Despite average salaries of only $2,000 per year, many Ukrainians still long to possess an iPhone.
But while U.S. customers can buy a new iPhone 6S for $549, Ukrainians have to pay $730 for the same model at an official distributor’s store. So many Ukrainians opt for cheaper, smuggled Apple gadgets.
Hand-held electronics are easy to transport and pound-for-pound are more profitable than other goods. As a result, devices such as Apple smartphones, tablets and watches are popular with Ukrainian smugglers.
But even though the smuggling gives Ukrainians the possibility to buy a device they would probably put off buying due to its high price, it’s the consumer who ends up without any guarantee of the gadget’s proper functioning in the future.
Most devices are ‘gray’
The volume of smuggling of Apple devices is vast. Just in the last seven months, from January to July, the State Fiscal Service recorded 41 cases of violations of customs procedures while such devices were brought into the country. Over this period it confiscated 435 smartphones worth Hr 2.5 million ($100,000) – and all of them were Apple devices.
Back in 2014, the State Fiscal Service seized 7,506 units of various makes of smartphones worth Hr 15 million ($600,000). Over 1,300 units worth Hr 14 million ($560,000) were confiscated in 2015. And over the last year, the authorities have searched at least six different shops and arrested Apple gadgets worth over Hr 10 million ($400,000).
However, experts say the scale of the illegal trade is even larger than that.
Viktor Sholoshenko, the marketing director at Citrus, a Ukrainian chain of electronics shops, claims that most internet retailers in the country sell “gray” gadgets, and those produced by Apple are in high demand.
While it has in-country operations in Ukraine’s neighbors, Russia and Poland, Apple does not work directly with Ukraine. Instead, the tech company has certified two firms to distribute the company’s devices to local vendors. These are ERC and ASBIS.
But Sholoshenko says roughly 85 shops out of 95 probed on the internet offer iPhones that are not authorized by the official distributors. It’s the same story with offline sales.
“Apple and official distributors would never certify the numerous stalls that sell iPhones in open markets or inside underground metro passages,” he said.
Sholoshenko added that only Apple can know the real picture of illegal sales of its gadgets in Ukraine, as it knows how many devices it has sold to a particular country and how many of them have been activated there.
Apple Inc. did not reply to a voice message and three e-mails seeking comment.
There are several ways to distinguish a legally imported and distributed Apple iPhone from an unauthorized device.
Corruption is involved
Yulia Marushevska, the head of Odesa Oblast’s customs service, believes that a huge amount of illegal Apple gadgets are available on the Ukrainian electronics market. She knows at least two ways of importing commodities into Ukraine dodging taxes: simple contraband, and bringing in goods in violation of intellectual property rights.
But both options, according to her, definitely involve corruption.
“Nobody would smuggle in just 100 phones. They bring in batches – thousands,” Marushevska told the Kyiv Post. “That can’t go unnoticed. It is clear that there must be some agreements.”
Marushevska said that the solution would be to ensure the proper work of Ukraine’s border service and internal authorities.
“(This means) stopping contraband at the border and, at the same time, continual punishment inside the country – seizing this product from the market and shutting down small shops,” she said.
A Kyiv Post source, whose company works with official distributors but who wished to stay anonymous because of fears that authorities would search his company, said that “more than 60 percent of Apple products are shady” and that most of the devices “get in Ukraine through kickbacks” on the border.
“The volume of smuggling is so huge… (that) we are being forced to leave the market,” the company owner said.
According to him, it’s almost impossible to resell officially imported Apple gadgets. “We sell legal electronics, pay all the taxes, and are being criticized by customers for our prices, because people have got used to the prices of smuggled products.”
Fiscal Service Head Roman Nasirov didn’t respond to requests for comment, but in the answer to questions from the Kyiv Post the Fiscal Service denied there were any customs bribery schemes, and said that there were plenty of other semi-legal ways to bring non-authorized electronics into the country.
For instance, citizens can bring in goods worth less than €1,000 and less than 50 kilograms in weight, although, the law says these goods mustn’t be for commercial purposes. According to the Fiscal Service, this loophole is used widely. And in another shady maneuver, electronics are hidden among goods that have lower customs tariffs, like food.
According to the Fiscal Service, more scanning devices are needed on the border to stop such smuggled consignments of electronics.
A different perspective
However, some think that the problem lies not with the current laws or corruption, or the lack of modern scanners on the border, but in the monopolization of this business by just two companies.
Volodymyr Kolodiuk, the president of the Unitrade Group Holding, and the brother of the famous Ukrainian venture capitalist Andrey Kolodiuk, said that today plenty of companies are ready to import electronics of the same quality to Ukraine, but charging much less than the official distributors do.
“As a result, the devices cost significantly more than on the U.S. and European markets. The official distributors earn excess profits due to such a monopoly,” Kolodiuk, whose shop City.com has admitted selling “gray” gadgets, told the Kyiv Post. “In the civilized world this is called parallel importing (when one buys goods in one country cheaply, and sells them more expensively in another country).”
“It’s not business that suffers from this situation,” he went on. “It’s ordinary people, who have to pay too much for desirable goods.”
The Kyiv Post’s IT coverage is sponsored by Beetroot, Ciklum and SoftServe. The content is independent of the donors.
