EU Adopts Procurement Reciprocity Regulation

After a decade-long effort, the European Union (EU) in June adopted a new trade tool aimed at achieving reciprocity by opening third-country public procurement markets and improving market access opportunities for EU suppliers, goods, and services. The new procurement regulation, called the International Procurement Instrument (IPI), will enable the EU to penalize or block tenders from countries that restrict EU participation in their home procurement markets. This post examines the new measure.

The EU pursued this measure because of mounting concerns that its public procurement markets, which are largely open to foreign suppliers from countries without agreements with the EU, is not reciprocated. According to the Council of the EU, “[f]ewer than half of the world’s public procurement markets are currently open to European companies.” EU suppliers are often subject to discriminatory restrictive practices or exclusions in those markets. Obstacles encountered by EU suppliers in China’s market have been of increasing concern.

To remedy this lack of reciprocity, the EU since 2012 has pursued the means of promoting reciprocity with third countries. In 2012, the European Commission proposed a procurement reciprocity measure that could have closed its procurement to suppliers from countries discriminating against EU suppliers in their own procurement. It failed to gain the necessary support from the member states. Four years later, in 2016, the Commission tried again with a revised procurement regulation that would have imposed price penalties on tenders from countries restricting access to their home procurement. That proposal also failed to garner the necessary member state support. The proposed IPI languished until 2021 when a compromise finally brought all the member states on board. Further negotiations between the Council of the EU (representing the EU member states) and the European Parliament were finally concluded in 2022, with the Parliament insisting on stronger penalties and fewer exemptions. 

In June 2022, the European Parliament and the Council adopted the IPI and the final IPI text was published in the Official Journal of the European Union on June 30th. The IPI will enter into force on August 29, 2022 (60 days after its publication).

The new IPI gives the Commission powers to investigate claims that third countries restrict the access of EU suppliers in their procurement markets. It can self-initiate an investigation or undertake one based on a substantiated complaint from an interested party or a member state. It is also required to seek consultations with the third country that is the target of the investigation with the aim of removing or remedying the restrictions in its procurement practices or measures.The IPI requires the Commission to complete its investigation within nine months (unless extended for up to five months).

If the Commission finds that European companies face serious and recurring restrictions on access to procurement in third countries and any consultation with the third country do not resolve the problems, it may impose measures limiting the access of that country’s companies to EU procurement.

The Commission can adopt two types of IPI measures to restrict access of a targeted country to EU procurement. It may apply a penalty to the score of tenders submitted by suppliers from the targeted third country or exclude such tenders entirely from the procurement.

Under the “score adjustment” remedy, in procurement where more than cost or price are considered in the evaluation of the tender, the score resulting from the tender evaluation could be reduced by as much as 50%. Where price or cost is the only contract award criterion, the level of score adjustment would be significantly higher “to ensure comparable effectiveness of the IPI measure.” It could be up to 100% of the price offered by a tenderer. Once adopted, an IPI measure can remain in place for five years unless the third country withdraws or revises the offending measure or practice.

The new regulation would only apply to a procurement of at least €15 million for public works and concessions and €5 million for goods and services. Least developed countries are excluded from the measure, unless they are involved in transhipment.

The IPI is aimed at procurement that is not covered by the plurilateral WTO Government Procurement Agreement (GPA) or EU trade agreements. However, the EU could, for example, pursue an IPI measure against a US state that is not covered by the GPA or a 1995 bilateral agreement if the EU found that the state was discriminating against EU suppliers in its procurement. In its 2022 report on foreign trade barriers, the US Trade Representative indicated it had raised concerns with the EU relating to the potential application of the measure to the US.

The Commission must develop guidelines within six months of the entry Into force of the IPI on topics such as the origin of goods, services, and natural and legal persons.

Jean Heilman Grier

July 13, 2022

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