Some call it the new international procurement market opening instrument; others the new foreign procurement defence instrument. But what is it exactly?

On 21 March 2012, the European Commission (the “Commission”) adopted a proposal (the “Proposal”) for a new Regulation in the area of public procurement creating a dual mechanism whereby, on the one hand, EU national contracting authorities could reject bids of non-EU businesses to EU procurement contracts and, on the other hand, the Commission would increase its leverage in negotiating greater access for EU businesses to foreign procurement markets. How will this Proposal, when it is adopted, affect non-EU companies wishing to do business with European Governments?  

BACKGROUND

The Proposal is set against the background of the EU’s generous market access commitments to trading partners (in bilateral agreements1 and in the plurilateral WTO Agreement on Government Procurement (GPA)) compared with the restricted access EU businesses enjoy in foreign public procurement markets.  

The Commission estimates that some €352 billion of EU public procurement is open to bidders from GPA countries. In contrast, the Commission estimates that the value of US procurement offered to foreign bidders from GPA countries is just €178 billion and €27 billion for Japan.  

With respect to bidders from non-GPA countries or countries with which the EU has no bilateral agreement, whilst the are currently no market access commitments in place, the traditional approach of the EU has always been to allow participation of such bidders in national public procurement. However, the Commission believes that this is not reflected in the access that EU businesses enjoy to public contracts in those countries. For example, the Commission considers that only a fraction of the Chinese public procurement market is open to foreign business.  

The aim of the Proposal is to ensure that international trading partners adhere to the principle of reciprocity and provide EU companies access to their procurement markets on levels similar to what non-EU companies enjoy in the EU.  

The Proposal is also a countermeasure to the emergence of government protectionist policies discriminating against EU economic interests, such as local content requirements in Australia, Brazil, China, Russia, Turkey and the United States.  

THE PROPOSAL: A LEGAL RIGHT TO BID FOR NON-EU BIDDERS

The Proposal is based on a fundamental change of approach of the EU with respect to non-EU bidders, effectively granting non-EU bidders a legal entitlement to participate in all EU public contracts, irrespective of market access commitments offered in the context of the GPA or bilateral agreements.

This is very significant for non-EU businesses.It means that they will be granted a legal right to bid for all contracts put out to competition by EU Governments, even if the particular Government body or sector concerned is not covered by the GPA.  

In return for this very generous commitment, the Proposal allows EU national contracting authorities to reject bids from non-EU bidders on a case-by-case basis in certain cases, and the Commission to adopt measures temporarily limiting access of non-EU bidders originating from specific countries to the EU public procurement markets.  

TOGETHER WITH A POWER TO REJECT BIDS ON A CASE BY CASE BASIS

The Proposal would enable EU national contracting authorities to reject bids by companies from countries with which the EU has no international (bilateral or GPA) commitments for contracts exceeding €5 million and consisting of more than 50% of goods or services not subject to the EU’s international procurement commitments. Also, bids from EU companies could be rejected where the tenders comprise a large share of third country components.  

The right to exclude a non-EU bidder must be mentioned in the advert, and the contracting authority must also notify the Commission, which will need to confirm the lack of reciprocity with the third country concerned before a bid may be rejected. Seemingly, the Proposal would add an extra layer of bureaucracy to procurement, which is likely to delay the procedure and create new risks in an already litigious area:

  •  the Commission would have two months to adopt its decision, thus delaying the procurement procedure;
  • the non-EU bidder would have the right to be heard by the Commission before the decision is taken and may ultimately seek to challenge that decision;
  • rejected non-EU bidders may have incurred significant bids costs by the time they are rejected.  

And te mporary exclusions

The Proposal also allows the Commission to adopt, on its own initiative or upon a complaint, measures temporarily restricting access of bidders from specific non-EU countries to EU public procurement markets where EU businesses are systematically restricted from tendering for public contracts in those countries. Those measures could apply generally to all EU public procurement or be limited to procurement by certain categories of contracting authorities, of certain defined categories of goods or services or above certain thresholds.

Political hurdle

The adoption of the Proposal gave rise to contentious discussions and intense negotiations. These were only the first hurdle of a long broadly North-South political battle within the EU. To become law, the Proposal will need to be approved by the European Parliament and the Council of the EU, by qualified majority. The debate in both institutions will be adversarial between supporters of the Proposal, championed by France, and opponents which argue that the Proposal sends the wrong protectionist signals to EU’s trading partners headed by the UK and Germany.