Home Finance & Markets Russia allows parallel imports into the country to beat the sanctions

Russia allows parallel imports into the country to beat the sanctions

The Russian Cabinet of Ministers has prepared the fourth package of proposals to improve the stability of the country’s economy in the face of sanctions.

“It contains about two dozen ideas that cover several areas – from supporting small and medium-sized businesses to large industrial enterprises,” Prime Minister Mikhail Mishustin said at the praesidium of the relevant governmental commission.

One of the proposals approved today is expected to irk Europe and the U.S. is the legalization of parallel imports.

Russia will create a list of products allowed to be imported into Russia as part of parallel imports. The Ministry of Industry and Trade will approve the proposals of industry departments.

The purpose of this mechanism, explained by the head of the Cabinet, is to satisfy the demand for goods containing the results of intellectual activity. Until now, they could not be sold in Russia without the permission of the copyright holder, manufacturer or dealer of the product.

However, the cancellation of liability will not include the import of all products, but only those “necessary to saturate the consumer market,” the ministry said. 

Earlier, for the supply of products to the country without the copyright holder’s permission, there is a legal obligation to pay the individual or the organization a compensation of up to 5 million rubles. In addition, the goods must be destroyed. 

Threat of counterfiet goods

Federal Antimonopoly Service told Izvestia that the approach would not increase counterfeit goods in Russia. The antimonopoly department said that the norms and requirements for safety, quality and permits for products would continue to operate.

Several companies have demanded the full legalization of parallel imports. The company clarified that they want to import original goods that cannot be bought due to logistical issues and the departure of Western brands.

Legal grey products – Not a new proposal

Earlier in Russia, a discussion was repeatedly raised about the full legalization of parallel imports, not just about abolishing liability. In 2015, the Russians discussed the issue of importing auto parts, medicines and perfumes into the country without the permission of the copyright holder. But, the decision was never made.

Due to the sanction by the European Union and the U.S., several companies have stopped the supply of their goods to Russia. 

Can the law be challenged in the Russian court?

The U.S. and the Western brands have the right to raise a case against the Russian move to legalize parallel imports. However, in 2018, the Constitutional Court had legalised parallel imports, agreeing with the applicant’s argument that right holders can unfairly use the exclusive right to a trademark, thus limiting the import of goods into the Russian Federation’s territory and overestimating their price.

What if the Companies return to the Russian market?

There is an argument in Russia that the legalisation of parallel imports will make the domestic market less attractive to foreign rights holders. 

Russia does not expect the legalisation of parallel imports to prevent foreign businesses from ever returning to Russia. However, the businesses could see this as one of the factors preventing them from returning. Still, lifting the ban on parallel imports should not significantly affect the decision to return foreign businesses to Russia. Foreign enterprises are already accustomed to such a regime. The international principle of exhaustion of rights applies in the USA, Japan, China, and the U.K. It means, after a product is officially launched in any country, the right holder cannot prohibit its sale in other countries. But, the copyright holder has the right to stop the circulation of counterfeit goods.

Pros and cons of parallel imports

Pros :

  • reduction in product prices;
  • expanding the range of goods;
  • increased competition and protection from market monopolization.

Cons:

  • weakening control over product quality;
  • opportunities for unfair competition;
  • decrease in the quality of after-sales support.

Western companies want to return, but Russia’s patience is limited – Medvedev

Western companies that have announced they will cease their operations in Russia are in fact “really eager to return” to the Russian market, but are afraid of pressure from their governments, as per Deputy Chairman of the Security Council Dmitry Medvedev.

On March 19 Medvedev wrote on his Telegram channel, Western companies, many of which have “loudly announced their exit” from Russia, from the very start think “only about returning”, while smartly preserving labour, paying salaries, and making other payments to the budget. 

Medvedev wrote that in Western countries there are not only “propagandists, but also pragmatists,” for whom “when words are on one side of the scale, and real money on the other, outweighs the second.” However, Russia has limited patience in this regard, he wrote.

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