EU Highlights Foreign Procurement Barriers

On June 26, 2017, the European Commission released its 7th annual Report on Trade and Investment Barriers for 2016. It identified 372 trade barriers in over 50 countries, a 10% increase over 2015. The Report highlights 36 new barriers and the resolution of 20 existing barriers. This post provides an overview of the EU report, and then examines the government procurement barriers identified in 14 countries, including the United States.

The EU report is broadly comparable to the National Trade Estimate Report (NTE) on foreign trade barriers, issued annually by the U.S. Trade Representative (USTR). Unlike the U.S. report, which systematically evaluates countries across a number of sectors, the EU report summarizes the new barriers. The new and existing barriers, as identified by industry and EU member states, are analyzed in the EU’s Market Access Database, which is organized by country.

The EU Report classifies barriers in three categories: border measures (restrictions that directly affect imports and exports, such as tariff increases, quantitative restrictions, sanitary and phytosanitary measures, import licensing and trade bans), behind-the-border measures (restrictions related to services, investments, government procurement, intellectual property rights or unjustified technical barriers to trade) and trade-distorting subsidies.

For 2016, Russia topped the EU list with 33 measures that created trade barriers, six of which were new. It was followed by Brazil, China and India, each of which had 23 barriers. Countries with 10 or more registered trade and investment barriers included South Korea (17), the United States (16), Turkey (15), Australia (13) and Mexico (10).

Government Procurement Barriers: The EU’s Market Access Database’s details government procurement barriers for a number of countries, as summarized below.

Argentina: Argentina applies price preferences for domestic goods in public procurement: 7% for bids from small or medium-sized enterprises; 5% for bids from other enterprises; and 7% for all companies engaged in exporting.

Australia: Australia’s negotiations to join the WTO Government Procurement Agreement (GPA) provide an opportunity to address outstanding access issues, particularly with respect to its states and territories. They have not adopted non-discrimination as a key principle and maintain discriminatory measures.

Brazil: Foreign companies must be legally established in Brazil to take part in national tenders. Brazil applies a preference for domestic goods and services of up to 25% and a range of local content requirements in concessions, public works and other contracts.

Chile: Chile’s process for getting on the registry for public contracts is overly bureaucratic. Obstacles include obtaining recognition of academic qualifications for workers, the need to produce numerous notarized documents (e.g., certificates of good conduct of workers, certification of previous projects) and obtain a local tax identification number.

China: The main issue is an active Buy Chinese policy which, in principle, allows only Chinese companies to bid in public tenders; foreign bids are allowed as exceptions. Also, government agencies are required to purchase equipment and technology from Chinese firms. Despite important progress in China’s negotiations to accede to the GPA, China’s most recent offer in December 2014 is still far from responding to EU expectations in terms of coverage.

Israel: English notices of international tenders are only published in hard-copy in Israeli English newspapers and are not available online.

Malaysia: Malaysia’s government procurement discriminates in favor of local suppliers and is used to protect Bumiputera, ethnic Malays that comprise a majority of its population. Restrictions include: i) international tendering is only allowed when goods and services are not available locally or local companies do not have the necessary expertise and capacity, and formation of a joint venture is not possible; ii) in tenders open to international participation, domestic tenderers receive preferential treatment; and iii) to be eligible to participate in government procurement, a supplier must be registered with the Ministry of Finance, and to register, foreign companies must establish a local subsidiary.

Mexico: Mexico discriminates against EU companies in public procurement. In national public tenders, only Mexican nationals may participate and the commodities covered by the tender must have at least 50% Mexican content.

Paraguay: International public competitive bidding is used as an exception to national bidding only in specific circumstances and, in the event of equivalent offers, preference is given to offers with local content. Paraguay applies price preferences from 5% up to 70% to bids with local content.

Philippines: Laws and regulations favor Philippine-controlled companies and domestic materials and supplies. The country imposes a 40% limit on foreign ownership for bidders in the procurement of goods and consulting services (and 25% in infrastructure projects), except for foreign-funded projects or in case of reciprocity. When foreign participation in procurement is allowed, a price differential is imposed or countertrade is required.

Russian Federation: Russia’s new procurement law stipulates that national treatment will be extended to foreign goods and services only where required by an international agreement. That represents a deterioration of access for EU businesses, in comparison to the status quo ante. Russia has introduced bans and other restrictions on foreign company participation in public procurement in the following sectors: medical devices; certain types of textile/footwear; imported vehicles; light industry imports; machinery and equipment; pharmaceuticals; software; food products; and radio-electronic products.

Thailand: It provides preferences for “domestic” goods and services through a range of initiatives, including a price preference for all local suppliers of Thai goods in the range of 3% to 7%; and a requirement that a Thai firm leads in service contracts and, if that is not possible, 50% of the personnel engaged on the project must be Thai.

United States: U.S. commitments under the GPA are limited by various derogations, in particular Buy American restrictions linked to Federal funding of procurement and broad set-asides for U.S. small businesses. In addition, a large share of procuring entities within states, including regional and local entities, are not covered by the GPA.

Vietnam: It allows preferential use of domestic materials and services in public procurement.

Several of the procurement barriers identified by the EU are similar to those in USTR’s 2017 NTE, including for Brazil, China and Russia.

Jean Heilman Grier

July 25, 2017

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