BERNARD O’CONNOR February 2015 PUBLIC OR GOVERNMENT PROCUREMENT IN CETA, THE COMPREHENSIVE ECONOMIC AND TRADE AGREEMENT BETWEEN CANADA AND THE EU Introduction The Comprehensive Trade and Economic Agreement (“CETA” or “Agreement”) is a free trade agreement recently negotiated between European Union ("EU") and Canada. On 26 September 2014 the text of the Agreement was made public1 and this note is based on that draft which the parties have stated is definitive. The Agreement has not yet been signed by the Parties and is not yet binding under international law. The signing and ratification process will only start after a legal review which is currently being undertaken. Once it has been translated into all EU official languages, it will have to be approved by the Council of the European Union and the European Parliament. The objective of CETA is to increase trade and investment flows and contribute to growth in times of economic uncertainty on both sides of the Atlantic. For this purpose, CETA provides a whole range of measures to make business between Canada and the EU easier. Those provisions are aimed, inter alia, to eliminating custom duties and technical barriers to trade between the Parties and protecting European innovative and traditional products. This note focuses on the provisions of the CETA concerning Public or Government Procurement. The relevant provisions are set out in the Paragraph 21 of the Agreement. This paragraph had been provisionally named "Chapter X". It consists in nineteen articles and two Appendices setting out the Canadian Government Procurement Market Access Offer to EU and the European Union Market Access Offer to Canada. Each appendix consists in eight subannexes. The scope of the provisions on Public or Government Procurement Article I sets out the scope and coverage of Public Procurement provisions. This Article provides the meaning of "commercial goods or services" and the meaning of "construction service". The first notion means “goods or services of a type generally sold or offered for sale in the commercial marketplace to, and customarily purchased by, non-governmental buyers for non-governmental purposes". Otherwise, a construction service is “a service that has 1 The text can be accessed at: http://ec.europa.eu/trade/policy/in-focus/ceta/index_en.htm#outcome.2 BERNARD O’CONNOR February 2015 as its objective the realization by whatever means of civil or building works”. As regard to the subjective scope, Article I defines "procuring entity" referring to the entities set out by the Parties under Annexes X-01, X-02 and X- 03. Article II “Scope and Coverage” provides the clarification of the procurement covered in the agreement. It refers to procurement for governmental purposes of good, services or any combination thereof, conducted by a procuring entity as specified in each Party's Annexes to the Chapter on Government Procurement. The Annexes are the core of the Chapter. They determine what entities are subject to the Agreement, and the goods or services covered by the procurement provisions. Annexes X-01 to X-03 specify the procuring entities concerned. They are divided in central government entities, sub-central government entities and all other entities, such as utilities. Annexes X-04 to X-06 set out the goods, the services and the works covered by the Chapter as well as the procurement value thresholds. Furthermore, Paragraph 3 of Article II sets out the fields not covered by the Chapter, such as “public employment contracts” or “procurement conducted for the specific purpose of providing international assistance, including development aid”, which are excluded from the scope of the public procurement provisions. Security protection and General Principles Article III “Security and General Exceptions” sets out the rules concerning “security and general exceptions”. It provides that public procurement provisions shall never be construed to prevent a Party from taking any actions or not disclosing any information that is necessary to protect its essential security interests relating to the procurement of arms, munitions or war material, or relating to procurement indispensable for national security or for national defence purposes. Neither public procurement provisions shall be construed to prevent a Party from enforcing measures necessary to protect other sensitive interests such as public morals, order or safety; human, animal or plant life or health; intellectual property; or relating to goods or services of persons with disabilities, philanthropic institutions or prison labour. Article IV “General Principles” is a central pillar in the Chapter since it lays down the general principles regulating the Public Procurement provisions. According to the “Non-Discrimination” principle, each Party, including its procuring entities, must accord to the goods and services of the other Party, and to the suppliers of the other Party, treatment no less favourable than the treatment the Party accords to his own goods, services and suppliers. In other words, equal treatment must be ensured to local and foreign suppliers.3 BERNARD O’CONNOR February 2015 In addition, Article IV sets out other general basic principles, such as transparency and Impartiality. In the light of those principles, procuring entities shall conduct procurement procedures in a transparent and impartial manner, normally using open tendering, avoiding conflicts of interest and preventing corrupt practices. Other provisions in Article IV concern the “Use of Electronic Means”, and “Rules of Origin”. Additionally, Paragraph 6 provides that no Party “shall not seek, take account of, impose or enforce any offset”. Article V “Information on the Procurement System” also constitutes an implementation of the transparency principle. This Article deals with information on the Procurement System. The Parties must make available to the public any law, regulation, judicial decision or other information incorporated by reference in notices or tender documentation regarding covered procurement. Each Party shall list moreover in Annex X-08 the electronic or paper media in which they should publish this information. Public procurement procedure Article VI “Notices” sets out the requirements concerning procurement notices. The Parties shall publish such a notice for each covered procurement, except where the Limited Tendering as described in Article XII applies. The intended procurement notice shall remain accessible to the public at least until the expiration of the time-period indicated therein. For each case of intended procurement, a procuring entity shall publish a summary notice that is readily accessible, at the same time as the publication of the notice of intended procurement, in English or French. The summary notice shall contain at least the most important information such as the subject-matter of the procurement; the final date for the submission of tenders or, where applicable, for the submission of requests for participation in the procurement; and the address from which documents relating to the procurement may be requested. Article VII concerns the “Conditions for Participation”. In order to ensure maximum participation to the Procurement procedures, the Parties shall limit any conditions for participation in a procurement procedure to “those that are essential to ensure that a supplier has the legal and financial capacities and the commercial and technical abilities to undertake the relevant procurement”. In the light of the impartiality principle, a procuring entity shall not require prior experience in the territory of the Party to be a condition for participation in the procurement procedure. Article VII also defines the circumstances where a Party may exclude a supplier such as in case of bankruptcy, false declarations, failure to pay taxes, or if supplier is deemed guilty of serious crimes or other serious offences. Article VIII “Qualification of Suppliers” contains provisions allowing Parties to maintain a supplier registration system on condition that it must not create obstacles to the participation of suppliers of the other Party in public procurement in the other Party. In particular, Paragraph 4 of Article thereof concerns the selective tendering. This Article lists the relevant information to be included in the notice of intended procurement. Paragraph 7 establishes the conditions that allow to procuring entities to use multi-use lists of suppliers. The multi-use list is to be published annually and a procuring entity shall allow suppliers to apply at any time for inclusion on that.4 BERNARD O’CONNOR February 2015 Article IX “Technical Specifications and Tender Documentation” provides the conditions allowing suppliers to submit responsive tenders. In this regard, a procuring entity shall make available to suppliers tender documentation that includes all necessary information. Paragraph 7 thereof describes all information that shall be included in such documentation, as for instance all evaluation criteria the entity will apply in the awarding of the contract. Article IX is intended to prevent that a procuring entity applies any technical specification or prescribes any conformity assessment procedure with the purpose or the effect of creating unnecessary obstacles to international trade. Article IX lays down strict conditions where a procuring entity can prescribe technical specifications for the goods or services being procured. Article X sets out the time-periods concerning tender preparation and submission. This Article points out that a procuring entity shall provide “sufficient” time for suppliers to prepare and submit responsive tenders. Furthermore, Article X lays down the deadlines for the submission of tenders or for the submission of participation requests in the case of selective tendering. As a rule, both in open tendering and in selective tendering, the final date shall not be less then 40 days. This deadline has effect from the date of intended procurement notice publication in the case of open tendering. In the case of selective tendering the deadline runs from the date when the procuring entity notifies suppliers that they will be invited to submit tenders. The Article also describes certain exceptions to the usual deadline, as for instance where a “state of urgency” duly substantiated by the procuring entity renders this time-period impracticable. The deadline may be reduced to not less than 10 days. Paragraph 8 concerns the sole exception to the 10 day deadline. It is allowed to procuring entities covered under Annex X-02 or X-03 (namely sub-central government entities and all other entities, such as utilities) to establish a time-period for tendering less than 10 days by mutual agreement. Article XI “Negotiation” sets out the conditions on which a Party may provide for its procuring entities to conduct negotiations with the suppliers. This can happen: a) where the entity has indicated its intent to conduct negotiations in the notice of intended procurement; or b) where it appears from the evaluation that no tender is obviously the most advantageous in terms of the specific evaluation criteria set out in the notice or tender documentation. Article XII “Limited Tendering” also concerns an exception to open tendering rule. It contains strict provisions under which a procuring entity may use limited tendering in certain circumstances. The most significant of those cases are: i) where no tenders were submitted or no suppliers requested participation; or5 BERNARD O’CONNOR February 2015 ii) where no suppliers satisfied the conditions for participation; or iii) where the goods or services can be supplied only by a particular supplier and no reasonable alternative exist; iv) for additional deliveries by the original supplier of goods or services that were not included in the initial procurement at certain conditions; or even v) for purchases made under exceptionally advantageous conditions that only arise in the very short term in the case of unusual disposals that do not allow to use an open tendering. Article XIII “Electronic Auctions” concerns the procedure that a procuring entity has to follow to conduct a covered procurement using an electronic auction. Paragraph 1 of Article XIV “Treatment of Tenders and Awarding of Contracts” provides that in the treatment of tenders a procuring entity shall “guarantee the fairness and impartiality of the procurement process, and the confidentiality of tenders”. Furthermore, this Article sets out the awarding criteria. It provides that the procuring entity shall award the contract to the supplier that the entity has determined to be “capable of fulfilling the terms of contract” and that has submitted: “(a) the most advantageous tender; or (b) where price is the sole criterion, the lowest price.” Paragraph 6 sets out that in the case of abnormally lower-price tender the procuring entity may verify the supplier capacity of fulfilling the terms of the contact. Article XV “Transparency of Procurement Information” and Article XVI “Disclosure of Information” relate to transparency and disclosure of procedure information. Paragraph 1 and 2 of Article XV set out that a procuring entity shall promptly inform participating suppliers of the entity’s contact award decisions. Not later than 72 days after the award of each contract, the procuring entity shall publish the award notice. If requested, the procuring entity shall provide an unsuccessful supplier with an explanation of the reasons why the entity did not select its tender. Within the terms of paragraph 1 of Article XVI, the disclosure of procedure information may be provided between the Parties to determine whether a particular procurement procedure was conducted fairly, impartially and in accordance with the other provisions of the Chapter. However, Paragraph 2 of Article provides that disclosure can never prejudice any supplier or fair competition between suppliers. Article XVII “Domestic Review Procedures” provides a mechanism for settling procurement-related disputes. A timely, effective, transparent and non-discriminatory administrative or judicial review procedure through which a supplier may challenge a breach of the provisions arising in the context of a covered procurement must be ensured. Paragraph 3 thereof sets out that each supplier shall be allowed a sufficient period of time to prepare and submit a 6 BERNARD O’CONNOR February 2015 challenge, which in no case shall be less than 10 days form the time when the basis of the challenge become known to the supplier. This provision points out that Parties shall designate at least one impartial administrative or judicial authority that is independent of its procuring entities. Paragraph 8 provides that not later than 10 years after the entry in to force of the Agreement the Parties may take up negotiations to further develop the quality of remedies, including pre-contractual remedies. It is worth noting that Article XVII does not refer to the Investor-State Dispute Settlement (ISDS) clause, recently questioned by the French and German Governments. The ISDS clause is set out in Paragraph 10 of the CETA Agreement to protect investment by allowing recourse to arbitration tribunals in the case of conflicts between private companies and states. It would not apply to covered public procurement procedures. Article XVIII “Modifications and Rectifications to Coverage” provides that a Party can modify its Annexes to the public procurement Chapter. Accordingly, provisions on scope and coverage could be modified during the validity period of this Agreement. The Article describes the modification procedure. Article XIX “Institutions” concerns the setting up of a Committee on Government Procurement. This shall be composed of representatives from each Parties and shall meet as necessary for the purpose of affording Parties the opportunity to consult on any matters relating to the operation of this Chapter provisions. Comparison between Public Procurement in CETA and the WTO Government Procurement Agreement Pending the entry into force of CETA Agreement, public procurement relations between EU and Canada are subject to the WTO Agreement on Government Procurement (“GPA”). The GPA is the main international agreement on public procurement currently in force. In April 2014, the GPA was significantly revised. The revised GPA is entered in force in 12 of the 15 GPA Parties: namely, Canada, the EU (and its 28 member states), Hong Kong China, Iceland, Israel, Japan, Liechtenstein, the Netherlands with respect to Aruba, Norway, Singapore, Chinese Taipei (Taiwan) and the United States. The CETA procurement Chapter mirrors the text of the revised GPA. However, the scope of CETA procurement provisions is much broader than GPA. Canada is opening far more of its overall procurement market than it has done under the revised GPA. On the other hand, the EU has not added much. In GPA, Canada has limited its legal commitments to the federal level only. In GPA, Canada has not included commitments for sub-central entities (provinces and territories, including municipalities) or for other entities (Crown Corporations, whether federal or provincial). Procurement by public utility companies are also excluded from the GPA.7 BERNARD O’CONNOR February 2015 In the context of CETA, Canada will open to the EU public procurement for 98 federal entities, meaning 20 more than the GPA. As regard to sub-central level, Canada expands its coverage of sub-central government entities in CETA. Annex X- 02 specifies the covered entities for each Canadian province or territory. Most of them are regional, local, district or other forms of municipal government; municipal organizations; universities, school boards and publicly-funded academic, health and social service entities. By means of CETA, the so-called MASH sector (municipalities, academia, school boards and hospitals) will be covered for the first time. Canada has substantially opened its coverage of other entities (Annex X-03) to Crown corporations both at federal and sub-central levels, as well as government-owned commercial enterprises and corporations controlled by municipalities. Furthermore, Canada has now granted EU access to procurement by public utility companies operating in the sector of drinking water, electricity, airports, maritime or inland ports, railways, urban railways, automated systems, tramway, trolley bus, bus and cable, none of which were covered in GPA. The EU has increased its coverage too. In CETA, the EU has opened its coverage to procurement by procuring entities operating in all of those sectors, except airports and maritime or inland ports. The EU also covers utilities providing gas or heat, which were excluded from GPA coverage. As to value procurement threshold covered by CETA and GPA, Canada has now reduced the threshold for the goods and services purchased by its sub-central entities from 355,000 Special Drawing Rights (SDR) under the GPA, to 200,000 SDR under the CETA. The EU applies the same threshold. CETA covers mass transit procurement for the Provinces of Ontario and Québec,2 something not covered under GPA. As regard services, GPA specifically excludes some services, such as public utilities; architectural and engineering services related to airfield, communications and missile facilities. CETA does not exclude expressly these services, thus they should be considered as covered by CETA. Dredging services are included in CETA for federal entities under certain conditions, while they are completely excepted in GPA. In CETA, the Parties has also opened their coverage to public works concessions, a sector that is not mentioned in GPA. Last, Canada and the EU have now simplified the process for modifying the annexes thatspecify the scope of application of procurement provisions set out in CETA. The GPA allows parties to modify annexes provided that no 2 CETA allows Ontario and Quebec Provinces to require local content in purchasing mass transit vehicles (buses, subway cars, passenger rail cars and subway or rail locomotives), but limits the local content to 25% of the contract value.8 BERNARD O’CONNOR February 2015 objection is put forward another Party. By contrast, CETA gives the Parties the right to modify their annexes following the procedure laid down in Article XVIII. To conclude, when CETA enters in to force, European businesses will be the first foreign companies to get that level of access to Canadian public procurement markets. No other international agreement concluded by Canada offers similar opportunities.