Yesterday, draft law No. 3739 on localization in machine building procurement was considered by the Parliament Committee on Economic Development. The committee members supported the initiative despite the fact that international partners and sectoral experts have warned about possible negative consequences of its implementation.
We remind you that this draft law is adopted, foreign companies will not be able to participate in public procurement of certain types of equipment.
MPs have proposed numerous changes in the initiative:
- unify the percentage of localization from 10 when the law enters into force to 40 percent eventually; each year the requirement of localization will increase by 5 percent;
- step away from CPV codes, which are subject to the requirement of localization, and prescribe specific products;
- authorize the Cabinet of Ministers of Ukraine to reduce the localization requirement in agreement with the relevant committee of the Verkhovna Rada, if it is highly necessary; if needed, localization can be ignored completely;
- authorize the Cabinet of Ministers to form additional lists of goods that may be localized in the future;
- add goods of the aircraft, helicopter and processed manufacturing industries to the list of localized goods.
These amendments were supported by the committee.
In addition, MPs propose further expansion of the list of localized goods. One option is to add gas or diesel fuel of domestic manufacturing to the list in the future. They also discussed the need to stop using the word localization, as there is no such definition in the EU. They suggest replacing it with a “local component.”
During the discussion, the MPs stressed that localization is a global practice. However, we remind you that it does not work in a single WTO member the way it is proposed in Ukraine.
The chairman of the committee, Dmytro Natalukha, said that there had been many talks with international partners who had different views on the bill. However, international (Western) partners seem to be quite unanimous in their lack of support for localization in Ukraine’s public procurement and even threaten sanctions. This initiative violates Ukraine’s international commitments undertaken as part of the Ukraine-EU Association Agreement and the Agreement on Government Procurement within WTO. The European Commission has also expressed its concern in this regard in its report on the implementation of the Association Agreement.
The committee is yet to come up with its final decision — the MPs took a break until Monday.
Transparency International Ukraine urges MPs to give up the idea of localization in public procurement and to consider less risky and more effective ways to support the domestic manufacturer, such as cheap loans, tax deductions and support programs.