On July 15, 2020, the Parliamentary Committee on Economic Development recommended that the Parliament adopts as a basis the Draft Law #3739 "On Amendments to the Law of Ukraine "On Public Procurement" to create conditions for sustainable development and modernization of the domestic industry" (Draft Law #3739). It provides that, starting from January 1, 2021, application of the degree of localization in the subject matter of procurement shall be a mandatory criterion for admission to public procurements of certain groups of goods.
The Chamber considers it necessary to warn the Members of Parliament against the adoption of deliberately ineffective norms and rules set out in the Draft Law #3739. Analysis of its provisions shows that the adoption of the Draft Law #3739 will not achieve its goals and will lead to the distortion of competition and an increase in government spending.
Instead of offering certain advantages to the domestic producers, the Draft Law #3739 is aimed at limiting the access of non-resident companies and importers to public procurement procedures regarding certain goods. Such suggestions constitute discrimination against procurement participants, which directly contradicts the requirements of the Law of Ukraine "On Public Procurement".
Adoption of the Draft Law #3739 will also lead to:
- violation of Ukraine's international legal obligations (national treatment that is enshrined in Ukraine's free trade agreements with the EU and Canada as well as in the WTO Agreement on Government Procurement explicitly prohibiting the introduction of local content requirements);
- inconsistency with the WTO Agreement on Trade-Related Investment Measures and breach Ukraine's investment protection commitments (Article II of the US-Ukraine bilateral investment treaty);
- creation of an environment for implementation of subsidies that are prohibited under Article 3.1 (b) of the WTO Agreement on Subsidies and Countervailing Measures that may trigger the launch of anti-subsidy investigations against Ukrainian export-oriented industries in the foreign jurisdiction;
- increase in government spending – the procedure for issuing a document confirming the degree of localization can lead to certain corruption risks and could provide many ways of weeding out "undesirable" suppliers.
The American Chamber of Commerce in Ukraine calls on the Parliament to eliminate the flaws of the Draft Law #3739 by initiating broader discussion and further improvement by the experts of the business community.