SKOPJE, Macedonia, April 3 (UPI) -- 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 lifeblood 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 roundtable discussion last summer about the precarious state of Kyrgyzstan's shuttle trade. Many former Soviet republics have tightened their borders. In May, Russian officials seized half a million dollars worth of shuttle goods belonging to 1,500 traders. When two million dollars worth of goods was confiscated in a similar incident last fall, eight Kyrgyz traders committed suicide.
The number of Kyrgyz shuttle traders dropped to 300,000 from 500,000 in 1996. Most of those left are insolvent and many immigrated to other countries. The shuttle traders asked the government to legalize and regulate their vanishing trade and save them from avaricious 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 International Monetary Fund, 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 entwines with organized crime and official corruption. Shuttle trade also constitutes unfair competition to legitimate, tax- and customs duties-paying enterprises -- manufacturers of textiles, shoes, cigarettes, alcoholic drinks, and food products. Shuttled goods are not subject to health and safety inspections, nor quality control.
According to the March 27 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.
The East West Institute claims 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 underestimate. 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 expects it to increase to $2 billion this year. By comparison, the official exports of Turkey to Iraq amount to $800 million. Turkish Prime Minister Bulent Ecevit himself told the Ankara Anatolia news agency, "We have provided necessary support to increase shuttle trade".
The Economist details the flourishing "petty trade" between China and Vietnam. Western and counterfeit goods are smuggled to bazaars in Vietnam, which are owned and operated by Chinese nationals. The border between these two erstwhile enemies opened in 1990. This led to the rise of criminal networks that involve border guards and policemen.
Another hot spot is the Balkans. In a report dated July 2001, the Balkans Information Exchange describes the "Tulip Market" in Istanbul. Vendors are fluent in Russian, Bulgarian and Romanian and most of the clients are Eastern European. They buy wholesale and use special vans and buses to transport the goods, mainly textiles, north -- frequently to destinations in the Balkans. 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 police officers 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, approximately 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 had been subject to U.N. sanctions until lately. Fuel smuggling and other forms of sanctions busting have largely ended but smugglers have now turned to 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 Russian cosmetics and consumer goods such as watches, cameras, or hair dryers to Indian buyers. 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.
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 in 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 shuttle trade accounts for as much as 90 percent of all imported goods "in certain spheres," such as furs. As late as 1994, Russians were allowed to import up to $5,000 of duty-free goods in their accompanied baggage -- a relic of communist days when only the privileged few were allowed to travel.
As many as 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 to $1.5 billion to $2 billion, according to 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 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 future 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 already 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. It has since doubled. The IMF and the European Union are much derided by the Polish minority now trapped in Western Ukraine.
The situation is likely to be further exacerbated with the foreseen introduction of a reciprocal visa regime between the two countries. Shuttle trade may be decimated by the resulting bureaucratic bottlenecks.
It may not be needed by the time Poland accedes in 2004 or 2005. 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.