The bill to counter US sanctions passes State Duma’s second reading

Russia
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On 17 May 2018, the State Duma (the Lower Chamber of the Russian Parliament) adopted the bill “On Measures (Countermeasures) in Response to the Unfriendly Actions of the USA and Other States” (the “Bill”) in the second reading. The Bill provides for a series of retaliatory measures that Russia can take in response to the sanctions imposed against it by the United States and other countries (“Affected States”).

The Bill has undergone quite substantial changes in comparison with the version that was adopted in the first reading on 15 May 2018. Specific industries, goods and services (including bans on the importation of medicines, the provision of consulting, audit and legal services), as well as the employment of highly qualified specialists and the exhaustion of intellectual property rights and other measures were excluded from the text of the Bill in the second reading.

In the end, the list of the possible retaliatory measures was reduced from 16 to six items. However, the list is now open-ended, which leaves room for the application of retaliatory measures in almost any sector. The following expressly stated measures remain:

  • the end or suspension of international cooperation with the Affected States and foreign organisations;
  • a prohibition or restriction on the importation of goods or raw materials produced in the Affected States or by foreign organisations to Russia;
  • a restriction on export of certain products or raw materials by foreign organisations from Russia;
  • banning foreign organisations from participating in privatisation; and
  • banning foreign organisations from providing certain types of services that will be determined by the Russian Government.

Organisations are deemed within the framework of the Bill to be foreign if they are directly or indirectly controlled by entities that are under the jurisdiction of Affected States. Controlling an organisation means holding a stake exceeding 25% of its charter capital.

The Government, further to a decision of the Russian President, can introduce specific measures within the framework of this law.

However, the Bill still needs to pass through a third reading in the State Duma and thereafter be endorsed by the Federation Council (the Upper Chamber of the Russian Parliament) and the Russian President before it eventually becomes a law.

If the Bill finally becomes a law as it is, the new legislation could pose serious problems for foreign companies that supply goods or provide services in the country that could potentially fall under its requirements.

In this regard, CMS Russia will continue to monitor the adoption process of the Bill and will promptly report on its major developments.