Pitfalls of "Buy Ukrainian" Bill

12:40, 14 December 2017
Economy
417 0
Opinion

Ukrainian media have widely covered the adoption in the first reading by the Verkhovna Rada on December 7 Bill No. 7206 "On Amending Certain Legislative Acts of Ukraine on Promoting Development of Industrial Production and Small and Medium-sized Businesses," better known under the loud (and seemingly patriotic) title "Buy Ukrainske, pay Ukrainians. "

In the explanatory memo to the bill, the authors state that the proposed changes are aimed at stimulating the development and protection of domestic SMBs, which reads as follows: "macro-financial stabilization, creating of new jobs, and increasing incomes of citizens."

The main idea whirls around changes in the procedure for evaluating bidding offers in public procurement. The bill proposes that the government determine the list of goods and services for which the price remains the only criterion for bid evaluation.

Ardent opponents of the new legislation, led by the Ministry of Economic Development and European Integration Experts, have already dubbed the bill "a new source of corruption"

To the rest of the goods and services, the evaluation criteria will be applied consisting of a "stated price" - the price specified in the bid (the critearion’s share in the subject of procurement is at least 70%) and non-price criteria, among which there is a "share of the local component" (share of the criterion in the subject of procurement - no less than 20%). The "share of the local component" criterion will be calculated automatically by a special mathematical formula and determine the "Ukrainian share" in the subject of procurement (service centers must be available in Ukraine, company premises must be based in Ukraine, and Ukrainians must be employed).

The authors insist that the implementation of the bill’s provisions does not require the introduction of changes to other laws and that the innovations fully comply with Ukraine’s international agreements.

So, the supporters of such changes, operating under the slogan "no one but us can protect our economy", are confident that the new legislation is able to bring the country's economy to a new level, stating the real goal of the bill the protection of the Ukrainian producer, citing the example of developing countries that have long set up restrictions for foreign manufacturers. Sounds good, indeed. However, ardent opponents of the new legislation, led by the Ministry of Economic Development and European Integration Experts, have already dubbed the bill "a new source of corruption".

So, what are the problems about this bill?

There were many arguments against changes in the proposed form, and this is due to the presence of rather controversial provisions and huge gaps in their settlement.

First: "Violation of agreements". Accepting these changes, Ukraine consciously goes for a violation of international obligations set by agreements with the WTO and EU, which imply the ban on any discriminatory provisions in the laws of the participating states establishing advantages for domestic products against foreign ones. Possible consequences of adopting such innovation could be a blocked access of Ukrainian goods to international markets, a ban on participation of Ukrainian producers in public procurement biddings abroad.

Second: "Inexhaustible source of corruption".In connection with the introduction of a new criterion for bid evaluation, over 20 certificates will be required to participate in a bidding, in order to complete all calculations. Also, participants may be deprived of the right to take part in biddings for more than 90 days, while the procedure is not laid out in the bill for such a move as well an exhaustive list of reasons for it. These innovations, in their entirety, could create tools for the purposeful elimination of "wrong" companies from participation in biddings, under a pretext of certain errors in paperwork or lack of data required.

Third: "Lack of healthy competition". A significant decrease in the share of foreign producers in procurement will lead to a decrease in competition and, as a consequence, a lack of incentive for domestic manufacturers to improve quality of goods. Experts are already talking about a drop from 30% to 10% in the share of quality criterion in the evaluation of price proposals.

In general, the idea of the Bill is very commendable and has the right to life. The only question is whether the path of its implementation, as it is prescribed in the document, is the only possible and necessary one, or maybe some compromises and negotiations could be considered. In other words, the question is, whether these innovations are really aimed at protecting domestic producers. After all, in the form the draft law was adopted in the first reading, it makes life more difficult for domestic SMBs rather than protects them.

Viktoria Malinovska is a lawyer at Glagos Law Firm

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