All about product labeling

According to international practice, labeling of goods is one of the tools aimed primarily at reducing the shadow turnover of goods. Labeling of goods guarantees their quality and safety, protecting consumers from fakes and counterfeit goods. The state also has the ability to track sales chains and recommend businesses to reduce the number of intermediaries, thereby preventing unscrupulous entrepreneurs from making super-profits and regulating the cost of goods. International experience also shows that the implementation of this mechanism allows not only to trace the life cycle of goods from production or import to final sale and withdrawal from circulation, but also to increase tax revenues to the budget.

Thus, according to the Ministry of industry and infrastructure development of the Republic of Kazakhstan, due to the introduction of labeling of fur products, the increase in tax and customs payments to the budget from the sale of fur products for the seven months of 2019 increased by 55% compared to the same period in 2018 (385.3 million tenge during the seven months of 2019 against 249.4 million tenge during the same period in 2018).

According to Nielsen research, the volume of illegal tobacco turnover in Kazakhstan was 1.8% in 2017, 2.8% in 2018 and 2.3% in 2019, and the volume of illegal turnover is expected to increase to 3% in 2020. According to who estimates, illicit trafficking in tobacco products reduces the price by 4% on average and contributes to a 2% increase in global tobacco consumption, which in turn leads to the death of about 164,000 people a year.

Mandatory labeling has been introduced for fur products. Also, in order to combat illegal trafficking in tobacco products and protect the life and health of citizens, the country will introduce mandatory labeling for cigarettes from October 1, 2020, and for other types of tobacco products from April 1, 2021 (Government decree No. 568 of September 10, 2020 "On determining the list of goods subject to labeling").

At the current stage, it is planned to introduce mandatory labeling of 3 product groups. These are alcoholic beverages, footwear products, and medicines. Pilot projects on labeling dairy products and some light industry products are being developed. On average, a pilot project lasts from 1 to 2 years. For example, a pilot project on tobacco product labeling lasted from 2018 to 2020.

In accordance with the agreement on marking goods by means of identification in the EAEU dated February 2, 2018 (hereinafter – the Agreement), an algorithm is provided for advance notification to the Eurasian economic Commission (hereinafter – the EEC) by the EAEU member state of the intention to introduce marking of a particular product group on its territory, the decision on marking of which is not available within the Union (article 7 of the Agreement on marking goods by means of identification in the EAEU countries). At the same time, both the initiator state and the other member States of the Union are guided by the interests of the domestic national economy and make an independent decision based on their own expediency of introducing labeling of any commodity item.

Within the framework of the EAEU, The norm on the choice of a national operator for marking and traceability of goods is provided for in the decision of the EEC Council No. 72 of August 8, 2019 "On the introduction of marking of footwear products by means of identification". In accordance with paragraph 2 of the said decision of the EEC Council, member States, in order to ensure unhindered circulation of marked footwear products by means of identification, determine or appoint national operators (administrators) by March 1, 2020.

National legislation stipulates that in accordance with article 6, paragraph 11-2, Of the law "On regulation of trade activities", the Government is responsible for determining the single operator of marking and traceability of goods based on the results of the competition.

In turn, the rules for determining A single operator were approved by Government decree No. 672 of September 10, 2019, according to which the Ministry of trade and integration held an open 3-stage competition and approved a competition Commission consisting of heads and deputies of eight Central state bodies and the national chamber of entrepreneurs of the Republic of Kazakhstan "Atameken".

According to the results of the competition, Kazakhtelecom JSC was recognized as the winner. Kazakhtelecom JSC was defined As a single operator of marking and traceability of goods by Government decree No. 95 dated March 3, 2020.

At the same time, the performance of the functions of a Single operator does not provide for any state funding, but will be carried out entirely at the expense of the Single operator.

At the same time, it should be noted that each member state of the EAEU provides for its own measures to support domestic business when introducing mandatory labeling of goods.

Thus, in the Republic of Kazakhstan, the financial costs of conducting pilot projects on marking and traceability of goods are entirely borne by the single operator of marking and traceability of goods in the person of Kazakhtelecom JSC, and in accordance with the Law of the Republic of Kazakhstan dated April 12, 2004 No. 544 "On regulation of trade activities" (hereinafter – Law) the unified operator of marking and traceability of goods must have resources that ensure the processes of marking and traceability of goods, including equipment for printing identification means on a material carrier, provided to commodity producers – small businesses of the Republic of Kazakhstan on the terms of property lease (lease), leasing and other financial instruments (subparagraph 6) of paragraph 2 of article 7-4. Law's).

Also, the state program of industrial and innovative development of the Republic of Kazakhstan for 2020-2025 (Decree of the government of the Republic of Kazakhstan dated December 31, 2019 No. 1050) provides for measures to reimburse the cost of purchasing equipment for applying identification tools or material carriers and for purchasing identification tools for marking goods in the Republic of Kazakhstan.

We also note that the introduction of the system of marking and traceability of goods in the Republic of Kazakhstan is regulated by the Agreement on the marking of goods by means of identification in the Eurasian economic Union (EAEU) (entered into force on March 29, 2019), as well as The law of the Republic of Kazakhstan "On regulation of trade activities". Thus, the law defines the concepts and competencies of coordinating, sectoral state bodies and a single operator of marking and traceability of goods.

Taking into account that the Treaty on the Eurasian economic Union dated 29 may 2014 (hereinafter – the Agreement) as the main goal of creating the Eurasian Union defined the freedom of movement of goods, the Agreement does not contradict the basic principles of Contract.

At the same time, the Agreement applies both to manufacturers of the EAEU member state, which has introduced unilateral labeling, and to suppliers of other member States of the Union, which means that all business entities of the EAEU operate on equal terms and do not create additional requirements for the business of the member States of the Union that have refused to label this product group on their territory.

Also, in the example of the Russian Federation, the introduction of a system of labeling and traceability of goods does not lead to an increase in prices for them above the level of inflation. It should be noted that the cost of control and identification signs (PPE) is also determined based on the results of pilot projects in the course of regulatory impact analysis and approved by a Government decree. For example, the cost of PPE used in the labeling of tobacco products is 2.68 tenge without VAT. As of September 30, 2020, the relevant resolution was adopted at a Government meeting and is currently being registered.

In accordance with the provisions of the Law "On regulation of commercial activities" the decision on introduction of mandatory marking for certain product groups will be accepted only on the basis of the results of the analysis of the feasibility of introducing labelling and regulatory impact analysis conducted by sectoral authorities for pilot projects for the labelling of various product groups. During the pilot projects, technical implementation options are tested together with the business and the financial burden on the business is analyzed, taking into account the opinion of the business community. If there are risks of negative socio-economic and legal consequences following the results of pilot projects, mandatory labeling for a certain product group will not be introduced.

Only if the pilot project is successfully completed, there are positive results and regulatory impact analysis is carried out, the labeling of goods will be mandatory for the corresponding product group. It should also be noted that participation in pilot projects is voluntary.

When conducting regulatory impact analysis of public hearings will be held in conjunction with the NCE "Atameken". If there are appropriate recommendations based on the results of pilot projects, public hearings in the Parliament of the Republic of Kazakhstan may be initiated by the sectoral state bodies coordinating these pilot projects with the involvement of the mass media and the General public.