Until recently economic and regional integration in the post-Soviet countries to a large extent was only declarative. However, the initiative of going beyond the Customs Union (CU) to create Common Economic Space (CES) between Russia, Belarus and Kazakhstan draws attention to potential market opportunities and at the same time regulatory challenges for the MedTech industry.
The economic integration of such a large trading block creates plenty of opportunities. Russia is the European Union’s third largest trade partner after the US and China. While it remains the most attractive economy out of all members of the Eurasian CES, closer cooperation and regulatory convergence within the territory of the entire Customs Union should make this enlarged market even more attractive. But why is that? Well, let’s just say that figures speak for themselves: The Eurasian CES forms the largest customs union in the world (in geographical terms), its population counts over 167 million, its total GDP amounts to USD 2 trillion and its goods turnover is worth USD 900 billion. In addition, the intention is to expand the territory of the Eurasian undertaking and potentially integrate not only Kyrgyzstan, which is already an official candidate country, but also Tajikistan, Uzbekistan and Armenia. The ultimate ambition of the Eurasian CES is to create the Eurasian Economic Union by 2015 with free movement of goods, services, capital and persons.
Certain elements of a single market are progressively being realised. The Eurasian CU now encompasses single customs entity with a common external tariff and legislation including non-tariff measures as well as shared procedures for customs control and clearance.
With Russia’s accession to the WTO, its tariff obligations towards the WTO became binding for the external border of the entire territory of the CU between Russia, Belarus and Kazakhstan. For a number of industrial goods, this has almost doubled the external tariff of Kazakhstan while at the same time, benefited Russian producers whose exports to Kazakhstan increased significantly because of higher external tariff. However, even though Kazakhstan might suffer from lower quality imports from Russia and the pain of settling tariff differences with its external trade partners, in a long run the tariffs will fall due to Russia’s commitments to the WTO. For MedTech, this means huge opportunities as import tariffs for healthcare equipment are expected to fall on average from 15% to 5% – Such decrease in the level of external tariffs is binding and it is being implemented in accordance with Russia’s WTO schedule of concessions and commitments on goods that have been negotiated during the accession talks with all of the Members of the WTO. However, while the business outlook is promising, overcoming the regulatory barriers and capturing the Eurasian market is a major hurdle to say the least.
The Eurasian CU is engaged in a dialogue with the European Union regarding cooperation concerning alignment of technical regulations. Regulatory convergence would clarify and simplify market access procedures for the manufacturers and would provide access to better quality and variety of products for patients in a timely manner. Therefore, both sides can only benefit from removal of trade barriers and adoption of shared rules and standards.
However, the actual outcome of this mutual dialogue in eliminating barriers to trade is yet to be determined and the success is somehow doubtful considering the current state of play. Only recently, the industry has been alerted about plans to restrict the supply of medical devices in the future by banning access to state procurement for companies that manufacture their products outside of the territory of Russia or Belarus – if this is the way Eurasian CES is trying to attract investment and persuade foreign manufacturers to move their plants to the territory of the CU, it seems hardly encouraging.
When Russia officially joined the WTO in August 2012 after 19 years of negotiation, it was assumed that Russia is finally open for business. The creation of CES between the post-Soviet countries in principle should also create new market opportunities. However, the continuing uncertainty concerning regulatory developments is simply bad not only for business but also for the consumers.
The Eurasian Economic Commission is in the process of drafting three regulations for medical devices, which can be expected to be published later on in 2013. However, very little indication has been given as to what the manufacturers should prepare for. One thing is certain, future developments in the regulatory environment are going to be very important.
– Diana Kanecka, Regulatory Affairs Intern at EDMA
