Describe the significance of, and developments in, the automotive industry in the market.
The automotive industry has historically formed an important part of the Russian economy. Russia is one of the 12 largest automobile markets worldwide based on car sales. A large proportion of all the automobiles produced in Russia is manufactured by 19 major companies. Based on different statistical data, approximately 400,000 individuals are employed in manufacturing facilities and around one million individuals are employed by affiliated and dealer companies.
Currently the industry is characterised by the development of local production capacity (more than three million vehicles are produced per year), provision of government subsidies and guarantees to market participants aimed at maintaining customers’ demand and reduction of production costs. Further construction of new plants in Russia and investment in the industry are also being considered by major automobile manufacturers.
Analysts indicate a positive dynamics in sales of new automobiles: in 2018 the sales increased by 12.8 per cent compared to 2017 and reached 1.8 million automobiles. According to basic forecasts, it is anticipated that the sales rate will decrease by 3 to 4 per cent in 2019.
The Russian government continues to introduce new support programmes for both car manufacturers and buyers, thereby stimulating the growth in demand, as well as production figures. Meanwhile, the privileges granted to producers and related to preferential duties on components were changed owing to the obligations accepted by the Russian Federation when joining the World Trade Organization and were replaced by other preferences, including by exemptions for exports in order to maintain the growth of the automotive industry. Export development of the automotive industry is a priority of state regulation of the automotive industry in Russia, which is confirmed, in particular, by the Strategy for the development of exports of the automotive industry in the Russian Federation for the period up to 2025 approved by order of the Russian government No. 1877-r of 31 August 2017 (the Strategy of the development of exports).
Moreover, the Russian government issued Order No. 831-r of 28 April 2018. The order approved the Development strategy of the automotive industry until 2025. The indicated strategy is aimed at further development of the automotive industry and sets the following purposes: Russian manufacturers shall meet 80-90 per cent of domestic demand for modern automotive equipment; growth in exports of automotive vehicles and components; increase of technological competence of national manufacturers of automotive vehicles and components; introduction of products with fundamentally new properties in the field of electric propulsion, autonomous driving, connected motor transport, gas engine technology.
Assuming this, the prognosis for the Russian automotive industry is positive for the near future.Regulation
What is the regulatory framework for manufacture and distribution of automobiles and automobile parts, such as homologation process as well as vehicle registration and insurance requirements?
In general, production and distribution of automobiles and automobile parts are not subject to state licensing. A state licence may be required to carry out certain auxiliary activities - for instance, collection, transportation, processing, recycling, neutralisation and disposal of waste; harvesting, storage, processing and sale of non-ferrous and ferrous metal scrap; carriage of goods, etc. Since 10 April 2019 up to 9 October 2019, a special license of the Ministry of Industry and Trade for import of aluminium wheels in Russia from countries that are not member states of the Eurasian Economic Union (EAEU), which include Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia, and not participants of the ‘1958 Geneva Agreement’, is required based on Government Decree No. 303 ‘On licensing of import of aluminium wheels’ of 21 March 2019.
Automobiles and automobile parts are subject to obligatory confirmation of compliance with safety requirements in accordance with the applicable technical regulations. Thus, the basic legal act in this area is the Technical Regulation ‘On the Safety of Wheeled Vehicles’ of 9 December 2011, TR SU 018/2011 (Technical Regulation SU 018/2011), enforceable in the territory of the EAEU, whose member states are Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia.
Technical Regulation SU 018/2011 establishes the procedures to confirm compliance of automobiles and automobile parts with a number of quality and safety requirements, including environmental requirements, such as carbon dioxide emissions and fuel consumption. As a result, the applicant (eg, the manufacturer or importer) obtains a document certifying the conformity of its manufactured automobiles and/or automobile parts with the requirements of Technical Regulation SU 018/2011 (in particular, vehicle-type approval for automobiles). This document must be obtained when the goods are both imported into and produced in Russia.
Along with the obligation of automobile manufacturers to comply with the safety requirements for automobiles and their components, automobile manufacturers and importers have a duty to pay fees aimed at the protection of the environment, including environmental and disposal fees.
Apart from the certification procedure described above, a vehicle certificate of title shall be obtained with respect to each vehicle with an engine capacity of 50cc or more or with the maximum power of an electric motor exceeding 4 kilowatts, and a maximum design speed exceeding 50km/h, and its trailer and vehicle chassis.
Before 1 November 2019 vehicle certificates of title may be issued in either paper or electronic form; after 1 November 2019 all newly issued vehicle certificates of title will be electronic only. It is anticipated that the shift to the electronic system will greatly facilitate the process of registration of vehicles, simplify document circulation and make ownership records transparent. The transition period for the introduction of electronic passports of vehicles was postponed from 1 July 2018 to 1 November 2019.
The electronic passport is issued by an authorised body (organisation) of the member of the EAEU. Until the electronic passport becomes mandatory instead of new vehicle certificates in paper form, the vehicle certificate of title in paper form may be issued by a manufacturer (if the vehicle is produced in Russia), by the customs authorities (if the vehicle is imported into Russia) or by the Motor Vehicle Inspectorate in limited cases.
The electronic passport and vehicle certificate of title contain, inter alia, information on the characteristics of a vehicle, the vehicle identification number and the territory of the EAEU where registration of the automobile is allowed. Additional information of an informative character can be entered into the database for the electronic passport on a voluntary basis. This information includes, in particular: information on the vehicle owner, information on payment of the recycling fee, information on vehicle technical inspection, maintenance and repair of the vehicle, information on restrictions (encumbrances) with respect to the vehicle, information on vehicle insurance and insurance claims; and information on road traffic accidents involving the vehicle.
Following this, an automobile should be registered with the local department of the Motor Vehicle Inspectorate. Registration is mandatory and as a result the automobile owner obtains a registration certificate and licence plate for the vehicle.
To proceed with the registration of an automobile one must provide the local department of the Motor Vehicle Inspectorate with ID, the vehicle certificate of title, a document confirming ownership or other right to the automobile (eg, sale and purchase agreement, certificate of inheritance) and an insurance certificate for obligatory insurance of the owner’s civil liability for damage to life, health or property of other persons caused by him or her while using the vehicle (OSAGO insurance certificate).
Automobile owners are also entitled to additionally insure their civil liability and property on a voluntary basis (KASKO insurance certificate).
The procedure for making changes to car designs was approved by Decree of the Russian Government No. 413 of 6 April 2019. In accordance with the Decree, it will be possible to make changes in a car design after obtaining permission from the Motor Vehicle Inspectorate. To obtain the permission, it is necessary to provide documents, among which is a technical examination certificate issued by a testing laboratory. To date, the procedure for making changes to car designs has not been established, which has raised a number of legal and technical concerns.Development, manufacture and supply
How do automotive companies operating in your country generally structure their development, manufacture and supply issues? What are the usual contractual arrangements?
The activities of automotive companies tend to fall into one of three categories: (i) production of automobiles and automobile parts under local brands; (ii) production and assembly of automobiles and automobile parts under foreign brands; and (iii) import of vehicles and parts thereof.
Manufacturing and assembly of automobiles and automobile parts under foreign brands is the largest market segment of the automotive market. The approaches followed by foreign automotive companies to develop their brands in Russia and manufacture automobiles differ - some build their own manufacturing plants or create joint manufacturing facilities in cooperation with Russian companies (such as Ford); others order manufacturing from local producers (such as BMW).
In terms of components and spare parts, these are also both imported from abroad and manufactured by Russian vendors locally.
The contractual arrangements between the parties involved are quite standard for the industry with certain specifics agreed on a case-by-case basis. Original equipment manufacturers have historically retained strong positions in negotiations with suppliers.Distribution
How are vehicles usually distributed? Are there any special rules for importers, distributors, dealers (including dealer networks) or other distribution partners? How do automotive companies normally resolve restructuring or termination issues with their distribution partners?
As in other markets all around the world, automotive companies follow different approaches when it comes to distribution of automobiles and components. They may: (i) establish subsidiaries acting as distributors in the territory of the Russian Federation, through which import, manufacturing and sale of products to end customers are performed (eg, Volkswagen, Nissan, Mercedes); (ii) participate in the charter capital of a dealer (eg, Mitsubishi back in the 2000s); or (iii) act through local dealers only without being involved in the supply of automobiles to end customers.
According to the report of analytical agency AUTOSTAT, as of October 2016 there were nearly 3,500 authorised dealers in Russia specialising in sales and service (www.autostat.ru/infographics/27954/). This figure was reduced to 3413 car dealerships as of October 2017 (https://iz.ru/662845/2017-10-25/pochti-100-avtodilerov-zakrylis-v-rossii-za-2017-god). There were about 3,500 dealers in October 2018 (https://www.autostat.ru/infographics/36739/).
There is no specific distribution law in Russia; thus, the general regulations of Russian law apply to contracts with distributors and dealers, as they do to civil and anti-monopoly legislation. A mixed contract is usually concluded between the parties involved, which, depending on the particular business model, may contain elements of supply, agency, franchise and service agreements, etc. Thus, in respect of different elements of distributorship or dealer agreement, relevant provisions of the Civil Code of Russia and related acts will apply.
In view of the above, disputes related to the termination and fulfilment of a distributorship or dealer agreements are primarily regulated at a contractual level. In the absence of relevant contractual provisions, the provisions of civil law will apply.
The Russian Federal Anti-monopoly Service (FAS) has been closely monitoring the automotive market and has developed some recommendations, including with respect to contractual aspects of relationships between automobile manufacturers, distributors and dealers. The problem of discriminatory conditions in dealership agreements has always been a top priority for the FAS and the Association of Russian Automobile Dealers, so the FAS keeps an eye on dealership agreements to prevent or stop potential infringements.
According to the Recommendations to Distributors and Vehicle Manufacturers of Automotive Products in the Russian Federation issued by the FAS in 2012 (the Recommendations), which are regarded as practical guidance for market participants, the unilateral termination of a dealership contract shall be allowed if the party terminating the agreement provides detailed reasons for the termination. Furthermore, the FAS proposed to limit the minimum term of dealership agreements by five years to provide for more guarantees to dealers. The document also contains a number of other recommendations that are not, in fact, binding. However, these Recommendations show that the FAS wishes to ensure a balance of interests of participants in the automotive market.
In its Analysis of Fulfilment of the Recommendations, the FAS concluded that distributors, as a rule, do not follow the Recommendations. This generally has a negative impact on the development of competition on the relevant product markets, in the opinion of the FAS.
The provisions on repurchase of spare parts, accessories and automobiles by distributors are usually not included in dealership contracts, as outlined in the Analysis of Fulfilment of the Recommendations. In practice, where the provisions of repurchase are included in the agreement, the buyback is a right, but not an obligation, of the distributor.
With regard to importers of vehicles, the general customs regulation should apply, including the requirement to pay import duty and submit a completed customs declaration along with the appropriate documents confirming title to imported goods, as well as documents confirming compliance of the automobile or its parts with the applicable technical regulation. Customs IP clearance of the imported goods should be also considered by the importer to prevent delays at customs.
After the automobiles or their parts are imported into Russia, they are further distributed in a similar manner as local products.Mergers, acquisitions and joint ventures
Are there any particularities for M&A or JV transactions that companies should consider when preparing, negotiating or entering into a deal in the automotive industry?
M&A and JV transactions in the automobile field are subject to the general provisions of Russian corporate law. Complex due diligence is always recommended with a particular focus on regulatory (safety and environmental issues), intellectual property and competition matters.
As part of control over economic concentrations, and similar to other transactions, M&A and JV transactions in the automotive industry may require pre-clearance by the FAS if certain thresholds are met.
Such transactions will also typically require some corporate approvals and potentially approvals from other state authorities depending on the nature of the transaction.
An example of a successful local JV is the Ford Sollers company, which has been operating since 2011.Incentives and barriers to entry
Are there any incentives for investment in the automotive market? Are there barriers to entry into the market? What impact may new entrants into the market have on incumbents?
The Russian state, at federal and regional levels, has implemented a number of different programmes aimed at supporting local manufacturers of automobiles, which have been especially needed in recent years when consumer demand has decreased. Some of these programmes are described below.
In 2005, the Russian government established an ‘industrial assembly’ regime for manufacturing automobiles in order to raise investments, boost car production in Russia and develop production of automotive components.
The ‘industrial assembly’ regime was a voluntary system of mass production based on technological processes that provide the estimated production capacity of an enterprise. The requirements imposed on manufacturers included, for instance, producing a certain amount of automobiles per year or modernising manufacturing facilities, ensuring a certain annual average level of localisation of production, etc. Under this programme, manufacturers had been granted customs preference for importing automotive components into the territory of the Russian Federation. The ‘industrial assembly’ regime ended in July 2018.
The Ministry of Industry and Trade of Russia proposed implementing an alternative regime that would presumably include programmes to stimulate demand in the market and support exports, participation in public procurement, provision for industrial subsidies (comparable with the costs of recycling), compensation of part of interest payments on investment loans and subsidies for research and development. The main purpose of the preferential regime is to increase the localisation of production of automobile parts and details including key components in Russia. For instance, according to the Strategy for the development of exports, the following conditions have been proposed:
- reduction of customs barriers in target markets, improving taxation of export supplies and creating tax incentives for export growth; and
- improving the organisational and information support of exporters.
For instance, on 23 January 2018, the Federal Customs Authority of Russia and VOLKSWAGEN Group Rus LLC signed a cooperation agreement to support export. The agreement is aimed at the implementation of customs procedures related to the export of vehicles produced in Russia. It is intended to exempt the components used in car manufactuing from the payment of import duties. The implementation of this agreement should improve the efficiency of cooperation between the customs authorities and the car manufacturer, as well as simplify the exchange of information between them.
It is planned to base the format of the future investment regime for the automotive industry on a special investment contract (SPIC).
In accordance with the SPIC, an investor undertakes to implement an investment project for the construction and development of an enterprise in Russia on the condition of provision of subsidies, tax benefits, accelerated depreciation of production facilities, participation in public procurement and other benefits defined individually. The concept of SPICs is that automakers undertake to use certain components manufactured in Russia, while companies may not localise the production but take them from an external supplier. For example, SPIC agreements were concluded between the Ministry of Industry and Trade of the Russian Federation and Mazda Sollers and the Ministry of Industry and Trade and Daimler AG.
Many regions of the Russian Federation amended regional legislation by implementing a possibility to conclude the SPIC, this being one of the tools of the import substitution policy.
As a new stage of localisation aimed to replace the ‘industrial assembly’ regime, the Russian government approved amendments to the rules for conclusion of special investment contracts (the SPIC 1.1). The SPIC 1.1 entered into force on 18 June 2018 and introduced, inter alia, the following amendments to the SPIC established by Decree of the Russian Government No. 708 of 16 July 2015:
- the SPIC may be concluded in relation to a pending project or a new phase of an ongoing project (ie, it is possible to make investments before the conclusion of a contract); and
- the list of participants has been expanded: engineering centres, product distributors, financial centres and other involved persons can participate.
The Russian state has extended subsidy programmes of interest rates on car loans (to motivate customers to buy new cars), preferential leasing, easy loans for car manufacturers, subsidies to exporters for reimbursement of expenses for transportation of products, compensation of the costs in connection with the manufacture of automobiles, and confirmation of compliance with international standards. The amount of subsidies for these activities, according to the Russian government, will reach 16 billion roubles.
Automobile manufacturers may receive certain tax benefits in some regions of Russia when investing in the production of automobiles in the amounts stipulated by regional legislation. In addition, the regions of Russia provide companies in the automotive industry with subsidies for the purpose of compensation for services involving research and examination of samples of materials, testing of equipment, etc.
Special economic zones have been set up within the areas of automobile production, where tax and customs benefits are granted to manufacturers and public financing of infrastructure construction is provided. For instance, special economic zones are established in Vladivostok in the territory of the Sollers plant and in Tolyatti in the territory of industrial alliance AvtoVAZ-Renault-Nissan. The terms of benefits are usually specified at the regional level.
There are no substantive barriers to enter the market assuming all the legal and technical formalities are fulfilled. There is, however, an intention to further develop the import substitution policy, which will affect the automotive market. The Russian government has adopted Resolution No. 656 of 14 July 2014, which prohibits the admission of certain kinds of machinery, including various types of passenger automobiles, originating from foreign countries, in public procurements.
Product safety and liabilitySafety and environmental
What are the most relevant automotive-related product compliance safety and environmental regulations, and how are they enforced? Are there specific rules for product recalls?
Implementation of wheeled vehicle safety requirements is primarily ensured by Technical Regulation SU 018/2011. Only accredited testing laboratories included in the Unified Register of Certification Bodies and Testing Laboratories are allowed to confirm compliance of automobiles and automobile parts with those safety requirements.
Technical Regulation SU 018/2011 also stipulates requirements to ensure implementation of the emission levels established for different environmental classes of vehicles and internal combustion engines.
In accordance with the Decree of the Russian Government No. 1291 of 26 December 2013 ‘On disposal fee in respect of wheeled vehicles (chassis) and their trailers and amending certain acts of the Russian Government’, importers, local manufacturers and automobile owners (only if payment was not made by the importer or manufacturer) are required to pay a disposal fee to ensure environmental safety, including protection of human health and the environment from the harmful effects of the use of vehicles, taking into consideration technical characteristics and wear and tear.
To protect the environment, manufacturers and importers of goods are also subject to payment of an environmental fee. In addition, an act was developed that will establish the procedure for the elimination of accumulated environmental damage and compensation for environmental damage caused in the course of past economic activity (Decree of the Russian Government No. 542 of 4 May 2018 ‘On approval of the Rules for organization of work on elimination of accumulated environmental damage’).
New draft law has been developed regarding introduction of provisions on environmental tax and disposal fees to the Tax Code of Russia. The environmental tax will replace the fee for a negative impact on the environment, the disposal fee will replace the existing environmental fee and the disposal fee for wheeled vehicles.
Recalls of automobiles are governed by the general provisions of Russian law (the Federal Law No. 184-FZ of 27 December 2002 ‘On technical regulation’), although the Federal Agency on Technical Regulation and Metrology (Rosstandart) has developed specific recommendations on development and implementation of actions to prevent harm due to goods’ non-compliance with the Technical Regulation ‘On the Safety of Wheeled Vehicles’ approved by the decision of the Customs Union Commission of 9 December 2011 No. 877 (Order of Rosstandart No. 1321 of 28 June).
In the event automobiles to be put into civil circulation or that are going to be introduced in Russia are not compliant with the technical regulations at certain stages, an automobile manufacturer (manufacturer’s representative) is obliged to inform Rosstandart, as well as develop an action plan to prevent harm to customers (article 38 of Federal Law No. 184-FZ of 27 December 2002 ‘On Technical Regulation’, Order of Rosstandart No. 1321 of 28 June, article 103 of Technical Regulation SU 018/2011). In the event it is impossible to remove the risk to customers and remedy the revealed non-compliance, the automobiles shall be recalled.
In case of emergency, Rosstandart may issue an injunction to suspend the sale of vehicles. If the action plan is not executed or requests of Rosstandart are not fulfilled, Rosstandart is also entitled to proceed with a judicial forced recall of products.Product liability and recall
Describe the significance of product liability law, and any key issues specifically relevant to the automotive industry. How relevant are class actions or other consumer litigation in product liability, product recall cases, or other contexts relating to the automotive industry?
We are not aware of any major automotive-related product liability disputes in recent years.
General regulation applies to relations involving consumers of vehicles with certain exemptions provided by special legislation, in particular Law of the Russian Federation No. 2300-1 of 7 February 1992 ‘On Protection of Consumer Rights’ (the Law on Consumer Protection).
For instance, the Law on Consumer Protection provides consumers with additional rights; some of them are described below. Thus, the minimum scope of information that shall be provided to the consumer is established by the law and shall be strictly followed.
The manufacturer is obliged to ensure repair and technical maintenance of the goods, as well ensure manufacturing and supply of spare parts during the term of the goods’ manufacture and during their service life (or up to 10 years after transfer of the goods to the consumer if the service life has not been established).
In addition, consumers’ damages can be recovered in full besides the penalties to be paid, including in the event of recall. In the event the manufacturer, importer or seller refuses to pay the penalty provided by the law or contract, and the consumer’s claim regarding this penalty is further confirmed by the court, the manufacturer, importer or seller will be obliged to pay a fine equal to 50 per cent of awarded amount of the penalty.
In the automotive sector, product liability issues are also closely connected with the fact that under Russian law an automobile is a technically sophisticated product. Thus, the consumer’s right to return a defective car to a seller or manufacturer is limited as follows: the repudiation of a contract or a claim for replacement of a technically sophisticated product of inadequate quality may be filed within 15 days. After this term expires, these rights may be exercised in case of detection of a substantial defect or in the event of violation of the terms of eliminating defects. In addition, vehicles, being technically sophisticated products, cannot be returned or exchanged for similar goods of another size, shape, dimension, style, colour or configuration.
When a vehicle’s non-compliance with technical regulations in full or in part is revealed, and if non-compliance can be remedied, the automobile manufacturer (seller or other authorised person) shall send a relevant notification to customers, including business entities and consumers. As a rule, once the customers have been duly notified, they are invited to contact a dealer and have a free service to remedy the revealed problems. If the non-compliance cannot be remedied, then a recall campaign shall start as described above. According to Rosstandart, three recall campaigns were held in January 2018 alone.
Usually disputes between sellers and consumers of automobiles and automobile parts are resolved amicably, without court proceedings.
Consumer-related disputes shall be brought before the Russian courts of general jurisdiction and shall be heard in accordance with the Civil Procedural Code. The Civil Procedural Code does not provide for such a category of actions as ‘class actions’ as it is understood, for example, in US court practice. However, there are certain tools that might be considered.
Group actions are not dramatically different from individual actions and may be filed in cases where multiple claimants have similar claims (or similar grounds for claims) against the same defendants. Co-participation is possible if certain procedural elements are met (eg, the rights and the duties of several plaintiffs or defendants have the same factual ground (eg, claims arising out of a traffic accident involving several victims)). Group actions are simply separate actions of the various claimants heard in the same proceedings. Each of the plaintiffs or defendants acts in the proceedings independently with respect to the other parties. Each claimant has his or her separate claims to the defendant and the amount of damages awarded depends on the evidence provided by the claimant to support the calculation of damages.
A representative action can be also filed in consumer-related cases. This is an action for the protection of the interests of a large group or the general public, with relief usually sought in the form of a declaration of the illegality of an activity or conduct by an entity, which is contrary to rights and interests. The number of ‘victims’ in a representative action has no relevance and does not need to be established.
Thus, according to Russian law the Russian public prosecutor, the Federal Service for Supervision in the Sphere of Protection of Consumer Rights and Human Well-being, its territorial divisions, municipalities, associations and unions of consumers may appeal to the court and represent before the court the interests of a large number of consumers.
The bill on the settlement of the procedure for reviewing claims for protection of rights and legitimate interests of a group of individuals has passed the first reading in the Russian State Duma (Regulation No. 596417-7). According to the bill, the introduction of provisions into the Civil Procedural Code is planned to allow individuals to file representative actions for the protection of rights and legitimate interests of a group of persons.
What competition and antitrust issues are specific to, or particularly relevant for, the automotive industry? Is follow-on litigation significant in competition cases?
Federal Law No. 135-FZ of 26 July 2006 ‘On Protection of Competition’ (the Law on Competition) is the basic legal act in the sphere of antitrust issues; it establishes the main principles of operation of business entities in Russia irrespective of the market. No specific legislation relevant to the automotive industry has been adopted.
The types of violation of the Law on Competition in the automotive industry include abuse of a dominant position, unfair competition and execution and implementation of ‘vertical’ agreements. With respect to the last type of violation, the Presidium of the FAS issued Ruling No. 2 regarding ‘vertical’ agreements including dealership agreements of 17 February 2016, according to which ‘vertical’ agreements can be recognised as admissible, inter alia, if all the provisions of the Code of Conduct that govern specific aspects of the relationship between automobile manufacturers or distributors, authorised dealers and independent service stations in the automotive sector (the Code of Conduct) are met. The Code of Conduct was developed by the Committee of Automobile Manufacturers of the Association of European Businesses in 2013 and may be applied on a voluntary basis by participants in the automotive industry. As of 25 January 2019, 17 automobile companies had acceded to the Code of Conduct.
Specific features of antitrust regulation governing activities of automobile manufacturers and dealers are expressed in different guidelines of the FAS issued from time to time. For example, such manuals include the above-mentioned Recommendations.
According to the FAS, the most common negative practices in the automotive market include imposition of an obligation to pass the tech inspection of an automobile during the warranty period only with an authorised dealer, refusal to make a repair under a warranty in case of passing the tech inspection in other service centres, establishment of high prices for spare parts and services, determination of general conditions of the sale of automobiles and automobile parts, establishment of wholesale and recommended retail prices for products and services, elimination of competition in bidding, unjustified refusal to conclude a dealership agreement, market division between entities on a territorial basis, etc.Dispute resolution mechanisms
What kind of disputes have been experienced in the automotive industry, and how are they usually resolved? Are there any quick solutions along the supply chain available?
Violations of antimonopoly, consumer and tax legislation (transfer pricing, VAT payments, disputed fines, etc) are among the most common disputes in the automotive industry.
The settlement of disputes, including disputes on contesting the rulings of administrative authorities (the FAS, the Federal Tax Service, the Federal Intellectual Property Service, etc), is conducted through court proceedings. The claimants in automobile-related disputes usually address monetary claims in court (compensation for damages, repayment of the purchase price of the goods, etc).
During court proceedings a party may file a motion asking for interim measures - urgent measures to secure a claim or property interests of the applicant. These measures are taken by the court in the event failure to take such measures may make it difficult or impossible to enforce the court’s decision. In addition, a motion on preliminary interim measures may be filed outside a trial for the purposes of securing the property interests of an applicant before the claim is filed with the court. If the injunction is granted the claimant will have up to 15 days to file a claim; otherwise the injunction will be recalled. The preliminary injunction is only available in the Russian state arbitrazh courts (ie, in disputes between entrepreneurs).Distressed suppliers
What is the process for dealing with distressed suppliers in the automotive industry?
The bankruptcy of legal entities and individuals is conducted under general proceedings envisaged by Federal Law No. 127-FZ of 26 October 2002 ‘On Insolvency (Bankruptcy)’. In accordance with this law, the following procedures may be introduced in respect of a legal entity-debtor: observation, financial rehabilitation, external management and bankruptcy proceedings. The claims of creditors are to be conceded in the court, after which they are included in the register of creditors’ claims. Then the claims shall be satisfied in accordance with the statutory prioritisation order.
It is recommended to regularly examine the financial position of the supplier and the state of its business to mitigate potential risks. Contracts with suppliers should also provide for certain compensations and guarantees (eg, at least the right of the other party to unilaterally terminate the agreement if certain events occur that might significantly affect its business).Intellectual property disputes
Are intellectual property disputes significant in the automotive industry? If so, how effectively is industrial intellectual property protected? Are intellectual property disputes easily resolved?
Active use of technologies applied in vehicle construction and marketing campaigns have required manufacturers, distributors and dealers to pay more attention to intellectual property protection.
Most of the disputes related to enforcement of intellectual property rights in the Russian automotive industry are connected with trademarks and their unauthorised use, including parallel imports of goods into the territory of the Russian Federation and distribution of counterfeit items. Disputes related to the protection of copyright and IP rights to inventions, industrial designs and utility models occur rarely.
There have been extensive developments in the sphere of parallel imports in Russia. In a ruling of 13 February 2018, the Russian Constitutional Court confirmed that the national principle of exhaustion of intellectual property rights that is set out in the Russian Civil Code does not contradict the Russian Constitution. However, the Constitutional Court acknowledged that in the case of parallel imports, if the trademark holder acts unfairly, its rights might be limited to achieving a balance of the rights of market players. Thus, when deciding whether to impose civil liability on the parallel importer, the courts shall take into account the actual circumstances of the case. Moreover, the Russian Constitutional Court declared that goods imported into Russia by way of parallel import may be destroyed only if such goods are of inadequate quality or may threaten citizens’ safety, life and health, as well as natural and cultural values. Market participants should keep an eye on further developments to the enforcement practice in this area.
Intellectual property cases can be divided into two categories, depending on the body considering the dispute. The Chamber of Patent Disputes considers cases related to the state registration of inventions, utility models, industrial designs and trademarks, as well as contesting the grant of legal protection for these objects or its termination under the administrative procedure. The average term for consideration of objections and appeals is about eight months for patent law matters and five to six months for the means of individualisation (www.rupto.ru/press/news_archive/inform2016/fasskolkovo/zashitaIP.pdf).
The decisions of the Chamber of Patent Disputes can be contested in the Intellectual Property Court. In addition, Russian state courts deal with cases related to violation of intellectual property rights and a number of other cases (eg, trademark cancellation based on non-use). This system generally allows rightholders to effectively protect their rights.
In addition, IP customs recordals in Russia in particular, and other countries of the EAEU in general, serve as an effective tool to fight imports of counterfeit goods and in some cases of parallel imports.
Employment issuesTrade unions and work councils
Are there specific employment issues that automotive companies should be aware of, such as with trade unions and works councils?
The main principles of Russian labour law are provided by the Labour Code of the Russian Federation, which is not industry-specific.
For the purposes of representation and protection of social and labour rights, workers and unions of workers are entitled to create trade unions. The Interregional Trade Union Workers Association (MPRA), united more than 16 transport companies, was one of the most active representatives of the interests of automobile workers. The MPRA took part in collective bargaining between workers and employers with respect to the provisions of collective agreements, including, for instance, conditions on the form, system and amount of remuneration paid to the employees. The MPRA also participated in the organisation of strikes and assists in negotiations with employers on redundancies. The St Petersburg City Court upheld the claim of the city prosecutor on the liquidation of the trade union at the beginning of 2018.
Local trade unions together with the MPRA are important in the current economic climate and with mass redundancies taking place. At the same time, the role of trade unions in the protection of employees’ rights in general remains insignificant.
New technologiesLegal developments
What are the most important legal developments relating to automotive technological and mobility advances?
The development of electric vehicles, car-sharing and autonomous cars is a hot topic in Russia at present.
The Russian government has published a programme for the development of electric vehicles in the Russian Federation up to 2025 aimed at the widespread use of electric vehicles. According to the programme, it is expected that by 2020 financial support will be directed significantly at the creation of new electromotive products and development of the necessary engineering and transport infrastructure.
Following the programme, Minister of Economic Development Maxim Oreshkin signed the Memorandum on the creation of the consortium for the development of autonomous, connected and electric transport. The consortium will unite participants in the automotive market to create new products and services in the area. It was announced that the Russian government intends to introduce measures of financial support for consumers of electric cars, as well as for those that build the infrastructure for them.
In December 2016, the Eurasian Economic Commission adopted recommendations for the member states of the EAEU on the development of environmentally friendly means of transport - electric cars, which include a proposal to shorten the terms for obtaining authorisation for the construction of infrastructure for electric transport.
The Russian government approved the Roadmap for improving legislation and eliminating administrative barriers in the field of road transport (the Roadmap). The Roadmap provides for 75 arrangements for the development and promotion of autonomous driving technologies, service telematics platforms, navigation technologies, driver assistance systems, cybersecurity technologies, new generation wireless communication systems, technologies in the field of electric vehicles and other vehicles where alternative fuels and related services are implemented. In addition, it is proposed to create conditions for bringing vehicles with a high degree of automation to the market, establish tax benefits for sale of electric and hybrid cars, and determine the status of big data generated by vehicles. The implementation of the Roadmap will take place from 2018 to 2035.
Among the latest novelties related to the safety of automobiles in Russia, starting from 1 January 2017 all vehicles being put into circulation in the territory of the EAEU must be equipped with devices for emergency calls. For this purpose, the ERA-GLONASS System was launched in Russia in 2015, which is a federal state geographically distributed, automated information emergency response system in case of accidents.
Ride-sharing and carpooling remain a grey area of Russian law, although in 2017 the Russian courts investigated the legal regime that should apply to the BlaBlaCar service available in Russia since 2014. The Russian Prosecutor’s Office came to the conclusion that the BlaBlaCar service contradicts the interests of the Russian public since it does not exclude violations by drivers who wish to use the platform not as a not-for-profit service but as a way of earning money without obtaining a taxi licence; based on the above the Russian Prosecutor’s Office insisted on blocking access to the platform from the territory of Russia. However, in the appeal court the above conclusion was dismissed and as a result the BlaBlaCar platform was not blocked in Russia. This case will definitely serve as a precedent for other ride-sharing platforms in Russia. Nevertheless, debates around this topic continue. As a reaction to the needs of the market, the Russian government has recently started elaborating on regulations for ride-sharing and carpooling.
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