The European Commission has recently proposed a draft regulation on the access of third-country goods and services to the Union’s internal market in public procurement and procedures supporting negotiations on access of Union goods and services to the public procurement markets of third countries, which establishes a common EU external policy in the field of public procurement. It is important to note the EU has exclusive competence for the common commercial policy and the access of third country goods and services to the EU public procurement market falls within the scope of this policy. The present proposal put forward by Michel Barnier, European Commissioner responsible for the internal market and Karel De Gucht, European Commissioner for trade, covers the EU’s international procurement policy. The draft proposal would regulate the access of foreign goods and services to the EU public procurement market. It harmonises in the EU the treatment of third-country goods and services not covered by the international commitments of the EU.
The European Commission has noted that EU suppliers are facing several restrictive procurement practices in many of the countries that are the EU’s main trading partners, which has resulted in the loss of substantial trading opportunities. According to the Commission around €352 billion of EU public procurement is open to bidders from member countries of the Government Procurement Agreement (GPA), within the framework of the WTO, whereas the US offers €178 billion to foreign bidders, Japan €27 billion and China is a closed market. The Commission concluded therefore that many third countries are reluctant to open their public procurement markets to international competition, particularly China that is not a member of the Government Procurement Agreement (GPA). The proposal is particularly targeting China, as Brussels has been trying to induce it to sign up to the above-mentioned WTO’s agreement. However, Suo Bicheng, director of the Department of World Trade Organization Affairs at China’s Ministry of Commerce said “The EU’s new pact, when adopted, won’t have an immediate effect on Chinese companies bidding for EU contracts and won’t scare China into making concessions over the government procurement agreement proposal, as they expect”. According to the European Commission the proposal main aim is to improve the conditions under which EU businesses can compete for public contracts in third countries, by ensuring that both EU and foreign companies are on an equal footing. However, the proposal is likely to have the opposite effect by closing the procurement market in the EU.
The Commission believes that issues such as the EU lack of leverage in its international negotiations with trading partners to obtain substantial market access commitments for EU businesses as well as lack of a framework enabling contracting authorities to apply the EU international commitments, would be solved by the draft proposal by strengthening the EU position when negotiating access for EU companies to third countries public procurement markets. The draft regulation lays down rules on access by third-country companies, goods and services to the EU’s public procurement market. It would apply to the award of contracts where the goods or services are procured for governmental purposes.
Under the draft proposal goods and services benefiting from market access commitments are treated equally to EU goods and services as well as goods and services originating in least-developed countries. Moreover, the draft proposal would apply to goods and services not benefiting from market access commitments.
The Commission’s proposal would allow EU Member States contracting authorities/entities to bar third country firms from bidding on public contracts if their countries block EU companies. Moreover, the Commission would be allowed to adopt restrictive measures entailing the exclusion of goods and services from public procurement procedures in the EU from third countries that continually exclude EU companies from public tenders. Obviously, if the Commission’s proposal is adopted it would be used as a protectionist tool.
Under the draft proposal Member States or their contracting authorities/entities would be able to restrict the access of third country goods or services to their tendering procedures. It would allow contracting authorities/entities to exclude tenders from tendering procedures comprising goods and services originating in third countries not benefiting from market access commitments of the EU (goods and services originating outside the EU not covered by GPA), where the value of non-covered goods and services exceeds 50% of the total value of goods or services included in the tender for contracts with an estimated value equal or above €5 million. A contracting authority/entity that intends to ask the exclusion from procedures for the award of contracts must notify the Commission and indicate the characteristics of the tenders concerned. Then, the Commission would adopt an implementing act concerning the approval of the intended exclusion in accordance with the examination procedure. Under the draft proposal, the Commission shall approve the intended exclusion when the goods and services in question are subject to a market access reservation under the EU international agreements on public procurement and where this agreement does not exist and “the third country maintains restrictive procurement measures leading to a lack of substantial reciprocity in market opening between the Union and the third country concerned.” Such lack of substantial reciprocity is presumed where restrictive procurement measures result in serious and continual discriminations of economic operators, goods and services from the EU. hence, under the terms of the draft regulation, the Commission would base its decision whether to allow the exclusion by a contracting authority/entity of a third country's goods or services on the existence of the so called "substantial reciprocity.”
The Commission would be in charge of whether to approve individual contracting authorities/entities to exclude tenders from public contracts. Nevertheless, EU public authorities would be allowed to retaliate against companies from third countries that discriminate against European suppliers. Central governments and local authorities would be allowed to exclude tenders from public contracts worth more than €5m, discriminating therefore against foreign bidders. Unsurprisingly, Michel Barnier, the French internal market commissioner, proposed such contentious provision. Several authorities, particularly from France as well from other countries with protectionist tendencies, would be keen to exclude foreign business. Despite denial from the European Commission, this is clearly a protectionist measures and might jeopardised the internal market.
As above-mentioned, the draft proposal provides for an EU mechanism to further increase the leverage of the EU in international negotiations on market access. If there is a continuous and serious discrimination against European suppliers in third countries, the Commission will have at its disposal a mechanism allowing it to restrict access to the EU market. The Commission on its own initiative or at the request of Member States or interested parties, may conduct external procurement investigations into alleged restrictive procurement measures by third countries. If such investigation confirms the existence of such practices, the Commission would invite the country concerned to enter into consultations in order to tackle such restrictive practices and improve tendering opportunities for economic operators, goods and services in public procurement, on conditions no less favourable than those accorded to national suppliers of that country. However, if the third country in question is not willing to engage into consultations, Brussels could take a decision to temporarily restrict the access of goods and/or services from that country to the EU public procurement market. Hence, if its investigation has confirmed the existence of restrictive procurement measures in a third country, the Commission is empowered to limit the access of goods and services originating in that third country by adopting implementing acts concerning ‘restrictive measures’. The Commission will adopt restrictive measures, which might entail the mandatory exclusion of certain third-country goods and services from public procurement procedures in the EU, or it may subject tenders made up of goods or services from that country to a mandatory price penalty. This provision is very similar to anti-dumping proceedings and is likely to intensify existing trade tensions.
Contracting authorities/entities may decide not to apply such restrictive measures. But, under the draft proposal, they would be only allowed to do that if “there are no Union and/or covered goods or services available which meet the requirements of the contracting entity” or “application of the measure would lead to a disproportionate increase in the price or costs of the contract.”
It is important to recall that the Lisbon Treaty introduced new provisions for procedures for implementing EU legislation, which replace the comitology procedure. The regulation “laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers entered into force in March 2011. The member states' influence on the EU's decision-making on implementing acts, particularly as regards trade issues has been reduced. Consequently, the UK ability to influence trade policy has been reduced. In the other hand, the Commission has acquired more influence over trade policy and has gained an unjustified power on issues such as trade defence instruments or anti-dumping measures. Implementing measures in trade defence measures have been submitted to special procedures whereby the Council had the last word however the new regulation provides that such measures will be included in the normal regime. Hence, trade measures, including anti-dumping and "countervailing definitive measures," are now subject to the new standard comitology rules, therefore only a qualified majority vote in a comitology committee against a draft implementing act can prevent the Commission from adopting it.
The present draft regulation is subject to the ordinary legislative procedure and requires qualified majority voting in the Council. It remains to be seen what will come out from the negotiations. Whilst France is backing such proposal the UK as well as Sweden and Denmark are likely to vote against it. It is well known that Nicolas Sarkozy is not free trade friendly, and he has been advocating, in his presidential re-election campaign, protectionist measures. In a recent speech, he has called for a “Buy European Act”. In fact, he said, “I say no to a Europe that opens up its markets when others don’t. Such behaviour does not mean accepting free trade. It means accepting being a Europe that is a sieve.” Moreover, he stressed, “I no longer want this savage competition,”. As the European Commission, he said that the new proposal entails “reciprocity, not protectionism”. However, the European Commission’s proposal could not be more protectionist.
Due to the economic crisis and growing pressure on Europe markets from third countries, particularly emerging powers, in order to protect EU industries, Brussels has decided to exercise its power to regulate the access of foreign goods, services and companies to the EU’s public procurement market by introducing protectionist measures. The European Commission believes the proposal would end unfair competition. However, what Europe needs is more competition on the procurement markets. If the EU public procurement market is closed to foreign bidders, Member States might end up paying more for goods or services not saving, therefore, public money. Hence, the Commission proposal ignores the interests of taxpayers. Moreover, there is a risk that the EU trading partners will retaliate by adopting similar measures and, if this happens, the Commission's proposal would not even be able to protect EU suppliers.
