Tue. Jul 5th, 2022

The EU is acquiring powers aimed at stopping companies from China, India and other large economies from winning big public procurement contracts unless they give reciprocal access to European companies.

The commission, member states and the European parliament struck a deal on Monday night on legislation intended to protect EU bidders from unfair competition and open up markets overseas.

“Currently, European procurement is broadly open to companies from third countries, but European companies do not always have reciprocal access to public procurement in those countries,” said Franck Riester, trade minister for France, which holds the rotating presidency of the EU.

“This new European instrument will equip the EU with credible leverage to open up our partners’ public procurement to our companies and will enable us to right that imbalance and defend our companies against these discriminatory practices. Today’s well-balanced agreement is a historic step in implementing an open, sustainable and firm trade policy. ”

The international procurement instrument was first put forward in 2012 but was opposed fiercely as overly protectionist by many liberal member states. However, opposition has waned after mounting evidence that state-funded businesses from China, India and elsewhere have been undercutting EU rivals while their governments kept domestic markets closed.

It is one of a series of measures the EU is adopting in response to protectionist moves in the US, China, India and elsewhere. They include powers to retaliate against embargoes and to block business acquisitions by foreign state-funded companies.

Public procurement is worth € 2tn annually in the EU and about € 350bn is open to overseas companies, according to the European Commission.

EU companies win only € 10bn of contracts annually abroad, however, with half the world’s public procurement markets closed. The value of China’s rail market available to foreign bidders fell from 63 per cent in 2009 to 19 per cent in 2017, for example.

Once the legislation is approved the commission will determine whether barriers exist in the public procurement market of a third country and will be able to “handicap” any bid from that country. Brussels could increase the price proposed by an overseas bidder by up to 100 per cent to reduce unfair competition. Alternatively it could mark down the overall score attached to its bid by up to 50 per cent, making it less likely to win.

The measures only apply to tenders worth at least € 15mn for works and concessions, such as road or tunnel construction, and € 5mn for goods and services, such as buying software. They would cover 15 per cent of all procurement contracts but they represent more than 70 per cent of the total by value.

Bidders from least developed countries are exempt.

Bernd Lange, chair of the European parliament’s international trade committee, said the intention was to open up markets abroad to EU companies: “The message is clear: fair market access is not a one-way street, it must be reciprocal. We do not want to close off the European market, we want to ensure equal treatment of our companies abroad. ”

The deal has to be formally endorsed by the 27 member states and voted through by the full parliament.

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