Challenges for businesses from new product labeling requirements in the Eurasian Economic Union

December 6, 2018
Natalia Malyarchuk
Head of Kesarev Kazakhstan Office
Natalia Malyarchuk, Head of Kesarev's Kazakhstan office, spoke of the hidden challenges for businesses caused by the introduction of extensive new product labeling requirements in the Eurasian Economic Union (EAEU) and its member states during the international forum "Anticounterfeiting 2018" on November 19, 2018. The challenges include the unclear hierarchy of product labeling systems at national and international levels, the cost increase for FMCG products and thus for consumers, the remaining turnover of unsafe products despite product labeling and inevitable difficulties for pilot projects. published an article based on the presentation.

At present, EAEU officials are discussing different approaches to product labeling in order to choose the most suitable for governments, businesses and consumers.

Mixed hierarchy of product labeling systems

Currently, all five member-states of the Eurasian Economic Union – Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia – have their own systems for product labeling and traceability. They differ from each other in IT platforms, lists of goods required to be labeled and the specifications of the labels.

For instance,

  • in Kazakhstan, Belarus and Russia, excisable alcohol and tobacco products are subject to mandatory labeling and traceability
  • in Belarus, Russia and Kyrgyzstan – animal products are required for labeling
  • in Armenia 42 groups of goods are labeled.
In addition to national systems, there is a single EAEU labeling for natural fur products, which also provides for variability in the use of labels.

The lack of unification in approaches to types of identification labels, procedures of product labeling, and the functioning of IT systems can become a burden for producers aiming to introduce new products in one of EAEU countries, due to increased logistics cost, time of delivery and maintenance of warehouse space.

Cost increase for FMCG products

Currently, all product traceability systems are at different stages of development and integration with the tax and customs services within the EAEU countries. This makes it difficult to carry out preliminary calculations on the costs of code generation, label purchases, installation and support of required equipment and software, as well as recruitment of new personnel.

One could argue the opposite, pointing to the pilot project of the labeling of products from natural fur. Indeed, the additional price tag of $1 did not greatly affect the cost of fur coats. However, the question of how it could reflect on the price of FMCG products remains open.

Additionally, the need for traceability creates additional costs for distribution networks, especially for small businesses. These are in the form of scanners required to be used right before the sale of a product to a consumer. And, in case of retailers selling products with different types of labels, several such devices.

The new requirements could lead to a significant reduction in small-scale retail and decrease of availability of many product categories in remote areas, thus the further concentration of retail under the control of large, big-name chains.

Turnover of unsafe products

Every market has products manufactured with technical violations or those that do not conform to declared standards. Labeling them could mask these properties from the consumer and thereby contribute to the legalization of such goods.

Mandatory labeling of FMCG goods will create an additional financial and administrative burden for producers and importers and will lead, according to various expert estimates, to the final products' cost to rise by 10-30%.

If we do not take into account these trends now, the conditions for the growth of illegal products and administrative barriers between the members of the EAEU will be formed in the near future.

Inevitable difficulties for pilot projects

Nearly every pilot project faces numerous predictable and unexpected challenges. In this case, they will include the lack of a mechanism to protect national business in violation of the rules of labeling and circulation of goods without control marks, the lack of infrastructure for the production of radio frequency tags in the country, and weak systems to protect labels from the illegal collection of information about manufacturers and goods.

In addition, the current version of the EAEU Agreement on the labeling of goods which declares the freedom of member states in the choice of product groups and methods of labeling may have a negative impact on the common market due to a high probability that countries with large markets would declare their rules to countries with small markets.

Thus, based on the analysis of regulatory and institutional problems, it seems appropriate to implement labeling on a voluntary basis and in a test mode, avoiding additional costs for the end user, as well as taking into account the wide discussion with the participation of representatives of authorities, business and the expert community, before the introduction of the unified traceability infrastructure of the EAEU by 2025.

You may find the full article in Russian here.