China, Russia build new barriers for foreign medical device manufacturers

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September 16, 2014


The remarkable rise of China's middle class, which by some accounts is equivalent to the entire population of the United States, has created massive consumer demand where there was none just a couple of decades ago. In the medical device space, this economic and demographic shift has led many medtech manufacturers with a presence in China to place greater focus on producing goods for the domestic market than for export. The Chinese government, however, has increasingly put pressure on hospitals and other purchasing groups to favor devices made in China by Chinese companies. A similar move is underway in Russia, where a draft regulation published in March 2014 seemed to presage an almost complete ban on the purchase of foreign medical devices. A new draft tones down the restriction, but still places obstacles in the path to market for foreign-made medical products.

Brick door

Image courtesy Salvatore Vuono/freedigitalphotos.net.

New Russian manifesto

The initial draft regulation in Russia was, to put it mildly, harsh. It seemed to mandate a "virtually complete ban on foreign medical devices from state and municipal purchases," writes Sergey Klimenko of the Pepeliav Group (Moscow), a law firm that provides legal support for foreign direct investment projects, on www.lexology.com. However, it avers that the draft was meant more as a conversation starter for stakeholders, and a second, more-nuanced draft was published a little later.

The new draft generally allows for medical devices of foreign origin to be offered during a public procurement procedure, writes Klimenko. "However, if the public consumer (a hospital, a regional ministry of health, etc.) receives at least two other offers with medical devices originating from Russia, Belarus, or Kazakhstan (the member states of the Eurasian Economic Union, or EurAsEc), which meet the tender requirements and are produced by different manufacturers, the offer of the foreign devices must be rejected." There is a loophole, of sorts: if substantial value has been added to those devices within one of the member states, even if those devices originate outside of the EurAsEc bloc, exceptions can be made. Also, if no domestic company is able to meet the technical specifications set by the buyer, then foreign manufacturers may not be excluded.

"The localization of listed foreign devices may solve the problem," writes Klimenko. But don't assume that a simple repackaging or assembly operation will suffice to get the local designation, he cautions.

"Localization at a deep level will require years, thousands of man-hours, and substantial monetary resources," he writes. "At the same time, there is reason to expect that the government will draw up special rules for determining the country of origin, with these being tailored to this particular situation."

Klimenko notes that the government probably will clarify what a "foreign company should do if it wants to keep its medical equipment available to be sold through public procurement channels." To guide foreign medical device manufacturers in their Russia strategy, he points to a legal toolkit—"On the Fundamentals of the Governmental Industrial Policy"—which, it is claimed, will be provided once the law has passed the Duma (state assembly) and has

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