Grey-market imports: How Russia is dodging Western sanctions

NEW YORK: Russia has been importing goods without the consent of their Western manufacturers for months.

It’s part of a scheme aimed at helping the country bypass supply restrictions put in place by Western countries and companies in response to the invasion of Ukraine.

Parallel imports, or grey-market purchases, into Russia totalled $6 billion from May to July, Denis Manturov, Russia’s deputy prime minister and minister of industry and trade, told reporters this week.

Russia launched the parallel imports scheme, covering goods ranging from auto parts to gaming consoles, in May as imports slumped due to Western sanctions and scores of foreign companies left its shores in protest against the war in Ukraine and to avoid any potential reputational damage.

“Russia is not going to do nothing in response to Western sanctions. So, it obviously has procedures in place to try and get a lot of critical imports that it needs to sustain the economy and maintain the war,” Timothy Ash, an emerging-market strategist from BlueBay Asset Management, told DW. “The question mark and challenge will be what the West will do to try and tighten the sanctions regime to stop that from happening.”

Parallel imports refer to goods that are imported into a market without their manufacturers’ consent.

To be clear, they are authentic goods, but they may be meant by the manufacturer to be sold in a different country or region.

For example, if a pair of Levi’s jeans produced, packaged and priced for the Indian market is imported by a reseller to be sold in Germany outside of the apparel maker’s certified distribution channels, then that’s a parallel import.

Such imports are deemed to be on the gray market as they are sold by unauthorized dealers.

Since brand owners have no control over the distribution of these goods, they are not covered by their warranty plans.

In May, Russia released a list of Western goods eligible to be imported under the parallel imports scheme.

The list included critical imports like warships, spare parts needed for railways and auto components as well as consumer goods like electronics and household appliances, clothing, footwear and cosmetics — goods that Russia said their Western manufacturers “refused to supply directly.”

Some of the brands on the list were Mercedes-Benz, Volkswagen, Continental, Ferrari, Apple, Samsung, Microsoft, Siemens, Duracell, Canon and PlayStation.

The Russian scheme offers importers protection from civil suits for bypassing official distribution channels.

Much of the unauthorized imports into Russia are coming via post-Soviet countries like Kazakhstan, Armenia and Belarus.

Parallel imports are typically not illegal. They are original, licensed products just obtained via parallel distribution channels, often more expensively.

“Gray and mysterious may only be the distribution channels by which these goods find their way to the importing country,” according to a document published by the World Intellectual Property Organization.

“If products sold or imported by third parties fall within the scope of patents, trademarks or copyrights valid in this particular country, such sale or importation by third parties is generally deemed infringing,” the document said.

The Russian scheme involves the international principle of copyright exhaustion, which allows a Russian company to import a product without the consent of the manufacturer as soon as it starts selling in any country in the world, according to Russia’s Interfax news agency.

This means when Apple, which is on the Russian parallel imports list, starts selling the iPhone 14 later this year, Russian resellers like re:store would be able to import them for sale despite the US tech giant pulling out of the country months ago.

The Russian scheme is aimed at ensuring the availability of vital imports, which plunged following the exodus of Western companies.