Bribes for Brands

For visitors to contemporary Moscow, it is hard to conceive of the city without a cornucopia of expensive imported goods – shops filled with Gucci, Prada, Naf Naf and Benneton line Tverskaya Ulitsa, the supermarkets overflow with imported French and Dutch cheeses, prime cuts of meat, oranges, grapefruits, kiwi, pineapples…it looks, to a westerner, just like the West. Brand names are an omnipresent fact of life in most big Russian cities now, and this is by no means a bad thing. I remember all too well the Russia of the 1980s and early 1990s, when the stores were barren and black-market traders, fartsovshiki, ran the streets in little leather-jacket gangs and literally followed you for blocks, trying to get you to part with some coveted article of clothing.

As Russia grew into its economic potential, the fartsovshiki grew up too; they got smart, and many of them brought their hustle, intelligence and street smarts to foreign trade. Roman Abramovich, one of Russia’s richest oligarchs, got his start back in 1987 by parlaying a 2000 ruble wedding present into a black-market business in perfume, toothpaste, tights and deodorant. I know plenty of Russian friends and professional acquaintences with similar biographies.

Yet few westerners actually think about where their brand name goods come from, how they get into Russia, and how they cross the border. Transportation is one of those things that people take for granted, like water or electricity – you just go into a Moscow supermarket, and there are Chiquita bananas in produce and Huggies diapers in baby supplies. But questions of branding, trademarks and intellectual property rights are matters of hot debate in Russia, and still being sorted out between importers, the courts and in the Federal Customs Service. In true Russian form, much of the decision-making is arbitrary, and decided in the breach by money changing hands.

A recent article in Novaya Gazeta called “From Huggies to Levis” discusses in fascinating detail the affect attempts by western companies to guard their trademarks on imports to Russia. Western companies tend to have no mercy on copyright infringement, seeing it righty as theft. Apparently the European Business Association (representing some of Europe’s biggest brand names) recently appealed to the Russian Federation Arbitration Court to limit the import of brand-name goods to licenced importers. According to the article, “The object is that even authentic goods imported into Russia without the trademark owner’s permission must be considered contraband.”

For an official dealer, the situation presents no problem. The Customs Code grants a trademark owner the right to enter its trademark into the customs register as its intellectual property. The company then decides which companies have the right to be their dealer and requests their names be entered into the customs register of approved importers. This is a hard blow to the many small and medium Russian businesses, for whom it may be impossible to obtain permission from a trademark holder.

But the law and its interpretation is not yet clear. The article cites a case with the Moscow-based company AVTO-Logistika, an autoparts company whose cargo was arrested by request of the auto manufacturers Honda and Nissan at the Vyborg Customs Post on the Finnish border in February. AVTO-Logistika markets itself as speedy and reliable parts supplier, and it hurt them to have their cargo tied up while customers were waiting. Vyborg Customs decided the cargo was contraband – not counterfiet, because there was no doubt the parts were genuine Honda and Nissan – but contraband. The law appeared to be on the side of Honda and Nissan but AVTO-Logistika decided to argue Customs’ decision and went to Moscow Arbitration Court. Judge Anatolij Erokhin – in a ruling that shocked many observers – found in favor of AVTO-Logistika. AVTO-Logistika indeed was within its rights to import spare parts without permission from Honda and Nissan.

However other judges have ruled the exact opposite way, in favor of trademark holders, even when the cargo is not for re-sale but for municipal use. For example, the electric company for the city of Vologda, Vologdaoblcommunenergo imported 172 rolls of European produced building insulation. Officers at the Vologda Customs Post arrested and confiscated the cargo because the electric company was not listed in the customs registry as an official dealer of the insulation.

The general rule seems to be that the Customs Service allows trademarked cargo into Russia only with official permission from the trademark holder. But experienced importers know that the Federal Customs Service has two unwritten rules; the first is, nelzya, no esli ochen khochetsa, mozhno – it is prohibited but if you really want to, you can; the second, money talks. As the article comments, “…the standard bribe at the border for an opening – that is, for allowing a truck laden with cargo through [customs] is $400. The trucking company quietly includes this cost into his services. But if a foreign trademark licence holder decides to look out for his interests and puts his trademark into the customs register, the ‘tax’ goes up to $3,000 per truck. The cost is immediately passed along to consumers of imported goods.”

Of course, it would be interesting to find out where the 172 rolls of confiscated insulation finally wound up, who sold them, and at what price. Knowing what I do about the Federal Customs Service, contraband, and confiscation, it would be easy to draw a cynical conclusion.

Citation: http://www.novayagazeta.ru/data/2009/002/12.html