A very interesting draft law has been registered in the Verkhovna Rada. It obliges all public agencies to buy certain mechanical engineering products for public money and the money of international monetary institutions only in cooperation with Ukrainian manufacturers. This is proposed for a 10-year period.

The authors of this document (who are, by the way, 38 MPs from different factions) argue that the introduction of new rules is needed to renew the public transport, municipal and construction equipment, which is done for budget funds.

In other words, our parliamentarians continue to develop amendments to the Law “On Public Procurement,” the new version of which, let me remind you, came into force only in April.

Every government tends to spoil the stuff that already works well and smoothly. Especially if it’s something that is hard to control. Of course, it’s easier to roll back the good things that have been accomplished by public enthusiasts and international partners, just giving it to the government.

Naturally, I’m talking about Prozorro and the attempts to “localize” procurement, which is being heavily pushed by the authorities this past month.

This is not the first attempt to impose such non-price criteria on public procurement. Look at last year’s draft law 7206 “Buy Ukrainian, Pay Ukrainians.” Even then, the team of TI Ukraine actively opposed this initiative, and, in the end, after lengthy discussions and a negative verdict from the relevant Committee of the Parliament, the bill was withdrawn from consideration in the Parliament.

But apparently, those who dislike equal rules of the game keep pushing. Today, we see the same attempts but in a different wrapper.

This year, by protecting the domestic manufacturer, first they tried to pass a Cabinet Directive, which Minister of Economy Ihor Petrashko claimed would save the Ukrainian economy. But, apparently, the illegal resolution was not enough — the story continued with the bill.

The Ministry of Economic Development, Trade and Agriculture of Ukraine proposes to introduce a localization criterion in the purchase of equipment. The Government proposes to promote equipment of Ukrainian manufacturers which consists of Ukrainian parts by at least 35%. In other words, those who confirm their “nationality” will get advantages at tenders.

What’s wrong with that?

First, this initiative is not just not helping – it is further driving the economy into a dead end. Researchers from KSE calculated that due to the localization of mechanical engineering, the Ukrainian economy will lose at least 0.5% of GDP annually. These are not just words – they are the expert opinion of economists.

 

First, this initiative is not just not helping – it is further driving the economy into a dead end.

Andrii Borovyk, ED, Transparency International Ukraine

Secondly, it is not clear from the government proposals and documents exactly how the MEDT will determine the degree of localization. This creates additional corruption risks, because there are no clear and transparent procedures that would indicate a balanced and level approach to business.

Third, the implementation of localization will also violate Ukraine’s international commitments, in particular the Association Agreement between Ukraine and the EU, as well as the agreement on procurement with the WTO. And this can lead to various sanctions. The research of the Kyiv School of Economics did not take them into account; therefore, the losses may be even higher.

The above is enough for Transparency International Ukraine to categorically oppose the initiative of the MEDT and the Parliament.

Now there are more questions about this initiative than there are answers.

Do the initiators of the bill understand today that they actually prohibit the state from buying any foreign goods of certain CPV codes? It will only be able to buy things manufactured in Ukraine.

Did they take into account the fact that the whole world is still living in a pandemic? All countries are experiencing a decline in production rates, and ours is no exception. Are the authors naive enough to believe that new plants will rapidly open all over the country? Or do they already know which current manufacturers they will work with regardless of quality?

Actually, what level of localization do we aim to reach for the selected products in 10 years? The draft law specifies the orientation to this non-price criterion only for 2021 and starting from 2024. And what should happen after that? In ten years, localization will no longer be necessary? What is the ultimate strategic goal?

I would really like to see calculations that prove that localization will create 62,500 jobs in Ukraine and increase the GDP by 3.9%. Where did these figures come from and how were they calculated? The KSE experts kept trying to get to this result, but no luck.

And now to the main thing. We are all about supporting the domestic manufacturer. We don’t support it being done this way, through public procurement. Interference in well-functioning and efficient ecosystems will lead to a collapse and a loss of the idea that was intended from the very start.

There are other ways to support Ukrainian producers — through loans, tax deductions, even subsidies. The “monomajority” in the Parliament has every opportunity to support the business based on equality and fair competition.

Instead, they are again going for incomprehensible methods which harm the economy and show our international partners that Ukraine is an unreliable and unpredictable partner.

I would really like to see calculations that prove that localization will create 62,500 jobs in Ukraine and increase the GDP by 3.9%.

Andrii Borovyk, ED, Transparency International Ukraine