EU’s procurement reform faces uphill struggle

Chinese President Xi Jinping (C) walks during a welcoming ceremony at the Altare della Patria monument in Rome, Italy, 22 March 2019. President Xi Jinping is in Italy to sign a memorandum of understanding to make Italy the first Group of Seven leading democracies to join China's ambitious Belt and Road infrastructure project. [EPA-EFE/ANGELO CARCONI]

A proposal to introduce stricter criteria for foreign bidders to access Europe’s multi-billion public procurement market remains deadlocked, as a strong majority of member states remain unconvinced about the benefits of the plan.

The European Commission, supported by France, are trying to revive a proposal to introduce an International Procurement Instrument with the aim of bolstering EU defences against unfair practices of foreign countries.

But national governments still have concerns about the introduction of penalties for companies based in countries like China, which restrict access to their own procurement market.

EU urges China to progress on demands to dispel 'frustration'

The EU will give Chinese leaders a comprehensive list of demands next month to address the growing “frustration” among Europeans, and to improve bilateral cooperation as it reaches a critical junction, various senior EU officials explained on Wednesday (20 March).

Countries more willing to discuss the IPI, especially Germany, would prefer to wait for a new proposal from the next Commission, which won’t happen before the end of this year, half a dozen diplomats and EU sources told

As the EU is trying to rebalance its economic and trade relationship with China, Paris and the EU executive are trying to overcome opposition to the procurement reform proposal, initially tabled by the Commission in 2016.

In its current form, the IPI would allow the Commission to restrict access to the EU procurement market for companies, goods or services coming from countries where EU companies face restrictive or discriminatory measures.

EU wants to tackle public procurement 'imbalance' with foreign countries

The European Commission has raised concerns about the limited access EU companies get to public markets abroad, proposing measures to tackle the “imbalance”.

Commission officials are hopeful that the proposal can now move forward after EU heads of states adopted a statement at their March summit in support of greater reciprocity in trade.

In their statement, EU leaders said the bloc must address unfair practices, making “full use” of “trade defence instruments and our public procurement rules, as well as ensuring effective reciprocity for public procurement with third countries.”

But despite their willingness to use the EU procurement market as leverage, governments  still doubt that the proposed IPI reform will help European companies access foreign markets. Critics believe the proposal would only limit options for EU member states and restrict ventures with foreign partners.

“Is it going to open other markets or simply just close ours?”, a diplomat wondered.

17 against

A total of 17 member states voted against the Commission proposal put forward in January 2016.

“There is a certain degree of concern shared by member states”, another diplomat admitted.

A third national representative also doubted that the instrument would open foreign tenders to European companies, while increasing the administrative burden and costs for EU businesses.

Along the same line, another national official said the final goal of the proposal remained unclear: whether to “buy European” as France initially aimed for, or to achieve reciprocity with trading partners, as the Commission is pushing for.

The same national representative also questioned the Commission’s assessment that the public procurement market is unbalanced.

According to the Commission, EU companies only capture around €10 billion of the world’s €8 trillion procurement market while the EU’s €2.4 trillion procurement market remains open to all bidders from across the globe.

However, contracts given to non-EU countries, including Norway or Switzerland, fall under an obligation to forge closer trade and economic ties with these countries.

'Don’t be naive with China', EU leaders tell Italy

EU leaders displayed a united front toward China on Friday (22 March) and warned the Italian government of the consequences of signing a bilateral deal with Beijing to become part of the new ‘Silk Road’.

Other examples mentioned by the EU executive include a bridge and a water project built by China in Croatia and Poland, worth around €400 million.

Following the EU leaders’ statement, member states supporting the instrument stressed that there is “a growing interest in discussing the proposal”, one diplomat said. However, no technical group meeting has been scheduled in the Council to discuss the IPI in the next few days. 

Finland, who will hold the EU’s rotating presidency in the second half of this year, is not planning to push the issue either, and prefers waiting to see how the situation evolves, a diplomat explained.

Despite renewed debate in Brussels, it is unclear whether the position of some member states has changed in the context of greater EU concerns about China, a national official explained.

A qualified majority in support of the proposal (currently 16 member states representing 65% of the population), remains out of reach for the time being.  And the European Parliament has not taken a position on the proposal either. 

Countries that voted against the IPI last year were Germany, the UK, the Netherlands, Sweden, Denmark, Finland, Estonia, Latvia, Ireland, Spain, the Czech Republic, Austria, Cyprus, Slovakia, Belgium, Croatia and Malta.

A third proposal?

In this context, some national representatives argue a fresh proposal from the Commission is the only way forward to restart the debate on a new basis.

If the Commission follows through, this would be the third attempt to break the deadlock on procurement reform. The first draft was put forward by Michel Barnier in 2012, when the French politician was EU commissioner for the internal market.

The Juncker Commission tried again in 2016, by watering down Barnier’s original plan.

In the first proposal, the Commission wanted to exclude firms, or introduce a price penalty on them, if they came from countries where there was a substantial lack of reciprocal opening of public procurement markets.

In the amended plan tabled in 2016, the restrictive measures would only include a price penalty of up to 20% of the actual price put forward. It would apply only to bids from the targeted country for a total value of at least €5 million, of which at least 50% consists of goods and services coming from the targeted country.

Waiting for a new proposal under a new Commission would delay the process at least until the end of this year, after the European elections. Therefore, the EU executive and France prefer working on the existing plan for the time being. 

Possible additions to the original text could for example cover environmental and labour criteria for bidders coming from targeted countries, instead of a price penalty.

“The quicker we progress the better,” said a diplomat from a supporting member state.

[Edited by Frédéric Simon]

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