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How to implement an effective offset policy in the field of national security and defense

The development of military-technical cooperation between Ukraine and foreign states after the start of Russian aggression against Ukraine is characterized by a substantial increase in the import component, which is an objective and essential factor for securing the forces of the security sector and defense with modern weapons and military equipment. At the same time, the task of effective implementation of offset policy, which becomes the subject of increasing attention from both the state customers of the state defense order and law enforcement bodies, which control the observance of legislation in this area, becomes of no less importance.

17 January this year The Verkhovna Rada of Ukraine adopted the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine Concerning the Procurement of Products, Works and Services for Defense Purposes on Import", the main purpose of which, as stated in the Explanatory Note to the Draft, is the expansion of the capabilities of state customers for defense orders, reducing the cost of purchasing defense products, works and services for imports for their own needs.

Government customers gain additional opportunities in choosing the mechanisms (forms) for cooperation with foreign partners, including in the framework of intergovernmental agreements and military technical assistance projects, as well as the possibility of granting offset benevolent authority, which will receive direct compensation in accordance with concluded offset agreements.

The purpose of this publication is to analyze some of the problem issues in the implementation of offset policy, due to the lack of a consistent practice in the preparation of offset agreements and ambiguous interpretation of offset legislation, which requires the elimination of certain contradictions.

Thus, according to the second part of Article 8 of the current Law of Ukraine "On State Defense Order" (hereinafter referred to as the Law), the obligatory condition of a state contract for the purchase of defense goods for import in excess of 5 million euros is the receipt by Ukraine of appropriate compensations .

That is, the current version of the article 8 of the Law contains a rule of direct action, which determines the amount of the relevant government contract - more than 5 million euro, which is a criterion for the mandatory receipt of compensation by Ukraine.

Part One of the first paragraph of the 3 Procedure for the conclusion of compensatory (offset) agreements (hereinafter - the Procedure) approved by the resolution of the CMU from 20.04.2011 № 432 in the wording of the CMU resolution from 26 September 2018 No. 773 for the implementation of part three of Article 8 of the Law actually duplicates the definition of part two Article 8 of the Law on the requirement to make offset contracts related to government contracts, which "provides for the purchase of imports of defense products worth more than 5 million euros."

At the same time, in the second part of the p. 3, the Order contains a new (not included in the Law) norm that states that "The cost of such a purchase", that is, the one referred to in the first part, which exceeds 5 million euros, "also counts the cost of production (goods), works and services supplied to the customs territory of Ukraine by the same foreign suppliers within three calendar years prior to the date of the offset by the beneficiary of negotiations with the foreign supplier for the receipt of compensations by Ukraine.

The purpose of the appearance and the procedure for the application of this "new rule" are not obvious as given the fact that in the part of the first clause of the XX3 the Law on the obligatory value of the state contract in more than 5 million euros is preserved.

However, officials formed by the Ministry of Economic Development of the Offset Commission interpret the provisions of the second part of the 3 Procedure for the establishment by the government of a new one that does not comply with the provisions of the second article of the 8 Law, a mandatory condition for the receipt of compensations by Ukraine - when, as an indicator of the amount of procurement, "To apply the total cost of procurement under a public contract (even if it does not exceed 5 million euros) and the cost of products (goods), works and services supplied to the customs territory of Ukraine by the same foreigners We are suppliers for three calendar years.

At the same time, it is not just about the import of defense products, and not only about procurement within the framework of state contracts for state defense orders, but about all deliveries of products to the customs territory of Ukraine by the relevant suppliers (although the Order itself was approved by the Government in accordance with Article 8 of Article 3 of the Law Of Ukraine "On State Defense Order").

One of the topical issues of the preparation and implementation of offset agreements, which, according to the author, requires additional regulation, is also to determine the mechanism of preparation and coordination of offset requirements by the Offset Commission, as well as the criteria for its "selection" by the beneficiaries of offset obligations.

The uncertainty in the order of the responsible for the development, terms of preparation and the mechanism for the coordination of offset requirements Offset Commission significantly complicates the negotiation process between the beneficiary and the foreign supplier in the event that such requirements and the type of offset obligation are determined only after the conclusion and sometimes the beginning of execution of the main import contract . It also does not contribute to the achievement of maximum compensatory benefits when the selection of a potential foreign supplier is carried out on the basis of competitive procedures, the transition to which should increase the efficiency of the use of budget funds, the transfer to Ukraine of the latest technologies and the implementation of NATO standards in the system of state defense procurement.

Having amended, due to objective reasons, in the final version of the Order for the definition of the "beneficiary of offset obligations" (1 clause X.NUMX), the developers of the document did not identify any criteria for the "selection" of the beneficiary by the Offset Commission, whose candidacy is solely submitted by the state customer, who is not even obliged to coordinate the submission with potential "candidates".

If earlier (in the previous version of the Order) the beneficiary could be the state customer or other entity of state-owned relations that would receive benefits, preferences or investments from foreign suppliers of outfit products, which was quite logical and consistent with world practice, today by fact The Offset Commission does not select, but "appoints".

It is therefore extremely important to supplement the Order with the criteria that a potential beneficiary must meet, which will allow the implementation of the principle of optimal selection. At the same time, it is necessary to take into account the peculiarities of customs and tax legislation, within which will be implemented offset obligations in the territory of Ukraine, especially in cases where the offset beneficiary and recipient of compensation under the offset agreement - different legal entities. It is possible that the Verkhovna Rada of Ukraine adopts amendments to Article 8 of the Law of Ukraine "On State Defense Order" adopted by the Verkhovna Rada of Ukraine in order to clarify the notion of the beneficiary - "offset beneficiary receiving compensation".

Particular attention deserves the problem of legislative regulation of the question of the mandatory use of offset requirements when it comes to public procurement outside the state defense orderand not only defense products, for example, as it happens with the import of French helicopters for the needs of the Ministry of Internal Affairs of Ukraine and other structures of the security and defense sector. This is a significant unused "offset resource" that could play a significant role in strengthening the industrial and defense potential of Ukraine, and not cross the last hopes for the development of domestic helicopter construction.

Summarizing the above, I would like to emphasize that, without pretending to a comprehensive analysis of offset legislation, the author only used the appeal of officials of the Offset Commission under the Ministry of Economic Development to provide proposals for improving the relevant regulatory and legal framework, which will require a mandatory update in connection with the adoption of the Supreme The Council of Ukraine of the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine Concerning the Procurement of Products, Works and Services of Defense For Imports".

The timely legislative settlement of problem issues, as well as the provision of methodological assistance to offset beneficiaries and government customers by the Ministry of Economic Development and Trade in the use of offset practice, will strengthen the position of the Ukrainian side in negotiations with foreign suppliers to defend Ukraine's national interests in the military and defense industries.

Sergey Teteruk

Expert, Center for Army, Conversion and Disarmament Studies (CDCA)