EU Proposed Regulation Limiting Access to EU Public Procurement Market

April 3, 2012
Government procurement is subject to a plurilateral agreement within the WTO as well as various bilateral deals. Agreements concluded by the EU that include market access commitments in the field of government procurement are listed below. The EU has sought an expansion of the plurilateral Agreement on Government Procurement amongst the WTO members to the Agreement (including the U.S. and Japan) and has also sought to have China become a member of the WTO (along with the US and Japan and others). Having failed to date to obtain what it views as reciprocal access in the government procurement market, however, the EU is now ratcheting up the threat of limiting foreign suppliers’ access to those parts of the government procurement market in Europe that are not presently subject to international obligations.
On March 21, 2012, the European Commission published a proposed regulation affecting access of U.S. (and other third-country) suppliers to the EU public procurement market. The text of the proposal, as well as a Frequently Asked Questions (FAQ) document and a Press Release, are available here.  See, Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 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, COM(2012) 124 final, 2012/0060 (COD), March 21, 2012.
The proposed regulation applies only to public procurement that is not covered by existing access commitments undertaken by the EU. A list of EU agreements containing such commitments is appended to the Regulation. See Table, below. The regulation would permit member states’ authorities, upon review and approval of the Commission, to exclude certain goods and services tendered by foreign suppliers in the context of public procurement contracts. The regulations also include a new Commission investigatory procedure.   
The FAQ document released by the Commission in support of the proposal asserts that the U.S. public procurement market totals 556 billion Euro, of which only 32% (178 billion Euro) is open to international competition. In contrast, it is claimed, of the EU procurement market totaling 420 billion Euro, 352 billion Euro is open to foreign bidding (nearly 85%). The FAQ document states that the Commission hopes that the proposal, which requires approval by the EU Council and the European Parliament, could take effect in the second half of 2013.
While the Commission advocates that the proposal is aimed at increasing export opportunities for EU exporters by increasing its leverage in government procurement negotiations with other countries, others have viewed the proposal as retaliatory. See, European Union Plans Retaliation in Public Contract Bidding, New York Times, March 21, 2012; Europe Seeks Power to Ban Non-EU Firms from Procurement Accords, Bloomberg Business Week, March 21, 2012EU seeks to block contracts to firms whose home countries restrict bids for public deals, Washington Post, March 21, 2012; Protect Trade or protect Sarkozy?, The Economist, March 22, 2012.
The Commission conducted consultations regarding the proposals in 2011. Among other efforts, questionnaires were distributed to contracting authorities in member states and to member states, as well as to businesses and various other interested parties.  Parties were asked to indicate a preference for one of several options, including the option of doing nothing (no EU legislation), as well as two alternative EU legislative approaches. Legislative approach “A” required contracting authorities to exclude third-country goods, services and companies not covered by existing commitments, i.e., closure of the EU procurement market for goods/services not already subject to access commitments. Legislative approach “B” gave the contracting authorities an option to exclude such goods, services and companies. In addition, approach “B” included a tool for the Commission to impose its own restrictions on third-country suppliers’ access, following an investigation into the level of reciprocal access for EU goods, services and companies to public procurement contracts in another country. 
In general, in response to the consultations, the contracting authorities and member states indicated a preference for not making legislative changes. Businesses, in contrast, were generally in favor of legislative changes. Among those preferring a legislative change, however, approach B (local authority has option to restrict access) was the least preferred. The proposed regulation nevertheless mostly resembles approach B. 
The requirements of the proposed regulation apply only to contracts exceeding 5 million Euro (exclusive of VAT). Proposed Regulation, Article 1. In addition, for the proposal to apply, the value of goods and services that are not covered by international commitments already undertaken by the European Union (“non-covered” goods and services) must exceed 50% of the total value of the contract. Id.  
First, the proposed regulation permits (does not require) contracting authorities to exclude tenders, but they may do so only if approved by the Commission. Thus, a local authority should not be able to restrict access to its public procurement market, except through measures achieved in compliance with the proposed regulation. Preamble, Par. 18. 
Under the proposed system, a local authority, if it does intend to request the Commission’s approval of an exclusion, must disclose its intent to file such a request in its contract notice. Article 6, par. 2. Then, when the authority receives tenders that it wishes to exclude, it must notice the Commission, using electronic forms prepared by the Commission. Article 2. 
The regulation envisions that the Commission would act on a request within two months; although this period may also be extended by a maximum of two months. Article 3.  If the Commission does not act, however, the request for exclusion would be deemed disapproved. Id. The Commission may not adopt a decision before hearing the tenderers. Article 6.
The Commission would give its approval to an exclusion in two circumstances. First, an exclusion may be permitted if the goods and services in question are already covered by EU reservations on market access; in other words, access is already restricted.  Article 4(a).  In addition, however, if there is no existing reservation, a new exclusion may still be permitted on the basis of a “lack of substantial reciprocity in market opening” in the third-country supplying the goods or service in question.  Article 4(b).
To determine whether the latter circumstance applies, the Commission examines “to what degree public procurement laws of the country concerned ensure transparency in line with international standards in the field of public procurement and preclude any discrimination against Union goods, services and economic operators.” Article 5.  If negotiations for market access are ongoing, however, goods and services from the country concerned would not be excluded for a period of one year.  Preamble, par. 17.   
Second, under the proposed system, the Commission can also introduce restrictions itself. Upon request, or upon its own initiative, the Commission may investigate whether a country maintains restrictive procurement practices.  Article 8; Preamble, pars. 20 and 21. If restrictive practices are observed, then the Commission would request to consult with the country in question. Article 9.1. If this proves not satisfactory, or cannot be done, the Commission could then impose restrictive measures. See, e.g., Preamble,par. 22; Article 10. Such measures could include exclusions, as well as price penalties. Preamble, par. 23.   
Apart from the above, the proposal also contains a requirement that contracting authorities should inform other bidders of any intention to accept an abnormally low tender. This notice to other bidders must include an explanation for the abnormally low prices. Article 7. This is intended to permit other bidders to assess whether the low bidder will in fact be able to fulfill the requirements of the contract. Preamble, par. 19. In addition, restrictive measures can be set aside where EU goods and services are not available to fulfill the contract. Article 13; Preamble, par. 24.  
The Commission advocates that the proposal is intended as leverage to open markets for EU firms, and to counteract restrictions encountered in foreign markets, including the U.S., Japan, and China. The latter is not party to the WTO Agreement on Government Procurement.  
The EU proposal appends the following list of agreements concluded by the EU that include market access commitments in the field of government procurement. Goods and services covered by these agreements are not intended to be affected by the proposed regulation:
Plurilateral:
·          (WTO) Agreement on Government Procurement (OJ L, 336, 23.12.1994).  
 
Bilateral:
·          Free Trade Agreement between the European Community and Mexico (OJ L 276, 28.10.2000, L 157/30.6.2000)
·          Agreement between the European Community and the Swiss Confederation on certain aspects of government procurement (OJ L 114, 30.04.2002)
·          Free Trade Agreement between the European Community and Chile (OJ L352, 30.12.2002)
·          Stabilisation and Association Agreement between the European Community and its Member States and Former Yugoslav Republic of Macedonia (OJ L 87, 20.03.2004)
·          Stabilisation and Association Agreement concluded between the European Community and Croatia (OJ L 26, 28.1.2005)
·          Stabilisation and Association Agreement concluded between the European Community and its Member States and Montenegro (OJ L 345, 28.12.2007)
·          Stabilisation and Association Agreement concluded between the European Community and Albania (OJ L 107, 28.4.2009)
·          Free Trade Agreement by the European Union and South Korea (OJ L 127/14.5.2011)
 


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