Since 2019, the Government of the Russian Federation has been implementing mandatory labeling requirements for various categories of goods. The article analyzes the consequences of the new legislative regulation for business in Russia.
Key words: Mandatory Labeling of Goods, Administrative Responsibility, Restriction of Competition
For more than two years, the requirements for mandatory labeling of consumer goods with unique identification means (barcodes) have been in force in Russia. The purpose of the new legislative requirements is a ban on the import, sale and even storage within the Russian Federation of unlabeled goods that are currently recognized as counterfeit by Russian legislation.
PRODUCT LABELING AS A MEANS OF CONSUMER PROTECTION
For all importers, sellers and manufacturers, the labeling of goods is a prerequisite for the circulation of the good on the territory of Russia and for its sale1. The purpose of introducing mandatory labeling is to significantly reduce the number of counterfeit products and improve the quality level. For the consumer, labeling is a guarantee of the safety of the product, a confirmation that the product meets the established regulatory requirements.
First of all, consumer goods are subject to mandatory labeling. Currently, categories of goods such as tobacco products, footwear products, perfumes, photographic goods, tires, textiles, fur products, medicines and dairy products are subject to labeling2. In the future, the Government of the Russian Federation intends to expand this list. The exception is goods intended for samples at international exhibitions and fairs, as well as other goods not intended for sale. Such goods are not subject to labeling.
Labeling ensures the legality of the appearance of a specific unit of goods on the market by applying a unique machine-readable identifier code to product, which, in turn, automatically records information about the product in the system of the supervisory authority.
There is also a possibility that labeling will have a significant impact on the system of evidence in court disputes with consumers. Accordingly, within the scope of disputes regarding the proper quality of the goods received by the consumer, the courts are highly likely will attach great importance to the presence of labeling on the disputed good. After all, under the new legislative regulation, the absence of labeling automatically means that the product is counterfeit. In other words, any party, except for the consumers, importer, manufacturer, or seller, which puts products for sale without labeling will be held responsible.
REQUIREMENTS FOR MANDATORY LABELING OF GOODS
As mentioned above, the obligation to label goods is imposed on parties who are engaged in the import of goods, their production, wholesale or retail trade. Therefore, the labeling actually applies to all parties of business community.
To carry out labeling, the company shall be registered in the state information system of monitoring the circulation of goods "Honest Sign". At the same time, it is necessary to conclude a contract with the operator of this system for the provision of services of the provision of labeling codes. The cost of one labeling code is 50 kopecks (0.01 euro) without VAT3. However, it should be borne in mind that the labeling shall be applied with respect to each unit of the product. Despite the low cost of codes, in fact, labeling of consumer goods leads to a significant increase of the costs of manufacturing companies and sellers.
In case goods to be imported fall under the labelling requirement, it is necessary to ensure that barcodes are applied before the goods cross the border, or on the territory of the country of import of the goods, but under the control of customs authorities.
LABELING AS A MEANS OF STATE CONTROL OVER BUSINESS AND RESTRICTION OF COMPETITION
In fact, labeling allows state authorities, in particular customs and tax authorities, to establish total control "over the destiny" of goods within Russia. Accordingly, the circulation of any product can be traced from the moment of its production or import into Russia to the moment of disposal or purchase by the end consumer.
In addition, it is obvious that labeling will increase budget revenues through the regular purchase of barcodes. Also, due to labeling, the level of information interaction between state bodies will increase, customs and tax authorities will have access to a large amount of information regarding the activities of companies.
However, the first effect of the mandatory labeling requirement was an increase in the cost of goods for consumers. For manufacturers and importers, labeling has already turned into additional monetary and time costs due to introduction of automated accounting of goods, the purchase and installation of special equipment for applying and scanning codes, and training of personnel.
Additional business expenses arise not only when the product is put into circulation, but also at the stage of its storage. So, if the label of any product, including those stored in a warehouse, is torn, fades or is lost, it is not allowed to print a new one of the same label, it is necessary to re-label the product, which means a new unique code shall be assigned, accordingly, manufacturer, importer or seller shall pay for new code for the second time. So re-labeling is time-consuming and costly procedure. As it can be understood, even if a product is not put into circulation, the manufacturer (supplier) will bear the costs of labeling it.
Also, labeling complicates the procedures of disposal of goods due to damage, non-delivery since the goods are controlled at all stages of their existence. The positive effect of such control can be the prevention of illegal write-off of the company's working capital.
Nevertheless, the burden on business related with the requirements of product labelling may lead in the near future to a redistribution of the market towards the products of large companies, a decrease in competition and an increase in prices. For example, costs due to labeling requirements may affect adversely small companies. As a result, for small and medium-sized businesses, the labeling requirement is more like a "barrier" for entering the market and successful entrepreneurship. It should also be recognized that labeling can lead to a decrease of imported products in Russia, since it will become an additional barrier for investors during entrance to the Russian market.
According to the legislation, production and sale of goods subject to labelling without labelling is subject to administrative fine in the amount up to 300,000 rubles (about 3,500 euros). Although the fines are not so high as to destroy the business, the confiscation of unlabeled products can be a particularly painful consequence of the new rules.
Initially, the requirement for mandatory labeling was intended to combat counterfeit goods and was a means of protecting the rights of consumers. In practice, the labeling procedure has provided customs and tax authorities with extremely wide access to the operational activities of companies. At the same time, labeling became an additional expense for the companies themselves and led to an increase in the cost of products. However, in my opinion mandatory labeling requirement shall be exercised solely for purpose of the protection of the consumer rights. Access to the operation of the companies due to such regulation shall be restricted with the purpose of the protection of the consumer rights. Small and mid-sized companies shall be supported and exempt from the labeling charges, hereby small companies shall not face unfair competition. Taking into consideration all above mentioned consequences, hopefully mandatory labeling will be improved in near future in the favor of the protection of the consumer rights.
1. Federal Law dated 28.12.2009 No. 381-FZ "On the basics of state regulation of trade activity in the Russian Federation", art. 2
2. Decree of the Government of the Russian Federation dated 28.04.2018 No. 792-r
3. Resolution of the Government of the Russian Federation dated 08.05.2019 No. 577
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.