Trade Law: The Moment of Truth

Nikolai Voznesensky, Ph.D.
Senior Associate
Goltsblat BLP, Moscow

You have undoubtedly been alerted many times by your lawyers, GR experts and auditors that the Trade Law is now in effect in Russia. And, not surprisingly, as soon as you learn from them that a better balance has now been struck between retailers and suppliers, you also find out that more resources and time are needed in order to comply with the Law’s new requirements. The Federal Law “On the Fundamentals of State Regulation of Trade in Russia,” which is confusing at best, apparently leaves lawyers with no better solution than to warn businesses of the risks and insist that contracts and marketing policies be amended. Is there any chance of winning by being smart or is it all about abiding by the new rules?

Well, many businesses have already found something in the new Law to use to their own advantage, be it the restriction on bonuses, equal treatment of suppliers by retail networks, maximum payment terms by payment deferral, or something else. Let us get to the core of the matter, however, and ask: Who will deliver justice? Or, in other words, how will the law ultimately be enforced? This is the moment of truth.

The Law was drafted by the Industry and Trade Ministry yet, being a federal ministry, it is not entitled to exercise direct control over the Law’s application, this being a core principle of the Russian administrative reform dating back to 2004. Please deprive us of the pleasure of being your advocates said Deputy Minister Naumov this February at Food Business Russia 2010.

The Federal Anti-Monopoly Service is renowned for its vigor and is expected to enforce the Law. Yet it is mainly interested in relations between producers and big retail chains, which have been on its radar for years now. If you feel discriminated against by any such chains, you could choose between applying directly to the Federal Anti-Monopoly Service or wait until it launches an anonymous survey among suppliers.

Yet why should the FAS launch anonymous polling? Because they admit that only a few suppliers are motivated to complain against their most important business partners, the outcome being unpredictable and at least 6 months in the future at the very best. I think you could name a couple of reasons not to do this off the top of your head.

It is also important to note that the Federal Anti-Monopoly Service is officially authorized to control only three articles of the Law, namely those dealing with the imposition of unfair terms by retail chains or big suppliers on the counterparty and those controlling expansion of chains beyond the 25 percent threshold in municipalities or constituent entities of the Russian Federation. Deputy Head of the Anti-Monopoly Service Andrei Kashevarov has admitted that Article 9, which sets the maximum payment deferral and restricts bonuses, may be beyond their control as of today, at least.

Having said this, I am far from preaching nonresistance. Quite the contrary. The Law, if read attentively, provides a commercial entity with a mechanism for enforcing it without resorting to the government or the courts, at least at the first stage. For instance, first, a supplier and a retail chain must publish on its web site or provide the counterparty in writing all the essential conditions of the future contract. An official enquiry or even several enquiries filed in due time may help you obtain useful information. Once in possession of such information, you have an important negotiating tool: Your counterparty cannot demand anything more than it has pledged in its online declaration or in the written response. Please note that everything else could constitute discrimination prohibited by the Law.

What about payment terms? A retailer may avoid the maximum deferral period if the supplier fails to provide all the documents required by the Law or the contract in time. Make sure the contract is not onerous as regards the number of documents you have to provide. If you are the one to make the payment, ensure that all the documents have been provided and, should you find any omission on the supplier’s side, do not hold off sending the supplier a written request for the lacking documents and extend your payment term accordingly.

What if you are a retailer making a profit on providing services to suppliers? You are not entitled to make the supplier pay for your services if it is not interested in them. Well, make the supplier interested and motivated. Why not elaborate standards for accepting new products, for example. If a supplier cannot prove that its new product will find a market, you are not obliged to buy it unless the supplier participates in a promotion campaign guaranteeing profit. This is perfectly legal provided it is economically justified. A supplier, on the other hand, should do its homework and prepare market research or whatever else is needed to show that the product will be a bestseller without any effort on the retailer’s part.

So — may the smartest win!