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Developments in public procurement in Russia

A new incentive for foreign manufacturers to localise production?

10/03/2015

The trends emerging from recent developments in the field of public procurement show that a two-way process is under way in Russia. On the one hand, the policy of restricting access of foreign-made goods to public tendering has of late gained a new momentum, with some initiatives already in force, while others are being contemplated. This policy affects a number of sectors including, in particular, the automotive, heavy equipment, light industry and medical device sectors, and the list may continue to expand. On the other hand, measures are being developed to encourage foreign manufacturers to locate their production within Russia, thereby benefiting the country via the transfer of technologies. A bill introducing state guarantees in favour of suppliers who are committed to locating production in Russia has notably been proposed, which if adopted would constitute a positive signal for investors.

Which sectors and goods are affected by the restrictions?

The table below outlines (in chronological order) the types of goods affected and the form of restrictions that are applied.

Type of goods

Effective date

Form of restrictions

Certain types of vehicles, as well as transportation and heavy equipment, as we previously reported

Foreign light industry products (including textile)

  • By extension of Government Decree No. 656, a wider range of:
      • vehicles (including refuse collection and street-cleaning vehicles)
      • transportation equipment
      • heavy equipment
  • Mineral processing equipment

16 July 2014

1 September 2014

11 February 2015

Outright ban on foreign-made items

Medical devices and products (such as certain kinds of cardiac monitors, tomography devices, medical clothing, various types of reagents)

14 February 2015

Bid offering foreign-made devices/products to be rejected when two or more bids are made by bidders offering devices/products made in member states of the Eurasian Economic Union (“EEU”) (namely Russia, Belarus, Kazakhstan, Armenia)

Medicines

Not yet, but a draft decree has been prepared

In all likelihood, rules similar to those applying to medical devices and products to be introduced

What does “foreign-made” mean?

To participate in the tendering process for the public procurement of goods, bidders offering locally-produced goods must provide ‘country of origin’ certificates issued by an authorised body or an organisation of an EEU member state. In Russia, these certificates are issued by the Russian Chamber of Commerce and Industry (the “CCI”) following a detailed expert examination. A foreign-made good is one that is made in any country other than an EEU member state, as will be indicated by its ‘country of origin’ certificate.

Even though the confirmation of the origin of goods is carried out in accordance with rules adopted in 2009 at the level of the Commonwealth of Independent States, the criteria applied are not detailed enough. As a result, applicants often encounter substantial difficulties and uncertainties in the process, which gives CCI employees a certain amount of discretion when they issue ‘country of origin’ certificates.

What next?

The adverse impact of the various restrictions now in place against foreign companies wishing to participate in state purchases may be seen as mitigated – but only partially – in certain respects, by certain incentives that may soon be implemented to encourage the localisation of manufacturing facilities in Russia.

The Russian Ministry of Economic Development recently proposed to amend the Federal law “On the Contractual System in the Public Procurement Sector” (we have previously reported on the relevant Federal Law) to introduce guarantees for companies who localised production in Russia. These guarantees could include mechanisms to protect the latter from deteriorating conditions in respect of the quantity, price or delivery terms of the goods supplied.

In our view, manufacturers would also welcome clarification by the Russian Government of the ‘country of origin’ criteria. Increased visibility would greatly assist manufacturers when devising their global strategies. Encouragingly, clarification of the criteria is already envisaged to some extent in relation to certain goods. For instance, it is expected that, from 2016, medicines will need to be localised at finished dosage production stage to be deemed locally-produced. That said, imported medicines that have undergone primary or secondary packaging in Russia or the EEU will enjoy some preferences over entirely foreign-made medicines. In any event, a more comprehensive approach dealing with all sectors now affected by the above public procurement restrictions would of course be helpful.

Source
CMS Client Alert | March 2015 | Infrastructure & Project Finance
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Authors

Safaryan Hayk
Hayk Safaryan
Partner
Moscow
Vsevolod Tyupa