Public Procurement International

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.

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.