TI Ukraine calls on MPs to reject draft law 7206 “Buy Ukrainian, Pay Ukrainians” (“On Introducing Changes to Certain Legislation of Ukraine to Stipulate Development of Industrial Production and Small and Medium Enterprise) No. 7206 of 17/10/2017.

The draft document proposes to introduce regulations which will allow customers to give preference to procurement participants based on their geographic origin. Not only do such innovations violate the principles of the electronic system of public procurement ProZorro (defined in the Law of Ukraine “On Public Procurement,” but they will also make Ukraine neglect its obligations to the WTO. 

TI’s Director of the Innovation Projects Program Viktor Nestulia views such attempts of reconsidering the reform in his blog as follows:

“Firstly, the principal goal of public procurement is ensuring open and effective expenditure of taxpayers’ money in order to provide the population with necessary goods, works and services, while adhering to the principles of competition and non-discrimination, as opposed to the development and support of some specific “politically and speculatively favorite” sectors of industry. 

Secondly, introducing any preferences and advantages for national companies in the procedure of public procurement contradicts the obligations Ukraine undertook as part of the WTO Agreement on Government Procurement (Ukraine joined the Agreement in 2016) and Association Agreement in the EU (went into complete effect on September 1, 2017).

It should be noted that the WTO Agreement on Public Procurement is one of the most significant international agreements in the area of public procurement, which defines framework requirements on the procedures, principles and rules of public procurement in the countries which are parties to the agreement and presupposes mutual opening of the markets among its parties. Ukraine joined the Agreement on May 18, 2016, and from that day onward, Ukrainian companies obtained the right to participate in public procurement of 46 countries which are parties to the GPA.”

Authors of the draft law try to justify such initiatives by their intention to protect the local manufacturers. They also refer to the practices of certain countries which introduced the obligatory engagement of the national component in the branch-specific and regional development programs, including that with the participation of small and medium enterprises, 

However, this mechanism is already provisioned for in the Law of Ukraine “On Public Procurement,” namely in part 1 of article 28.

Based on the foreign practices and national legislation, it is the customer who establishes qualification requirements to the potential participants, determines technical specifications to the object of procurement and criteria of assessment of the proposals.

In particular, there is a possibility to apply other criteria to the object of procurement than the price, which are of a complex and specialized nature.

For procurement connected with the state of emergency in the social-economic and military-political areas, there is a separate Law of Ukraine “On Peculiarities of Procurement of Goods and Services for Ensuring Defense Needs,” which also provisions for counting the local component in the object of procurement and application of all the other non-price criteria.

It is noteworthy that statistically, 99% of participants and winners of public procurement are Ukrainian companies which pay taxes and create jobs in Ukraine, even if their production has a foreign component, which is nothing but objective reality in the 21st century when economic globalization is underway. In the same context, the issue of clear understanding what can be considered local goods and who is a local manufacturer is problematic in itself, when beneficiaries are often registered in foreign and off-shore jurisdictions. Any mechanisms of approval of “being local” presuppose a certain administrative mechanisms, which always creates a risk of corruption.

Besides, from August of 2017, the Law of Ukraine “On State Aid for Business Entities” has been in effect, which aims exactly at support and stimulation of national companies by the state without distorting the market competition.

Taking into account the above-mentioned facts, Transparency International Ukraine is convinced that the Ukrainian authorities have to use the existing mechanisms fully and thoughtfully, namely the mechanisms of government aid and effective stimulating tax legislation to foster the development of local industry and entrepreneurship, and to stop the attempts to solve these problems through changing the Law of Ukraine “On Public Procurement.”

Thus, in our opinion, the potential approval of draft law 7206 does not actually aim at the real support of the local business and does not correspond to the goals and measures of the Reform Strategy, approved by the EU, and the development of transparent and nondiscriminatory system of public procurement of Ukraine, approved by the Government as part of the Association Agreement.