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Accession brings trade, logistics developments

  • 2004-03-25
  • By Kalvis Vitolins and Normunds Krumins
RIGA - Just a little more than one month is left before Latvia becomes a full member of the European Union, but numerous questions still remain for companies involved in transporting goods across international borders. What challenges will logistics chains face?

How will the new situation affect the total amount of cargo flow through Latvia? What new measures will be introduced by various state institutions? These represent only a few of the many questions regarding the future of transit logistics.
Let's start this analysis at the "micro" level. Here changes will affect those companies that are dealing primarily with their own products, including wholesalers, retail sellers, producers, importers and exporters. As a result of the absence of internal EU customs borders, these companies will witness a dramatic decrease in the amount of mandatory customs procedures.
However, for those goods that are exchanged between Latvia and non-EU countries, import and export procedures will remain more or less the same as today, with the exception that only the customs duty will remain as the customs payment - e.g., VAT and packing tax will be removed from the so-called "single administrative document." The Asycuda++ declaring program will also be kept for import and export procedures.
With regards to transit, an entirely new scheme known as the new computerized transit system will be introduced. The submission of transit declarations will be done using a "minimum common core system" that is based on a Web interface and allows users to log in via the Internet.
Latvia will benefit from major changes when it comes to cargo movements within the EU. In this area no customs declarations will be necessary, nor tax calculations at the country's entry points. On the other hand, Intrastat and other various reports - for example, on imported packing materials, calculated and paid tax for imported packing and intra-EU transactions - will come into the picture.
With EU accession, all of the information that we can currently find in single administrative documents on imports will be required from companies beginning May 1. And as, for example, the Intrastat report is based on HS codes - eight digits that today are used only in customs declarations - then the most important question is how to produce this data from every company. Most existing accounting software programs do not contain such information, as they were designed for different purposes (such as accounting which is not based on HS codes).
In addition, Intrastat declarations should be submitted only for goods traveling within the EU. Thus in companies' accounting systems these goods should be somehow separated from others. Tax calculation and tax reporting regarding imported and exported packing materials present an even more complicated challenge, as do penalties.
What are the possible solutions to cope with these upcoming changes? There are two major options: A company can either organize all necessary processes itself or outsource these activities. Companies should take the following questions into consideration before choosing: (1) Does the company have the necessary competence to reorganize its existing system and produce new reports and calculations? (2) What amount of work will be needed to carry out all activities without assistance? (3) Does the company have all of the necessary software solutions in order to collect the required data?
Many companies in Latvia seriously lack information about these coming changes, and therefore they cannot even start the necessary preparation work for reorganizing their internal systems and finding appropriate solutions to address changes in transit logistics after EU accession.
Some additional issues that will become important as companies work to optimize supply chain systems include: (1) changes in the road transport systems (the absence of TIR Carnet, border crossing or export clearance expenses if cargo is addressed from the EU to Latvia and vice versa, for example, and the significant price increase for diesel fuel); and (2) the role of customs warehouses in the movement of goods within the European Union (as customs duties will no longer be calculated and warehouses are mainly designed to assist in the deferment of these payments).
Another logistics dimension that will face big changes is logistics service providers - including customs warehouses, distribution terminals, ports, forwarders, carriers. You need only to glance at a map of Europe to realize that Latvia is the most western EU country, bordering mainland Russia, which represents one of the biggest world markets. Until May 1, only Finland will have had such a status. But Latvia's non-freezing ports, excellent geographical location, logistics know-how, inexpensive labor and rent expenses are only some of the appealing aspects that make the country suited to function as the main transit point to Russia in the future.
Although, there are many changes that remain to be done - e.g., the introduction of fiscal warehouses and the elimination of several bureaucratic barriers that hinder cargo flow through Latvia, for example, the overall situation is not so bad. A number of German, Dutch and French companies that are investigating possible investment plans for Latvia - especially near the ports and at the Latvia-Russia border - signal promising developments.

Kalvis Vitolins is a partner
of the Logistikas Partneri company and Normunds Krumins is its director.