REGULATIONS

On September 30, 2016 certain restrictions and conditions concerning procurement of foreign-made radio-electronic products for state and municipal needs entered into effect in the Russian Federation ("RF"). At the same time, products produced in Russia obtained preference in the form of a so-called “third odd one out” rule.

The new regulations were established by Governmental Resolution No. 968 ("Resolution"). The regulations concern a wide range of radio-electronic products, for example, electronic integrated circuits, computers, printers, monitors, means of communication performing functions of control and monitoring systems, cell phones, etc.

Under the new regulations, state and municipal authorities procuring radio-electronic products should reject all foreign proposals if at least 2 proposals containing Russian-made products were submitted (“third odd one out” rule). These 2 bids should satisfy the requirements of a specific procurement and should not duplicate each other.

Since September 1, 2018 the new rule shall change: the preference for Russian-produced products will be extended to products produced in the member countries of the Eurasian Economic Union ("EEU"). To date the EEU includes Russia, Kazakhstan, Belarus, Kyrgyzstan and Armenia.

The procurements conducted by state corporations, state companies, natural monopolies, entities involved in regulated operations, etc. have not been affected by the Resolution, but it can be assumed that in future, set limitations may be extended to the said type of procurements.

WHICH PRODUCTS ARE CONSIDERED TO BE “PRODUCED IN RUSSIA”

The country of origin of radio-electronic products is to be defined as Russia in case the products comply with at least one of the following conditions:

  • The products were produced under a special investment contract between the investor and the RF or between the investor, the RF and a constituent unit of the RF. Such type of contract implies that the investor undertakes to establish, modernize and/or implement production in Russia, and the government in return undertakes to provide financial support, consulting services, preferential treatment, etc. In such case, products shall be considered as products produced in the RF for certain periods of time.
  • Having the status of industrial products produced in Russia, on the basis of criteria established by Governmental Resolution No. 719 of July 17, 2015.
  • Having the status of telecommunication equipment originating in the RF, according to criteria established by the Order of the Ministry of Industry and Trade of the RF No. 1032/397 of August 17, 2011.
  • With respect to products not falling under any of the above paragraphs, the Russian origin of the products shall be determined according to criteria established by the Agreement of the CIS Member States of November 20, 2009 “On the Rules for Determining the Country of Origin of Goods in the Commonwealth of Independent States”.

Starting from September 1, 2018 the origin of radio-electronic products from any of the EEU countries (except Russia) is to be defined on the basis of the national regulation of the relevant EEU country. 

CONCLSUIONS

The Resolution was adopted in line with the long-term policy of import substitution in Russia. The Resolution is aimed to stimulate the development of Russian radio-electronic industry, and to support producers in allied EEU countries, as well as to motivate foreign companies to localize their radio-electronic production in Russia.

At this time, not all kinds of radio-electronic products are produced by Russian producers. But soon this situation may change, and the access of foreign companies to the market of state and municipal procurements will become more difficult or even closed. One of the ways not to lose the market is to localize production in Russia, at least to the minimum extent required to obtain Russian-made status.