On July 14, 2022, the Law of Ukraine “On Amendments to the Law of Ukraine ‘On Public Procurement’ to Create Preconditions for Sustainable Development and Modernization of Domestic Industry” dated December 16, 2021, will enter into force in Ukraine (the “Amendment”).

The Amendment obliges purchasers to procure certain foreign-produced goods (if the value of the items to be procured is equal to or exceeds UAH 200,000) if their localization degree is equal to or exceeds the following percentages in the given year:

• in 2022 – 10 percent
• in 2023 – 15 percent
• in 2024 – 20 percent
• in 2025 – 25 percent
• in 2026 – 30 percent
• in 2027 – 35 percent
• in 2028 until 2032 – 40 percent.

It is expected that the relevant quotas will be effective until 2032. 

The localization degree will be calculated by the manufacturer of the product independently and on the basis of a special formula. At the same time, the Amendment obliges the Ministry of Economic Development to confirm the calculations, maintain a list of goods that have a confirmed degree of production localization and monitor compliance with the degree of localization of the goods being procured. 

According to the Amendment, the localization requirement will apply, inter alia, to procurements financed through credits, loans, grants provided under international treaties of Ukraine by international monetary and credit organizations (e.g. the International Bank for Reconstruction and Development, International Finance Corporation, Multilateral Investment Guarantee Agency, International Development Association, European Bank for Reconstruction and Development, European Investment Bank, Nordic Investment Bank, etc.), if the respective organization does not have in place its own procurement rules and procedures. We note that such organizations do tend to have their own procurement rules and procedures and the Amendment will not apply in such case.

The Amendment empowers the Cabinet of Ministers of Ukraine (subject to consent of the relevant committee of the Parliament of Ukraine) to annually reduce the degree of localization of each individual product for the next year by no more than 5 percent, or to increase it by no more than 10 percent. In addition, the Cabinet of Ministers of Ukraine is authorized (subject to consent by the relevant committee of the Parliament of Ukraine) to reduce the degree of localization for an individual procurement of goods subject to the localization requirement.   

Thus, from July 14, 2022, the foreign-produced goods specified in paragraph 6-1 of Section X of the Law of Ukraine “On Public Procurement” may only be procured in 2022 if their degree of production localization is at least 10 percent. 

Importantly, the localization requirement will not apply to procurements governed by the Law of Ukraine “On Ukraine’s Accession to the Agreement on Public Procurement” or to public procurement provisions of other international treaties of Ukraine ratified by the Parliament of Ukraine.