Recently the Russian Government’s Resolutions No. 860 of 5 July 2019 and No. 1956 of 31 December 2019 have brought some new rules to the fashion industry in Russia. In this article we will touch some important points about clothes and footwear labeling.
The Resolution of the Russian Government No. 860 of 5 July 2019 (“Resolution No.860”) and the Resolution of the Russian Government No. 1956 of 31 December 2019 (“Resolution No. 1956”) (together, the “Resolutions”)implement the mandatory labeling system for various categories of products.
The Resolutions are aimed at making the monitoring of cross-border and domestic trade of shoes and certain clothes easier. The Resolutions envisage a state monitoring system that contains data on putting such products into circulation,moving them in the market and selling them. We note that these Resolutions are applied only in Russia and will not have any effect in Belarus and Kazakhstan.
Resolution No. 860 applies to all types of shoes, while Resolution No. 1956 applies to certain categories of clothes, namely: natural or faux leather garments;jackets; women’s knitted blouses; bed linen; and dining, kitchen and bath clothes (together, the “Designated Products”).
Resolution No. 860 (for shoes) comes into force on 1 July 2020 (according to the additional Resolution of the Russian Government of 3 March 2020), while Resolution No.1956 (for certain types of clothes) comes into force on 1 January 2021.
Further,pursuant to Resolution No. 1956, the Designated Products can only be allowed to be offered for sale and sold in Russia in case they are marked with a special data matrix code issued by the operator of the labeling system nominated by the Center for Development of Promising Technologies (CDPT).
Below we briefly describe other requirements of the Resolutions and some issues they may entail.
1. Entities trading the Designated Products need to be registered in the monitoring system
All entities that are tax residents in Russia and are engaged in any form of trade of the Designated Products need to be registered in the monitoring system as traders, except for those that purchase the Designated Products for purposes other than their subsequent resale.
It is unclear for now how to act when the trade is arranged or facilitated by suppliers acting in an agency capacity or under service arrangements, such as online store administrators or delivery services. Their status as participants of the new monitoring system depends on whether they act as disclosed agents of the Designated Products’ producers.
2. The Designated Products must be marked before their sale in Russia
The Designated Products must be labelled with data matrix codes before they enter the Russian market. The Designated Products, which are imported into Russia,must be labelled before customs clearance procedures. Therefore, the Designated Products’ importers will have several options. They may label the Designated Products at the site of the foreign producer (i.e. the distributor) or at a special hub abroad before the Designated Products’ import into Russia.Alternatively, labeling can be organized at a customs storage in Russia under a special customs procedure.
3. The Designated Products’ movements are subject to reporting
All transactions and movements involving the Designated Products should be reported in the monitoring system.
The new rules seem to be quite burdensome for business. According to a literal interpretation of the provisions, even transportation of the Designated Products from one storage to another, or other actions which do not involve sales of the Designated Products to consumers, must be reported via the monitoring system.
4. Transactions with the Designated Products should be formalized with e-documentary flow
The monitoring system requires e-documentary flow. However, some documents produced during the Products’ transportation and sale are still required to be in paper format. For instance, paper transportation documents supplementing the delivery of products cannot be replaced with electronic ones.
Proper compliance may require significant amendments to a company’s distribution process and e-documentary flow. It may even influence the business models practiced for e-commerce and online trade channels, since it will be impossible for a distributor to legally sell or ship the Designated Products to an entity which has not been registered in the monitoring system.
The new rules envisaged by the Resolutions will not be easy to comply with for some business models. Retailers are most likely to encounter many issues when complying with the reporting obligations and interacting with the authorized entities that will enforce the new regulations.