Last year, the European Commission (the “Commission”) announced in its first annual report on trade and investment barriers that one of the items on its “to-do” list was to find a way to eradicate trading obstacles faced by EU exporters in certain markets outside the EU, where the same obstacles were not faced by exporters located in such jurisdictions seeking access to their counterpart markets within the EU. The Commission stated at the time that it intended to take action which was “assertive” in order to have a real impact on behaviour. These “assertive” measures have now been laid out in a proposal for a Regulation which aims to encourage bilateral agreements of cooperation and reciprocity in the procurement markets between the EU and non-EU countries.

What has the Commission proposed?

The proposal seeks to grant the Commission the authority to justify the exclusion of a tenderer on the basis of nationality, should that tenderer be a national of a country which discriminates against European tenderers, in certain specified situations. A three-stage approach has been proposed: 

• The Commission shall have the power to approve the exclusion of tenderers where the value of non-covered goods or services¹ exceeds 50% of the total value of goods and services covered by a tender. All potential tenderers need to be informed of this exclusion in the contract notice, and the contracting authority must inform the Commission if it subsequently receives any bids which fall under the excluded category. The Commission will approve an exclusion in cases where the excluded tenderer is a national of a country which does not substantially reciprocate in market opening with the EU. 
• The proposal also seeks to create a mechanism to increase the leverage of the EU in international agreements on market access, including (where appropriate) the imposition of temporary restrictive measures by the Commission. 
• A contracting authority shall be obliged to inform the tenderers if it intends to accept an abnormally low tender where the value of noncovered goods and/or services exceeds 50% of the total value of goods and/or services included in the tender. This is aimed primarily at ensuring that International Labour Organisation labour standards are adhered to.

These exclusions will only apply to those contracts which are worth €5 million or above. Below that threshold no discrimination against non-EU bidders will be tolerated.

What impact will the Regulation have?

The Commission has been keen to stress that the intention behind this proposed Regulation is not to shut off the EU procurement market for non-EU tenderers, but rather to stimulate dialogue between nations to encourage increased access to non-EU procurement markets for EU tenderers. Currently, only €10 billion of EU exports (0.08% of European GDP) is being taken by the global procurement markets and the Commission itself estimates that a further €12 billion of EU exports remain unrealised due to restrictions on participation in foreign government contracts. However, critics are asking whether these measures represent enough of a “stick” to encourage non-EU governments to open up their procurement markets to EU players. The UK Government has released a Procurement Policy Note² inviting UK stakeholders to submit their comments and reactions to the proposed Regulation and expressing concern that any closure of EU procurement markets in this way is more likely to lead to tit-for-tat protectionism, rather than opening up dialogue with third countries for reciprocal access.

Is this campaign just protectionism in disguise?

While the Commission’s stated intention is to improve EU access to non-EU procurement markets, it is possible to see how these measures could act as a protectionist barrier by reserving EU public procurement contracts for EU companies. The exclusion of non-EU players from the upper end of the EU procurement market will protect European tenderers from having to compete with non-EU jurisdictions on price, something which they would otherwise be forced to do in a truly open procurement market. One might be tempted to ask why, given the current economic climate and Euro-zone crisis, the Commission thinks it is a good idea to reduce competition from foreign providers thereby, perhaps, cementing internal European inefficiencies and increasing, in the short-term, government spending. However, politically-speaking, it is clear to see that this proposal also offers the Commission a way to earmark the biggest EU procurement contracts for EU players, as a result, stimulating economic activity for some EU suppliers. The Commission has, at least, built in one safety valve by proposing that any protectionist measures in the public procurement markets are sanctioned and regulated at an EU-level. This will go some way towards ensuring a consistent approach across all member states whilst eliminating the risk of overly enthusiastic implementation by certain member states.

How will this work in practice?

While the Commission may have honest intentions, there is a wide gap between the “centre” where legislation is passed and the “local” where this Regulation will bite on a contract-by-contract basis. In order to police the Regulation, the Commission will be forced to rely on the market participants and their enthusiasm for complaining. The likely consequence will be an increasingly volatile procurement market, with even more regular challenges being brought than presently. The Commission, however, is banking that these down-sides will be more than offset by the benefits that will arise from the freeing up of access to foreign markets for EU-based suppliers. So will foreign governments respond to the Commission’s game of carrot and stick? That, unfortunately, is anyone’s guess.

_{1 Non-covered goods or services are goods or services originating in a country with which the EU has not concluded an international agreement in the field of public procurement (including market access commitments), or where such an agreement has been entered into but does not apply to the goods or services in question.} 

_{2 Procurement Policy Note - European legislative proposals on third country access to the EU public procurement market, 5 April 2012, Information Note 03/12.}