A government requirement compelling producers of food and consumer goods to provide retailers with holographic product certification seals is burdensome and will make consumers pay more.
A government requirement compelling producers of food and consumer goods to provide retailers with holographic product certification seals is burdensome and will make consumers pay more, according to business sources.
On Oct. 15 the government gave retailers a Dec. 1 deadline to have the certificates, which bear a holographic seal, on file for each product they sell. Manufacturers and importers say that the certificates are so costly that they amount to a hidden tax. The agencies that provide the certificates say they can’t produce the documents quickly enough to comply with the government order.
That means that retailers will be forced to either remove items from store shelves, or sell products for which they have not yet received certificates.
The country’s retailers are still recovering from the reduced sales of alcohol and tobacco products that resulted after the government required them to remove the items from the shelves, pending the application of new tax stamps bearing a holographic label.
The government maintains that the documents are a necessary protection against the sale of counterfeit goods, and that they prove that both imported and domestic items were produced legally and meet government quality requirements. Presently, distributors provide retailers with photocopies of hologram certificates. The copies bear the producer’s or importer’s stamp to prove that the certificate is not a forgery.
While the certificates may provide manufacturers with some protection against imitations, business sources say that the requirement may cost more than it is worth.
In an appeal to the government on Nov. 18, Nestle Ukraine said that, “if the resolution becomes effective, it will inevitably lead to a drop in business activity, a decrease in sales and higher prices. It will affect Ukraine’s international image as well as the investment climate in the country.”
A number of other prominent companies and the American Chamber of Commerce in Ukraine have joined Nestle in protesting the regulation.
“The American Chamber has been working with our members and other industry associations to address this important issue,” said chamber President Jorge Zukoski. “Our members fully support any initiative undertaking to further protect Ukrainian consumers, and the brands our members represent, by reducing the availability of counterfeit and contraband product in the marketplace. We strongly believe that resolution will not in fact protect Ukrainian consumers, and among the negative consequences will be damage to Ukraine’s WTO and EU aspirations.”
Producing a different certificate for each product would result in significant expense for a company like Nestle Ukraine.
“We have 21 hologram certificates for Svitoch confectionary products, which are sold in more than 100,000 retail outlets,” said Nestle Ukraine’s public relations and marketing manager, Yuriy Petrus. That means that more than two million certificates must be produced and distributed by Dec. 1 to keep Svitoch products on store shelves, he said.
As each certificate costs Nestle Ukraine Hr 3.72, producing certificates for Svitoch alone could cost the company Hr 7.8 million. And Svitoch isn’t Nestle’s only brand – it also sells products under the Nescafe and Torchyn Product brands.
Petrus said that complying with the regulation would ultimately cost the company at least Hr 25 million.
“We believe that the regulation contradicts a presidential decree which requires the elimination of restrictions that hamper business development,” he said.
The decree encourages the government to reduce the cost of complying with government requirements as much as possible.
Business analysts equate the certification requirement with the imposition of a new tax – one that helps the country’s 100 or so centers authorized to certify goods and produce the certificates at the expense of manufacturers, importers and ultimately consumers.
The regulation will affect sales, according to Yaryna Klyuchkovska, public relations manager for Germany’s Metro Group. She said that product distributors would be affected by the requirement as well.
“We all remember what happened recently when tobacco and alcohol producers had to replace old tax stamps with new ones,” she said. “It slowed sales significantly. The new regulation will hurt producers and distributors.”
“We had a lot of problems with the regulation,” said Dmitry Redko, Japan Tobacco International’s corporate affairs director in Ukraine. He said that JTI Ukraine printed 50,000 hologram copies of certificates for its products, and will have to produce more if new brands are brought to the market.
But representatives of the certification centers say they aren’t happy with the regulation either.
“We have orders to provide producers with five million hologram copies of certificates. It is impossible to fill these orders in time,” said Andriy Kupo-Tkachenko, deputy head of the Dnipropetrovsk Center for Certification and Standardization.
Nestle’s Petrus said that the Cabinet of Ministers is likely to acknowledge that it is impossible to comply with the regulation by Dec. 1, and may push back the deadline to Feb. 1, 2004.
“But that won’t solve the problem,” he said. “We want the resolution to be abolished.”
