On 14 July 2022, the Law of Ukraine No. 1977-IX has entered into force, amending provisions of the Law of Ukraine "On Public Procurement" with respect to the requirements to production localization degree (the "LD").

The LD is defined as an indicator of a local component in the ratio of value of raw products, materials, units, aggregates, details, parts and elements of products, works, services and other components of domestic production in the net cost of goods being subject of the procurement.

According to the amendments, procurers shall purchase certain goods related to products of the processing industry or works/services requiring a transfer of such goods only if the LD is equal to or exceeds:

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

Subject to consent of the Economic Development Committee of the Ukrainian Parliament, the Cabinet of Ministers of Ukraine can:

• change the LD for the next calendar year by decreasing up to 5 percent or increasing up to 10 percent with respect to particular goods
• reduce the LD for a particular procurement
• approve an additional list of goods that are subject to the LD requirements

The LD shall be determined by a producer of goods independently and confirmed by the Ministry of Economy of Ukraine based on the following formula: LD = (1 - (CV + IV) / C) × 100%, where:

• "LD" means a production localization degree
• "CV" means the customs value of components imported by the producer into the customs territory of Ukraine
• "IV" means the value (without VAT) of the imported components purchased from the residents of Ukraine
• "C" means the net cost of goods being subject of the procurement

The Ministry of Economy of Ukraine shall prepare and publish on its official website the list of goods for procurement with confirmed LD. It shall also be responsible for monitoring compliance of the goods included into such list with the LD requirement.

It is expected that, for the implementation of respective changes, the Cabinet of Ministers of Ukraine will approve regulatory acts regarding the above procedures.

The LD requirements shall not apply to procurements falling under the Law of Ukraine "On Ukraine's Accession to the Agreement on Government Procurement" or under public procurement provisions of other international treaties ratified by the Ukrainian Parliament. In general, the country of the producer, origin of the goods, value of the procurement and other criteria are considered when determining whether a procurement is covered by provisions of the international treaty.

Moreover, during martial law, procurements shall be carried out subject to limitations and exceptions provided for by the Resolution of the Cabinet of Ministers of Ukraine dated 28 February 2022 No. 169 "Some Aspects of Defense and Public Procurement of Goods, Works and Services in Conditions of Martial Law".

For further information, please contact Asters' Senior Partner Armen Khachaturyan and Counsel Maksym Tereshchuk.

LINK: https://www.asterslaw.com/press_center/legal_alerts/the_law_on_production_localization_entered_into_force/