Last reviewed 2 February 2016

A revised proposal to open global public procurement markets has been presented by the European Commission. In this article, Eric Davies examines the details of the proposal and some of the possible implications.

The proposed International Procurement Instrument (IPI) has been developed by the EU in response to the lack of a level playing field in world procurement markets.

The IPI is intended to open opportunities for European firms by encouraging non-EU countries to engage in negotiations on access to their public procurement markets.

Investigatory powers

If the proposal for the IPI becomes law, it would allow the Commission to initiate public investigations where discrimination against EU firms in procurement markets is alleged.

In cases where such allegations were founded, the Commission would invite the country concerned to negotiate the opening of its procurement market, possibly by means of an international agreement (eg accession to the World Trade Organization Agreement on Government Procurement — the WTO GPA).

If no agreement were reached, the Commission would, with the approval of EU Member States, be able to initiate action under the IPI. That would mean that bids from companies in the country concerned for EU public tenders would effectively be disadvantaged through the application of price adjustment measures.

Price penalty

The proposed IPI concerns tenders covered by the following acts: Directive 2014/23/EU on the award of concession contracts; Directive 2014/24/EU on public procurement; and Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors.

Where a third country failed to open its markets to EU bidders, then in cases where more than half the total value of a bid comprised goods and/or services originating in the country was concerned, tenders from that country’s firms would be subject to price adjustment measures. Those measures would only apply to contracts with an estimated value of €5 million (before VAT). The price adjustment penalty would be set at a maximum 20% to be calculated on the price of the tenders concerned.

Market values

Some €352 billion of EU public procurement is open to bidders from member countries of the WTO GPA.

However, third countries are often less open to international competition, including from EU firms. For example, the value of procurement offered to foreign bidders by the United States — the world’s largest economy — is just €178 billion. Japan offers some €27 billion public contracts to other countries, but — in the words of the European Commission — “only a fraction of the Chinese public procurement market is open to foreign business.”

Consequently, only €10 billion of EU exports (equivalent to 0.08% of EU GDP) currently find their way into global procurement markets, and some €12 billion of potential EU exports fall foul of third country restrictions.

Opening doors

"Government procurement around the world represents a huge market” said Elżbieta Bieńkowska, the European Commissioner for Internal Market, Industry, Entrepreneurship and SMEs, adding: “We want EU companies to be able to tap into this market outside the EU just as companies from outside the EU are able to benefit from our market. What we are doing will open doors for our businesses and allow them to compete on an equal footing."

The amended proposal for a Regulation “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” was published as COM(2016) 34. The proposal is based on a 2012 draft that failed to gain sufficient support among EU governments. The Commission’s new text addresses concerns expressed by Member States and the European Parliament.

The proposal can be accessed via the DG Trade website.