The EU's international procurement initiative: opening foreign markets or acting as a new EU trade barrier?

The EU's international procurement initiative: opening foreign markets or acting as a new EU trade barrier?

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 ("Commission") adopted a proposal (“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.

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

Power to reject bids & increased leverage

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 EUR 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 bid costs by the time they are rejected.

In addition to strengthening the leverage in bilateral negotiations, the Commission would also be able to investigate restrictive procurement practices in third countries. When a trading partner is found to discriminate against EU interests, the Commission would initiate bilateral negotiations and, if those fail, have the authority to exclude from EU procurement markets businesses from that trading partner.

Political hurdle

The contentious discussions and intense negotiations that led to the adoption of the Proposal last week are only the first hurdle of a long north-south political battle. The Proposal would need to be approved by the European Parliament and the Council, 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 Germany.

The full text of the Proposal is available here.