The pharmaceuticals market is one of the main targets of the new import substitution policy in Russia. This is vectored by the 2013-2020 programme of the Russian Federation for the development of the pharmaceutical and medical technology industries. Manufacturers of pharmaceuticals 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 pharmaceuticals in tenders held by public customers
Resolution No. 1289 significantly limits the access of foreign-made pharmaceuticals included in the so-called Essential Drug List (the “EDL List”) to public tenders. Moreover, all pharmaceuticals 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 pharmaceuticals produced outside of the EEU, it must grant an additional 15 % discount on the price of these goods.
- Industrial Policy Law (488-FZ);
- Procurement Law (44-FZ);
- Resolution of the Government of the Russian Federation No. 1289 dated 30 November 2015;
- Order of the Ministry for Economic Development of the Russian Federation No. 155 dated 25 March 2014.
44-FZ and related regulations affect state and municipal entities.
233-FZ covers companies whose majority shareholders are state-owned or municipal entities (“state-owned companies”).
Pharmaceuticals of foreign origin included in the EDL List may not be procured by state-owned companies if at the same time at least two equivalent domestic products are offered. Pharmaceutical products packed in Russia constitute an exception to this rule until the end of 2016.
Public customers in Russia apply the preferences provided for by law for locally made pharmaceuticals. As a result, in many cases those suppliers of pharmaceuticals included in the EDL List who can offer products with the confirmed “made in Russia” status are in a better position than distributors of the same pharmaceuticals of foreign origin.
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.
Pharmaceutical products packed in Russia may be marketed during a transitional period that will expire at the end of 2016.
Criteria for obtaining a certificate of origin
Under the Resolution No. 1289, the country of origin of pharmaceuticals 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 any pharmaceutical, this means that it 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. mixing the original components, granulation, primary packaging).
There are plans to adopt specific localisation criteria for different types of pharmaceuticals (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.
The targeting of the pharmaceuticals market, as shown by the medical and pharmaceutical industries development plan under Resolution No. 1518, 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 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 closing a series based on the publication "Import Substitution in Russia" which we compiled for the Swiss embassy in Moscow.