Public Procurement of Foreign Goods in Russia: New National Regime Rules

 

January 4, 2025

BRACE Law Firm ©

 

Given the state policy focused on import substitution, one of the measures to support Russian manufacturers is granting priority to goods from Russia and the EAEU,[1] as well as establishing bans and restrictions on the admission of foreign goods in public procurement. The rules for the admission of foreign goods, works, and services on equal terms with goods, works, and services of Russian origin are referred to as the national regime (the "National Regime").

On January 1, 2025, a large-scale change in the legal regulation of the National Regime took place. In this article, we analyze the rules under which the public procurement of foreign goods, works, and services (the "GWS") will be carried out starting in 2025. Due to format limitations, this article does not cover the specifics of applying the National Regime in procurement under the state defense order or procurement by certain law enforcement agencies.

What is the National Regime?

The basic rule regulating the National Regime is Article 14 of Federal Law No. 44-FZ dated April 5, 2013, On the Contract System in the Sphere of Procurement of Goods, Works, and Services to Ensure State and Municipal Needs (the "Contract System Law", "Law No. 44-FZ").

As of January 1, 2025, this regulation is effective in a new edition. Specifically, according to Part 1 of Article 14 of Law No. 44-FZ [2], when conducting public procurement, foreign GWS are granted the National Regime: equal conditions of access with GWS of Russian origin.[3] As an exception to this, the Russian Government is authorized to establish:

• A ban on the procurement of goods originating from foreign states, as well as works and services performed or rendered by foreign persons (the "Ban on Admission");
• A restriction on the procurement of goods originating from foreign states, as well as works and services performed or rendered by foreign persons (the "Restriction of Admission");
• An advantage regarding goods of Russian origin, as well as works and services performed or rendered by Russian persons (the "Advantages").

In the legal framework effective until recently, bans and restrictions on admission were determined by relevant ministries, while admission conditions were determined by the Ministry of Finance of Russia. However, the "rules of the game" varied significantly depending on the type of GWS being purchased. Furthermore, goods lists often overlapped, requiring the simultaneous establishment of multiple restrictions or the selection of the most appropriate one, which generated a significant number of disputes.

On December 25, 2024, Resolution of the Government of the Russian Federation No. 1875 dated December 23, 2024, On Measures to Provide the National Regime in the Procurement of Goods, Works, and Services for State and Municipal Needs, and Procurement of Goods, Works, and Services by Certain Types of Legal Entities (the "Resolution No. 1875") was published. This act unifies the rules and abolishes all acts on the National Regime currently in force. Most provisions became effective on January 1, 2025, and will apply to procurement announced after this date.

Below, we examine the rules under which the National Regime will be granted to foreign goods, works, and services.

Determination of the Country of Origin of Goods for Public Procurement Purposes

Before discussing the main topic, we must address the procedure for determining the country of origin of goods.

The rules for determining the country of origin of goods, including for public procurement purposes, are defined by the Agreement on the Rules for Determining the Country of Origin of Goods in the Commonwealth of Independent States (concluded in Yalta on November 20, 2009) (the "Agreement").

According to Clause 2.1 of the Agreement, the country of origin of goods is the country where the good was wholly obtained or subjected to sufficient processing/working. The determination of the country of origin is carried out in accordance with criteria established in the Agreement.

Goods wholly obtained in a state include natural resources extracted from its subsoil and on its territory, vegetable products and animals raised on its territory, products obtained therefrom, goods obtained by hunting or fishing within it, or by its fishing vessels outside its territorial waters, as well as goods produced exclusively from the aforementioned raw materials.

However, goods are often not wholly produced in a country. In such cases, criteria of sufficient processing/working of the good are used to determine the country of origin, expressed by the fulfillment of the following conditions:

• A change in the tariff heading under the TN VED (Commodity Nomenclature of Foreign Economic Activity) at the level of at least one of the first four digits resulting from the processing/working;
• Performance of necessary conditions, production, and technological operations, upon the completion of which the good is considered to originate from the country where these operations took place;
• The ad valorem share rule, where the value of used foreign materials reaches a fixed percentage share in the price of the final product.

The primary document confirming the origin of goods from EAEU countries is the Certificate of Origin Form ST-1.

Additionally, the Decision of the Council of the Eurasian Economic Commission No. 105 dated November 23, 2020, approved the Rules for Determining the Country of Origin of Certain Types of Goods for the Purposes of State (Municipal) Procurement. These rules established a list of conditions, production, and technological operations that serve as criteria for determining the country of origin for various types of industrial goods. The origin of goods from EAEU countries is confirmed by information from the Eurasian Registry of Industrial Goods of Member States.

For more details on the rules for determining the country of origin, please refer to our special article on this topic.[4]

Ban on Admission of Foreign GWS

The Ban on Admission of foreign GWS implies the rejection of all proposals for the supply of goods (performance of works, rendering of services) originating from foreign states. The ban will apply regardless of the procurement method, including single-source procurement (Part 4 of Article 14 of Law No. 44-FZ).

The list of GWS subject to the ban is provided in Appendix No. 1 to Resolution No. 1875 (the "List No. 1"). Effectively, it is formed based on several acts on the National Regime currently in force:

• Resolution of the Government of the Russian Federation No. 616 dated April 30, 2020, On Establishing a Ban on the Admission of Industrial Goods Originating from Foreign States;
• Resolution of the Government of the Russian Federation No. 1236 dated November 16, 2015, On Establishing a Ban on the Admission of Software Originating from Foreign States.

List No. 1 contains 151 items, including industrial goods, computer software and databases, as well as auditing services, financial consulting, accounting, and tax consulting services.

As before, the ban on the admission of foreign software will apply not only to its supply on a tangible medium and/or in electronic form but also to cases of:

• Providing software for use;
• Supply and maintenance of personal computers, terminal access devices, server equipment, and other computing equipment on which the software is to be installed;
• Performance of works and rendering of services related to software development, modification, and modernization;
• Rendering of services related to software maintenance, technical support, and updates, if such services involve granting the customer rights to the software or expanding the previously granted scope of rights.

Regarding software, in addition to the country of origin, compliance with additional requirements established by Resolution of the Government of the Russian Federation No. 325 dated March 23, 2017, is also evaluated.[5] If a bid proposing Russian software that meets the additional requirements is submitted, a bid with other Russian software is equated to a foreign bid and is subject to rejection.

The documents confirming the Russian or EAEU origin of the good are:

• The registry record number from the Registry of Russian Industrial Products or the Eurasian Registry of Industrial Goods, including the total number of points (if such requirements are provided);
• Regarding software, the registry record number from the Russian or Eurasian Software Registry, including information on the software's compliance with additional requirements.

Bans on admission do not apply, and the procurement of foreign goods is permitted in the following cases:

• Absence of production of the good that is the object of procurement in the Russian Federation—based on a permit from the Ministry of Industry and Trade of Russia obtained prior to the procurement;
• Absence in the registry of Russian or Eurasian software corresponding to the class or functional, technical, and operational characteristics required by the Customer—provided that a justification for the non-application of the ban is included in the procurement documentation;
• Procurement of goods of a specific trademark to ensure compatibility with goods used by the Customer;
• Procurement for the purpose of providing emergency or urgent medical care, or due to an accident, force majeure circumstances, for the prevention or liquidation of an emergency situation, for the purpose of conducting the special military operation, or mobilization preparation.

Furthermore, the procurement of foreign goods is permitted if the price per unit of the good and the total initial (maximum) contract price do not exceed the amounts established in Resolution No. 1875. Generally, the unit price must not exceed 300,000 rubles, and the IMCP must not exceed 1,000,000 rubles. Exceptions regarding unit price or contract price are established for certain goods.

Thus, if GWS fall under the Ban on Admission, the procurement of GWS of foreign origin will be significantly limited, including due to the establishment of a legislative ban on single-source procurement.

Restrictions of Admission of Foreign Goods in Public Procurement

The mechanism for restricting the admission of foreign goods involves rejecting bids with goods of foreign origin if bids proposing goods from Russia or EAEU countries are submitted for participation in the procurement. Restrictions of Admission are established when conducting competitive procurement, as well as "off-the-shelf purchases" under Part 12 of Article 93 of Law No. 44-FZ.

The list of GWS subject to restrictions is provided in Appendix No. 2 to Resolution No. 1875 (the "List No. 2"). List No. 2 contains 465 items, including radio-electronic products, medical devices, medicinal products, and food products. Works and services are absent from this list.

It will replace:

• Resolution of the Government of the Russian Federation No. 617 dated April 30, 2020, On Restrictions of Admission of Certain Types of Industrial Goods;
• Resolution of the Government of the Russian Federation No. 878 dated July 10, 2019, On Measures to Stimulate the Production of Radio-Electronic Products;
• Resolution of the Government of the Russian Federation No. 102 dated February 5, 2015, On Restrictions and Conditions of Admission of Certain Types of Medical Devices;
• Resolution of the Government of the Russian Federation No. 1289 dated November 30, 2015, On Restrictions and Conditions of Admission of Medicinal Products Included in the List of Vital and Essential Drugs...;
• Resolution of the Government of the Russian Federation No. 832 dated August 22, 2016, On Restrictions of Admission of Certain Types of Food Products.

The restrictions will operate under the "Second One Out" principle, providing for the rejection of bids proposing foreign goods if at least one bid proposing goods of Russian origin is submitted. The "Third is Odd" mechanism, used until 2025 in a number of acts on the National Regime, will no longer apply. Additional restrictions are established for medicinal products and radio-electronic products.

Specifically, Resolution No. 1875 continues the concept of "priority within priority," where the level assigned to the good is also assessed regarding radio-electronic products. Its essence lies in granting priority to Russian goods assigned the first level. If a bid with a first-level good is present, a bid with a good of Russian origin that does not have such status is equated to a foreign one and is subject to rejection.

When procuring medicinal products included in the List of Vital and Essential Drugs (the "VED List"), the production cycle is additionally evaluated. Medicinal products for which all production stages, including the synthesis of the active pharmaceutical ingredient molecule, are carried out in Russia and EAEU countries are granted advantages over medicinal products that do not have a full production cycle in said countries. We will discuss the procedure for granting advantages in the next section. From July 1, 2025, similar rules will come into effect regarding medicinal products included in the List of Strategically Significant Medicinal Products, the production of which must be ensured in the Russian Federation (Subparagraph "f" of Paragraph 4 of Resolution No. 1875).[6]

The information and documents confirming the country of origin of the good (except for food products) will be the registry record number from the Russian or Eurasian Registry of Industrial Goods. For food products, declaring the country of origin in the bid will be sufficient; the requirement to specify the manufacturer of the good is also removed.

Resolution No. 1875 provides for transitional provisions, according to which, until September 1, 2025, the country of origin may be confirmed by documents obtained in accordance with previously effective National Regime rules:

• Regarding medical devices: ST-1 certificate, examination act of the Chamber of Commerce and Industry of the Russian Federation or a similar document of an EAEU member state containing information on the share of the cost of foreign materials (raw materials) used for production in the final product price, details of the document on compliance of the medical device production with ISO 13485-2017 requirements;
• Regarding medicinal products: ST-1 certificate; to confirm production stages, a document containing information on the stages of the technological process of medicinal product production issued by the Ministry of Industry and Trade of Russia is additionally provided.

Restrictions do not apply when procuring:

• Goods of a specific trademark due to the need to ensure compatibility of the purchased good with other goods used by the Customer, except for test strips for determining blood glucose levels;
• Spare parts and consumables for machines and equipment used by the Customer, except for consumables, components, and accessories for medical devices;
• In a number of other special cases.

Thus, the established rules allow the procurement of foreign goods if there are no proposals for the supply of goods of Russian origin. However, the introduction of the "Second One Out" principle significantly reduces such opportunities.

Advantages for Goods of Russian Origin

Instead of the conditions for the admission of foreign goods established by Order of the Ministry of Finance of Russia No. 126n dated June 4, 2018, On Conditions of Admission of Goods Originating from a Foreign State..., Advantages will be granted to GWS of Russian origin. Advantages will be provided in competitive procurement, as well as "off-the-shelf purchases" under Part 12 of Article 93 of Law No. 44-FZ.

The procedure for granting Advantages differs from Bans and Restrictions of Admission and does not involve the rejection of bids containing GWS from foreign states. The mechanism will be as follows: when assigning serial numbers, the price of a bid containing a proposal for Russian goods will be reduced by 15%, which will allow such a bid to be assigned a higher position in the final protocol. If such a bid is declared the winner, the contract is concluded at the price proposed by the participant.

Advantages are granted if:

• The object of procurement includes at least one good not from Lists No. 1 and No. 2;
• A bid in which at least one imported good is proposed is admitted to participation in the procurement.

To receive Advantages, it is sufficient to declare the country of origin in the bid; submission of confirming documents is not required.

Thus, if Bans and Restrictions of Admission "did not work," GWS of Russian origin will receive a price priority, which may allow them to become the winner of the procurement.

Specifics of Forming Procurement Documentation

From January 1, 2025, the approach to describing the object of procurement changes. The new edition of Part 1.1 of Article 33 of the Contract System Law will oblige Customers to specify the characteristics of only Russian goods when preparing the description of the object of procurement if bans, restrictions, or advantages are established during the procurement. Currently, such an obligation exists only if the procurement is carried out for the purpose of achieving the minimum mandatory share of Russian goods.

The rules for lot formation will undergo significant changes. Current regulatory acts on the National Regime prohibit including goods subject to bans and restrictions in the same lot with others. Resolution No. 1875 generally permits such mixing, but exceptions are provided. In particular, it is prohibited to combine medicinal products included in the VED List and those not included in it into one lot. A number of limitations are also established regarding the inclusion of medical devices in one lot.

Resolution No. 1875 also provides for specifics in justifying the Initial Maximum Contract Price (IMCP) when procuring goods subject to bans and restrictions of admission. When preparing the justification of the IMCP, only prices for goods originating from EAEU countries must be taken into account. It will become impossible to justify the IMCP based on commercial proposals for the supply of foreign goods. A request for information is sent to manufacturers of the good, information on which is included in the State Information System of Industry (GISP). An exception is provided only for food products. If the GISP contains information on fewer than 3 such entities, the Customer additionally requests missing price information from suppliers whose information is contained in the registry of contracts in the Unified Information System (EIS). Note that this is largely a repetition of the rules for justifying the IMCP used to achieve the minimum share of Russian goods, which were previously applied to a limited number of goods.

Article 14 of the Contract System Law also restricts the possibility of changing the country of origin of the good during contract execution:

• If a ban on admission was established during the procurement, the replacement of the good with a foreign one is not permitted during contract execution;
• If, based on the results of a procurement with a restriction of admission, a contract was concluded for the supply of a Russian good, the replacement of such a good with a foreign good is not permitted;
• If, based on the results of a procurement conducted with the provision of an advantage, a contract was concluded for the supply of a Russian good, the replacement of the good with a good of Russian origin with improved characteristics is permitted during contract execution.

The new rules for describing the object of procurement and justifying the IMCP are a continuation of the National Regime rules aimed at limiting the possibility of purchasing foreign goods. On the other hand, this may lead to increased timeframes for preparing procurement documentation and a possible increase in prices for Russian goods.

Liability for Violation of Rules for Procurement of Foreign Goods

In case of violation of the discussed rules for the procurement of foreign goods, the Customer will be held administratively liable:

• Under Part 1.4 of Article 7.30 of the CAO RF for posting information and documents in violation of the requirements provided by the legislation on the contract system. The fine for officials is 15,000 rubles; for legal entities, 50,000 rubles. Liability under this rule applies to violations of requirements for describing the object of procurement, incorrect lot formation, and incorrect establishment of bans, restrictions, and advantages. For example, in one case, FAS Russia revealed that when procuring video cameras, the Customer did not establish restrictions on the admission of radio-electronic products originating from foreign states. It issued an order to eliminate the identified violations by amending the procurement notice and annulling the tender results, and initiated a case on an administrative offense provided for by Part 1.4 of Article 7.30 of the CAO RF against the Customer.[7]
• Under Part 2 of Article 7.30 of the CAO RF for illegal rejection of a bid or illegal admission to participate in an auction or tender. The fine for officials is 1% of the IMCP, but not less than 5,000 rubles and not more than 30,000 rubles. Liability under this rule applies, inter alia, in cases of rejection or admission of bids without taking into account the National Regime norms.
• Under Part 2 of Article 7.29.3 of the CAO RF for non-compliance with the procedure or form for justifying the initial (maximum) contract price. The fine for officials is 10,000 rubles. Thus, in case No. A32-28428/2023, the financial and budgetary supervision body revealed that the Customer did not comply with the procedure for justifying the IMCP when procuring computer equipment, namely, commercial proposals of organizations whose information was not included in the GISP were used. The financial and budgetary supervision body issued an order to eliminate violations and initiated a case on an administrative offense provided for by Part 4 of Article 7.32 of the CAO RF against the Customer's official. The attempt to challenge the order in court was unsuccessful.[8]
• For changing contract conditions if the possibility of changing contract conditions is not provided for by the legislation on the contract system. The fine for officials is 20,000 rubles; for legal entities, 200,000 rubles. Both the Customer and the supplier may be held liable for illegal modification of contract conditions. An example is a decision of the OFAS (Regional Office of the Federal Antimonopoly Service), by which a case on an administrative offense was initiated against the Customer's official for replacing a Russian ultrasound device with an analog device originating from Brazil.[9]

Summing up, we note that the state is consistently implementing measures aimed at reducing the share of foreign goods in public procurement. The changes to the National Regime rules that entered into force on January 1, 2025:

• Introduce a legislative ban on concluding a contract with a single supplier for the supply of a foreign good if such good falls under the ban on admission;
• Restrictions of admission will be applied based on the "Second One Out" principle;
• Instead of conditions for the admission of foreign goods, a mechanism for granting Advantages will appear, providing for granting priority to bids with Russian goods through a "virtual" reduction of the price proposal by 15%;
• When forming the description of the object of procurement and justifying the IMCP in cases where bans, restrictions, or advantages are established, Customers must orient themselves toward goods of Russian origin.

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References

[1] In addition to Russia, the Eurasian Economic Union includes the following countries: Belarus, Kazakhstan, Kyrgyzstan, and Armenia.

[2] Here and hereinafter, in the wording of Federal Law No. 318-FZ dated August 8, 2024, On Amending Certain Legislative Acts of the Russian Federation and Recognizing Certain Provisions of Legislative Acts of the Russian Federation as Void, effective January 1, 2025.

[3] Here and hereinafter, goods of Russian origin shall mean goods whose country of origin is the Russian Federation and EAEU countries.

[4] See: https://brace-lf.com/informaciya/pravo-i-mezhdunarodnaya-torgovlya/kak-opredelit-stranu-proiskhozhdeniya-tovarov.

[5] Resolution of the Government of the Russian Federation No. 325 dated March 23, 2017, On Approving Additional Requirements for Computer Programs and Databases Included in the Registry of Russian Software....

[6] Approved by Order of the Government of the Russian Federation No. 1141-r dated July 6, 2010.

[7] Decision of FAS Russia dated July 1, 2024, in case No. 28/06/105-1614/2024.

[8] Resolution of the Arbitration Court of the North Caucasus District No. F08-3564/2024 dated May 30, 2024. [9] Decision of the Krasnodar OFAS Russia No. VP-133/2021 dated May 11, 2021, in case No. 023/06/99-2189/2021.