A new EU International Procurement Instrument (IPI)

In “A Stronger Europe in the World”

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Background

Public procurement represents a substantial part of the EU economy and the economies of many countries around the world. The EU has opened its public procurement markets to a significant degree to competitors from third countries and has frequently advocated the need for more open public procurement markets, both within the context of the revised WTO Agreement on Public Procurement (GPA) and in its bilateral trade negotiations.

Many non-EU countries, however, are reluctant to open their public procurement markets to the EU. According to the Commission, while the EU opened some €352 billion of EU public procurement to bidders that came from member countries to the GPA in 2012, foreign bidders only had access to €178 billion of US procurement and €27 billion of Japanese procurement in that same year. In addition, only a fraction of Chinese procurement is open to foreign bidders.

In 2012, the Commission proposed the creation of an International Procurement Instrument (IPI). After a legislative deadlock, the Commission presented a revised proposal in 2016. In March 2019, in the context of a review of relations with China, the Commission called on the Council and Parliament to revive the trilogues based on the revised proposal, and adopt the IPI before the end of 2019. 

In June 2021, the EU Member States reached agreement for a mandate to negotiate with the European Parliament on the IPI.

The 2012 Proposal

The Commission first proposed an IPI in 2012. This proposal made a distinction between ‘covered procurement’, which corresponds to international commitments that the EU has undertaken in this area, and ‘non-covered procurement’, which is not subject to the EU’s international commitments. For non-covered procurement, the proposal introduced a new procedure to restrict access of foreign products to the EU procurement market whenever there was a substantial lack of reciprocal opening of public procurement access in the originating country.

The Commission proposed two distinct procedures for the introduction of restrictive measures. The first was the ‘decentralised procedure’ in which the procuring entity would request the Commission’s approval in order to exclude a foreign tender. The second procedure was the ‘centralised procedure’ in which the Commission directly investigated the situation in the foreign market and negotiated with the third country. If necessary, the Commission could adopt a restrictive measure in the centralised procedure, namely either market closure or a price penalty (also called price adjustment measure), which would then be applied by procuring authorities to the foreign product originating from the investigated country.

The 2016 Amended Proposal

Due to the deadlock in the negotiations on the 2012 proposal, the Commission presented a revised proposal on 29 January 2016.

A key change is that the new proposal only keeps the centralised procedure for which the Commission also decided to shorten the time of country investigations. In addition, the Commission only left the possibility to introduce a price adjustment measure as a restrictive measure, provided that the total value of the contract is at least € 5 million excluding VAT and at least 50 % or more of that total value is made up of non-covered goods originating in the targeted country. Third, the proposal introduced exceptions for LDCs and European SMEs.

The proposed procedure would accordingly consist of the following basic steps:

  1. In cases of alleged discrimination by a third country of EU companies in foreign procurement markets, the Commission initiates a public investigation.
  2. When this investigation finds discriminatory restrictions vis-à-vis EU goods, services and/or suppliers, the Commission will invite the country concerned to consult on the opening of its procurement market. Such consultations can also take place in the form of negotiations on an international agreement.
  3. As a last resort, the Commission can, after consultation with Member States, apply a price penalty to bids from the targeted country with a total value of at least € 5 million of which at least 50 % consists of goods and services originating from the targeted country. Concretely, bids from that country would, compared to other bids, be considered to offer a higher price of up to 20 % of the actual price put forward. This would give EU and non-targeted countries' bids a competitive advantage on EU public procurement markets.

In June 2021, the Portuguese Presidency of the Parliament introduced key amendments to the legislative texts, including shorter deadlines for investigations and consultations; simplified determination of origin based on bidders rather than bids; adjustment measures as well as possibility of exclusion of bidder; use of quality criteria in addition to price; and differentiated thresholds for goods and services.

The European Parliament debated the original IPI proposal both in its Committee on International Trade (INTA) and in plenary. The latter voted in January 2014 to introduce amendments, including aligning the decentralised towards the centralised procedure, tightening time-limits for investigations, and expanding exceptions to least developed countries (LDCs) and European small and medium-sized enterprises (SMEs).

Recent developments

In November 2021, INTA adopted its report on the IPI by rapporteur Daniel Caspary (EPP, Germany). The three institutions entered into trilogue negotiations in mid-December 2021. The trilogues concluded with a provisional agreement on 14 March 2022. The negotiators set the thresholds for application of the IPI measures at €15 million for tenders for works and concessions, and at €5 million for goods and services, both before VAT. This compromise should serve to minimise the administrative burden, while at the same time maintaining the instrument's wide reach. Parliament was successful in including within the IPI an obligation to take social, environmental and labour requirements into consideration when judging bids. Parliament's negotiating team, led by Trade Committee chair Bernd Lange and rapporteur Daniel Caspary also managed to reduce the exceptions under which public authorities looking for tenderers are allowed to opt out of IPI measures. Large contracting authorities, such as the city halls of big cities or central governments, will always be under an obligation to apply the new rules. Only local contracting authorities representing fewer than 50 000 people will be exempt – while the annual overall tender value percentage for which contracting authorities must apply the IPI is set at 80 %. Bidders from least developed countries, which benefit from the 'everything but arms' trade scheme, are also exempt from the IPI measures. The IPI applies to economic operators, goods and services from third countries that either do not have an international public procurement agreement with the EU or that have an agreement that does not include commitments to open up markets for the goods or services in question. The IPI seeks to convince third countries to cease practices that close their public procurement markets by negotiating with the EU. To that end, when the Commission conducts an investigation on barriers to EU companies, it will consult with the third country concerned to try to persuade it to remove them. If these barriers are serious and persist, despite the consultation, the EU will be able to restrict the access of that country's firms to EU public procurement markets. This will be done by means of a price penalty or a reduced score for the bid. The reduced score could reach 50 % for score adjustment measures and 100 % when solely price is used to select the successful bidder. Tenderers could also be excluded from the award procedures. The companies will not be asked to charge more, rather the public authorities would consider the offer to have a higher price than the actual price specified by the bidder. In order to prevent circumvention of these rules, additional contractual obligations will be imposed on successful tenderers in procedures covered by the IPI. This could be, for example, an obligation to prohibit subcontracting of more than 50 % of the total value of the contract to economic operators from a third country subject to an IPI measure. To help public authorities implement the IPI, the Commission will publish guidelines with a particular focus on SMEs. The Commission will also review the scope, functioning and effectiveness of the instrument on a regular basis. The formal adoption procedure has been concluded by the co-legislators in June 2022 (final act signed on the 23rd). 

 

References:

Further reading:

Author: Marcin Szczepanski, Members' Research Service, legislative-train@europarl.europa.eu

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As of 23/06/2022.
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