Russia's new rules for alcoholic beverage imports will increase costs by as much as 10 times for EU and North American exporters to the country according to a report on the changes.
"This new rule illuminates Russia's confusing regulatory update process because at present, neither regulators, current importers, or importing license holders understand how the new regulation will be managed and imports will likely be disrupted with the new year," the US department of agriculture (USDA) said in a report issued yesterday.
Effective 1 January 2006, Russia plans to change its procedures on excise stamps and import licenses for all alcoholic products. Laws governing excise stamps for alcohol products change regularly in Russia, the USDA noted.
"However, the new State Regulation Law (SRL – Law On Production and Turnover of Alcohol) purports drastic changes to the alcohol market, which some importers, distributors and the European Business Association (AEB) fear will put the market into a state of crisis, freezing both importation and distribution of alcohol until June 2006," USDA stated.
The change with the most potential impact is the mandatory requirement that importers apply excise stamps on the Russian territory only.
The stamps do not yet exist, USDA stated.
The law will also require the supplemental application of bar codes to each individual bottle. The application of both excise stamps and bar codes must occur solely within the territory of the Russian Federation.
The USDA says the rule change will mean importers will be forced to set up procedures to unpack their cartons of alcohol and spirits at arrival in Russia to apply the stamps.
Currently Russia allows the strip stamps to be applied at bottling or packaging facilities in the country of origin. Import agents receive blocks of the stamps from the Russian authorities and forward them on to the foreign companies for application before the products are packed.
The rule will also change licensing procedures. This will reduce the number of licensees substantially, USDA stated.
Russia not only does not have the infrastructure or properly trained manpower to support these changes, the USDA stated.
The new process is estimated to increase costs by as much as 10 times, according to the USDA, quoting Association of European Business estimates.
"The new excise stamps have yet to be printed, warehouses within the RF to apply them have yet to be built," the USDA stated.
Russia's spirits market is worth €10.3 billion a year, according to USDA figures. The country imports about €853 million worth of alcoholic beverages a year.
While the new regulation will disrupt trade, Europe rather than the US has a greater stake in this issue.
From January to September 2005, Russia imported almost $300 million in spirits, wine, and beer from the EU's 25 members.
According to estimates, Russia imports $25 million of alcoholic beverages from the US. The figures do not show the many US products that are re-exported from Europe to Russia.