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  1. Introduction
    1. Political and administrative structure
    2. Legal environment
  2. Common forms of business structures for foreign investors
    1. Main types of structure
    2. Registration, liquidation and reorganisation of business structures
    3. Shareholders’ and participants’ agreements
    4. Strategic industries
  3. Anti-monopoly issues
    1. General legal and regulatory framework
    2. Scope of application of the Competition Law
    3. Anti-competitive practices and restriction of competition
    4. Liability
  4. Tax system
    1. General approach
    2. Corporate taxation
    3. Incentives
    4. Special tax regimes
    5. Taxation of individuals
    6. Double taxation treaties
  5. Customs regulations
    1. General approach
    2. Trade between EEU and non-EEU countries
    3. Mutual trade between the EEU members
  6. Currency control
    1. Foreign currency transactions
    2. Consequences of breach/Penalties
  7. Lending in Russia
    1. Lending documents and governing law
    2. Jurisdiction
    3. International finance transactions and repatriation requirements
    4. Security interests
    5. Recognition of security trusts
    6. Syndicated loans
    7. Enforcement
    8. Suretyships and guarantees
    9. Bankruptcy considerations
    10. Other lending related issues
  8. Employment and migration
    1. Formalising the employment relationship
    2. Managing employment relationships
    3. Terminating an employment agreement
    4. Specifics of employing foreign nationals
  9. Personal data protection
    1. General approach
    2. Scope of the Data Protection Law
    3. Liability
    4. Right to be forgotten
  10. Intellectual property
    1. General approach
    2. Contractual aspects of intellectual property rights
    3. Rights over the results of intellectual activity
    4. Company names, trade names, trademarks and appellations of origin
    5. Intellectual property rights infringements
    6. IP Court
  11. Advertising issues
    1. General approach
    2. Scope of application of the Advertising Law
    3. Violations of the Advertising Law
    4. Liability
  12. Anti-corruption and compliance
    1. General approach
    2. Legal framework
    3. Compliance requirements for companies
    4. Concept of corruption in Russian law
    5. Possible targets of bribery
    6. Liability and penalties for corruption
    7. Example of sector-specific anti-corruption measures
  13. Real estate and construction
    1. Rights to real estate
    2. Real estate transactions
    3. Resolution of real estate disputes
    4. Planning and construction issues
  14. Corporate bankruptcy
    1. Insolvency criteria
    2. Stages of bankruptcy proceedings
  15. Import substitution and production localisation in Russia
    1. Measures affecting goods importation and current import substitution legislation
    2. Localisation incentives
    3. Sector-specific impact of import restrictions and localisation requirements
  16. Banking sector
    1. Legislative and regulatory framework
    2. Licensing and operations
    3. Deposit insurance
    4. The anti-money laundering law
    5. Bank secrecy
    6. FATCA and CRS
  17. Environment, energy efficiency and renewables
    1. Environment
    2. Energy efficiency
    3. Renewables
  18. Infrastructure and public private partnerships
    1. General approach
    2. Key PPP legislation
    3. Russian PPP environment
    4. Financing
    5. Legal issues
    6. Prospects for infrastructure projects
  19. Oil & gas
    1. Legislative framework
    2. Ownership and licensing
    3. Restrictions on foreign investors
    4. Licences
    5. PSAs

Import substitution and production localisation in Russia

Background

Around ten years ago, the Russian Government and legislators started to adopt measures aimed at increasing domestic production of goods and reducing the country’s dependency on foreign goods. The events, which took place in Ukraine in 2014, further reinforced these measures as it became more obvious that it is very dangerous for the country’s economy to be overly dependent on imported goods that (i) could be cut off at any time by sanctions; and (ii) are subject to currency exchange rates volatility.

Initially, the government’s policy was simply aimed at import substitution by removing foreign goods from the Russian market and imposing restrictions on imported goods so that domestic goods would take their place. However, it quickly became clear that it was necessary to simultaneously attract foreign direct investments and provide incentives for foreign companies to localise their production in Russia.

Currently, a weak Russian rouble, relatively cheap and qualified local labour force, a free access to the CIS markets¹, including the country’s deeper integration with Armenia, Belarus, Kazakhstan and Kyrgyzstan, which are members of the Eurasian Economic Union (the “EEU”), together with the incentives implemented by the Russian Government, have made the country an attractive place for production of goods.


[1] Russia is a party to the Commonwealth of Independent States Free Trade Area (CISFTA) between Russia, Ukraine, Belarus, Uzbekistan, Moldova, Armenia, Kyrgyzstan, Kazakhstan and Tajikistan. However, Russia has suspended this regime towards Ukraine since 2016. In addition, Russia has bilateral free trade treaties with other CIS countries like Azerbaijan. Back ↑

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Heidemann Thomas
Dr. Thomas Heidemann
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Measures affecting goods importation and current import substitution legislation

The Russian Government has adopted plans for import substitution in more than 20 economic sectors.

Most of these plans initially envisaged a gradual reduction in the level of foreign industrial products used in Russia and their replacement by domestic goods by up to 50-100% by 2020. Now these plans are under review with the aim to set additional indicators to be achieved by 2024 and even 2030. Similar action plans (or “road maps”) have also been adopted in more than 30 regions in the country.

Also, the government has created a Government Committee for Import Substitution to coordinate the actions of the federal, regional and municipal authorities and private companies involved in the implementation of the import substitution policy. Similar committees (expert councils) have also been set up at regional level. At the moment, these committees’ activities are, however, limited mostly to regular meetings and briefings.

Some protective measures aimed at limiting the import of foreign goods were implemented within the framework of the Industrial Policy Law1. In 2015, this law abolished the principle of treating domestic and foreign goods equally during state procurements of goods, as well as procurements by state-controlled companies by giving preferences to locally-produced goods. This concept has been further developed in the Procurement Law2 and the Law on Procurement by State-owned Companies3.

Apart from these general import substitution measures, the Russian Government has also implemented politically motivated sanctions and counter-sanctions against goods from the US, EU, Ukraine and Turkey.

Some organisations making state orders occasionally try to overcome these restrictions by placing additional technical requirements on the goods that are procured in public tenders, which can only be met by foreign goods. However, the Russian anti-monopoly authorities monitor such practices in order to prevent them.

Import restrictions on Russian authorities’ procurements 

Generally, under the Procurement Law, the state and municipal authorities may purchase both domestic and foreign goods. However, for bidding purposes, some goods from the EEU enjoy a 15% pricing preference over goods4 from other countries.

There are also certain types of foreign goods that can only be procured when there are no domestic or EEU analogues. The number of such goods is constantly increasing. So far, this prohibition applies to the following sectors:

  • military equipment;
  • vehicles;
  • clothes and shoes;
  • electronic goods;
  • medical equipment;
  • pharmaceutical products; and
  • food products.

In some cases, foreign goods are not disqualified at the beginning of public procurement tenders. Such foreign goods are rejected only if two comparable Russian goods participate in a tender (the “third odd one out” rule). The lists and categories of prohibited goods are compiled and amended according to the Decrees of the Russian Government.

Import restrictions on procurements by state-owned and some private companies

Any companies which are controlled primarily by state or municipal authorities are deemed to be state-owned. State-owned companies’ procurements are regulated separately from authorities’ procurements.

Although the Law on Procurement by State-owned Companies does not formally introduce any prohibitions or place restrictions or limitations on purchases made by private companies (save for express exceptions), the state may prescribe under Decrees of the Russian Government that such companies must first procure Russian goods rather than goods of foreign origin.

In practice, it is becoming increasingly common for some large “quasi-state” companies (in particular, in the oil & gas and railways industries) to set certain restrictions and limitations on foreign goods on the basis of their internal regulations, even if they are not legally obliged to do so. 

In other cases, even if private companies are selling goods to other private companies, the sellers may indirectly become subject to restrictions if the buyers are ultimately dealing with the public sector. That is, if the private buyer of goods ultimately supplies state authorities.

This protectionist regime is also imposed on private companies that implement investment projects that are subsidised by the Russian state and listed in the Investment Projects Register. Such private companies may not procure certain industrial products without obtaining the consent of the Government Committee for Import Substitution.

Russian sanctions and other trade protectionist measures

In addition to the general non-country specific limitations on foreign goods, Russia has also imposed certain country-specific sanctions and counter-sanctions on some foreign goods.

In response to the economic sanctions imposed mainly by the US and EU (please see the Introduction), Russia has imposed an embargo (through the Executive Orders of the Russian President and Decrees of the Russian Government) and closed most of its food market to food items and agricultural goods from the US and EU and also from other countries (Canada, Australia, Norway, Ukraine, Albania, Montenegro, Iceland and Liechtenstein).

The banned goods, according to Russian Government Decree No. 778 dated 7 August 2014, include certain agricultural products, raw materials and food items, which are originating from the above-listed countries, namely:

  • meat (including beef, pork and poultry) and meat products (including sausages) fresh, chilled or frozen;
  • fish, shellfish and seafood;
  • milk and dairy products (including cheese and curds);
  • vegetables, edible roots and tuber crops;
  • fruits and nuts.

However, beef, poultry, frozen and dried vegetables, which are used for making baby foods, as well as some other goods, were subsequently excluded from the list of food items that are under embargo5.

Moreover, at the end of 2015, as a result of political tensions with Turkey due to the shooting down of a Russian fighter jet near the Syrian border, Russia also imposed6 a raft of sanctions on Turkish companies, goods and froze its bilateral cooperation with the country. The subsequent improvement in their bilateral relations has enabled Russia to review and partially lift its sanctions against Turkey.

There are also worldwide tariff wars that affect Russia. For example, the US has increased its import tariffs on Russian aluminium and steel, while Russia, as a retaliatory measure, has increased its import tariffs on some US goods, such as road construction equipment.

The Russian Government has repeatedly said it will continue to respond proportionately to any similar “unfriendly” actions. The latest example of such reaction by the Russian Government was the banning of a number of goods of Ukrainian origin or goods transiting through the country to Russia in December 20187. The ban was a response to the Ukrainian Government’s imposition of import restrictions on Russian goods earlier that year. The Russian ban affects food products, construction materials, machinery and equipment (including spare parts), such as tractors, turbines, cables and agricultural equipment.

Other measures

Two Russian agencies, the Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing (“Rospotrebnadzor”) and the Federal Service for Veterinary and Phytosanitary Surveillance (“Rosselkhoznadzor”), can also impose restrictions on the importation of certain goods, most often food products, which fail to meet the country’s standards or safety requirements. Although formally aimed at protecting consumers, this mechanism is, in practice, often used by the Russian authorities against foreign goods for political reasons. For example, restrictions are implemented on food products from Ukraine, Moldova, Poland, Turkey and other countries from time to time.

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[1] Federal Law No. 488-FZ “On Industrial Policy” dated 31 December 2014. Back ↑

[2] Federal Law No. 44-FZ “On the Contractual System for the Procurement of Goods, Works and Services for State and Municipal Needs” dated 5 April 2013. Back ↑

[3] Federal Law No. 223-FZ “On the Procurement of Goods, Works and Services by Certain Legal Entities” dated 18 July 2011. Back ↑

[4] Order No. 126n of the Ministry of Finance of Russia “On the Conditions for Admitting Goods Originating from a Foreign State or a Group of Foreign States for the Purpose of Procuring Goods for State and Municipal Needs” dated 4 June 2018. Back ↑

[5] The list of sanctioned goods may be adjusted from time to time. Back ↑

[6] Russian Government Decree No. 1296 dated 30 November 2015. Back ↑

[7] Russian Government Decree No. 1716-83 dated 29 December 2018. Back ↑

Key contacts

Heidemann Thomas
Dr. Thomas Heidemann
Partner
Rechtsanwalt