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Localization of production in the Russian Federation

Localization of production in the Russian Federation, its legal and practical aspects, were discussed at the round table organized by the Association of European Businesses at the VI Petersburg International Legal Forum.

Aleksey Trusov, partner at Baker & McKenzie, was moderating the discussion. Frank Shauff, chief executive officer of the Association of European Businesses, Victor Evtukhov, State Secretary, Deputy Minister of Industry and Trade of the Russian Federation, Sergey Puzyrevskiy, Deputy Head of Federal Antimonopoly Service of the Russian Federation, Svetlana Gerbel, General Counsel at Siemens LLC, Natalia Maslennikova, Senior Legal Advisor at JSC Schneider Electric, Vera Kolesnik, Legal Department Director at Nestle Rossiya LLC, Maksim Zavirushchev, Head of Legal Department at LLC “Novartis Neva”, Inna Panteleeva, Head of Legal & Compliance Department at Roche-Moscow, and Irina Ivanischeva, Government Affairs & Legal Director at Russia & Eurasia AstraZeneca Pharmaceuticals, were among the participants of the discussion.

One of the tools to develop localization of production proposed by the regulator is the special investment contract (SIC) by means of which investors can receive sector-specific benefits and privileges, certain guarantees of stable business conditions. ‘State provides companies with certain preferences and benefits, including tax ones. But companies which have concluded SIC are to bear certain responsibilities. Today one of the crucial goals is to expand the benefits which can be provided for SIC participants,’ said Victor Evtukhov.

He also added that SIC is a new stage of import substitution and localization of production in Russia. ‘Localization is necessary not only for production of goods for the internal market but also for the ability to produce competitive goods and to supply them to the external markets as well,’ emphasized Minister of Industry and Trade of the Russian Federation.

Sergey Puzyrevskiy agreed with that point of view and added that localization is to promote development but no to eliminate competitiveness. ‘Localization of production in the Russian Federation is, undoubtedly, an advantage. In particular, when new goods are produced. But localization needs governmental support. One of the ways of such support is to lift the principle of parallel import for companies which localized their production in Russia,’ said the expert.

Deputy Minister of Industry and Trade of the Russian Federation also said that another form of state support is provision of preferences in state procurement. ‘Maximum preference is a principle of a sole supplier which guarantees no competitiveness,’ said Sergey Puzyrevskiy. 

The participants also discussed peculiar traits of localization of pharmaceuticals industry. ‘Specificity of the industry is revealed at the first stage of design: production capacities are to comply with international standards. A more sophisticated launching procedure is related with equipment procurement. But even after that localization isn’t over, transfer of technologies starts and it can last for years,’ said Maksim Zavirushchev.

The experts concluded that for efficient development of production localization in Russia there’s a need to implement foreign best practices and to take measures for the development and enhancement of competitiveness of Russian economy.