The European Commission has decided to respond to third countries that exclude European companies from their public procurement markets not with protectionism but with firmer application of the principle of reciprocity. On 21 March, it presented a draft regulation that establishes rules for access to companies from non-EU countries to European public procurement as well as related negotiation procedures (see Europolitics 4384).

This proposal will help avoid the “fragmentation” of the internal market “due to national protectionist measures against third countries that apply restrictions. Ten member states have such measures, including the United Kingdom and Spain,” pointed out Internal Market Commissioner Michel Barnier.

“Our proposal aims to open up our trading partners’ public procurement markets. The EU will remain open. The aim is to encourage the others to open up their markets in the same way,” whether the EU’s partners in the WTO Government Procurement Agreement (GPA) or those with which the EU has bilateral agreements, added Trade Commissioner Karel De Gucht.

The proposal puts in place a double mechanism to ensure a level playing field for European companies interested in bidding on external public contracts and to increase the EU’s influence in negotiations on access to the government contracts of other trading partners. The text is also intended to heighten the participation of small and medium-sized enterprises in a globalised economy and to boost employment and promote innovation in the EU.

The first mechanism enables national contracting authorities to reject a bid by a company from a non-EU country with which the EU has no international (GPA or bilateral) commitments for contracts of more than €5 million and consisting of more than 50% of goods or services not subject to the EU’s international procurement commitments. The exclusion possibility must be stated in the contract notice and authorities must notify such rejection to the Commission, which will validate it if there is no reciprocity with the country in question. Barnier explained that this measure would concern 7% of contracts making up 61% of the value of European procurement – mostly large contracts.

The second, more international mechanism gives the Commission the possibility to investigate a third country’s restrictive practices, and if they are corroborated, to negotiate with it to correct the situation. If negotiations fail, it could use delegated acts to exclude the country from EU public procurement.

The EU method is reinforced and forms part of a strategy of mutual openness, said the commissioners at a press conference.

The draft regulation also abolishes Articles 58 (“tenders comprising products originating in third countries”) and 59 (“relations with third countries as regards works, supplies and service contracts”) of Directive 2004/17/EC on public procurement, currently being revised. The Commission will report on its implementation at least every three years.

HIGH STAKES

The economic stakes are high because this sector is worth €1,324.235 billion a year and at European level public procurement accounts for 19% of GDP. In other words it represents huge leverage for economic recovery, especially in a context of crisis. For the time being, European procurement is more open to foreign companies than non-EU government contracts are to European companies, which have access to only one fourth of such contracts. Some 90% of European public procurement, worth €352 billion, is open to non-EU companies, for contracts open to GPA states parties. But only 32% of US government contracts are open, 28% of Japanese and 0% of Chinese and Indian government contracts.

The EU restricts access to defence contracts and network services (water, energy and telecommunications). Restrictions in non-EU countries concern very competitive sectors like construction, public transport, medical devices and electricity generation, and generate lost export sales of €12 billion a year. There are also considerable consequences on employment: 20 million jobs depend on exports and EU external trade.

The lack of symmetry is all the more striking when the EU loses its own public contracts to companies from countries that erect barriers to European firms. The fact that Canada’s Bombardier won a major public contract in France when its country excludes access by European transport companies had the effect of an electroshock. Such exclusion and protectionist measures have been accentuated with the global economic crisis, as seen in the ‘Buy American’ policy and similar preferences in China, Turkey and Russia.