European Commission Eyes Tit-for-Tat Mechanism to Open Govt Procurement Markets

EU officials outlined a plan last week that would allow Brussels to block companies from non-EU countries from bidding for government contracts, should European firms continue to face difficulty in winning public contracts abroad. The move is expected to escalate tensions with EU trading partners, particularly China.

The initiative, announced Wednesday 21 March, would allow European contracting authorities to reject tenders or contracts worth over €5 million, should these contracts also consist of more than 50 percent of goods and services that are not subject to the EU’s international procurement commitments, such as the WTO’s Government Procurement Agreement (GPA) or bilateral deals.

The rejection of these bids by contracting authorities would be subject to approval from the European Commission.

The European Commission would also be able to conduct investigations into whether a non-EU country is engaging in discriminatory procurement practices against European suppliers.

The Commission would then start consultations with that country; should those consultations not be successful, Brussels would have the option of taking measures to restrict access to the EU’s market.

Last week’s announcement comes three months after the 27-country EU bloc, together with 15 other WTO members, concluded negotiations for a revised GPA to liberalise US$100 billion in public contracts, in addition to the US$500 billion already covered in the original pact.

“I am a firm believer in making sure trade flows freely and government procurement must be an essential part of open trade markets worldwide,” European Trade Commissioner Karel de Gucht said in announcing the initiative.

“This proposal will increase the leverage of the European Union in international negotiations and with our partners to open up their procurement markets for European companies.”

“The EU should no longer be naïve and should aim for fairness and reciprocity in world trade,” Michel Barnier, European Commissioner responsible for the Internal Market and Services, said in a statement.

Public purchases of goods and services makes up 19 percent of EU GDP, or €2 trillion a year, according to European Commission figures.

Brussels hoping for ‘leverage’

The Commission, in announcing the initiative, noted that the new policy is “aimed at all countries that do not open public procurement markets as much as the EU has to their own suppliers and in which EU companies are regularly subject to serious discriminations.”

“The instrument will create leverage for negotiating further market access and more symmetry and fair treatment for European companies in the EU and third-country public procurement markets,” according to a Commission document outlining the proposal.

The new initiative has some trade observers speculating that the EU might seek additional procurement openings in US and Japanese markets.

According to European Commission data, under the original GPA €352 billion of the €420 billion in the EU’s public procurement market – or 85 percent – is open to bidders from other countries that are a party to the plurilateral pact.

In comparison, only 32 percent of the US procurement market is open to foreign bidders, with Japan at 28 percent, according to European Commission figures. Both the US and Japan are also parties to the GPA.

EU officials have stressed that Brussels will respect all international agreements to which it is a signatory, including the GPA, noting that there is no conflict between the potential mechanism and the plurilateral pact.

Meanwhile, the Commission noted that only a fraction of the Chinese procurement market is available to EU companies, given that Beijing is not a party to any international procurement agreement.

“Our commercial partners apply a lot of protectionist measures to the procurement market,” Barnier told reporters last week. “This is true of the US and Japan, where we have the [Government Procurement Agreement]. It is also true of countries that don’t fall under the GPA, the emerging countries where we have no secure access.”

China in the spotlight

The initiative drew a cold response from Beijing officials, with China being widely viewed as one of the countries that would eventually be targeted by the regulation for not being a member of the GPA.

China, with its large government procurement sector, agreed to join the GPA in its 2001 WTO accession protocol, and has submitted multiple offers to the WTO’s Committee on Government Procurement outlining which Chinese government agencies would be covered if Beijing were to join the 42-country pact.

However, mirroring the process for joining the WTO, acceding to the GPA requires consensus among GPA parties on the terms of accession offered by the would-be party. China’s first two offers to the WTO committee – one in 2008 and the other in 2010 – were both met with written requests from various parties requesting improvements, and its latest offer in December met with a similarly lukewarm response.

“The EU’s new pact, when adopted, won’t have an immediate effect on Chinese companies bidding for EU contracts and won’t scare China into making concessions over the government procurement agreement proposal, as they expect,” said Suo Bicheng, director of the Department of World Trade Organization Affairs at China’s Ministry of Commerce, according to comments reported in the China Daily newspaper.

Some experts suggest that the proposed EU initiative could instead slow down China’s GPA accession process, by helping fuel existing opposition among those in China who question the benefits of joining the plurilateral pact.

Meanwhile, some EU member states have raised concerns that the measure could lead to a tit-for-tat trade row between Brussels and Beijing. Proponents, however, including French President Nicolas Sarkozy, argue that the regulation would create “reciprocity, not protectionism.”

Next steps

The initiative would next need to go to the European Council and European Parliament for approval, with the goal of bringing the proposal into effect by the latter half of 2013.

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By | 2016-03-29T11:12:07+01:00 April 3rd, 2012|News|Comments Off on European Commission Eyes Tit-for-Tat Mechanism to Open Govt Procurement Markets

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