EU to confront China with ‘reciprocity’ in public contracts

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Tired of seeing European companies blocked from Chinese public tenders, the European Commission is preparing plans later this month that will allow individual EU countries to bar foreign bids from countries that refuse to open up their public procurement markets, EURACTIV can reveal.

The controversial proposal is due to be presented by the end of March by Michel Barnier and Karel De Gucht, the EU commissioners for the internal market and trade.

Under the plan, seen by EURACTIV, EU countries "will be given the possibility to reject foreign bids from third countries" that fail to open their own public procurement markets to European companies.

"If a third country repeatedly discriminates against European companies, the Commission will be able to take targeted restrictive measures vis-à-vis this third country and effectively close a part of the EU's procurement market," a Commission spokesperson told EURACTIV.

"The procedure would be modelled on the existing anti-dumping proceedings," said Chantal Hugues, spokesperson for Barnier, the internal market commissioner.

Public contracts represent 19% of the EU's gross domestic product, said Barnier, who was speaking to journalists ahead of an EU summit last week.

But whereas €312 billion of EU public procurement is open to bidders from member countries of the WTO agreement on procurement, the value of US procurement offered to foreign bidders is just €34 billion and €22 billion for Japan, the Commission said in a consultation document released last June.

The proposal, Barnier explained, would allow treating differently countries that have an agreement with the EU on  public procurement markets and those that do not.

"So typically the difference between the US and China," Barnier said.

Sarkozy request

The proposals will sound like music to the ears of Nicolas Sarkozy, the French president who has long called for reciprocity in the EU's trade relations and is fighting an uphill battle for his re-election in April and May.

"Is it normal that all European public procurement markets are open to some Asian countries and [not the opposite]?" Sarkozy asked at a press conference after the EU summit on 2 March.

"Well, I have requested for the rule of reciprocity in commercial negotiations."

"If some Asian countries do not want to open their public procurement markets to European companies, one must clearly raise the question of whether to open European public procurement markets to companies from these countries."

"This is not protectionism, this is reciprocity."

Reciprocity or protectionism?

Britain and other liberal-minded member states such as the Netherlands and Sweden are likely to see things differently however.

"The UK favours open markets," said Aled Williams, a spokesman at the British permanent representation in Brussels. "The reciprocal element of this is that foreign countries access EU markets," he told EURACTIV, in comments that could signal latent UK opposition to the proposals.

These countries are indeed worried that the reciprocity plan could fuel tensions with China at a time when European firms desperately need the growth opportunities offered by emerging Asian markets.

"We're not convinced that it would work," said one diplomat on condition of anonymity, saying the initiative could lead to a "tit-for-tat response" from the countries targeted.

But the Commission rejected those fears as unfounded. "The ultimate goal of this initiative is to open foreign markets and to promote a level playing field," said Hugues, the Commission spokesperson.

"The intention is not – and it never has been – to disrupt the current trade flows," Hugues said, adding the initiative will be fully compliant with WTO and other international rules.

"We are aware of the complexity of the globalised trade exchange, the fact that goods are made of components manufactured in many countries and about the complexity of joint EU-foreign consortiums that submit tenders."

BusinessEurope, representing EU employers' organisations, said it supports the Commission's initiative and called on the EU to "take action to improve the access of European companies to third country public procurement markets."

In e-mailed comments to EURACTIV, BusinessEurope said it hoped the Commission initiative would "help overcome the current imbalance in openness of public procurement markets between the EU and its main trading partners".

The employer's group listed a number of issues that the initiative should try to address:

  • "Aim to open markets abroad to create a level playing field for all companies. It should not be used for protectionist purposes.
  • Be closely linked to free trade or WTO negotiations where procurement is a central negotiating issue.
  • Be  workable from an institutional and legal point of view.
  • Be sensitive to the fact that public procurement contracts can involve a multitude of companies and subcontractors providing a range of services with a supply chain across the globe.
  • Strengthen the legal provisions regarding the assessment and exclusion of abnormally low bids by Europe’s public procurement authorities.
  • Address issues such as intellectual property rights enforcement."

Public-funded contracts awarded to private firms accounts for roughly 19% of the EU's GDP. 

In its Trade Strategy issued in November 2010, the European Commission stated that "while our market is already largely open, those of our major trading partners are much less so, especially at regional and local level".

China tops the list of countries criticised by the EU. Beijing is yet to sign the Government Procurement Agreement (GPA), which is a voluntary commitment to open up national public procurement markets to WTO members.

Current EU rules on public procurement are governed by two directives adopted in 2004. One of the main targets of the European legislation is to make sure that EU firms can access national public procurement markets regardless of their country of origin.

  • By end of March: Karel De Gucht and Michel Barnier expected to unveil joint proposals on public procurement.

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