International Sanctions on Russia and the Luxury Fashion Industry
At the beginning of the war in Ukraine, many fashion companies announced the suspension or cessation of operations in Russia. This includes Inditex (Zara, Massimo Dutti, Stradivarius, Oysho), Hennes & Mauritz (H&M, COS, & Other Stories, Arket), and LVMH (Christian Dior, Fendi, Louis Vuitton).[1] In addition, recent western sanctions restrict the sale of luxury goods to Russia.
In March 2022, many countries imposed export restrictions on luxury goods to Russia. The U.S. Department of Commerce banned the export, reexport, and transfer of luxury goods worth more than $1,000 to all end users in Russia and Belarus and certain Russian and Belarusian oligarchs and malign actors located worldwide.[2] Similarly, the European Union banned the export of luxury goods worth more than €300.[3] These restrictions on luxury goods cover clothing, footwear, leather, fashion accessories, jewelry, diamonds, handbags, purses, wallets, skincare, perfumes, as well as other articles.[4]
Sanctions affecting luxury goods will have a significant impact on the European Union and United States. Russia makes up nearly 2 to 3% of the global luxury market, and in 2021, Russia’s sales accounted for about $7.4 billion of the global luxury market.[5] Additionally, Europe's luxury good industry makes up over 10% of EU exports.[6] Lastly, for the European Union, these sanctions cover over 20 luxury goods categories valued at €3.53 billion.[7]
As a response to these restrictions on luxury goods, Russia issued regulations allowing the importation of luxury items without the permission of the relevant trademark owners.[8] This system of parallel imports opens the door for gray market goods, which are trademarked goods that a seller imports into a particular market without the trademark owner’s permission.[9] This means that consumers who want brands that are no longer selling in Russia’s markets can still buy them from resellers at a slight-markup, usually anywhere from 5-10%.[10] It is common for secondary operators in China, India, Iran, and Turkey to buy goods and subsequently resell them onto the Russian market.[11]
The legalization of parallel imports relates to the principle of expiration of the exclusive right to the trademark, where the trademark owner gives up the right to control the distribution of the product after the initial sale.[12] Now resellers can legally buy luxury goods in third countries and sell them in Russia without the consent of the manufacturer.[13] The grey market also makes it easier to sell counterfeit products that are sold under the guise of parallel imports.[14] This raises problems for the fashion industry because fashion brands risk the erosion of their identity and integrity when luxury goods are diverted and distributed outside of the official distribution channels without the brand or trademark holder’s approval.
Brooke Powers is a staff member of Fordham International Law Journal Volume XLV.I
[1] See Diana Fishman, Back to the 90's. How Gray-Market Imports to Russia Work, The Insider (Aug. 24, 2022), https://theins.ru/en/economics/254345.
[2] See Vanessa Friedman, Aiming to Punish Oligarchs, Ban Luxury Exports to Russia, N.Y. Times (Mar. 11, 2022), https://www.nytimes.com/2022/03/11/business/russia-luxury-exports.html.
[3] See Id.
[4] See EU Expands Sanctions Against Russia to Ban Luxury Goods and Energy Investments, Euro News (Mar. 15, 2022), https://www.euronews.com/my-europe/2022/03/15/eu-expands-sanctions-against-russia-to-ban-luxury-goods-and-energy-investments.
[5] See Id.
[6] See Id.
[7] See Kaylen Wenzel, What the Luxury Goods Sanctions on Russia Means for Fashion, A Mag. (May 7, 2022), https://theamag.com/7220/culture/what-the-luxury-goods-sanctions-on-russia-means-for-fashion/.
[8] See What Trademark Holders Should Know About Russia's Authorization of Parallel Imports, JD Supra (Aug. 23, 2022), https://www.jdsupra.com/legalnews/what-trademark-holders-should-know-7896588/.
[9] See Id.
[10] See Id.
[11] See Id.
[12] See Fishman, supra note 1.
[13]See Id.
[14]See Id.
This is a student blog post and in no way represents the views of the Fordham International Law Journal.