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POSITION PAPER
20 May 2020
BusinessEurope’s views on an International Procurement
Instrument
KEY MESSAGES
Public procurement is an important engine for growth in the EU economy.
1 While considered one of the most open procurement markets in the world,
this is often not reciprocated by the EU’s trading partners. The core
objective of the International Procurement Instrument (IPI) should be to
give leverage to the European Commission to open up third-country public
procurement markets.
To become an efficient tool, the IPI investigations and consultations with
2 third countries should take place in a timely manner. The instrument
should also ensure in an effective way that bidders from locked-up third
countries which are often heavily relying on subsidies do not distort the
EU’s public procurement market.
The efforts of the EU Institutions should be concentrated in making sure
3 that no additional burden is created for EU companies. This applies in
particular in the most technically complex areas of the Regulation, such as
provisions of the IPI referring to the origin of goods, the shaping of
foreseen penalties and agreeing on a threshold for the IPI.
POSITION PAPER
20 May 2020
BUSINESSEUROPE’S VIEWS ON AN INTERNATIONAL PROCUREMENT
INSTRUMENT
The importance of international public procurement
Public procurement is of high importance to the European economy. Over 250.000
public authorities around the EU purchase goods, services, works and supplies
amounting to around EUR 2 trillion every year, accounting for approximately 14% of EU
GDP in 2017.1 Public procurement is a strong lever for growth, investment and
employment.
A strong global advocate for the opening of public procurement markets, the EU is a
party to the Government Procurement Agreement (GPA) of the World Trade
Organisation (WTO) and makes use of its ambitious bilateral trade agenda to open
global procurement markets. For instance, significant results were achieved in the area
of public procurement in the EU’s trade agreements with Canada and Japan.
Furthermore, it is widely recognised that the EU’s public procurement market is
transparent and comparatively open to foreign bidders in practice2.
However, it is estimated that more than half of the EUR 8 trillion worldwide
procurement market is closed to European companies. Our businesses only win a
minuscule fraction – EUR 10 billion – of global procurement contracts.3
Discriminatory measures in third countries
When attempting to access procurement markets in third countries, European
companies face a substantial number of discriminatory measures, crystallised in
de
jure and
de facto barriers.
De jure barriers include amongst others national
establishment requirements, ‘buy national’ provisions, the exclusion of certain projects
from government procurement rules, implementing price advantage measures for
domestic bidders or imposing import bans on foreign goods for public procurement
1 European Commission
, “Public Procurement”.
2 According to experience, foreign bidders from third countries that have neither signed the GPA
nor a bilateral FTA with the EU are
de facto very often allowed to bid on public contracts in the
EU. However,
de jure, they do not have secured access to procurement procedures in the EU
and may be excluded (cf. the Communication of the Commission: Guidance on the participation
of third country bidders, and goods in the EU procurement market, dated 24.07.2019, page 6).
Furthermore, with a view to procurement in utilities sectors within the scope of Directive
2014/25/EU, bidders from third countries can also be excluded according to the special
provision of Article 85 of Directive 2014/25/EU Directive 2014/25/EU.
3 European Commission
, “Factsheet on the International Procurement Instrument”, 2019.
purposes.
De facto barriers include, for example, a lack of transparency, unpredictable
enforcement of regulation and corruption. The European Commission estimates that
European companies are amongst the most affected worldwide by discriminatory
measures in public procurement.4
Moreover, recent years have seen a worrying trend towards closing access in third
countries’ public procurement markets. This is clear, for example, in the railway sector.
As an example, accessibility to China’s rail market has fallen from 63% in 2009 to
barely 19% in 2017.5
On the other hand, we see an increasingly vigorous competition of third-country
bidders in the EU’s public procurement market. While an open procurement market can
stimulate the competitiveness of domestic companies, lower prices and trigger
investments, we also need to take into account that, as business operates in global
value chains, it is often the case that third-country bids have European components.
However, in this context, it is equally important to point out that our companies face
increasingly unfair competition from state-owned enterprises (SOEs), particularly from
China, in domestic procurement markets. Those companies’ heavy reliance on
subsidies creates fundamental distortions in our Single Market. Examples of such
practices abound: from the construction of motorway A2 in Poland6, the Peljesac
Bridge in Croatia, one of the EU's major infrastructure projects, with the European
Commission committed to paying €357m7, the construction of the Budapest-Belgrade
railway8, to the selection of CRRC (China Railway Rolling Stock Corporation) as best
bidder for a major rolling stock tender (40 to 80 electric regional trains) in Romania,
where CRRC offered a price 25% lower than its competitors.
The EU should address unfair practices in third countries
The lack of reciprocity in access to public procurement markets together with the
growth of market-distortive practices created by SOEs and other heavily subsidised
companies from third countries in our own market are deeply alarming to the European
business community.
BusinessEurope is therefore supportive of the conclusions from the European Council
held on the 21st and 22nd of March 2019, which stated that “the EU must also safeguard
its interests in the light of unfair practices of third countries, making full use (…) our
public procurement rules, as well as ensuring effective reciprocity for public
procurement with third countries.”9
4
Ibidem.
5 UNIFE and Roland Berger, “
World Rail Market Study”, 2018/.
6 https://www.ispionline.it/sites/default/files/media/pdf/infrastructure_study.pdf
7 http://www.globalconstructionreview.com/news/strabag-tries-stop-chinese-work-big-croatian-
bridg/
8 https://www.railjournal.com/financial/loan-agreed-for-us-1-78bn-budapest-belgrade-upgrade/
9 European Council
, “Conclusions – 21 and 22 March 2019”, 2019, p. 3.
A comprehensive EU approach to public procurement
It is essential that all the instruments at the EU’s disposal in the area of public
procurement work together in a complementary and mutually reinforcing manner. This
is important in order to achieve the objectives described in the introduction of this
paper: using the IPI as a leverage to open up procurement markets that are currently
closed for European companies, without however neglecting the changing situation
within the EU’s procurement market.
To this end, it is crucial that there is sufficient coordination and alignment between the
respective arms of the European Commission and EU Member States authorities on
the implementation of the IPI Regulation, once adopted, and with the EU’s existing
Directives in public procurement (Directive 2014/24/EU on public procurement,
Directive 2014/25/EU on procurement by entities operating in the water, energy,
transport and postal services sectors and Directive 2014/23/EU relating to
concessions), or with already existing guidance provided by the European Commission
on the participation of third country bidders and goods in the EU procurement market10.
Also, public procurement rules should be enforced forcefully within the EU, in the sense
that behaviours and strategies aimed at countervailing these rules should be avoided.
Furthermore, we urge EU Institutions and Member States to also coordinate subsidiary
policies and instruments, such as external financial assistance, to ensure that this
support, including in cases where it is destined to promote public procurement bids
also follows EU rules.
Whereas according to the current
“acquis communautaire” bidders from countries,
which have neither signed the GPA nor joined bilateral agreements on public
procurement with the European Union, do not have secured access to procurement
procedures in the EU and may be excluded11, the IPI should kick-in, either by the
exclusion of such third-country heavily subsidised SOE bidders, or by the
implementation of a price adjustment measure, if the European Commission’
assessment has come to the conclusion that a severe disturbance exists in view of
problems regarding market access to such countries and/or unacceptable performance
by enterprises from such countries in European markets.
Furthermore, we urge EU Institutions and Member States to coordinate subsidiary
policies and instruments, such as external financial assistance, to ensure that this
support, including in cases where it is destined to promote public procurement bids,
also follows EU rules. Furthermore, the IPI should be accompanied by appropriate
policies of a more general character, providing incentives to open-up international
public procurement markets, especially calling on additional third countries to join the
GPA or sign bilateral trade agreements including procurement chapters with the EU. In
order to increase pressure on locked-up third countries without any agreement with the
EU on public procurement, it should be considered whether European funds might only
10 Communication from the European Commission on Guidance on the participation of third
country bidders and goods in the EU procurement market, C(2019) 5494 final dated 24 July
2019 (see also footnote 2).
11 See footnotes 2 and 10.
be granted to projects, which are awarded to enterprises from the EU, the European
Economic Area or countries which have signed the GPA or a bilateral agreement on
public procurement with the EU. Thereby it would be avoided that EU tax payer’s
money contributes to projects in which businesses or SOEs from lock-up third countries
finally profit from EU funds although their anti-competitive behaviour fundamentally
damages the interests of EU businesses.
Besides the importance of avoiding discrepancies between the IPI and the existing EU
Directives, it is also important to focus on how existing Directives can be better
implemented, for example by stricter implementation and practical use of the rules on
abnormally low tenders and by encouraging the use of the Most Economically
Advantageous Tender (MEAT) in the award criteria, to ensure that strategic
underbidding by foreign entities does not drive EU companies out of their home market.
We urge the new European Commission to develop a comprehensive and ambitious
strategy with a view to improving access for our companies to public procurement
markets in third countries while addressing unfair competition in EU markets, in order
to ensure a level playing field. Only a coherent EU strategy – drawing on all resources
from the European Commission (from DG Trade to DG GROW, and from DG COMP to
the EEAS), the European Parliament and the EU Member States – can address the
common challenges that European firms face with regard to global public procurement.
International Procurement Instrument proposal
To address the discriminatory measures against European companies in third countries
and the lack of reciprocity in access to public procurement markets, the European
Commission proposed a regulation for the adoption of an International Procurement
Instrument (IPI) in 2012. The aim of this instrument is to clarify the legal situation for
foreign bidders participating in the EU market, and to encourage the EU’s trade
partners to engage in negotiations with a view to opening their procurement markets. In
this context, it would also be important to have the most recent and comprehensive
data publicly available. For instance, the International Public Procurement Initiative
(IPPI) launched by the European Commission should become a regular exercise and
its results should be published.
In 2016, the European Commission published an amended version of the proposal
which is the basis for discussions taking place today. In March 2019, the European
Council called for negotiations on an IPI to be resumed,12 and the Commission urged
the Parliament and Council to adopt the regulation before the end of 2019.13 In her
mission letters to Commissioners Phil Hogan and Thierry Breton, President Ursula von
12
Ibidem.
13 European Commission
, “EU-China – A strategic outlook”, 2019, p. 7.
der Leyen asked them to seek “a level playing field in procurement” and to address “the
distortive effects of foreign subsidies, in particular in relation to procurement”.14
BusinessEurope supports the general objectives of the IPI. European companies have
long advocated for a strengthened EU toolbox that ensures a fairer playing field in the
area of public procurement, enforces the principle of balanced market access
enshrined in the WTO GPA and creates leverage to encourage partners to open their
public procurement markets.
However, the 2016 IPI proposal is still lacking in effectiveness and efficiency and could
generate undesirable side effects for many EU businesses and public purchasers,
especially by creating considerable new administrative burden, legal uncertainties and
risks in view of the proposed system of penalties (cf. section c in more detail).
BusinessEurope welcomes the fact that the European Commission has been working
closely with Member States to improve the proposal and we would like to contribute to
these efforts through this position paper.
In order to be efficient, the IPI needs to be balanced, non-protectionist and compatible
with the rules and principles enshrined in the GPA. The instrument should avoid
creating a higher bureaucratic burden for contracting entities and companies, provide
legal certainty for EU businesses, include special provisions on SOEs and subsidised
entities and take into account the specificities of European companies with international
supply chains. It should be conceived so as to strengthen unity within the EU.
Furthermore, the EU needs to ensure that the IPI does not result in a worsening of
relations with partner countries. In order for the IPI to serve its purpose, it should be
combined with efforts to encourage more countries to join the GPA as well as with an
ambitious bilateral trade agenda, giving primacy to dialogue and consultation.
In terms of technical detail, BusinessEurope would advance the following comments.
a) Scope of the IPI
Distinction between covered and non-covered goods and services
Current proposal: The 2016 proposal makes a distinction between “covered”
and “non-covered” goods and services (Article 1(4) in conjunction with Article
2(1)(d) and (e)). Covered goods and services originate in a country with which
the EU has concluded an international agreement in the field of public
procurement. The current IPI proposal only applies to non-covered goods and
services.
Our concern: Being party to the GPA or having a trade agreement with the EU
is no guarantee that a third country’s public procurement market is
de facto
open. Experience has shown that even countries which are parties to the GPA
may not provide satisfactory access to procurement markets. Furthermore,
recent rhetoric by the U.S. that they may withdraw from the GPA is not
14 Ursula von der Leyen,
“Mission Letter to Phil Hogan” and
“Mission Letter to Thierry Breton”,
2019, p. 5.
contributing to a favourable situation for EU companies. Additionally, countries
such as China whose market is closed and whose subsidies distort our market
are meanwhile urgently asked to join the GPA.15 The crisis of the WTO’s
dispute settlement system could put at risk the ability of the EU to enforce its
rights ensuring that third countries respect their market access commitments.
Our suggestion: The scope of the IPI Regulation should not be expanded
beyond the current proposal; therefore, it should continue to apply to all “non-
covered” goods and services. However, improving the conditions for and
ensuring real market access in countries with which we have international
agreements on public procurement (“covered” goods and services) should also
be a priority for the EU, even if this is not addressed in the context of the IPI
Regulation. In such cases, the relevant provisions of international agreements
on public procurement need to be strictly applied. For instance, in an approach
similar to the country reports delivered in the context of anti-dumping
investigations, European authorities should be able to conduct in-depth
investigations on whether European companies are affected by discriminatory
measures both in covered and non-covered areas. These country reports
should be made public. If the investigation concludes that in a third market
European companies are being discriminated against, the type of action that
follows should depend on whether that country is
de jure covered by an
international agreement or not.
-
For “non-covered” goods and services, the relevant provisions provided in
the context of the IPI Regulation shall apply. By this, we mean any further
investigation that may be necessary under Article 6 and consultation with
the third country under Article 7.
-
For “covered” goods and services, the EU should not be afraid to resort to
the dispute resolution measures within the scope of the applicable
international agreement16. If cases are pursued in the WTO, it is important
that alternative solutions apply, should the current blockage of access to the
Appellate Body persist17.
Moreover, the European Commission should publish a list of countries covered
by international agreements with provisions on public procurement to clarify the
type of action to be taken. Least-developed countries should be exempted from
the regulation as is currently stipulated in Article 4 of the 2016 proposal,
15 China has submitted another
revised offer for joining the GPA in October 2019, after earlier
offers were deemed not sufficient by the community of the GPA member countries.
16 For parties to the GPA: the Agreement foresees two independent mechanisms for settling
disputes: (1) So-called “domestic review mechanisms, which are established at national level.
(2) The WTO Dispute Settlement mechanism. Only a few times has the latter been used.
(source: WTO
, https://www.wto.org/english/tratop_e/gproc_e/disput_e.htm) For partners with which the EU has concluded FTAs with Public Procurement chapters:
Provisions on public procurement are usually covered by the State-to-State Dispute Settlement
provisions of the FTAs. This dispute settlement option has never been used so far by the EU.
17 In this regard, we welcome the entering into force of the Interim appeal arrangement for WTO
disputes
(https://trade.ec.europa.eu/doclib/press/index.cfm?id=2143).
although it should be ensured that the risk of circumvention (by a targeted
country) is eliminated.
Further restrictive measures going beyond the IPI
Current proposal: Article 1(5) stipulates that Member States or contracting
authorities cannot apply restrictive measures towards foreign bidders beyond
those provided for in the IPI regulation.
Our concern: There is discrepancy between Article 1(5) of the proposed
Regulation and the European Commission Communication of 24 July 2019 on
“Guidance on the participation of third country bidders and goods in the EU
procurement market”. In this context, it is stated that “… economic operators
from third countries, which do not have any agreement providing for the
opening of the EU procurement market or whose goods, services and works are
not covered by such an agreement, do not have secured access to
procurement procedures in the EU and may be excluded”18. Furthermore, this
article is incompatible with the emphasis on the principle of reciprocity laid down
in the EU’s General Notes under the GPA in the area of utilities sectors, which
were transposed into EU law through Articles 85 and 86 of Directive
2014/25/EU on procurement by entities operating in the water, energy, transport
and postal services sectors19. It is also incompatible with a special note on
annex 6 of the same agreement, which provides for reciprocal market opening
on an individual basis at the Member State level for the construction industry.
Our suggestion: Article 1(5) should be deleted from the proposed Regulation.
List of contracting authorities
Current proposal: Article 9 establishes that Member States would provide a
list of appropriate contracting authorities to the European Commission. The
Commission would then determine which entities are concerned by action taken
in the context of the IPI.
Our concern: While it may eventually be laudable to guarantee that smaller
contracting authorities – with less procurement resources and experience – will
not be impacted by the IPI, a potentially higher threshold on the value of
contracts than the one proposed in the draft Regulation may limit negative
consequences. In addition, Article 9 can lead to market fragmentation, in that
each Member State would have discretion on choosing which contracting
entities to include in the list.
Our suggestion: The article should not lead to a fragmentation of the
European market or to loopholes in the implementation of the IPI and should
therefore be reconsidered. For instance, national legislators may look at the
possibility to subject to the IPI Regulation only those EU contracting authorities
18
https://ec.europa.eu/docsroom/documents/36601, also footnotes 2 and 11.
19 Cf. General Notes of the EU, Appendix I Annex 7 number 2 of the GPA; see also dedicated
section later in the document.
that are regularly dealing with contracts equal or above the agreed threshold
under the IPI Regulation.
Further comments
There has been debate about limiting the scope of application to certain sectors of
activity or to municipalities above a certain population level. Even though the 2016
proposal does not include such provisions, we call on the European Commission not to
include such measures in a future revised proposal. Such measures would create
unnecessary loopholes, increase the complexity of the Regulation, and could result in
higher administrative burden for companies and public authorities alike.
b) Investigation and consultation procedures
Length
Current proposal: According to Articles 6(2) and 7(6), the investigation and
consultation procedures could take up to 27 months in total. The investigation
stage could take 12 months (8 months plus 4 months extension) and the
subsequent consultation could take 15 months.
Our concern: These periods are considerably lengthy and they are not
adapted to the reality of procurement timelines.
Our suggestion: Reducing the investigation and consultation procedures is
crucial. However, this should not take place at the expense of the quality of the
investigation and consultation processes. Regarding the investigation stage, the
European Commission should make use of publicly-available data on barriers to
public procurement – in particular, the database it acquired with the
International Public Procurement Initiative. Additionally, there are already
exhaustive studies documenting these barriers. Therefore, the investigation
period should last up to 6 months (a basic 3 months period, plus a 3 months’
extension, if necessary).
Regarding the consultation stage, the European Commission may follow a
differentiated approach: (1) If the country in question is unable or unwilling to
launch negotiations on market access, the consultation should be terminated
within 3 months. (2) However, if the country wishes to engage, the timeframe
should be maximum 3 months to define the scope of negotiations and 6 months
to negotiate, arriving at a total of 9 months.
Further comments
Article 7(2) references “satisfactory remedial and corrective measures” which are
different from market access commitments. We would appreciate further clarification on
the meaning of the term “satisfactory” under this article.
c) Penalties
Rules of Origin
Current proposal: The 2016 IPI proposal determines the origin of a good or a
service in Article 3, combined with Article 8(1). This process, according to many
experts and business operators can be very complex. The penalties are
triggered if more than 50% of the total value of the goods in the tender
originates from the targeted third country. The origin of a service, on the other
hand, is determined by the country of origin of the economic operator providing
for it.
Our concern: The proposed rules of origin method will often lead to complex
investigations and could cause new bureaucratic burden and new legal
uncertainties for EU businesses and contracting authorities20. During the
tendering stage, businesses may not have full visibility on the origin of 100% of
the goods that they will use during the execution of the contract. Furthermore,
such a rule implies that contracting authorities and bidders would have to
undergo a cumbersome verification of origin during the evaluation of the
tenders and the execution of the project. This poses a considerable risk in case
of erroneous assessment. It is not clear what would happen if an economic
operator declared compliance at the tendering stage but then failed to meet the
50% threshold during the execution of the contract. Calculating the share of the
content is difficult and so is evaluating an entire supply chain. This provision
could also have the unintended effect of negatively impacting European
companies with international supply chains. Under the current proposal, a
tender comprised of 51% of products originating from the targeted third country
and 49% from the EU would be subject to the price penalty - thereby hurting
European companies and jobs.
Our suggestion: Shifting the focus from the origin of the goods to the bidding
entity instead, we suggest to apply Article 8 as follows:
-
Ex ante verification:
(1) if the bidding entity is legally established in (or controlled21 by a company
from) a closed third country without an agreement with the EU on public
procurement; (2) if the bidding entity is an SOE from a closed third country, or a
foreign subsidiary controlled by an SOE of such a country, following the
investigation and consultation processes foreseen in the IPI Regulation. In
those two situations, the penalty (price adjustment measure or exclusion)
should be directly applied (cf. more details under section price adjustment
measure/automatic exclusion below).
-
Ex post verification:
20 In this regard, framework agreements should also not be negatively impacted.
21 “Controlled” means to be controlled by a majority of shares of a company or a majority of
voting rights or of powers of decision.
It should be ensured that the Regulation is not circumvented. As a solution, we
propose that the winning bidders commit in the contractual obligations that they
do not source from targeted countries more than 50% of the value of the goods
used in the execution of the contract. In cases where winning bidders do not
respect this obligation, appropriate measures shall be in place22.
An exception to the duty to commit to the provision described above should be
granted to European bidders who can prove that their company is not
controlled23 by stakeholders from targeted third countries. The condition for
granting this exception should be that the company of the winning bidder is not
directly or indirectly controlled by stakeholders from third countries which have
not signed an agreement with the EU on public procurement and which have
been identified as countries locking up their own markets according to the
investigation of the European Commission.
It is our view that such an ex post verification is less burdensome both for
companies and public authorities, who could use for instance customs
declarations to verify the origin of goods and/or services. Furthermore, it would
be limited to the winners of bids.
No changes to the 2016 proposal are required regarding the determination of
the origin of a service.
Note on SOEs: Our proposal in the context of the draft IPI Regulation attempts to
address the concern that European companies face increasingly unfair competition
from SOEs and other subsidised entities. The inclusion of specific provisions in this
context should not lead to additional burden for European companies and should avoid
affecting negatively subsidiary entities or consortia that operate in the EU and in
accordance with EU law. Besides, there are currently on-going discussions at EU level
to develop EU rules to address distortions caused by third-country SOEs in the EU
Single Market and specific proposals of the European Commission are expected in the
course of 2020. These proposals, as well as the approach that the EU follows on SOEs
in the context of its most recent trade agreements24, should be taken into account when
developing specific provisions on SOEs in the IPI Regulation.
22 A remedial measure that can be proposed in this case is the introduction of a fine,
representing a percentage of the value of the contract. As seeking damages in cases of alleged
breaches of contract can be a long and costly process and taking into account that these
processes are not harmonised among the EU Member States, the Regulation has to introduce a
clear measure that all EU Member States will abide by and implement in the context of the IPI.
23 “Controlled”- means to be controlled by a majority of shares or voting rights/powers of
decision by a company, public entity, legal or private person seated in the respective third
country.
24 For instance, Chapter 13 of the EU-Japan Economic Partnership Agreement on “State-
Owned Enterprises, Enterprises granted special rights or privileges and designated
monopolies”
: http://trade.ec.europa.eu/doclib/docs/2018/august/tradoc_157228.pdf#page=348.
Threshold
Current proposal: Penalties under the current IPI proposal shall only apply to
tenders equal to or above EUR 5 million exclusive of value-added tax (VAT).
Our concern: Although the value may be considered low, the risk that the
public procurement market may be seriously undermined in this particular
segment by the distortive practices of companies from third countries remains
very high.
Our suggestion: The threshold for the application of penalties could be
increased from EUR 5 million to EUR 10 million maximum. However, a potential
increase of the threshold should be carefully assessed by the European
Commission in order to avoid that it may have a negative impact in procurement
markets, taking into account the characteristics of the different sectors, as well
as considering the alignment with the Public Procurement Directive. To offer an
example, it is often the case that contracting authorities split their projects into
smaller tenders to enable SMEs to bid and compete. This increases the risk of
bidders from countries targeted by the IPI Regulation to get around a higher
threshold. In this regard, an option would be to increase the threshold for a
limited number of sectors, while maintaining the threshold at the EUR 5 million-
level for others. Moreover, a review clause could be included in the Regulation,
allowing for the potential reassessment of the threshold after a reasonable
period of time following the entering into force of the Regulation.
Price adjustment measure / automatic exclusion
Current proposal: The price adjustment measure consists of a penalty of up to
20% to be calculated on the price of the tender concerned.
Our concern: This mechanism should meet three conditions:
1. It must be a deterrent, a credible tool to ensure that IPI is effective in
achieving the removal of barriers in procurement markets in third countries.
2. It should not create additional administrative burden for EU companies.
3. It must be used in cases of minor offenses only, and determined by the
European Commission in its initial investigation. The penalty of exclusion of
the European market must be the one to be applied in cases of major
offenses (when third countries’ markets are closed to European enterprises,
or in cases of severe disturbance in view of unacceptable performance by
enterprises from such countries in European markets).
If the price adjustment measure is applied at the tendering stage, then its
added-value is not clear. SOEs or other subsidised companies are often
interested in gaining market share and not just turning a profit, which would
make them bid in a tender regardless of price penalties. Since they benefit from
distortive subsidies, the price penalty of up to 20% would still allow them to
compete on price vis-à-vis other offers. As long as anti-subsidy rules for goods
at WTO remain ineffective, and in the absence of anti-dumping and anti-subsidy
rules for services in the WTO as well as the EU, SOEs and subsidised entities
would still not be deterred from applying aggressive market penetration
strategies. For instance, the price adjustment measure, as is currently
proposed, could incentivise third countries targeted by the IPI to focus their
market penetration strategies where the measure could be more easily
overcome. This would also contribute to the fragmentation of EU market and
would play against the unity among EU Member States.
Our suggestion: We propose different actions depending on whether the
bidder is an SOE from a third country or not. If the bidder is an SOE or a
subsidiary of an SOE, its offer should be automatically rejected following the
investigation and consultation procedures. This should also apply to SOEs
bidding as part of a consortium. The European Commission could resort to
already agreed upon definitions of SOEs as laid out in recent trade
agreements25 and also support EU Member States by providing further
information on identified barriers linked to SOEs. If the bidder is not an SOE
from a third country relevant to the IPI Regulation or controlled by such an SOE,
a price adjustment measure should be applied, except in cases of major
offenses, for instance when third countries’ markets are closed to European
enterprises or in cases of severe disturbance in view of unacceptable
performance by enterprises from such countries in European markets.
Nevertheless, the price adjustment should be higher than 20% which has been
proposed in the Commission’s amended proposal of 2016. Given that
underbidding reaches different levels between sectors, this price adjustment
measure should be flexible and easily reviewed. At the same time, as
businesses would like to avoid that the percentage of the price adjustment
measure varies considerably among different EU Member States, we would like
to propose that the European Commission proposes a percentage, depending
on the extent of the barriers and distortions.
Derogations
Current proposal: Article 12(1) determines that the penalty shall not apply to a
given procurement procedure if its application “would lead to a disproportionate
increase in the price or costs of the contract.”
Our concern: This provision is too far-reaching, leaving too much room for
interpretation. Given that there is a tendency for contracting authorities to
award contracts based on price alone, it would be likely that they could easily
25 See, for exampl
e, chapter 13 of the EU-Japan Economic Partnership Agreement:
An enterprise that is engaged in commercial activities in which a Party:
(i) directly owns more than 50 per cent of the share capital;
(ii) controls, directly or indirectly through ownership interests, the exercise of more than 50 per
cent of the voting rights;
(iii) holds the power to appoint a majority of members of the board of directors or any other
equivalent management body; or
(iv) has the power to legally direct the actions of the enterprise or otherwise exercises an
equivalent degree of control in accordance with its laws and regulations.
opt for this provision. The IPI would therefore be weakened, and the EU would
fail to address distortions in competitions and dumping practices.
Our suggestion: This article should be deleted. However, it should be
stressed that provisions guaranteeing that the bidder affected by a penalty is
granted legal protection and can appeal the decision exist at national level.
Existing penalty framework at national level
Current proposal: Article 17 of the proposed regulation determines that
articles 85 and 86 of Directive 2014/25/EU on procurement by entities operating
in the water, energy, transport and postal services sectors shall be deleted.
These articles provide the possibility for procuring entities to reject any offers
where the proportion of the goods originating in third countries exceeds 50% of
the total value of the tender.
Our concern: These provisions already form part of the EU public procurement
framework, and they are an already actionable safeguard. They send a clear
signal to third countries which have not yet made market access commitments.
Removing them would weaken the EU’s toolbox.
Our suggestion: Article 17 should be deleted from the proposed Regulation.
Hence, articles 85 and 86 of Directive 2014/25/EU should be maintained. We
do understand that verification of origin of goods is cumbersome and that these
provisions have rarely been used in practice. A review clause could be added to
assess, for instance 4 years after the entry into force of the IPI, the efficiency of
the Regulation to open new procurement markets and, in case the results would
not be satisfactory, as a last resort, make Articles 85 and 86 of Directive
2014/25/EU mandatory for EU-funded projects in order to reinforce the leverage
on third countries that are not willing to cooperate.