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VODKA HISTORY

Vodka is the national Russian liquor and the word itself, being aboriginally Russian, derives from the word "water". Russians distilled Vodka as far back as the tenth century. In the eleventh century vodka distilleries were built. They were called vinokurnia. One of them, the Khlynov distillery, is mentioned in the year 1184 in the Vyatka Chronicle. Information about vodka can be found in Russian folk tales, legendry and reminiscences of a number of foreigners living in Ancient Russia (the English poet D. Fletcher in the fourteenth century and the Austrian ambassador S. Gerberstein in the sixteenth century). In 1427 the first excise tax for export was introduced. In 1505 the first export of Russian Vodka was registered for the first time.

From the very beginning Vodka has been treated as means for financing wars and other state businesses. In 1590 the Tsar issued an edict "To sell Vodka only in kabaks", (pothouses). All over the country, even in small villages, there were special inns that belonged to the Crown. Tsar Peter the Great did a lot to improve production of Vodka according to the old Russian recipes. Incidentally, in his edict of 1721 he fixed a daily ration of two mugs of Vodka for a soldier.

By the end of the 19th century Russia exported up to 7 million buckets (1 bucket is about 2.3 liter) of vodka spirit. The liquor monopoly (worked out by count Vitte) was introduced in Russia before the Revolution in 1894, but it became common all over the country only from 1902. The essentials of the monopoly are as follows:

1. Private individuals are disallowed to produce and sell vodka. Home-made spirit (samogon) becomes lossmaking.

2. The State provides for quality produce using the latest now-how and scientific achievements along with traditional Russian processes.

3. New habits of spirits consumption are introduced aiming to do away with restrictions on selling and fight intemperance of the Russians. Under the Soviet Regime this monopoly was virtually inherited intact and the profits from sales of Vodka and some other spirits (rather substantial, making up to 20 per cent of internal revenues) were allocated for various purposes.

History of export of traditional Russian brands of vodka and the was of brands in Russia today
The State-owned foreign trade company Exportkhleb was established during the early period of the Soviet regime. In 1951 a new company, VO Prodintorg spun off which in its turn divided in 1966 creating two enterprises one of which is VO Soyuzplodoimport. Stocklist of this foreign trade association had over 200 positions of food products and agricultural produce and raw stuff.

For years VO Soyuzplodoimport provided for the national economy a whole series of commodities that cannot be produced in this country due to climatic conditions (cocoa bean, coffee, bananas and some other exotic fruit, spicery, etc.) or their production was short and could not satisfy the demand (citrus fruit, tea, nuts, preserved food, etc). Apart from that if necessary there was considerable import of such goods as wine and vintage, raw product for brandy, grape-sugar, fresh fruit and vegetables, juice, etc.

VO Soyuzplodoimport was the monopoly importer of white and color vodka brands, sparkling wines, brandy and other liquors. Naturally vodka was the staple commodity mass shipments of which started by the end of 1950's when VO Plodintorg established a special sales division. For almost 40 years numerous experts in foreign trade and production have been carrying out marketing, advertising and promotion of Russian brands in European countries, in America and on other continents. Annually, the association participated in various international fairs and specialized exhibitions all over the world. Promotion tasting, competitions of bar-tenders for the best cocktail on the base of the Russian Vodka, various consumer campaigns, etc. were regularly carried out in many countries of the world. And the main advertising slogan ever championed was "Only Vodka from Russia is the original Russian Vodka!". The companies that purchased Russian Vodkas were offered considerable discounts on the price for advertising, joint plans for vodka promotion in different markets were worked out.

Russian brands have quickly become internationally renowned: Stolichnaya was awarded golden medals at the exhibition in Brussels (1958) and later in Leipzig, Pardubitse and Plovdiv, Moskovskaya in Bern (1954), Brussells (1958) and Pardubitse. Before 1992 only for advertising abroad our country allocated over 100 million US dollars. This helped to create an image of the Russian original Vodka as a top-of-the-line, unique and the best liquor, which is produced of the choice Russian wheat, and having unequalled qualities: it is both strong and mild, has a exclusive flavor and clarity of a gem.

Every year the traditional Russian Vodkas expanded on the world market and came up in the world. Before 1992 they were sold in almost 90 countries and in 50 countries their brand names were registered. Soyuzplodoimport established Subsidiaries in the USA, Germany, Great Britain, also in Brazil, Singapore and Cyprus. About 15 brands of traditional Russian vodkas and bitters are well known in many countries of the world. But the leading brands are Stolichnaya and Moskovskaya. They accounted for over 90 per cent of total shipment. Towards the 1990's VO Soyuzplodoimport exported about 3 million deciliters of Vodka annually. The major buyers were the USA, Germany, Greece, France, Great Britain, Italy, Spain, Canada, Columbia, Australia. The best and most renowned distilleries were chosen to export vodka. These were the Leningrad, Kuybishev, Moscow and Kaluga distilleries among some others.

After dissolution of the USSR originally the production and trade of liquor was completely deregulated. This resulted in anarchy in production and home market of the spirits, a dramatic drop of legal production of liquor in Russia and loss of federal revenue. Then the State took various measures to cure the situation, but the diseconomy has not been overcome in full up till now.

In January 1992 State Enterprise GP VVO Soyuzplodoimport became one of shareholders of the new company VAO Soyuzplodoimport (consisting of about 50 legal entities at the time). A provision set forth illegally in the Articles of Association read that it was a successor of GP VVO Soyuzplodoimport. In June 1993 a meeting of stockholders of the VAO Soyuzplodoimport resolved to exclude GP VVO Soyuzplodoimport from its shareholders. Later its assets were assigned to VAO Soyuzplodoimport without any appraisal and without any sanction of state agencies. In April 1997 VAO Soyuzplodoimport was acquired by a number of persons lead by Y. V. Shefler. They overtook the controlling block of stock buying it out from the employees of VAO Soyuzplodoimport, and a number of companies. Being aware of weakness of their position the new owners set a course for withdrawal of assets of VAO Soyuzplodoimport and stepping down its activity. Rather soon the following measures were taken: in June 1997 VAO Soyuzplodoimport was reorganized into ZAO Soyuzplodoimport, that later was renamed OAO Plodovaya Kompaniya and was allegedly kept as the successor of GP VVO Soyuzplodoimport.

In October 1997 a new private company with virtually the same name was registered – ZAO Soyuzplodimport (omitting one "o"), headed by A. V. Skurikhin and representing legal interests of S.P.I. group in Russia participating in court procedures, making statements to mass media and so on. In December 1997 VZAO Soyuzplodoimport assigned to ZAO Soyuzplodimport its rights to trademarks of traditional Russian Vodka brands for a sum of 1.7 million rubles (about 300 thousand US dollars). In July 1998 the building where ZAO Soyuzplodimport has its seat up till now was sold being undercharged and then real estate in Hamburg was sold (at that moment it was assessed at 8 – 10 million DM). Transactions and financial settlements were drawn out of Russia. Almost all export shipments of Vodka were concentrated in one distillery – OAO SPI-RVVK, Kaliningrad (actual owner is the S.P.I. Group of companies headed by Y. V. Shefler). The export price was set at minimum (8 – 10 US dollars and less for one deciliter of Vodka). In such circumstances there was no revenue to the Russian budget and the whole of proceeds in hard cash remained in foreign countries.

In foreign countries trade marks of traditional Russian Vodka brands were assigned by Y. V. Shefler to a Dutch company "Spirits International" (where he is one of the founders as is known on good authority) which re-registered Russia's traditional vodka trademarks in foreign countries. Thus, in two or three years the S. P. I. Group of companies deprived Russia of all profits it used to enjoy for use of its traditional vodka brands.

Unlawful activity of the S. P. I. Group of companies attracted attention of the General prosecutor's office, Ministry of the Interior and the Audit Chamber. On the order of Russia's President and Government, Ministry of Agriculture together with some federal ministries and agencies started a thorough work in order to get back to Russia its property – the trade marks of the traditional Russian Vodkas and Bitters. In 2000 the Audit Chamber of the Russian Federation revised lawfulness and expediency of making GP VVO Soyuzplodoimport a joint stock company and its privatization. In its report to the Government of Russia the Audit Chamber stated that as a result of establishing VAO Soyuzplodoimport and assignment of assets effected by GP VVO Soyuzplodoimport there was illicit alienation of state owned property including trade marks of vodka. The Audit Chamber also pointed out that the essential part in the process of illicit alienation was belonged to the illegal introduction of provision into the Articles of VAO Soyuzplodoimport and other organizations (up to OAO Plodovaya Kompaniya) that named them as successors of GP VVO Soyuzplodoimport.

In April 2001 Ministry of Agriculture of Russia resolved to renew economic activity of GP VVO Soyuzplodoimport which had not been liquidated. In July 2001 as per legislation in force, it was re-registered as the Federal State Unitary Enterprise Soyuzplodoimport. In July 2001 the Government of Russia resolved that the Ministry of Agriculture shall hold the trade marks for the liquors in the name of the Russian Federation.

In defense of the state interest Prosecutor General's office brought an action against OAO Plodovaya Kompaniya demanding for nullity of its Articles of Association in the part fixing it an assignee of GP VVO Soyuzplodoimport. After long months of litigation in courts of various jurisdictions, on October 16, 2001, Presidium of the High Court of Arbitration delivered its final decision of nullity of Articles of Association of OAO Plodovaya Kompaniya in the part fixing it assignee of GP VVO Soyuzplodoimport.

Under the decision of the Russia's Highest court of arbitration delivered on October 26 2001, Rospatent of the Russian Federation issued a registration certificate of the Russian Federation to the Ministry of Agriculture to the trade marks of Stolichnaya and other brands. Thereat, on November 26, 2001, Ministry of Agriculture of the Russian Federation informed ZAO Soyuzplodimport of a prohibitory injunction as to using in any form of trade-marks of vodka Stolichnaya and other traditional brands. ZAO Soyuzplodimport were forewarned that illegal use of a trademark constitutes a civil tort (civil damages) and a criminal offence (Art. 180, Criminal Code of the Russian Federation).

Realizing that the crook business of misappropriation of the brands failed the S. P. I. Group of companies took measures to transfer production of vodka into third countries. So, in June 2001 it acquired the major Latvian plant LATVIYAS BALSAMS, where it produces Vodka for export, make their main profits and don't bother to pay tax to the Russian budget. All financial operations are carried out in offshore zones. From 1997 to 2001 Russia suffered loss as lost profit tax estimated at 40 million US dollars and at least 120 million US dollars as hard cash proceeds that never got into the country.

In December 2001 Government of the Russian Federation resolved to establish a Federal State Enterprise Soyuzpodoimport that is charged with exports and imports of all types of liquor and soft drinks, fresh and processed vegetables and fruit, tea, coffee, spicery and other phytogenic goods.


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