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Contested Retail Bill Clears Duma Hurdle

17.12.2009 The State Duma on Wednesday passed in a key second reading a controversial law on retail trade that caused a rare split between the government and the Kremlin.
Retailers have said the bill, which was proposed by the government, will give unfair advantages to producers and suppliers and cause prices on many goods to rise.
The bill will come into force as early as Feb. 1 and introduce strict regulations on retailers, including a shortened period of payment for delivered goods, possible limits on retail prices and a cap on stores’ retail margins.
Under the bill, the government will be allowed to set prices for certain kinds of goods for a period of 90 days if prices have jumped by more than 30 percent within the previous 30 days.
The legislation will also restrict retail chains from acquiring stores if the acquisition would cause their market share in the region to exceed 25 percent. Starting July 1, the limit will be applied to cities and municipal regions.
In addition, retailers will be prohibited from charging suppliers extra fees, except for a premium of 10 percent on food items. Currently, suppliers are often charged extra fees in order to have their goods sold in large retail chains and put in places of high visibility.
But these fees, which retailers call bonuses, are likely to remain and take a different form.
“Even if bonuses are banned, retailers will find a way to replace them with something else in order to boost competition among suppliers,” said Yekaterina Loshchakova, an analyst at Financial Bridge brokerage.
But that something might involve finding new suppliers, Ilya Belonovsky, head of the Association of Retail Trade Companies, told Interfax.
“As a result [of the bill], large, foreign suppliers will be able to get around the limitations. It will be harder for small producers to convince retailers that their goods are better,” he said.
In any event, the legislation presages a dramatic shakeup in relations between retailers and suppliers and the future operations of the market.
“Suppliers will have to come to an agreement with retailers even after the law comes into force,” said ­Andrei Kondratyukin, head of ­franchising program at Kopeika, one Russia’s largest retail chains.
“The agreements will remain, but the form of the relationships between retailers and suppliers will change in order to be compatible with the new legislation,” Kondratyukin said.
Producers echoed the sentiment. “The relationships between retailers and suppliers will take new forms,” said Marina Kagan, a spokeswoman for Wimm-Bill-Dann, the country’s largest dairy company.
The bill was scheduled to be passed in a third and final reading Wednesday, but the vote had not been held by late evening.
The legislation has become a bone of contention between the government and the administration of President Dmitry Medvedev.
The administration’s State Legal Directorate earlier this month leveled several sharp criticisms against the version of the bill, which was approved by First Deputy Prime Minister Viktor Zubkov. The directorate called several of the bill’s provisions “dubious from a legal point of view” and said it would do nothing for the end consumer, on whose behalf the bill was prepared.
The State Duma’s Economic Policy and Entrepreneurship Committee has made revisions to the law three times this month at the request of the directorate, but the final version of the bill was left largely unchanged from the version approved by Zubkov.
The only concession that the Kremlin was able to achieve was an increase in the period in which retailers would be forced to pay suppliers for certain goods, including milk and frozen meat.
The committee approved the final version of the legislation and sent it to the State Duma late Monday evening after a week of negotiations between Kremlin chief of staff Sergei Naryshkin and Zubkov.
The legislation met with fierce opposition by economists, who said it would hurt consumers and create disincentives for investment.
“We appeal to the State Duma deputies not to support the bill on trade. Its passing will hit the material welfare of common citizens, result in the restriction of competition and decrease the investment attractiveness of the domestic economy,” said an online petition signed by several economists, including Yegor Gaidar, who died Wednesday.


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