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DEFENCE I OFFSET

Jarosław Kruk 

MODERNIZATION OF THE ARMED FORCES – SELECTED ISSUES

26/04/2013

It has been announced that in the upcoming decade our State is planning to spend PLN 130 billion for modernization of the Armed Forces. It is believed  to bring a quality leap of our army and the technological development of the Polish industry the engagement of which is expected to form the basis for modernization. A significant percent of the funds is to be spent on anti-missile and antiaircraft defense. Cool, but how to slice this cake?

The American lobbyists have launched an attack. In an interview for Rzeczpospolita they persuaded us to purchase the Patriot system as the best and the most tested one, etc. Most probably, also the European lobbyists will persuade us to do the same by chanting slogans of the common Europe. Also those dealing with the same from a small country with a most advanced defense industry will do their job.

In fact, their products are at a similar technological level and each has some pros and cons. They differ in price and, which is most important, in the level of proposed cooperation for the Polish armament industry. I believe that it is the scope and depth of the proposed cooperation for the Polish industry that should be the most important ground for the choice of a foreign counterparty. This should be the highest principle as it gives jobs and technologies enabling development to the State.

A question arises: what is the Polish government’s potential to make it happen?  I believe that the potential is not that small. Unfortunately or fortunately, the author of those words is a lawyer. In the first place I pay attention to the Article 346 (1) of the Treaty on the Functioning of the European Union. Aimed at safeguarding the basic security interests of the State, it allows to take measures believed to be necessary where those measures don’t affect negatively the competition conditions with respect to the products unintended exclusively for military purposes. This provision means that as regards the equipment with a serious effect on the State security, the Public Procurement Law Act doesn’t need to be applied and offset is not requires (as the Ministry of National Defense views it presently).

One can do much more, however.  For instance – in case of a tender or an invitation to negotiate, one can indicate that the production or, for example, the final assembly will be done in companies based in Poland, and even in areas owned by companies of strategic importance due to the need for defense and security of the State, which is stipulated by a relevant legislative act. In justified cases, one can chose – as regards procurement – not to apply all the provisions of the European law under the conditions mentioned above.

The recent moves of the Ministry of National Defense in the case of a tender for the JET seem to indicate that the Ministry does not fully recognize the above principles.  The standpoint of the Ministry of National Defense seems very simple – if the public procurement law applies, then offset does not. However, this is not how it works. The revised public procurement law does not mention offset, i.e. where the public procurement law applies, the offset does not. The Act of 10 September 1999, hereinafter referred to as “the offset act” is binding, so is the regulation of the Minister of the National Defense issued on the basis thereof in consultation with the Ministry of Economy and the Ministry of the Interior as regards the list of equipment at the purchase of which offset should apply. The JET and simulators are explicitly listed in the Attachment to this Regulation, which is broadly in line with the list of products for military purposes referred to in the  Article 346 (2) of the European Treaty.

Application of the Article 346 of the Treaty awards far broader opportunities than the sole application of offset; whereas if not applied it gives no grounds not to apply the offset act provisions.

Under Article 4 item 5 of the Public Procurement Law Act, it is not applied with respect to the procurements bearing a ”confidential” or “strictly confidential” clause or where it is required by an essential interest of the State or by protection of the public security. Thus, possibilities of non-application of the public procurement provisions are far broader that what only follows from the Article 346 of the Treaty.

Anyway, I am of the opinion that the Ministry of National Defense has exposed itself to a very serious risk of finding the JET’s tender invalid and in effect the risk of instituting an action by both the losers and the winners who for various reasons aren’t very successful with the supplies. The action may be instituted before domestic courts. It will also be possible to seek damages before various arbitrations. Counting that the bidders will sue Poland as they want to participate in further stages of modernization of the Armed Forces may prove delusory. It appears that an excessively “ironclad” approach to this issue transpires at this point, which per se – I basically approve.

 

 

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