In September 2019 Russia introduced new statutory limitations for public procurement of foreign-made electronics. These changes will affect all companies that participate in public tenders for such products and in tenders for supplies of IT products to state-owned companies.
Radio-electronic and telecom products may be granted "Made in Russia" status in order to qualify for certain statutory preferences in public tenders. To confirm the "Made in Russia" status, the electronics must comply with certain specific localization requirements and must be included in a new unified state register of Russian radio-electronic products.
1. How the new statutory limitations work
The new regulations on the creation of the State Register of Russian Radio-Electronics were established by Government Decree No. 878 dated July 10, 2019.1
In public tenders the so-called "three is a crowd" rule will apply, when all bids for products not listed in the State Register will be denied if there are at least two other bids meeting the following criteria:
- the products are listed in the State Register, and
- the manufacturers of the products offered in the 2 bids are not affiliated.
The State Register will include the following two types of IT products:
- telecom products,2 meeting special criteria, particularly, the IP rights must be 50%+ owned by Russian persons, certain localization criteria must be met with respect to components, and the software must be listed in the state Register of Russian Software; and
- radio-electronic products, as listed, subject to localization requirements established by Government Decree No. 719 dated July 17, 2015 "On Confirmation of the Production of Industrial Goods in the Russian Federation".
The above-mentioned Decree No. 719 establishes certain localization criteria for different types of products, such as a general requirement that the local manufacturers own the rights to the technological and design documentation, as well as specific localization criteria for certain types of components used in the IT products.
The State Register should have been introduced as of September 1, 2019 by the Ministry for Industry and Trade. However, it still has not been finalized.
2. New 30% price preference for local IT products in tenders of state-owned companies
Bids of telecom/radio-electronic products listed in the State Register will also be given a 30% price preference in procurement by state-owned companies,3 compared with a general 15% price preference established for other types of products.
3. Steps to consider
In view of these changes, manufacturers and distributors of IT products that could be offered in public tenders or tenders of state-owned companies are recommended to consider the following actions:
- check whether the products fall under the new localization rules;
- perform market research in order to establish the existence of similar competitive local products on the market, the manufacturers of which could apply the "three is a crowd" rule.
1. Decree of the Russian Government "On measures for stimulating manufacture of radio-electronic products within the Russian Federation applied to public procurements of products, works and services for state and municipal needs, on amending Decree of the Russian Government No. 925 dated September 16, 2016, and on recognizing null and void certain acts of the Russian Government".
2. "Telecom products - products related to electronic products used for the formation, reception, processing, storage, transmission, routing, switching, and delivery of telecommunication messages or postal items, as well as other technical and software tools used in the provision of communication services or ensuring the functioning of communication networks, including technical systems and devices with measuring functions".
3. The 30% preference means that Russian-made goods will be evaluated at 70% of their bidding price, but the full price will be awarded if the business wins the tender.