Import Substitution in Russia - Medical Technologies

Regulations

Manufacturers of medical products are particularly affected by the new import substitution rules. The Industrial Policy Law (488-FZ) has established a basis for bans and restrictions on the procurement of goods in accordance with the Procurement Law (44-FZ). Both the Industrial Policy Law and the Public Procurement Law give an advantage to domestically manufactured medical products in tenders held by public customers.

Resolution No. 102 stipulated a list of around 50 locally made medical devices enjoying preferential treatment in public tenders. According to such Resolution, public customers when procuring medical devices included in such list are obliged to reject any bids from manufacturers to supply such medical devices that do not originate from the EEU if there are two or more bids for the supply of the same medical devices that do originate from the EEU (the so-called “third odd one out” rule). Resolution No. 337 has recently provided some additional clarifications as to the application of the “third odd one out” rule.

Moreover, all medical devices manufactured in Russia are awarded a 15% pricing preference for the purpose of public tenders. Where the winning bidder (i.e. the bidder offering the lowest price) offers medical devices produced outside of the EEU, it must grant an additional 15 % discount on the price of these goods.

Order No. 655 has sharply reduced the import quotas for certain medical goods by 2020.

References (sources)

• Industrial Policy Law (488-FZ);
• Procurement Law (44-FZ);
• Resolution of the Government of the Russian Federation No. 102 dated 5 February 2015;
• Resolution of the Government of the Russian Federation No. 337 dated 22 April 2016;
• Order of the Ministry for Economic Development of the Russian Federation No. 155 dated 25 March 2014;
• Order of the Ministry for Industry and Trade of the Russian Federation No. 655 dated 31 March 2015.

Affected entities

44-FZ and related regulations affect state and municipal entities.

223-FZ covers companies whose majority shareholders are state-owned or municipal entities (“state-owned companies”).

Affected products

Resolution No. 102 lists medical products of foreign origin that may not be procured by state-owned entities if at the same time at least two equivalent domestic medical products are offered.

Existing practice

Public customers in Russia apply the preferences provided for by law for locally made medical devices. As a result, in many cases those suppliers of medical devices who can offer products with the confirmed “made in Russia” status are in a better position than distributors of foreign-made medical devices.

There have been a few court cases when distributors of foreign-made medical devices have tried to appeal the decisions of public customers on the application of the “third odd one out” rule. However, the Russian courts have confirmed the legitimacy of the application of such rule to all the medical devices included in the list provided for by Resolution No. 102 as well as the customers’ obligation not to consider as locally made those medical devices whose origin is not confirmed as prescribed by law (by a “ST-1 certificate”).

Relevance for imports to Russia

If goods are subject to the requirements of 44-FZ and related regulations, they exit a tender as long as it involves two equivalent domestic products. The market for these goods is not completely closed, but the applicable terms and conditions of a tender are significantly worse. Goods may only be admitted to tenders where they are considered as produced in Russia and have a certificate of Russian origin (a “ST-1 certificate”).

Criteria for obtaining a certificate of origin

The country of origin of the medical goods listed in Resolution No. 102 is determined in accordance with the CIS Agreement “On the Rules for Determining the Country of Origin of Goods in the CIS” dated 20 November 2009.

For most medical devices, this means that a product may be deemed produced in the EEU if it either has been produced in an EEU member state by means of a full production cycle or received not less than 50% of the final product value in the territory of the EEU as a result of manufacturing and re-processing operations performed locally (e.g. handling, mastering, primary packaging).

There are plans to adopt specific localisation criteria for different types of medical devices (as has already been the case for some other industries, such as heavy machinery). However, the relevant drafts have not been adopted yet and, therefore, the CIS Agreement dated 20 November 2009 still applies.

Recommendations

The targeting of the market for medical products, as shown by the import quota reduction plan under Resolution No. 102, is systematic and aimed at a long-term perspective. In this respect, the restrictions that have already been adopted are only a starting point.

Companies who are affected or fear they may be affected by future measures should thoroughly analyse the market’s importance. If any goods are subject to the import substitution rules, the market will be closed to them for an indefinite period. The only way to access the market is to localise production. The crucial points when deciding whether to localise production are the importance of the market as well as the efforts required to produce local goods that are sufficiently processed to obtain a certificate of Russian origin.

This article is a part of a series based on the publication "Import Substitution in Russia" which we compiled for the Swiss embassy in Moscow. To learn more, register for the webinar on 14. September with Dr. Thomas Heidemann.

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