Going to the market with mixed feelings – Newspaper Kommersant No. 31 (7476) of 02/20/2023

The government resumed a discussion on the limits of applying the national regime in order to support import substitution – until May 15, the Ministry of Finance, the Ministry of Economy and the Ministry of Industry and Trade must make a unified decision on the issue of forcing state customers and state-owned companies to purchase domestic products. According to Kommersant, First Deputy Prime Minister Andrei Belousov gave such instructions to the departments. Preferential regimes in public procurement (according to 44-FZ) have already been de facto optimized, in the procurement of state-owned companies (according to 223-FZ) there are forks: the Ministry of Industry and Trade insists on tightening control and responsibility for non-compliance with requirements, the Ministry of Finance recalls the obligations of the Russian Federation to the WTO. In parallel, the department is already tightening treasury control over the state JSC. In the context of sanctions, the efficiency of state-owned companies may be more important for the government – targeted requests from the state to the state JSC can be resolved directly.

Kommersant got acquainted with the instructions of First Deputy Prime Minister Andrei Belousov to the Ministry of Finance, the Ministry of Economics, the Ministry of Industry and Trade, the Federal Antimonopoly Service and the Ministry of Justice to prepare amendments to the procurement legislation by May 15 to simplify the processes and procedures for the purchase of domestic products – earlier the President instructed to resolve the issue in September. In his report to Vladimir Putin, the First Deputy Prime Minister reports that the government is already developing amendments to the law on public procurement (44-FZ), but asks to remove the order on procurement of state-owned companies (223-FZ) from control – prohibitions and restrictions at the legislative level are impossible due to for the obligations of the Russian Federation to the WTO. Meanwhile, the government has not yet reached a unified position on the issue.

So, in letters to the government dated February 2 and 7, the Ministry of Industry and Trade and the Ministry of Economy insist on amending 223-FZ. The key issue is control over the fulfillment by state-owned companies of quotas for the purchase of domestic goods and measures of responsibility for their non-fulfillment. The Ministry of Industry and Trade explains to Kommersant that the existing tools to support domestic products under 223-FZ require improvement and uniform application in practice. To this end, it is proposed to introduce mechanisms for state-owned companies to achieve quotas for the purchase of domestic products and its verification according to the registers of Russian and radio-electronic products. And if the customer published a report on quotas with violations (inaccurate, late, not posted), transfer his purchases to the mechanisms of 44-FZ.

The Ministry of Economy does not specify possible control mechanisms, but offers a loophole to circumvent WTO rules by clarifying that preferences for domestic goods and services are provided only to meet state needs and fulfill state goals, and not for commercial resale. The department of Kommersant explained that the clarification “is of a technical nature and is aimed at bringing to uniformity the practice” of various government agencies and judicial practice.

The Ministry of Finance reminds that for 223-FZ a mechanism for quoting the purchase of domestic goods has already been created. “The introduction of more significant restrictions or prohibitions on the admission of foreign goods will be contrary to the obligations of the Russian Federation in the WTO,” the department warns. In addition, the introduction of liability for customers under 223-FZ in the form of a transition to 44-FZ is not supported by the ministry, since it can greatly complicate their work, and state-owned companies are a significant source of budget revenues.

At the same time, the Ministry of Finance is working on optimizing import substitution mechanisms under 44-FZ. It follows from the report of Mr. Belousov that instead of the “third extra” rule (refusal of foreign goods in the presence of two Russian proposals), the “second extra” rule (refusal of imports if there is at least one alternative from the Russian Federation) will work – the list of goods for this rule will be single. In a separate list, the government will include positions for which the purchase of imports is prohibited, as well as automate the process of confirming the Russian origin of products.

The requirements for quotas for purchases by state-owned companies are de facto declarative in nature, officials have repeatedly recognized. Prohibitions and restrictions on import purchases by state-owned companies violate obligations to the WTO (the Russian Federation has not signed an agreement on public procurement with the WTO), and sanctions for violations of the requirements are useless in the absence of mechanisms for monitoring their implementation, there are problems with confirming the Russian origin of goods – in practice, Russian suppliers often resell state-owned companies import. The Ministry of Industry and Trade believes that this problem could be solved by automating the process of traceability of the country of origin of purchased goods. “For the development of industry, this is of key importance, since it is directly related to the level of localization of production,” they add.

So far, the authorities are encouraging state-owned companies to make the necessary purchases directively – both from domestic suppliers and from small businesses, but it is impossible to assess the effect: due to counter-sanction relief for state-owned companies, the state as a whole has lost data on at least a third of all purchases of state-owned JSCs (more than 7 trillion rubles). It was promised to return control over the purchases of the state JSC in the spring, in parallel, the government as a whole is tightening control over the activities of state-owned companies – at the end of the year, treasury control is extended to them. In the future, income and expenditure data may become the basis for reducing investment if quotas or other government directives are not met. However, in the context of a deficit budget, the government may be more important than the efficiency of state-owned companies and their ability to continue to work in the absence of internal barriers.

Diana Galieva