Explanatory Memorandum to COM(2016)34 - Access of third-country goods and services to the internal market in public procurement and supporting negotiations on access to public procurement markets of third countries - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2016)34 - Access of third-country goods and services to the internal market in public procurement and supporting negotiations on access ... |
|---|---|
| source | COM(2016)34  |
| date | 29-01-2016 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
The Commission adopted on 21 March 2012 a proposal for a “REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the access of third-country goods and services to the Union” (COM (2012) 124 final).
The proposal on an International Procurement Instrument (IPI) is the EU response to the lack of level playing field in world procurement markets. While our public procurement market is open to foreign bidders, the procurement markets for foreign goods and services in third countries remain to a large extent closed de iure or de facto. The IPI aims at encouraging partners to engage in negotiations and opening participation for EU bidders and goods in third countries' tenders.
Many third countries are reluctant to open their procurement markets to international competition or to open those markets further than what they have already done. The value of US procurement offered to foreign bidders is currently just EUR178 billion and EUR27 billion for Japan, whereas only a fraction of the Chinese public procurement market is open to foreign business. Many countries have also adopted protectionist measures, especially in the wake of the economic crisis. All in all, more than half of the world's procurement market is currently closed due to protectionist measures and this share is only growing. As a result, only EUR10 billion of EU exports (0.08% of EU GDP) currently find their way in global procurement markets, whereas an estimated EUR12 billion of further EU exports remains unrealised due to restrictions.
In the negotiations on a revised Government Procurement Agreement (GPA) in the context of the World Trade Organization (WTO) and in bilateral negotiations with third countries, the EU has advocated an ambitious opening of international public procurement markets. Some EUR352 billion of EU public procurement is open to bidders from member countries of the GPA. However, some important economic players like China, Brazil or India are not yet parties to the agreement and some of the existing parties have limited coverage of procurement in their schedules.
Since the launch of the IPI proposal in 2012, important trade negotiations have started, with the US (TTIP), Japan (FTA) or continued, such as for China (to join the GPA). The adoption of the IPI would send a strong signal to these and other partners and would encourage negotiators to accelerate and pursue a substantial opening of their procurement markets. The need for an instrument like the IPI has therefore become even more pressing. Ultimately the objective is to improve, in line with the EU's Europe 2020 strategy for smart, sustainable and inclusive growth (COM(2010)2020), business opportunities for EU firms on a global scale, thereby creating new jobs and promoting innovation.
The initial proposal covered two parts: (a) the so-called 'covered procurement' (where the EU has undertaken international commitments on market access); and (b) the 'non-covered procurement' (where the EU has not undertaken any market access commitments). For the latter category the initial proposal included two different procedures: (a) a decentralised procedure, whereby a procuring entity would be allowed to exclude a tender after seeking the Commission's approval; and (b) a centralised procedure, with the Commission playing a central role (investigation, negotiation with the third country, decision to adopt restrictive measures - a market closure or a price penalty - if necessary, which would then be applied by the national authorities in their procurement procedures).
This initial proposal has been discussed in the European Parliament and in the Council, without, however, concluding the first reading.
While a large majority of Member States recognised the current imbalance between on the one hand an open EU procurement market and on the other hand, the serious and persisting problems relating to discriminatory measures and practices that EU operators experience in certain third countries, the Council has not been able to arrive at a formal position on the Commission proposal. During the examination of the proposal in the Trade Questions Working Party a number of Member States have expressed reservations as regards the principle of closing the EU market for goods and services originating in certain third countries, even if only temporarily and in a targeted way, while some Member States gave a strong support to the initiative. Several Member States also underlined concerns regarding the administrative burden imposed by the proposal on contracting authorities and on businesses.
On 15 January 2014, the EP Plenary voted on the amendments to the Commission proposal and endorsed the mandate for trilogue with a large majority together with a list of amendments. The amendments included in particular the establishment of a link between the centralised and the decentralised pillar, providing that the latter could only have been used when a Commission investigation had been launched, expansion of the scope of exceptions for developing countries as well as tightening time limits for the Commission investigations of alleged discriminatory practises and measures by third countries. On 20 October 2014 the current European Parliament confirmed the decision taken under previous legislative term and prepared for trilogue.
In view of the fact that there appears to be broad agreement that an imbalance currently exists between the openness of the EU procurement market and third country procurement markets and that European companies should enjoy better access to procurement opportunities abroad the Commission decided to review its initial proposal in order to respond to some of the concerns both legislative organs of the EU have expressed while ensuring that the revised proposal still provides the EU with better leverage in its negotiations to open foreign procurement markets.
The amendments presented in this proposal aim at eliminating, all possible negative consequences of the instrument in its original form, such as in particular the total closure of the EU procurement market, the administrative burden and the risk of an fragmentation of the internal market. At the same time the proposal put focus on the role of the Commission to investigate procurement barriers in third countries and provides the tools to engage with third countries towards its removal. More concretely, the amended proposal eliminates the decentralized procedure, while keeping the option to impose under certain conditions a price penalty , it simplifies the procedures, expands the scope of the exemptions as well as provides the tools to further target any possible measures. Last but not least it provides for an increased level of transparency by stipulating that the Commission should make public the findings of the investigations relating to discriminatory measures and practices by third countries as well as any action taken by such countries to eliminate the discriminatory measures and practices.
In the Commission Work Programme (CWP) for 2015, the Commission announced the intention to amend the IPI proposal 'in line with the priorities of the new Commission in order to simplify the procedures, shortening timelines of investigation and reducing the number of actors in the implementation'. The amended proposal includes all these required elements and should serve as a basis on which it should be possible to find a balanced compromise, between the European Parliament and the Council, while at the same time ensuring that IPI remains an efficient tool for leverage in negotiations.
2. LEGAL ELEMENTS OF THE PROPOSAL
• Summary of the amendments to the initial proposal
The amendments presented in this proposal aim at increasing the effects of the instrument upon third countries while eliminating the potentially negative consequences of the instrument in its original form, such as the possibility to close the EU procurement market completely to a trading partner, the administrative burden related to the application of the instrument and the risk of fragmentation of the internal market. At the same time, the proposal focuses on the role of the Commission to investigate procurement barriers in third countries and provides the tools to engage with third countries towards their removal.
The proposals can be summarized as follows:
Firstly, it is proposed to delete the possibility to close the market and to limit possible restrictive measures to price penalties – now called “price adjustment measures”. Following a Commission investigation, when it is determined that a country applies barriers to EU participation in procurement, a price adjustment would be applied to bidders or products or services from that country. Contrary to the initial proposal, foreign bidders and products and services subject to a price adjustment measure for evaluation purposes could still be awarded the contract, if despite the price adjustment the offer remains competitive in terms of price and quality.
Secondly, the revised proposal eliminates the possibility for contracting authorities to decide autonomously a prohibition on foreign bidders' participation in their tenders by deleting the decentralised pillar.
Thirdly, the revised proposal establishes a presumption that tenders submitted by companies originating in the targeted third country will be targeted by the price penalty, unless they can demonstrate that less than 50% of the total value of their tender is made up of non-covered goods and services originating in this third country. While in the original proposal contracting authorities bore the burden of proof, it is now borne by the bidder.
Fourthly, it is proposed to reduce the administrative burden further by allowing Member States to indicate which of their procuring entities will be required to implement the price adjustment measure. This proposal follows the model of the Enforcement Regulation 1 . As fifth element, the price adjustment measure would not be applicable in relation to European small and medium-sized enterprises (SMEs) and bidders and products originating from developing countries subject to GSP+ treatment, in line with the EU trade and development policy towards these countries. The same applies for the exclusion from the instrument of SMEs, which ensures coherence of the IPI also with the wider EU policy in this area.
Sixth, a new provision would allow targeting territories at regional or local level, like states, regions or even municipalities. Seventh, it is proposed to shorten the time for the Commission's investigation in the centralised procedure in addition to eliminating the decentralized pillar, completely. Eighth, in line with the Commission's approach to transparency in trade policy, it is proposed to make public the findings of the Commission investigations identifying barriers to tenders in third countries. Ninth, it has been clarified that the instrument will apply to all procurement and concessions which are covered by the EU procurement and concession directives adopted in February 2014 (which excludes for example concessions regarding water supply services).
All abovementioned amendments are fully in line with the announcement in the CWP 2015 to simplify the procedures, shorten timelines of investigation and reduce the number of actors in implementation.
• Consistency with existing provisions in the area of the proposal
The IPI initiative is a new proposal in the area of the European Union's international procurement policy. As their predecessors, the recently adopted new public procurement directives of the European Union 2 do not provide a general framework for dealing with bids containing foreign goods and services on the EU's public procurement market. The only specific rules are set out in Articles 85 and 86 of Directive 2014/25/EU. However, these provisions are limited to procurement by utilities and are too narrow in their scope to make a substantial impact on negotiations on market access. Indeed the EU public procurement for Utilities only stands for around 20% of the total EU public procurement market. In the Commission's amended proposal it is proposed that these two articles will be repealed upon the adoption of the IPI proposal.
• Consistency with other Union policies and objectives
The initial initiative, as well as the amended proposal, implement the Europe 2020 strategy and the Europe 2020 Flagship Initiative on Integrated Industrial Policy for the Globalisation Era [COM(2010) 614]. It also implements the Single Market Act [COM(2011) 206] and the Communication on Trade, Growth and World Affairs [COM(2010) 612]. It is a strategic initiative in CWP 2011 strategic initiative (COM(2010) 623 final).
This proposal is also consistent with the developmental policies and objectives of the Union, in particular by generally sheltering goods and services from least-developed countries (LDCs) from action under this instrument. In this regard the amended proposal goes one step further in eliminating from the scope of the IPI not only LDCs but also those developing countries considered vulnerable due to a lack of diversification and insufficient integration within the international trading system and in the world economy. This adjustment aims at ensuring further alinement with overarching EU policies on development.
3. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
Article 207 of the Treaty on the Functioning of the European Union.
• Subsidiarity principle
The proposal falls under the exclusive competence of the European Union. The subsidiarity principle therefore does not apply.
• Proportionality principle
The proposal complies with the proportionality principle for the following reasons:
Already the initial proposal stroke a careful balance between the interests of all relevant stakeholders and the interest in having an instrument like the IPI to support EU trade policy. The amended proposal has further limited possible negative consequences of the initial proposal without deleting so much of the key aspects of the proposal as to make it loose its effect as a tool for leverage in international negotiations.
• Choice of the instrument
The proposed instrument is a regulation.
Other means would not be adequate, since only a regulation can sufficiently ensure uniform action by the European Union in the field of common commercial policy. Moreover, since this instrument entrusts the Commission with certain tasks, it would not be appropriate to propose an instrument that requires transposition into the legal orders of the Member States.
4. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Stakeholder consultations
To gather the views of stakeholders, the Commission organized in preparation of the initial proposal, in addition to individual meetings, a series of consultations and outreach activities. Since the stakeholder consultation took place, extensive contacts have taken place with different Member State representatives in order to elaborate a revised proposal that would stand a better chance of being adopted.
The main reasons put forward by stakeholders in favour or against one or the other policy option included the risk of retaliation by the EU's trading partners, the administrative burden that could be attached to such an initiative and the fact that the initiative could endanger the status of the EU as an adherent of open markets. 3 In addition, a large majority of stakeholders took the view that should any market access restrictions be taken, this should be decided on the level of the EU rather than by Member States or contracting authorities/entities. 4 The amended proposal now clearly confirms this principle in Article 1(5) which prohibits restrictive measures beyond those provided for in the Regulation.
On administrative burden, stakeholders were in particular of the view that the delays caused by the notification process under the decentralised pillar would be very burdensome 5 , a risk which will be fully mitigated by the deletion of former Article 6.
The amended proposal further accommodates all these concerns by creating a more targeted tool which should reduce administrative burden and the risk of retaliation to a minimum while putting the emphasis even more on the principle of general openness of EU public procurement markets by eliminating the possibility for market closure.
• Impact assessment
The Commission's Impact Assessment Board (IAB) has issued two opinions on the impact assessment report. The final impact assessment report has integrated to the extent possible the Board's recommendations. While its findings remain valid, the amendments now put forward aim at making the instrument more targeted and more easily applicable in practice while further limiting the potential negative effects that were identified in the impact assessment report.
– The limitation of possible restrictive measures to price penalties accommodates concerns that the total closure of the EU procurement market, as originally foreseen, would risk giving the wrong signals to third countries and would be incompatible with the economic interests of the EU at large. Since the price adjustment would only apply to the evaluation process and it would not determine the final price, it will not be detrimental to the interests of the contracting authorities.
– The deletion of the decentralised pillar will completely eliminate the administrative burden on procuring entities requesting permission to exclude foreign bids. This amendment also safeguards the integrity of the internal market and avoids any fragmentation.
– The presumption that tenders submitted by companies originating in the targeted third country will be affected by the restrictive measure, unless the bidder provides evidence to the contrary, will further reduce the administrative burden for contracting authorities while enhancing the effectiveness of the measure as the decision of the contracting authority is much less prone to legal review. The obligation for contracting authorities to accept self-declarations regarding the origin of goods and services during in the bidding, should also work in this direction.
– Giving Member States a role in selecting the contracting authorities/entities having to apply the measure will ensure that implementation will not fall on the smallest entities with limited administrative capacity and resources. This amendment does not risk compromising the effectiveness of the measure as small contracting authorities are less likely to manage procurement on the scale targeted by the IPI. In the event no entity list is submitted, or the list submitted does not correspond to the price measure adopted, the Commission may on its own initiative establish such a list.
– The exclusion of the most vulnerable developing countries from the scope of the instrument is not supposed to have an impact on leverage as the instrument was never targeted at these countries. To exempt these countries from the scope of application will further clarify that the purpose of the instrument is to put pressure on major trading partners to further open up there procurement markets to EU operators. The non-application to European SMEs will further reduce the administrative burden for those economic operators, in line with the general SME policy of the EU.
– The possibility to target territories at regional or local level aims to differentiate territories and enable a proportionate response in case the discriminatory measures are only at the sub-central level (i.e. state authorities, regional and municipal governments), with the purpose of making them open their tenders to EU bidders.
– The shortening of time limits for Commission investigations responds to the concern about lengthy procedures raised in particular relating to the decentralised pillar under which procedure the contracting authorities would, during an ongoing procurement procedure, have had to await the Commission's investigation and decision. The adjustment of the timeline for the remaining centralised procedure should help accelerate the investigation phase of the procedure.
– The publication of Commission findings regarding trade barriers in third countries should help to create new dynamics towards the elimination of these barriers.
– As foreseen already in the initial proposal the IPI will cover also concessions to the extent these are covered by the new directive on concessions. The Concession rules do not determine whether certain activities are to be conducted by public or private entities, but focus on the disciplines which public entities have to apply when they procure goods and services.
Contents
The proposed amendments will make the instrument more effective.
Rules clarification: The impact assessment report highlighted the effectiveness of the initially proposed solutions regarding the objective to clarify the rules of access to the EU's public procurement market for non-EU tenders. However, it also pointed to a number of weaknesses associated with the optional nature of the decentralised pillar, which might result in diverse patterns of use and a fragmentation of the internal market. 6 The amended proposal will still meet the initial objective to clarify the applicable rules, and the Commission will continue having the final say on the use of restrictive measures. In addition, with the deletion of the decentralised pillar, the application of the rules will be simpler and further harmonised, and the margin of error caused by contracting authorities/entities applying the restrictive measures will be reduced. The reduction of time limits for the Commission's investigation will ensure that there is earlier clarity on whether or not restrictive measures will be taken.
Leverage: The deletion of the decentralised pillar and the limitation to price penalties entails a certain risk of decrease in leverage. However, the main leverage of the initial proposal derived from the centralised pillar, which is maintained. The Commission will still be in a position to use its capacity to limit market access as a threat and to start an enquiry into discriminatory behaviour at any moment. What is more, the amended proposal will allow for more targeted measures inter alia by foreseeing the possibility to limit restrictive measures to the territories of certain sub-central levels of government. The limitation to price penalties as a less extreme form of market closure, which has already been assessed in the original impact assessment, ensures that the EU markets will remain open in principle while allowing for targeted measures where necessary.
The proposed amendments will increase the instrument's efficiency.
Administrative burden: The proposed amendments reduce the administrative burden. The impact assessment estimated the costs in relation to the notification process of the decentralised procedure to amount to EUR3.5 million. 7 The deletion of the decentralised pillar, including its time limits, abolishes all potential risks linked to the notification process identified in the impact assessment. The authorisation of Member States to pre-select the contracting authorities/entities that will be required to apply the measure will help ensuring that entities with limited administrative capacities will not have to apply the measure. Insofar as the impact assessment report identified a potential risk of increased administrative burden for contracting authorities/entities from the provisions on abnormally low tenders 8 , the deletion of the original Article 7 will eliminate this risk. Because of their size and limited capacity, SMEs often face particular problems because of burdensome procedures. Whereas the high value threshold makes it already unlikely that smaller companies will be concerned by the instrument, its non-application to European SMEs will further reduce the administrative burden for those economic operators, in line with the general SME policy of the EU.
Risk of retaliation: The proposed amendments will allow to target those territories of a third country which are actually responsible for the discriminatory measures without the need to target the third country as a whole. This possibility for more targeted and justifiable measures will further reduce the risk for retaliation.
Public finances: As stated in the impact assessment, the overall impact of the instrument on public finances is negligible. 9 However, the further reduction in scope will further limit this impact.
The impact assessment report stressed that the consistency of EU trade policy and the EU internal market is better preserved where decisions are taken at EU level i.e. in full knowledge of all the legal, economic and political consequences, without allowing varying practices in the treatment of foreign goods and services in the EU. 10 With the deletion of the decentralised pillar, the Commission increases its control over the application of restrictive measures and thus reduces the risks of erroneous application of the rules. The amended proposal will therefore improve the consistency of EU trade policy and of the EU internal market and the respect of the EU's international commitments.
The requirement regarding impact assessment is therefore fulfilled.
5. BUDGETARY IMPLICATIONS
The proposal in itself does not have budgetary implications. The additional tasks for the Commission can be met with existing resources.
6. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The proposal includes a review clause.
7. Detailed explanation of the specific provisions of the proposal
Article 1 defines the subject matter and the scope of application. The text in the initial proposal has been adjusted to reflect the deletion of the decentralized pillar. The provision has also gone through some linguistic adjustments to increase its readability. Furthermore, the provision includes a clarification, stipulating that the Member States may not further restrict access of foreign economic operators beyond what is provided on the basis of this Regulation. As foreseen already in the initial proposal the IPI will cover also concessions to the extent these are covered by the new directive on concessions. It deserves to be noted that the Concession rules do not determine whether certain activities are to be conducted by public or private entities but focus on the disciplines which public entities have to apply when they turn to the market to procure goods and services.
Article 2 contains relevant definitions, most of which are taken over from the EU public procurement Directives. Some expressions that are no longer used in the draft Regulation have been deleted. The amended proposal does not use the expression “lack of substantive reciprocity” but refers to “restrictive and discriminatory procurement measures or practices”.
Article 3 sets out, for the purpose of this Regulation, the applicable rules of origin, for goods and services, procured by contracting authorities/entities. In compliance with the EU international commitments, rules of origin for goods and services are in line with the non-preferential rules of origin as defined in the EU Customs Code 11 . The origin of a service is defined on the basis of the relevant rules under the Treaty on the Functioning of the European Union on the right of establishment and on the definitions that the General Agreement on Trade and Services (GATS) provides in its Article XXVIII. Some adjustments in the initial text have been done with the purpose of increasing its readability.
Article 4 spells out the exemption from application of the instrument in relation to goods and services originating in the LDCs. The amended proposal expands the exemption to cover goods and services originating in those developing countries, which are considered vulnerable due to lack of diversification and insufficient integration within the international trading system and in the world economy, as defined in Annex VII to the GSP Regulation 12 .
Article 5 in the initial proposal is redundant in the context of the amended proposal, and is therefore deleted. The amended proposal includes a new Article 5 on the exemption from the application of the instrument to European SMEs as defined in the Commission recommendation 2003/361/EC 13 . In order to avoid circumvention by so called letter box companies, the provision makes explicit refers to the level of business activities within the internal market.
The original Article 6 setting up a decentralised procedure is deleted. The new Article 6 lays down rules regarding the Commission's investigation and the time lines to be respected. The amended proposal has shortened the first part of the investigation period and instead prolonged the possible additional period, in order to make the main rule on time lines stricter. The article makes it clear that the Commission's findings shall be made publicly available Article 7 in the initial proposal stipulated an obligation for contracting authorities to inform tenderers and the Commission in the cases it would accept an abnormally low tender. With the deletion of the decentralised pillar this provision lost its relevance in the Regulation, and is therefore also deleted. The new Article 7 provides for rules on consultations with third countries, and possible action by the Commission, after having concluded on the basis of a procurement investigation that the third country in question has adopted or maintains restrictive and discriminatory procurement measures or practices.
Article 8 in the initial proposal provided for the rules governing the centralised pillar, which in the amended proposal have been moved to Article 9. The new Article 8 introduces the price adjustment measure and stipulates in relation to which third countries such a measure may be applied.
Article 9 in the initial proposal regulated the mechanism for consultation with third countries in cases of proven restrictive procurement practice, a provision now in Article 7 of the amended proposal. The new Article 9 stipulates that the Member States shall suggest the contracting authorities which are to implement the price adjustment measure. In order to ensure that an appropriate level of action is taken and that the implementation is made in a between Member States balanced way, the Commission shall determine the entities concerned. In the event no entity list is submitted, or the list submitted does not correspond to the price measure adopted, the Commission may on its own initiative establish such a list.
The new Article 10 regulates the withdrawal and suspension of measures. The Article also stipulates that the Commission shall make publicly available its findings regarding remedial or corrective measures taken by the third country concerned.
Article 11 in the initial proposal provided for rules governing the withdrawal or suspension of restrictive measures adopted. The new Article 11 describes the rules on the application of the price adjustment measure. The price penalty applies only to the evaluation procedure and not to the final price.
Article 12 in the initial proposal laid down the rules for the provision of information of tenderers on the application of restrictive measures adopted by the Commission in the context of individual public procurement procedures. The new Article 12 stipulates the possible exceptions from the application of the price adjustment measures, which in the initial proposal were mentioned in Article 13. Those exceptions remain unchanged.
Article 13 in the initial proposal described the circumstances under which the contracting authorities/entities are authorised to set aside measures adopted pursuant to this Regulation. The new Articles 13 and 14 set out the rules regarding remedies in case of violation of the provisions in the Regulation and the Committee procedure for the decision making, which in the initial proposal were set out in Articles 16 and 17.
Article 14 and 15 in the original proposal conferred on the Commission the power to adopt delegated acts in order to update an Annex to the Regulation that was intended to reflect the conclusion of new international agreements by the Union in the field of public procurement. Given that the decentralized pillar is deleted there is no longer a need for any Annex identifying the relevant trade agreements in force. The decisions adopted by the Commission applying price adjustment measures will contain the necessary information regarding the scope of EU commitments towards third countries.
Article 18 and 19 in the initial proposal related to confidentiality and an obligation for the Commission to report to the European Parliament and the Council on the application of the Regulation. These provisions are now in Articles 15 and 16 of the amended proposal.
The original Article 20 is now Article 17 of the amended proposal, It provides for the repeal of Articles 85 (former Article 58) and 86 (former Article 59) of the Utilities Directive 2014/25/EU (former 2004/17/EC). Former Article 21 and new Article 18 determine the entry into force of the Regulation.