Kyiv Post

Apple enters Ukraine to keep imports, smugglers in check

- By Daryna Antoniuk antoniuk@ kyivpost.com

In December 2019, a 51-year-old Ukrainian was caught at Kyiv’s Boryspil Airport trying to sneak 26 brand new iPhone 11s into the country in his pants. Customs officials detained the smuggler and seized the phones.

It happens all the time. People smuggle Apple devices to resell them at lower prices than official distributo­rs. For consumers it means getting less reliable devices, without warranty or even packaging.

Nearly half of all Apple devices in Ukraine are brought unofficial­ly and go untaxed, according to Apple’s official distributo­r ASBIS Ukraine.

To try to end it, Apple opened an office in Ukraine in June. Now, the company will take over the imports of Apple devices to Ukraine, and distribute them to retailers.

The company is also considerin­g opening its first Apple Store in Ukraine, according to Oleksandr Bornyakov, deputy minister of digital transforma­tion.

Why smuggle iPhones?

It costs nearly $1,500 to buy the newest iPhone 12 Pro in Ukraine — almost $200 more than the $1,313 in New York, a state with one of the highest sales taxes. Prices vary in other countries as well: in Dubai, the latest iPhone costs nearly $1,260, in Estonia — $1,202; in India, customers pay nearly $1,740 for the same smartphone, in Brazil — $2,100.

Apple products are more expensive overseas because of taxes, according to Vitaliy Melnychenk­o, director of ASBIS. Official distributo­rs in Ukraine pay a 10% tax on the value of a good surpassing 1,000 euros if shipped by air and 500 euros if by car along with 20% tax of the total price of a device. Logistics and distributi­on also add to the final price.

Smugglers, in turn, can bring iPhones in their pockets and sell them 20–30% cheaper than an official retailer, according to Vadim Lisyuk, CEO of Ukrainian electronic­s retailer Citrus.

The disparity in prices is the mainstay of smuggling, according to Ukraine’s former customs chief Max Nefyodov.

Many Ukrainians travel to countries where iPhones are cheaper and find ways to bring electronic­s to Ukraine and sell them illegally.

According to the law, a person traveling abroad is only allowed to bring two phones and two laptops for personal use back to Ukraine tax-free. But it is hard to distinguis­h legitimate transporta­tion from illegal imports, experts say.

It creates unfair competitio­n in the market where retailers who sell

Apple products legally lose customers and profits.

“They earn more by selling accessorie­s for Apple devices than actual devices,” according to a Ukrainian retailer Moyo.

If Apple had similar prices for its products in different countries, smuggling wouldn’t be such a profitable business, according to Nefyodov.

“But instead of levelling the prices, many companies, including Apple, choose to fight smuggling with the help of lawyers and law enforcemen­t,” he said.

Why now?

For many years Apple didn’t have an office in Ukraine, and instead

worked with an official distributo­r — ASBIS Ukraine. The company imported Apple tech and sold it through authorized local retailers — Citrus, Comfy, Eldorado, Foxtrot, Moyo, Rozetka and others.

With the opening of an official office in Ukraine, Apple can import its products without an intermedia­ry, but ASBIS told the Kyiv Post that it will continue working with the company in Ukraine, serving as the link between Apple and local retailers.

Apple was hesitant at first to enter Ukraine — it registered its limited liability company at the IQ business center in Kyiv in July 2020 and has been recruiting Ukrainian specialist­s in different cities since. The company was talking to Ukraine’s government for over a year before entering the country, according to Minister of Digital Transforma­tion Mykhailo Fedorov.

With a $2 trillion capitaliza­tion — more than the gross domestic product of Italy or Canada— Apple is one of the world’s largest companies. A company like that does not open offices “in small and risky markets,” according to Dmytro Derevitsky, co-owner of Allo, a Ukrainian retailer who once competed to be the official distributo­r of Apple in Ukraine.

“The fact that Apple has considered us as a market means that Ukraine is moving in the right direction,” Derevitsky said.

To understand Ukraine better, Apple hired consultant­s here, according to Bornyakov. After analyzing the local market, the company asked Ukrainian authoritie­s to allow Apple retailers to give customers digital warranties instead of the paper ones required by Ukrainian law.

On July 1, the Ukrainian parliament adopted a law, allowing Ukrainians to receive either digital or printed warranties, according to Bornyakov.

What will (and won’t) change

Apple’s iconic logo is ubiquitous in Ukraine. Small retailers use it freely without the company’s permission. Experts said that Apple’s representa­tives in Ukraine will fight businesses that violate its intellectu­al property rights and sell illegal goods.

However, Ukrainians shouldn’t expect immediate changes.

“We need a systematic battle against the ‘ gray’ market,” Lisyuk said.

“With the involvemen­t of state regulators,” Melnychenk­o added.

An Apple Store won’t open in Ukraine soon, as well, according to experts. Ukraine’s market remains too unstable for the company’s taste.

However, some things are already changing. In March, for example, Apple announced that it will work with unofficial repair shops and give them licenses to fix its devices. Backed by Apple, these services will be more reliable because they will follow official repair manuals and use authentic parts and technology.

Since July, Apple’s support team has been serving local customers in the Ukrainian language, along with Russian and English and Apple Music will soon promote more Ukrainian artists, according to Bornyakov.

Among other plans is to teach smart voice-assistant Siri to speak Ukrainian and to launch Apple’s heart rate monitor app that is now unavailabl­e in the country.

“We want Ukrainians to have the same services as Americans do,” Bornyakov said.

 ??  ?? U.S. tech giant Apple entered Ukraine to control stores of local dealers and import its products directly to the country. Before that, Apple worked with a distributo­r that sold Apple tech through authorized local retailers.
U.S. tech giant Apple entered Ukraine to control stores of local dealers and import its products directly to the country. Before that, Apple worked with a distributo­r that sold Apple tech through authorized local retailers.

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