50 kilograms.

1000 € 500 €

In particular:• personal responsibility of the customs officer;• interpretation of disputes in case of legal

irregularity in favor of the entity/ individual;• administrative liability for inadvertent errors is

abolished;• possibility to settle an administrative misconduct

by compromise (international practice).

A significant revival of business activity has become the result of the Code’s adoption.Over 2 million Customs declarations have been processed.

More than 2,5 thousand new enterprises applied to the Customs Offices for accreditation in order to exercise foreign economic activity.

BORDER CROSSINGS SIMPLIFICATION FOR INDIVIDUALS

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DURING EURO-2012 the main task of the Customs Service was to create conditions for comfortable and fast border crossing.

In order to simplify and speed up the customs procedures the State Customs Service of Ukraine fully completed the reconstruction of 8 checkpoints on the border with Poland, Russia, Hungary, Slovakia and Belarus. This allowed to significantly increase their crossing capacity.

Joint customs and border control was held during “Euro-2012” on Polish territory. This meant for individuals only one stop on one side of the border. In result thereof the

border crossing time was significantly reduced. It made up 2 minutes for passenger car and up to 20 minutes for the bus (40 passengers).

The State Customs Service on agreement with Polish colleague splans in future to implement this control system on a regular basis as having proved its value.

Also within the adjacent checkpoints there were separated “EURO 2012 traffic lanes” to move the football teams, UEFA representatives and organized groups of fans thereon.

According to information provided by the Monitoring Center at the Customs Service of Ukraine during the Championship the customs border was crossed by:

• More than 8 million people

• About 2 million vehicles

• 1.5 thousand organized groups of fans went through the customs and crossed the border.

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The Customs Service of Ukraine has developed a number of regulations which regulated the issues for simplified procedure for import and clearance of goods for the Championship organization. In particular, there was implemented: a simplified form of customs declaration, minimum number of permits, opportunity to make the customs clearance both at the place of destination and at the checkpoints, twenty-four hour service of inspectors in the hosting cities in order to ensure immediate customs clearance.

The Customs Service of Ukraine pays particular attention to measures aimed to protect the UEFA’s intellectual property rights (“EURO-2012”trademark).

As a result of customs control 5 cases of illegal use of UEFA’s symbols were detected. This is equal to about 1.3 million units. In order to assure timely exchange of information for the prevention of emergencies and conflict situations on the borders of Ukraine the Operational Headquarters involving Liaison Officers from the customs administrations of Poland, Russia, Belarus, Moldova was set up for the period of EURO-2012 on the basis of Customs Service’s Monitoring Center spearheaded by the State Customs Service.

At the same time the State Customs Service of Ukraine was represented at the Customs Administration of the Republic of Poland by experienced officers. Permanent “on-line” video conferencing was arranged between Operational Headquarters of both countries.

Any possibility of emergencies at the borders was excluded due to prompt exchange of information. Thanks to agreed and accurate work of Ukrainian and Polish customs officers no queues appeared at the border.

No violations of the customs laws by Championship guests and fans have been recorded.

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implementation of full operation Institution of Authorized Economic perator. Already today the new Customs Code provides for the following simplifications for entities with spotless reputation:

• priority customs clearance, • placement of goods in the warehouses without

customs authority’s permission,• non-application of guarantees while moving transit

goods.

And inspections by customs authorities not more than once every 30 months which is probably the most important for businessmen.

Also we plan to advance the activity commonly with legal business aimed to protect the intellectual property rights and combat the goods counterfeit.

Every year the counterfeit goods being sold all over the world amounting to

$670 billion

Such disappointing verdict was promulgated by International Chamber of Commerce (ICC) at the VI Congress on Combating Counterfeiting and Piracy in 2011.

Counterfeiting and piracy went beyond the issues of individual companies and particularly because of unpaid taxes and huge losses they have become a global economic disaster. They are called a progressing virus affecting new producers and new areas.

866 cases of customs clearance suspension because of suspected violation of the intellectual property rights were recorded only for 8 months in 2012.

In 2012 the State Customs Service of Ukraine pays a particular attention to measures aimed to protect the intellectual property rights belonging to the UEFA (“Euro-2012”trademark).

Only since the beginning of 2012 5 cases of illegal use of UEFA’s symbols were identified as a result of customs control.

This is about 1.3 million units of (printed products,

Global losses caused by these counterfeits will reach by 2015

$1,7 trillion

WHAT ARE THE CUSTOMS SERVICE OF UKRAINE’S

PLANS FOR THE NEAREST FUTURE?

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clothing, footwear, glassware, lighters).

In addition almost 8 tons of goods with the evidences of counterfeit were detected in Odessa and Illichivsk ports.

In particular this applies to the consignments of goods with trademarks «Adidas», «Nike», «Guess», «Prado», «Euro 2012», «Lacoste», «Armani», «Lee», «Wrangler», «Levi Strauss», «Pierre Cardin», «Tommy Hilfiger», «Louis Vuitton», «Disquared», «Brioni», «D&G», «Frankie Morello», «Daniel Jones», «ZARA», «Bikkembergs», «Calvin Klein» and others.

With equal care we approach the clearance of the chemical industry products.

For example the pesticides imported for the agricultural purpose. Even if it is imported into the country under the famous trademark (Bayer, Basf ), often they are counterfeit.

The market of plant protection products in Ukraine is constantly growing.Therefore it is very attractive both for official importers and for those who import and sell fake, counterfeit and illegally imported pesticides in the domestic market.

That is why the foreign business is extremely concerned about intellectual property rights on agrochemicals.And we share this concern, because Ukraine is traditionally an agricultural state.

Also the customs officers identified and seized a consignment of counterfeit goods in Crimea. 190 units of sportswear by «Adidas» (in Evpatoriya seaport). 440 pairs of sportswear by «Adidas» and «Nike» (while making the customs clearance of the humanitarian aid in Simferopol).

About 10,000 bottles of counterfeit perfume HUGO BOSS were detected in Kyiv.

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COOPERATIONWITH UKRAINIAN-AMERICAN BUSINESS COUNCIL, AMERICAN CHAMBER OF COMMERCE

Open and constructive dialogue, regular meetings with Ukrainian-American Business Council and American Chamber of Commerce representing American busi-ness in Ukraine allows the Customs Service of Ukraine to further improve its activities in accordance with interna-tional standards and to improve the quality of services provided to businesses.

Feedback from the business enables to understand how the subsequent practical implementation of the new customs legislation is going on.During 2011 - August 2012 there was organized 1 meet-ing of the management and specialists of the State

Customs Service with representatives of the Ukrainian-American Business Council and 9 meetings of the State Customs Service’s management with member companies of the American Chamber of Commerce.

During these meetings the Chairman and management of the Service as well as Heads of Structural Subdivisions of the State Customs Service have been discussing the innovations related to the adoption of the new Customs Code of Ukraine, the main priorities of the Customs Ser-vice of Ukraine and customs clearance issues.

The situation with solution of problems related to the customs control and customs clearance of goods in the process of foreign activities undertaken by U.S. compa-nies was also discussed.

The representatives of the State Customs Service had an op-portunity to answer some questions asked by business.

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There were recurring complications during the movement of ammunition and special assets used for military exercises in 2011.

They were associated in particular with the discrepancy between the list of military equipment that was previously declared by the military servicemen from overseas countries participating in military exercises and the list of actually imported into the customs territory of Ukraine.

In close cooperation with the U.S. Embassy in Ukraine the State Customs Service established a working group in charge of organization and holding the international military exercises at the General Headquarters of the Armed Forces of Ukraine.

It included representatives of the Ministry of Defense of Ukraine, the State Customs Service of Ukraine, the State Export Control of Ukraine, as well as military attachés of foreign participating countries if possible.

The opportunities provided by the Monitoring center of the State Customs Service of Ukraine were also used.

Consequently Ukrainian-U.S. military exercises “Rapid Trident – 2012” and “Sea Breeze – 2012” were held in 2012 without any problematic situations during customs control and customs clearance of munitions.

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INTERACTION DURING UKRAINIAN-U.S. MILITARY EXERCISE

“RAPID TRIDENT – 2012” AND “SEA BREEZE – 2012”

Two sections of swimming berth were lifted by means of the vessel “Graps”

“Hetman Sagaidachniy” frigate will take part in the “Ocean Shield” operation.

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OPERATION OF COMBINED TRANSPORTATION TRAIN “VIKING”Taking into consideration the importance of transport in the “Baltic Sea - Black Sea” area with the assistance of the U.S. Embassy in Ukraine the State Customs Service starting from 2011 has implemented a number of measures aimed at providing a powerful new incentive to the efficient operation of combined transportation train “Viking” (Ukraine - Belarus - Lithuania ).

• an Agreement was signed between the Customs Service and “Ukrainian Railways” on the cooperation during the control procedures for goods carried by trains of combined transportation;

• a regulatory framework was developed;

• the workshops were held with “Ukrainian Railways”, “Viking” operators, the U.S. Embassy and the Embassy of Lithuania in Ukraine;

• an experiment was carried out using electronic locks with GPS - GSM navigation function which proved to be an effective measure to identify the goods and prevent unauthorized access.

As a result the container transportation by “Viking” was increased almost 8 times.

- 1,603 containers were transported in 2010;- 2,454 containers in 2011.

And 12,012 containers in 2012.

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International technical assistance provided by the U.S. Government to the State Customs Service contributes to further reforming of the Customs Service of Ukraine and strengthens the capacity of the customs authorities.

It should be noted that due to mobile scanning facilities provided by the U.S. Government more than 2 tons of cocaine were detected in 2010 in Odessa seaport.

In 2011 a technical assistance from the U.S. Government (equipment for customs control, computers, vehicles) amounted to USD 0.7 million, and in 2012 for nearly USD 0.3 million.

PROVISION OF INTERNATIONAL TECHNICAL ASSISTANCE

“This assistance is very important to us. The areas funded under this Protocol are critical for business facilitation in Ukraine, further development of investment pro-jects, and for effective law enforcement activity of the Ukrainian Customs”.

I.Kaletnik:

In May 2012 the Chairman of the State Customs Service Ihor Kaletnik and Ambassador Extraordinary and Plenipotentiary John Francis Tefft signed the Protocol no. 8 to the Memorandum of Understanding between the Government of Ukraine and the U.S. Government on law enforcement assistance.

In particular the new servers and operational computer stations, software and personal access facilities will be purchased within the “Electronic Customs” program and the development of risk management activity.

Technical assistance will also increase the potential of the Customs Service of Ukraine in the risks analysis

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J.Tefft:“Signing this protocol shows a further rap-prochement of our positions and strengthening of cooperation in the development of customs activities which are important for both countries. Since promoting business and improvement of the investment climate is our common task on which we are effectively working together”

in anti-smuggling area with purpose to identify the channels of illegal trade and smuggling of drugs. Particularly in the customs control zones of Ukraine in the territory of sea and river ports, as well as aquatorium of ports open for international traffic.

Mechanical and chemical kits for drugs finding and scanning facilities will also contribute thereto.

According to this document the State Customs Service will receive a technical assistance (consulting, hardware, software) from the U.S. Government amounting to USD 2 million 896 thousand within several projects which are very important for the Service.

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COOPERATION OF THE STATE CUSTOMS SERVICE OF UKRAINE WITH U.S. EMBASSY IN UKRAINE

During 2011 - 2012 the Chairman of the State Customs Service had three meetings with U.S. Extraordinary and Plenipotentiary Ambassador to Ukraine John F.Tefft. The focus of these meetings were the reforms of the Customs Service of Ukraine, customs cooperation between Ukraine and the United States, as well as interaction of customs authorities of Ukraine with American business.

A high level of communication existing between the State Customs Service of Ukraine and the U.S. Embassy proves effective and efficient interaction on the entire range of issues related to the trade and economic relations between our countries.