Turkey: Turkey’s Civil Offset/Industrial Participation Enthusiasm: Public Procurement Versus Industrial Participation, Creating A Risk Area In International Trade Practices

Most probably many people would not know more about where offset/industrial participation discussions were moving toward before the article titled "The defence industry: Guns and Sugar" has been published  on The Economist's  25 May 2013 dated issue.

As the article was defining the "world of offset" as murky, even it was actually very difficult to predict how fast the developing countries such as Turkey can adapt civil offset practices to be applied for goods and services from public procurement law perspective.

Turkey's public procurement law has always come under fire as it has been one of most frequently changing legislation in the country. Many times, the criticisms in this regard have been resulted with Constitution Court decisions cancelling the relevant provisions.

As many people criticize the limitations and the scope of the law, the public officers and changing governments have mostly taken all criticism as an attack on their policies. However, it was obvious to refer or to be referred under procurement legislation that any new coming investment model is either subject to or not to the procurement legislation due to the fact of wide scope of applicability of the procurement legislation. This has not changed and law makers require referring to the public procurement law once again for implementation of civil offset/industrial participation practices.

On 06 February 2014 Turkish Parliament has enacted a law numbered 6518 which is commonly known as Omnibus Bill, published on 19 February 2014, which adjoins a provision to article 3 of the Public Procurement Law (Law No: 4734) saying that purchase of goods and services provided to ensure innovation, local production and technology transfer under offset/industrial participation applications is not subject to Law No 4734.

Even it seems as the first step for legal infrastructure of civil offsets; it is obvious that the implementation requires more details to be provided through secondary legislations as the nature of sophisticated structure of offsets diversifying on industry basis.

At the first glance, the civil offset seems to have an upward trend especially in health care, telecommunication and infrastructure projects of Turkish government. Therefore, the categorization of offset obligations is expected to be attached to industrial plans of each relevant industry. The official guidelines, in this regard, should comply with the certain laws on public private partnership models, secondary procurement legislation and the privatization policies which are hung by thread today. Moreover, Turkey should take necessary steps to design and execute compliance, antitrust and anti-bribery policies at the highest level. Based on the analysis of the current legislative framework; further discussions seem to arise in issues such of transparency, equal treatment, fair trade, reliability, trustworthiness, supervision and the confidentiality which are the main principles defined in Turkish Public Procurement Law.

The values of an offset agreement which is calculated based on the contract value of the procurement times a percentage and the threshold or the minimum percentage of the local production in this regard are the priorities for the assessment of potential offset investment opportunities.

Looking at Turkey's economic development within last ten years, the engagement of initiative programs for local production is becoming increasingly attractive for both local and foreign investors, especially in energy industry. Many foreign companies knowing the foreign source dependency of the country has introduced their innovative products for electricity generation. Similar to energy industry, the blood production which is on the agenda of the government is expected to be tendered in near future. Infrastructure and transportation works still continue to have growth potential that might fuel thriving industrial participation programs as well.

However setting out the credentials for contractors and subcontractors in such a diversifying industries environment also strains every nerve to uniform civil offset legislation. Moreover, the right to sue of unsuccessful tenderers claiming that their proposal was much more innovation or technology transfer related or they were much more capable to develop technology transfer complying with the evaluation processes and in consideration of the public interest and the equal treatment may result with cancellation of relevant offset program through a court decision.

In brief, Turkey's promising efforts in progress of lawmaking for civil offset/industrial participation model deserve admiration as the country has gained wide experience in global offset practices since 1980s having potential and requirement in this regard. However those efforts are not enough and the process is not that simple to be settled through adjoining a provision to the procurement law due to the fact of the sophisticated and complex structure of civil offset practices and regulations of World Trade Organization.

Having said that, any contradicting, restricting provision or contrariety to international treaties arise out of local legislation which cause negative impact on commitments and obligations of Turkey in international trade and procurement practices would certainly grant the right to sue to relevant parties, those including but not limited to governments, companies or the individuals, without any conflict of laws and legal requirement to apply to the local courts beforehand.

In this sense, rather than creating a situation that might possibly pose risks at the highest level by piting local procurement legislation as a whole against an international trade related issue that certainly will result with many conflicts both in local and international market, making a law that defines and coordinates the procurement mechanism under offset/industrial participation programs to be applied only for limited and certain sectors, alike the form of EU Directive 2004/17/EC seems the best possible solution for now.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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