International Trade – Public Procurement International

Protectionism in EU Procurement: Kolin — A Critical Decision by the Court of Justice

Photo of Court of Justice: Cedric Puisney

The Court of Justice for the European Union issued what observers have called a “monumental” decision in Kolin Inşaat Turizm Sanayi ve Ticaret (Case C-652/22 (Oct. 22, 2024)). Taking up an international trade question that had not been raised by the referring court, the Court of Justice ruled that vendors from third nations – from nations, such as Türkiye, that have not entered into free trade agreements with the EU addressing procurement — cannot demand equal treatment in public procurements under member states’ laws that are founded on the EU Procurement Directives.

Understanding the Kolin Decision

As Jean Heilman Grier pointed out in her thoughtful commentary, the Kolin decision may pose a more serious threat to free markets than the EU’s recent measures to boost EU vendors’ access to foreign procurement markets, the International Procurement Instrument and the Foreign Subsidies Regulation. See Jean Heilman Grier, Court Restricts Access of Third Countries to EU Procurement (Nov. 2024); Pascal Friton, The EU’s Consistent Pursuit of a Resilient Economy – Still a Necessity or a Wrong Priority?, 2021 Gov’t Contracts Year in Review Briefs 7; Pascal Friton, Max Klasse & Christopher R. Yukins, The EU Foreign Subsidies Regulation: Implications for Public Procurement and Some Collateral Damage, 65 Gov. Contractor ¶ 63 (Mar. 22, 2023).

Although U.S. vendors are guaranteed access to EU markets under the World Trade Organization’s Agreement on Government Procurement (GPA), Ms. Grier noted that “the EU has incorporated various reciprocal conditions in its GPA commitments, denying the US rights to participate in procurement where the US does not offer reciprocal access, such as in the transportation sector and services purchased by subcentral [e.g., state] entities.” While U.S. firms “generally had de facto access to that procurement,” now, she warned, the Kolin decision may provide a legal basis for procuring entities (agencies) in EU member states “to deny equal treatment to US firms in procurement to which they do not have rights under the GPA.”

Nor is it clear how, exactly, access to EU public procurement markets might be impaired. University of Bristol (UK) Professor Albert Sanchez-Graells, in his in-depth analysis of Kolin, noted that the Court of Justice opinion leaves unanswered what rights, exactly, vendors from third nations such as Türkiye or China will have in member states’ procurements. While (as he pointed out) the decision nominally leaves it to contracting agencies to decide how to handle bids from third-country vendors, the court’s decision suggests that third-country vendors should suffer less favorable treatment – but does not define what that means. See Albert Sanchez-Graells, The Court of Justice decidedly jumps on the procurement protectionism bandwagon, creating legal uncertainty along the way (C‑652/22) (Nov. 6, 2024).

Editor’s note: Marko Turudić of the University of Zagreb gave a very interesting presentation on Kolin at the ICAPP 2024 conference in Dublin on November 12, 2024.

The Draghi Report: Urging European Preferences

Mario Draghi and Ursula von der Leyen,
President of the European Commission

EU Member States’ response to Kolin may be colored by a recent European Commission report led by former Italian Prime Minister Mario Draghi, The Future of EU Competitiveness (Oct. 2024). The Draghi report argued that EU member states should harness public procurement to drive European competitiveness. To do so, among other things the report urged member states to “favour competitive European defence companies” over U.S. suppliers, which dominate the European defense market. (This pronouncement, noted a CSIS report, “will make U.S. defense companies nervous.”) The Kolin decision will make it easier for EU procuring agencies to impose preferences for European companies against U.S. and third-country firms, especially where there are gaps in existing free trade agreements.

Kolin from a U.S. Perspective

Observers from the United States can understand the Kolin decision through both U.S. law and shifting U.S. trade policies.

From a legal perspective, the Kolin decision puts the European Union closer to the United States’ more absolute bar under the Trade Agreements Act of 1979, 19 U.S.C. § 2501 et seq. Under the Trade Agreements Act, vendors from foreign countries are generally barred from larger federal procurements if their nations have not entered into trade agreements with the United States. 19 U.S.C. § 2512; FAR 52.225-5; Christopher R. Yukins & Steven L. Schooner, Incrementalism: Eroding the Impediments to a Global Public Procurement Market, 38 Geo. J. Int’l L. 529, 559 (2007) (citing the “walled garden” set up by the Trade Agreements Act); Christopher R. Yukins & Allen Green, International Trade Agreements and U.S. Procurement Law, in The Contractor’s Guide to International Procurement (ABA 2018) (Erin Loraine Felix & Marques Peterson, eds.). Because the United States has joined the GPA and an array of bilateral reciprocal defense procurement agreements with EU member states (and NATO allies), under current agreements U.S. vendors should continue to have broad access to EU public procurement markets.

Policy changes on the horizon, however, may imperil U.S. access. The Kolin decision was issued just a few weeks before President Trump won a second term in the U.S. elections. The coming Trump administration may raise new protectionist barriers, and (as Ms. Grier noted) the Kolin decision suggests that where there are gaps in U.S. international trade agreements with the European Union – where, for example, U.S. vendors’ access to a European defense market is not clearly defined by a reciprocal defense procurement agreement – the EU member states, responding to fresh U.S. protectionism, may try to raise new barriers to U.S. vendors in the EU’s public procurement markets.

Conclusion — A New Path Forward

As the United States enters a new administration, the Kolin decision marks a point of reflection. Unlike the Trade Agreements Act in the United States, the European Court of Justice decision leaves open the door for third-country vendors’ participation in EU public procurement markets, though under uncertain terms. The decision also reinforces the importance of existing free trade agreements between the United States and the EU and its member states. As with other measures recently undertaken by the European Union, the decision suggests barriers to EU procurement markets are rising, and the United States will need to pay careful attention to ensure that U.S. firms continue to have access to those markets.

GW Law Summer Series: Green Public Procurement Across Borders

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Webinar: Opening Borders – Access2Procurement

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Christopher Yukins to Address Brussels Conference on EU Foreign Subsidies Regulation

https://youtu.be/9kJkkVSHahM

On June 7, 2023, GW Law School’s Prof. Christopher Yukins will address a Brussels conference, organized through Utrecht University, “Challenges for Public Procurement in Europe and Beyond: Concept Programme.” He will address the EU Foreign Subsidies Regulation (FSR), which will impose heavy disclosure requirements on vendors from abroad — including vendors from the United States — competing for EU Member State public procurements. The U.S. Chamber of Commerce has recommended that members of the WTO Government Procurement Agreement (GPA) be exempted from the FSR; Professor Yukins discusses that proposed exemption in his brief presentation (click here for slides).

For background materials and a prior webinar on the FSR, click here

UNCITRAL Days in Africa Workshop on Public Procurement Law Harmonisation

On November 3, 2022 panelists joined with Professor Geo Quinot and Professor Sope Williams from Stellenbosch University, South Africa, for a very interesting discussion of public procurement and international trade across the African continent.

Professor Dominic Dagbanja Slides

Professor Christopher Yukins Slides

Webinar — Brazil’s Public Procurement Market: New Opportunities, New Challenges

click for information on free program

Trade Policy in Procurement in the Biden Administration

“Assessing the Trade Agenda for Government Procurement in the Biden Administration,” paper presented by Chris Yukins at the Thomson Reuters Government Contracts Year in Review Conference (Feb. 2021)

The attached paper, prepared shortly before President Biden was inaugurated, discussed key trade issues for the incoming administration in public procurement. The piece reviewed major trade measures in procurement taken during the Trump administration – most of which were predictable from the time Trump was elected. The paper turned to the major trade challenges that face the Biden administration, in areas as diverse as climate change, cybersecurity and the protectionism in post-Brexit Europe, and then assessed how the Biden administration might address these challenges, especially given Joe Biden’s support for “Buy American” policies during the 2020 campaign. The paper also assessed how the new administration might cooperate on these difficult issues with the United States’ allies abroad. The paper concluded that the Biden administration’s main challenge was restoring confidence abroad in the United States as a responsible trading partner in procurement; once that goal was met, the paper argued, the more technical issues of trade in procurement would be much easier to address.

The paper’s concerns that the new administration might take a protectionist turn, per Joe Biden’s campaign promises, soon proved well-founded. On January 25, 2021, only a few days after entering office, President Biden signed an executive order calling for strengthened “Buy American” policies in U.S. procurement. Commenting on the order, The Economist wrote that while the order was “protectionist in spirit,” the United States’ existing trade commitments “mean that Mr Biden’s measures may not have much effect.” For background on the executive order– including the history of the Trump administration trade policies in procurement, and questions raised by the new order — please see the slides attached here.

The denouement to the Biden executive order suggests that, in the short term at least, the Biden administration will not go beyond the tighter Buy American Act requirements imposed by the Trump administration

The denouement to the Biden executive order suggested that, while it called for closer scrutiny of waivers and exceptions to the Buy American Act, in the short term at least the Biden administration would not go beyond the tighter Buy American requirements launched by President Trump in July 2019 under Executive Order 13881. President Trump’s order calling for stricter “Buy American” requirements was published as a proposed implementing Federal Acquisition Regulation (FAR) rule on September 14, 2020 (85 FR 56558), and the final FAR rule was published on January 19, 2021 (86 FR 6180). The final Trump rule, in keeping with his executive order, aggressively tightened domestic content requirements under the Buy American Act. President Biden took office the next day, on January 20, 2021. President Biden issued his “Buy American” executive order (EO 14005) several days later, on January 25, 2025. On or about that same date, the Biden administration undertook a FAR review to assess whether the Trump regulations needed to be reconsidered. By February 25, 2021 (roughly one month later) the Biden administration concluded that no further changes were needed to the “Buy American” regulations. FAR Case 2021-004, closed 2/25/21. The Biden administration thus appeared to close the book on further changes to the FAR “Buy American” rules, at least temporarily — perhaps at least until the broader policy reviews called for by the Biden order (such as a review of the “Buy American” exception for commercial information technology) are concluded.

Webinar – European Commission White Paper on Foreign Government Subsidies – December 1, 2020

King’s College London and GW Law will be presenting a free webinar on the European Commission’s “White Paper” on foreign government subsidies, which would impose new EU measures to address foreign subsidies, including in public procurement.

Program information

Comment on European Commission White Paper That Could Exclude “Subsidized” Foreign Vendors from EU Public Procurement

In a guest post in the International Economic Law and Policy Blog, Professors Andrea Biondi and Michael Bowsher QC, King’s College London, Professor Christopher Yukins, George Washington University, Dr Luca Rubini, University of Birmingham, and PhD candidate Gabriele Carovano, King’s College London, addressed a European Commission “White Paper” which proposes (among other measures) to exclude foreign competitors from EU procurements if those vendors receive government “subsidies” (very broadly defined) that boost their ability to compete for public contracts in the European Union.

The European Commission’s proposal could harm U.S. vendors that receive support from the U.S. government — such as COVID-19 relief — because European competitors might claim that U.S. firms were receiving barred government subsidies.

The European Commission’s proposal would define government “subsidies” to include any “financial contribution by a government . . . of a non-EU State . . . which confers a benefit to a recipient . . . and which is limited, in law or in fact, to an individual undertaking or industry.” The commentators pointed out the European Commission’s proposal could badly harm U.S. vendors that receive “subsidies” — which some might argue includes CARES Act relief (related to COVID-19) from the U.S. government — in no small part because European competitors could claim that vendors from abroad were receiving subsidies, and thus in effect disable competition from the United States and other nations.

On June 17, 2020, the European Commission published the “White Paper” that called for “levelling the playing field as regards foreign subsidies.” The White Paper has several modules, only one of which (Module 3) addresses public procurement directly. Module 1 would establish a general regulatory instrument to address distortive effects of foreign subsidies, and Module 2 would specifically address distortions caused by foreign subsidies which facilitate the acquisition of EU companies.

The academics submitted their comments to the European Commission as part of the public comment process. While they were generally supportive of Modules 1 and 2, the academic commentators were sharply critical of Module 3, which the Commission described as follows:

Foreign subsidies could also have a harmful effect on the conduct of EU public procurement procedures. This issue is addressed under Module 3. Foreign subsidies may enable bidders to gain an unfair advantage, for example by submitting bids below market price or even below cost, allowing them to obtain public procurement contracts that they would otherwise not have obtained. Under this Module, the White Paper proposes a mechanism where bidders would have to notify the contracting authority of financial contributions received from non-EU countries. The competent contracting and supervisory authorities would then assess whether there is a foreign subsidy and whether it made the procurement procedure unfair. In this case, the bidder would be excluded from the procurement procedure.

The academic commentators noted:

While foreign subsidies may distort the market regarding undertakings (Module 1) and the acquisition of undertakings (Module 2), foreign subsidies in public procurement markets in effect reduce the costs of public services – and so should be separately assessed. Distortions that may be caused by foreign subsidies (displacing higher-cost local producers, for example) are regularly resolved through sustainability measures allowed by the European procurement directives. . . . The framework proposed under the White Paper may . . . displace the legislative regime contemplated by the existing procurement directives, and thus up-end the careful policy decisions that are reflected in those directives.

. . . Module 3 would exclude – disqualify – vendors from public procurements in the European Union, on the grounds that the vendors have received a subsidy from a foreign government. In practical terms the proposal would revise the European Union’s procurement directives by adding an additional ground for exclusion – foreign subsidy – without a normal legislative process. In doing so, the proposal could raise costs for Member States, impair competition in procurement markets across the European Union, open the door to strategic interference by competitors, delay and disrupt ongoing procurements, deprive Member States of best value in their public procurements, and undermine Europe’s relations with key trading partners internationally.

. . . [T]he proposal would defer to the European Union’s obligations under free trade agreements, but assumes – incorrectly – that those obligations are well-defined under instruments such as the WTO Government Procurement Agreement. They are not. For example, the United States covers tens of billions of dollars in preferences by a single sentence in the GPA annexes, which states that the United States’ obligations do not extend to “any set aside on behalf of a small- or minority-owned business.” If the European Commission and Member States, in implementing the proposed measures, read that reservation narrowly and excluded U.S. vendors because other procurement preferences were considered government subsidies not reserved under the GPA, trade relations with the United States and other important trading partners could be badly disrupted.

GW Law Webinar Discussed European White Paper

The White Paper was addressed in a GW Law webinar on EU-U.S. trade, and was discussed in detail in an October 8, 2020 webinar sponsored by Wolters Kluwer, the publishing house. While the public comment period on the White Paper has closed, Eddy De Smijter, Head of the International Relations Unit in DG Competition at the European Commission, made clear during the October 8 session that the Commission continues to welcome informal comments on the proposal.

Book Discussion – “Joint Public Procurement and Innovation: Lessons Across Borders” – September 24, 2020 (webinar)

Held on Thursday, September 24, 2020

https://youtu.be/hMDiCrHm6r0

Session Recording – Captioning available in 100+ languages – instructions for auto-translate

Program Slides Download

Join an online discussion of a recently published book on new approaches to procurement, Joint Public Procurement and Innovation: Lessons Across Borders (Bruylant 2019). Selected chapters from the book are available here.