How will the electronics suppliers’ game of monopoly end?

The world’s largest electronics manufacturers and Ukrainian distributors demand from the Ukrainian Prime Minister tougher terms for imports of electronics.

They want to force operators to disconnect unregistered mobile phones and to tax cross-border online consumer shopping.

The ultimate aim of such innovations, in the opponents’ opinion, is to make superprofits by blocking alternative import channels for cheaper electronics and single-handedly dictating prices for goods throughout Ukraine.

Tighter import conditions were suggested by the Association of Information Technology Enterprises of Ukraine. It lobbies the interests of 72 of the largest manufacturers, importers and distributors of consumer electronics, who command 90 per cent of Ukraine’s market.

On 10 May 2016, the Association forwarded a letter to the Prime Minister, alleging that the state budget loses 3.6bn hryvnias each year because of illegal imports.

‘As a result of electronic products supplied cross-border without customs clearance or at understated customs value, the State loses import VAT and fees,’ claims the AITEU.

In the AITEU’s opinion, concealment of profit from sales of illegally imported goods, along with settlement operations that go unregistered, translate into lost tax revenue for the state budget, while legitimate importers also incur losses.

On May 17, the Association held a round-table discussion with representatives of the State Fiscal Service. During the discussion, the AITEU members told about the extent of the damage caused by the illegal imports and their basic schemes.

Behind the ‘iron curtain’

Meanwhile, non-member electronics sellers have been angered by the AITEU’s initiative. They believe that the Association, under the guise of anti-smuggling activities, intends to engage the Government’s assistance to monopolise further the right to import electronics into Ukraine. Its objective is to dictate product prices to retail chains single-handedly and to adjust manually its revenues in the impoverished Ukrainian market.

Many companies in Ukraine are keen to import electronics from international markets officially and independently.

They are willing to offer much lower prices for the same product quality and warranty service level. However, they cannot launch this business in view of the unclear situation with the principle of exhaustion of trademark rights and because of the senseless certification system.

Vladimir Kolodyuk, the Unitrade Group’s CEO, says that he is ready to import officially 128 GB iPhones 6s into Ukraine and to sell them $85 cheaper than other ‘proper’ sellers. However, he can’t do this without the permission of Asbis and ERC, exclusive Apple importers in Ukraine.

Their exclusive right to import Apple products is set forth in the Customs Register of Intellectual Property Rights.

Technically, the Registry is needed to prevent the flow of counterfeit goods into the country. However, because of ambiguous legislation, the Register has become an ‘iron curtain’ for business. All those who have not been entered into the Register have no right to import goods into Ukraine. The customs would simply not let them through.

Only rightholders, i.e. electronics manufacturers, may enter a company into the Registry, however, vendors limit the number of importers in Ukraine. Thus, the national principle of exhaustion of rights applies in this country.

Meanwhile, the international principle is adopted throughout civilised countries, whereby any player may import goods without the manufacturer’s permission.

The principle of exhaustion of rights has become a sensitive issue in the Ukrainian vendors’ offices. LG and Lenovo declined any comments on it.

‘These corporations get superprofits from their monopoly position,’ explains Kolodyuk.

‘iPhone is certified, but this certificate has no use for us. We have to pay fabulous price to buy our own certificate.

‘Before that, the certification authority will ask the rightholder’s permission to test the device. And they warn us beforehand that neither Apple nor Sony or Samsung would give us the certificate,’ adds Kolodyuk.

However, some companies are using different schemes to import electronics. They compete in price with official importers who lose money as a result. Thus, the AITEU has figured out how to make life difficult for the ‘illegals’.