European Commission President, Ursula von der Leyen, proposed a procurement preference for EU products in her bid for a second term. Such a move would represent a departure from the EU’s generally open procurement market and its criticism of preferences applied by the United States, China, and other countries. It would, however, be in line with its recent implementation of trade defense measures that allow it to restrict access to its procurement market when actions by third countries are deemed injurious to its interests. This post considers the potential application and significance of an EU procurement preference.
To support her candidacy for a second five-year term as Commission president, von der Leyen issued Political Guidelines for the Next European Commission 2024−2029. They include a proposal to revise the EU’s Public Procurement Directive to give preference to European products in public procurement for certain strategic sectors. Such a preference would, according to the EU executive, “help ensure EU added value for our citizens, along with security of supply for vital technologies, products and services.” She also called for modernization and simplification of the EU’s public procurement rules. With her election by the European Parliament on July 18, she will be able to advance her plans to revise EU procurement rules.
Currently, the only procurement preference authorized by the EU’s procurement directives applies to utilities. The Utilities Directive permits utilities in the water, energy, transport, and postal sectors to reject tenders with more than 50% content from a country that does not have the right to participate in EU procurement. Instead of rejecting such a tender, the utility may include it in its evaluation of tenders, provided it gives preference to equivalent tenders with less than 50% third-country content. This provision does not apply to EU trading partners that provide reciprocal access to their procurement in the same utility sector.
The EU will be constrained in its adoption of a procurement preference by its commitments in international agreements. As a party to the WTO Government Procurement Agreement (GPA) and numerous free trade agreements (FTAs), the EU has committed to not discriminate against its partners in procurement that it opens under the agreements. That means it could not apply domestic preferences to such procurement without violating its commitments. Its current broad coverage of procurement under trade agreements would likely limit the application of a preference against its GPA and FTA partners.
The EU would not face such constraints in applying a preference for EU products against countries such as China, that are not parties to the GPA or an FTA. China may, in fact, be the target of the Commission president’s proposal. Although China applied for GPA accession in 2007, the EU pointed to the “regrettable lack of progress” in its accession negotiations in the WTO’s recent review of China’s trade policies. In addition, a preference on strategic products could enable the EU to focus on those sectors where it is concerned China may have an unfavorable advantage.
Also, the EU under von der Leyen’s leadership, adopted several trade defense measures with remedies that restrict access to EU procurement and that while-not explicitly targeting China-were designed to address its practices. The EU has already applied two of these measures to China. Beginning in February, it has undertaken in-depth investigations of bids by Chinese firms in EU procurement under the Foreign Subsidies Regulation. In April, it initiated an investigation under the International Procurement Instrument of China’s procurement of medical devices. It has yet to invoke the third measure — the Anti-coercion Instrument.
The EU's adoption of a procurement preference would represent a significant change in its policy, as it has long been a critic of the wide array of US preferences. However, the US measures do provide a precedent for other countries. As described in a recent post, Canada is considering the adoption of reciprocal procurement measures that would largely mirror US measures. (The Biden administration touted its preferential measures in a Proclamation on Made in America Week, issued on July 19, and detailed in a Fact Sheet.)
While the Commission president has proposed an EU preference, its adoption will require a formal proposal by the Commission and the approval of the member states and the European Parliament. If it does implement such a preference, it will be contributing to a trend toward protectionism.
Jean Heilman Grier
July 25, 2024
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