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. Last Updated: 07/27/2016

Russia Scraps Preferential Duties on Drugs

Russia scrapped preferential duties for pharmaceutical products imported from so-called newly industrialized countries beginning Thursday, but analysts said Western imports would not be affected.


The increase in duties for selected countries sparked rumors in Russian newspapers that the government was increasing duties on imported Western drugs to 30 percent from 10 percent.


But both the Russian State Customs Committee and leading Western pharmaceutical producers denied those reports.


Representatives of both the state committee and several pharmaceutical producers said the 10 percent duty would remain in place.


The duty increase affects pharmaceutical products imported from newly industrialized countries such as India, Turkey, South Korea, Yugoslavia, Slovenia and Brazil, said Tatyana Klatchkova, head of the tariff regulation department of the State Customs Committee.


She did not give a total number of countries affected.


Duties will be raised to 10 percent, the same paid on Western imports, from 7.5 percent of the product's value, she said. It is the second increase on such imports this year. The preferential duty before May 15 was 5 percent.


Klatchkova said the Russian government increased duties on the emerging industrial economies because it judged that "their increased level of development didn't justify a preferential treatment anymore."


But she said the tax increase, signed by the government July 26, was meant to protect local producers facing tough competition from cheap imports.


"Depending on the therapy class, some of [the imports] are really strong in Russia. For Instance, Indian pharmaceutics have a good business here in cardiovascular medicine and antibiotics," said Michael Jahn, general manager of the Bristol-Myers Squibb office in Moscow.


He said many pharmaceutical companies from these countries were able to sell at low prices because they "copy pharmaceutical products and produce them sometimes without a licence."


But a representative of the domestic pharmaceutical industry, who did not wish to be identified, said the tax hike won't affect Russian pharmaceutical producers, because consumers trust Russian medicine more than drugs from foreign countries.


Even so, he said, Russian-produced pharmaceuticals make up only 32 percent of the current market.


Charbel Ackermann, vice president in Moscow of management consultants The Boston Consulting Group, said Western name-brands companies hold only 17 percent of the market share.


David Kennedy, executive director of the Association of International Pharmaceutical Manufacturers in Moscow, said the customs increase could raise fears of more protectionist duties in the future and thereby make potential investors more wary.


"It will deter foreign companies from investing in the Russian pharmaceutical sector that could improve its quality and production," he said.


But Ackermann said the Russian pharmaceutical market, worth $2.7 billion in turnover a year, still held room for new players because the market is potentially much bigger.