Parallel imports as a new tool mitigating the effects of economic sanctions
One of the economic consequences of the economic sanctions deployed against Russia is a significant decline in imports. Countries that the Russian government has designated as ‘unfriendly’ accounted for around 45% of trade in 2021. According to statistics fr om Russia’s trade partners, imports from certain countries is currently declining very substantially. For example, in terms of value, imports from Germany fell by 58.7% in March 2022 compared to March 2021, while the decline in imports from France and the US was 60.4% and 78.8%, respectively. Furthermore, imports of machines, equipment and vehicles in 2021 accounted for 49.2% of all imports; ACRA estimates that this year, total imports may decline by 20–30% by value.
The Russian government has launched a new instrument in order to smooth the negative impact of the decline in imports on the national economy. On May 6, 2022, the Russian Ministry of Industry and Trade approved the list of goods for so-called parallel import. Parallel import is the import of goods without the consent of the copyright holder; it applies to the goods of companies that have suspended operations in Russia.
Based on the published product (HS) codes, ACRA estimates that the list covers around 36% of imported goods (in terms of value, based on data available for 2021), while the main HS codes — 84 “equipment and mechanical devices” (including computers, engines, valves, and pumps) and 85 “electrical machinery and equipment and parts thereof” (including telephones and monitors) — account for around 38% and 28% of parallel imports, respectively. It should be noted that this assessment is a so-called upper bound assessment, since in addition to codes, the list also includes brand names.
As a number of foreign companies have ceased operating in Russia, significant unsatisfied demand for their products has emerged. In addition, foreign companies provided components, spare parts and raw materials for the production of goods in Russia, so their departure negatively affected the aggregate supply volume. For example, sales of new cars in April fell by 78.5% y-o-y (AEB data), and the sales of consumer electronics decreased by 11% y-o-y (Check Index data). As a result, there is both an increase in prices (including for substitute goods), which increases inflationary pressure in the economy, and an excessive strengthening of the ruble, which negatively affects exporters and budget revenues.
Figure 1. Goods eligible for parallel imports broken down by HS code
Sources: Russia Ministry of Industry and Trade, Rosstat
Parallel imports will help alleviate shortages amid declining stocks, although their volumes will be lower than before, and prices will increase due to higher transaction costs, including transportation rates. In the medium term, the increase in parallel imports will help decelerate price growth in the economy, lim it the strengthening of the ruble, and increase trade turnover with countries involved in parallel imports. Depending on the speed of adaptation to the new environment, Turkey, Kazakhstan, China, and Armenia may become potential beneficiaries of such imports. Moreover, the effect of parallel imports may be significant, for example, for Armenia, due to the low base: in 2021, it accounted for a mere 0.2% of Russia’s total imports.
Figure 2. The volume of 2021 imports fr om countries that may become potential beneficiaries of parallel imports
Sources: IMF, Rosstat
Parallel imports will help alleviate shortages amid declining stocks, although their volumes will be lower than before, and prices will increase due to higher transaction costs, including transportation rates. In the medium term, the increase in parallel imports will help decelerate price growth in the economy, lim it the strengthening of the ruble, and increase trade turnover with countries involved in parallel imports. Depending on the speed of adaptation to the new environment, Turkey, Kazakhstan, China, and Armenia may become potential beneficiaries of such imports. Moreover, the effect of parallel imports may be significant, for example, for Armenia, due to the low base: in 2021, it accounted for a mere 0.2% of Russia’s total imports.
