- The Washington Times - Thursday, June 20, 2002

Russia's hopes of becoming a significant player in the world economic pecking order may be bottled up in 150,000 cases of vodka stuck on a loading dock at the Baltic port city of Kaliningrad.

The cargo of vodka, half of which was bound for the United States, has been frozen dockside in a bitter feud between the Russian Agriculture Ministry and the Dutch-based distributor SPI Spirits Ltd. over the ownership of exporting rights to the famous Stolichnaya brand name.

Vodka is big business in Russia, the country's second-largest industry. But analysts say the Stoli fight could have even bigger consequences as the government of President Vladimir Putin seeks increased foreign investment, normal trade relations with the United States and membership in the World Trade Organization.

"It has the potential to be a real public-relations disaster for the Russians, just when we think they've been doing so well," said Z. Blake Marshall, executive vice president of the Washington-based U.S.-Russia Business Council.

Council officials were so concerned about the impasse that the Stoli squabble was one of the two trade cases raised when they briefed Mr. Putin and President Bush at a private meeting during last month's summit in Moscow.

Richard A. Edlin, SPI's attorney, said the Stoli dispute "is absolutely a test case for Russia, the biggest international-trade issue they will face for the next two or three years."

"Short of maybe the Kalashnikov rifle, which isn't really a consumer good, this is the one brand name people internationally associate with Russia," Mr. Edlin said. "At the core of this case is what kind of partner Russia will be in the international market."

But the case raises another tricky question: Does the Russian government have the right to redress what it sees as injustices from the badly botched privatization spree that followed the collapse of the Soviet Union and its centrally planned economy?

A state monopoly under the Communists and a lucrative source of revenue, the export rights to Stolichnaya, Moskovskaya and dozens of other Russian-made vodka brands were acquired by a private predecessor to SPI in 1992. Mr. Edlin said the current owners, who acquired the rights to Stolichnaya for $300,000 five years later, spent millions marketing the brand in the West, paying off Soviet-era debts and revitalizing the company.

But the Ministry of Agriculture last fall began raising new questions about the 1992 privatization, charging that government property the Stolichnaya brand name was sold for far less than its market worth to well-connected insiders.

Ministry officials have said they were trying to protect the value of intellectual property developed by the state under the Soviet Union, but the government has also taken steps to grab a piece of the multibillion-dollar global vodka market for itself.

Despite Moscow court rulings that have favored SPI's claims, the ministry has floated a plan to create a new state-owned enterprise to re-nationalize vodka production and monopolize the export market. The Moscow Times reported in April that the man tapped to run the new monopoly is Vladimir Loginov, a former deputy agriculture minister.

Mr. Edlin said SPI officials hope the negative publicity over the vodka wars will force the Agriculture Ministry either to back down or to persuade Mr. Putin and the Kremlin to put new pressure on the bureaucracy.

The Kaliningrad vodka remains on ice, but with SPI holding the trademark rights to market and sell Stolichnaya in the United States and more than 150 other countries, "the Russian government won't be able to sell a single drop of its own Stolichnaya vodka outside its borders," Mr. Edlin said.


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