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.