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Editorial


One of the fundamental policy objectives of the Common Commercial Policy of the European Union is the continued access of companies to public procurement and concessions markets in third countries. The goal is to enhance market access opportunities for economic operators in the European Union by opening public procurement and concession markets in third-country countries, thereby achieving reciprocity. The intended result is to eliminate restrictive practices from third countries and to facilitate the respective opening of the relevant markets.

The International Procurement Instrument (IPI)1 was enacted by the European Union as a priority because of the consistent failure of many third countries to liberalise their public procurement or concession markets to international competition or to enhance access to these markets. The EU Commission presented evidence that approximately 85% of the EU public procurement contracts were accessible to member countries of the WTO Agreement on Government Procurement. This is in contrast to the respective markets of the USA and Japan, which are 32% and 28%. Access to markets and sectors in third countries, including construction, public transport, energy, and pharmaceuticals, remains restricted for European companies.

The IPI Regulation is designed to enhance the equitable playing field in the global public and concessions markets by facilitating the opening of protected markets. The subject of this document is the implementation of measures for public contracts or concessions that are not covered by international agreements, such as bilateral or multilateral trade agreements, in which the European Union has not made market access commitments.

The IPI's scope of application is associated with the Public Procurement Directives 2014/23/EU, 2014/24/EU, and 2014/25/EU,2 and it encompasses contracting authorities, contracting entities (in the utilities sector) and economic operators. The IPI establishes procedures for the Commission to conduct investigations into alleged third-country measures or practices against EU economic operators, goods, and services. The term "third country measure or practice" refers to:

… any legislative, regulatory, or administrative measure, procedure, or practice, or combination thereof, adopted or maintained by public authorities or individual contracting authorities or contracting entities in a third country, at any level, that results in a serious and recurrent impairment of access of Union economic operators, goods, or services to the public procurement or concession markets of that third country.

A significant exception is that the European Commission will not conduct investigations in relation to least developed countries unless there is evidence of the circumvention of any IPI measure that is attributable to such third countries or their economic operators. The procedure for the European Commission to undertake investigations into alleged third-country measures or practices against Union economic operators, goods and services is the following:

The Commission may initiate, on its own initiative or upon a substantiated complaint of an EU interested party or a Member State an investigation;

A notice shall be published in the Official Journal of the European Union, indicating the European Commission’s preliminary assessment of the third-country measure or practice and inviting interested parties and Member States to provide relevant information within a specified period of time;

Upon publication of the notice, the Commission shall invite the third country concerned to submit its views, provide relevant information, and enter into consultations with the European Commission to eliminate or remedy the alleged third-country measure or practice;

A third country under investigation can suspend the investigation where it takes satisfactory corrective actions or undertakes commitments towards the Union to end or phase out the third-country measure or practice within a reasonable period of time and no later than 6 months after undertaking such commitments.

Nevertheless, the European Commission has the authority to reopen the investigation at any time if it determines that the reasons for the suspension are no longer valid.

The European Commission will terminate the investigation and publish a notice of termination in the Official Journal of the European Union if the alleged third-country measure or practice is not maintained or does not result in a serious and recurrent impairment of access of Union economic operators, goods, or services to the public procurement or concession markets of the third country. To conclude the investigation and consultations, the European Commission has a nine-month period from the date of its initiation. This period may be extended by five months in circumstances that are deemed justifiable. The European Commission is required to present a report to the European Parliament and the European Council upon the conclusion of the investigation and consultations. This report will outline the primary findings of the investigation and a proposed course of action. The report will be made publicly available.

After conducting an investigation, the Commission shall adopt an IPI measure if it determines that a third-country measure or practice exists and if it deems it to be in the Union's best interest. This measure restricts the access of economic operators, goods, or services from third countries to the Union's public procurement or concession markets in the non-covered procurement sector. A contracting authority or contracting entity may be required by an IPI measure to:

impose a score adjustment on tenders submitted by economic operators originating in the third country in question; or

exclude tenders submitted by economic operators originating in the third country in question.

Only public procurement procedures that are covered by an IPI measure and were initiated between the date of its entry into force and its expiration, withdrawal, or suspension will be subject to the IPI measure. Nevertheless, an IPI measure shall not be applicable to public procurement procedures for the award of contracts based on a framework agreement or to contracts for individual numbers. It is crucial to highlight that an IPI measure will only be applicable to public procurement procedures with an estimated value that exceeds a threshold that will be established by the European Commission. In any event, the estimated value should be:

for works and concessions, at least EUR 15 million (excluding VAT);

for products and services, at least EUR 5 million (excluding VAT).

Contracting authorities must include a reference to both the application of the IPI and the applicable IPI measure in the public procurement documents for procedures falling within the scope of an IPI measure if an IPI measure is applicable. Typically, an IPI measure will expire five years after it is implemented. Nevertheless, the Commission has the authority to commence a review of the IPI measure no later than 9 months prior to its expiration date. Within a six-month period, the Commission may determine whether to:

extend the IPI measure's duration for an additional five years,

make the necessary adjustments, or

substitute it with a different IPI measure.

The following obligations must be fulfilled by a successful tenderer in the context of a public procurement procedure that is subject to an IPI measure (these obligations will also be incorporated by the contracting authorities into the public procurement documents):

a tenderer is not allowed to subcontract more than 50% of the total value of the contract to economic operators originating in a third country which is subject to an IPI measure;

for contracts whose subject matter covers the supply of goods: for the duration of the contract, goods or services supplied or provided in the execution of the contract and originating in a third country that is subject to the IPI measure may represent no more than 50% of the total value of the contract, irrespective of whether such goods or services are supplied or provided directly by the successful tenderer or by a subcontractor;

the successful tenderer must provide to the contracting authority upon its request adequate evidence corresponding to the two aforementioned points, at the latest upon completion of the execution of the contract;

in the event of non-observance of the obligations referred in the two first mentioned points, a charge of between 10% and 30% of the total value of the contract may be imposed.

Contracting authorities may, on an exceptional basis, elect not to implement an IPI measure in connection with a public procurement procedure, even when it is applicable. This exception is, however, restricted to the following scenarios:

a situation in which the tender requirements are met exclusively by tenders from economic operators originating in a third country subject to an IPI measure, or

a situation in which the decision not to apply the IPI measure is justified for overriding reasons related to the public interest, such as public health or environmental protection.

The European Commission shall be provided with particular information by a contracting authority that elects to invoke one of these exceptions and subsequently declines to implement an IPI measure. The EU will be able to penalise or block tenders from countries that restrict EU participation in their domestic procurement markets by fostering reciprocity through the IPI. It originated from the belief that the EU's procurement markets are accessible to foreign companies, but there is no reciprocity in significant markets. The UK and Scandinavian EU Member States have been blocking the enactment of the legal instrument since 2012, while France, Germany, and Italy were among the proponents of the IPI. Recent developments have facilitated the implementation of the IPI, including the United Kingdom's withdrawal from the European Union and a general shift in public opinion regarding international trade.

China and its pertinent markets were instrumental in the final phases of the IPI's implementation. Despite the imposition of the domestic Foreign Investment Law 2020, the Chinese procurement and concession markets are still relatively closed to European and British companies. The procurement of public and concession contracts has been closed to foreign companies, and China has not acceded to the WTO's Government Procurement Agreement. Conversely, China has secured numerous substantial procurement contracts within the European Union.

In response to measures and practices in the Chinese procurement market for medical devices that unfairly discriminate against European companies and products, the European Commission has initiated an investigation under the IPI for the first time on 24 April 2024. The Commission's evidence suggests that the procurement market for medical devices in China has become increasingly restrictive for European and foreign firms, as well as for products manufactured in the EU. The primary objective of an IPI investigation is to promote dialogue among competent authorities regarding the elimination of discrimination in public procurement, with the intention of benefiting all parties. The European Commission maintains that the EU is a staunch proponent of a level playing field in international procurement markets. The imposition of IPI measures will only be considered if dialogue fails to produce an equitable agreement. To address the internal market distortion that has resulted from foreign subsidies for public contracts and concessions, IPI measures are being implemented in conjunction with the Foreign Subsidies Regulation.3

Professor Christopher Bovis FRSA

Notes

[1] Regulation (EU) 2022/1031 of the European Parliament and of the Council of 23 June 2022 on the access of third-country economic operators, goods and services to the Union’s public procurement and concession markets and procedures supporting negotiations on access of Union economic operators, goods and services to the public procurement and concession markets of third countries [2022] OJ L 173/1.

[2] Directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014 on the award of concession contracts [2014] OJ L 94/1, Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC [2014] OJ L94/65, Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC [2014] OJ L 94/24.

[3] Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market [2022] OJ L 330/1.

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