CCCEU memo on International Procurement Instrument   

Editor's Note: The CCCEU has prepared for you this memo on the International Procurement Instrument (IPI) to make the point about this new Regulation and its effects on international public procurement markets. Enjoy reading and have a lovely weekend!  

Rationale of the IPI

Since 2012, the Commission has argued that the EU has opened over time its public procurement markets to a significant number of third countries, but also that many non-EU countries are reluctant to open their public procurement markets to the EU, in particular the USA, Japan and China.

The Commission's rationale behind the IPI proposal is, therefore, to encourage the reciprocal opening of protected markets to EU economic operators. To this end, the IPI introduces measures limiting non-EU companies' access to the open EU public procurement market if their governments do not offer similar access to public tenders to EU companies seeking business. By fostering reciprocity, this tool aims to open up these protected markets and to end the discrimination against EU companies in third countries.

More specifically, the Commission identified the following issues that EU companies face when participating in public procurement abroad:

• Lack of transparency - For instance, no publication of notices, or fragmented information on the procurement procedures.

• National establishment - To be able to bid in a public tender, a company is required to establish a joint venture with a local company (China, Indonesia) or even to be established locally (as is the case in Brazil or Indonesia).

• Buy national - Some countries require that a significant part of the value of a tender originates locally, for instance India requires 50%, Indonesia requires 30%, and China has the same policy with a general obligation to "Buy Chinese".

• Exclusion of certain projects from government procurement rules – the Commission gave three examples of projects were executed by Chinese companies where EU companies could not participate: the Three Gorges Dam, the largest hydro-electric dam in the world (USD 37.3 billion); the Bird's Nest and other 2008 Olympic venues (USD 480 million); and China's high-speed rail network.

• Thresholds - High thresholds for foreign companies to participate in bids. For example, in Indonesia only construction works above €66 million are open to foreign companies.

• Price preferences - In some countries, a bid by a local company can be up to 15% (in Russia and Turkey) more expensive than a foreign bid and still win the tender.

In particular, the Commission analysed the case of China, arguing that "there is no transparent and comprehensive information on the procurement market in China. Its total value is estimated to be in the magnitude of €1.4 trillion (2013). China is not bound by any international commitment when conducting public procurement. Most of the procurement in China is conducted by State Owned Enterprises."

Background

In 2012, the European Commission proposed the creation of an International Procurement Instrument (IPI) to address the issue of the openness of procurement markets in third countries. Yet, the 2012 proposal went into a deadlock because it lacked any support from the Council of the EU.

Therefore, in 2016 the Commission presented an amended proposal on the access of third-country goods and services to the Union's internal market in public procurement and procedures supporting negotiations on access of Union goods and services to the public procurement markets of third countries. The amendments introduced by the Commission were intended to eliminate certain aspects of the instrument that were perceived as negative and to simplify the procedures, shorten investigations and reduce the number of actors involved in implementation. However, the standstill remained as member states did not support the new proposal.

In March 2019, the EU leaders in the European Council called for action on this policy item, and in October 2020 they asked to foster discussions on the IPI, signalling that the will of EU countries had changed and that the IPI could now become reality. In 2021, the Portuguese Presidency of the Council of the EU pursued a new approach, presenting in early January a draft text, which built on the Commission's 2016 proposal, on the work of successive Presidencies and on inputs from member states. This intense work allowed EU countries to find a compromise proposal in mid-April 2021.

In parallel, the European Parliament introduced various 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). In November 2021, the Committee on International Trade (INTA) of the European Parliament adopted its report on the IPI by rapporteur Daniel Caspary.

Consequently, the three institutions entered into trilogue negotiations in mid-December 2021. They found a provisional agreement on 14 March 2022. In the following months, both the European Parliament and the Council of the EU formally approved the informal agreement, thus concluding the law-making process.

Content of the IPI Regulation

The IPI can be described as a trade offensive tool, in the sense that it actively aims to create suitable conditions for trade against alleged third-country discrimination towards EU economic operators. The Commission's intentions clearly reveal the offensive character of this trade instrument, especially where it argues that "the EU needs to shift into offensive gear to ensure reciprocity and tackle protectionism in access to procurement markets in third countries."

The IPI Regulation "lays down procedures for the Commission to undertake investigations into alleged third-country measures or practices against Union economic operators, goods and services, and to enter into consultations with the third countries concerned."

The IPI allows the Commission to activate a two-step procedure, which would begin with investigations and consultations, and could extend to the adoption of IPI measures.

Investigations and consultations (maximum 9 months in total) – On its own initiative or upon a substantiated complaint by interested parties or EU Member States, the Commission may initiate an investigation into an alleged third-country measure or practice, thereby making a preliminary assessment of the third-country measure or practice and requiring relevant information from interested parties or EU Member States.

The Commission will then invite the third country concerned to submit its views, provide relevant information and enter into consultations with the Commission in order to eliminate or remedy the alleged third-country measure or practice. After these consultations, the Commission will publish its findings in a report and it will propose relevant actions. If the measure or practice is not maintained or if it does not produce negative impacts on EU economic operators, the investigation shall be concluded. Likewise, the investigation can be concluded if the third country takes corrective actions or undertakes commitments to end or phase out its measures or practices.

IPI measures – If the measures or practices still exist after the investigation and consultations, the Commission may adopt so-called IPI measures. Specifically, reciprocal measures will be applied by the Commission to restrict the access of the third country's companies to European public procurement market. Such limitations on access may be imposed either by applying a price penalty or reduced score for bids submitted by economic operators from that country, or by excluding such tenders entirely from the award procedures.

Scope of application

The IPI regulation will only apply to economic operators, goods and services from third countries which do not have an international public procurement agreement with the EU or whose agreement does not include commitments to open up markets for these goods or services.

Furthermore, they do not apply to Least-Developed Countries which benefit from the "Everything But Arms" Initiative: this is intended to encourage the sustainable growth in low-income countries.

For the application of IPI measures, the Regulation establishes a limit value: IPI measure shall only apply to public procurement procedures with an estimated value equal to or above €15 million excluding VAT for works and concessions, and equal to or above €5 million for goods and services.

As far as the implementation of the IPI is concerned, strict conditions were set for exemptions from IPI measures. Big contracting authorities, for example city halls of large towns or the central government, will always have to apply the new rules. Local contracting authorities will only be exempted from the IPI if they represent fewer than 50,000 people. Lastly, the IPI Regulation will make it mandatory for all contracting authorities to consider social, environmental, and labour requirements when judging procurement bids.

EU trade in services balance hits €133 billion in 2021 

According to Eurostat, Provisional data show that in 2021, EU Member States exported services worth €1 027 billion to countries outside of the EU, a 13% increase compared with 2020 (€910 million). The impact of the COVID-19 crisis in 2020 led to a substantial fall in both the value of EU exports (-15% compared with 2019) and imports (-14%), but there was an immediate rebound in 2021 for EU exports, which almost returned to pre-pandemic levels.

On the other hand, EU imports rose at a modest pace in 2021, reaching €894 billion, a 2% rise compared with 2020.

As a result, the EU trade surplus for services hit €133 billion, close to the highest level registered in 2018. Over the last decade, the EU trade in services balance rose from €99 billion in 2011 to a peak of €134 billion in 2018 before falling back to €33 billion in 2020.

EU to cease Greek budget surveillance, marking end of debt crisis

According to DW, The European Commission announced on Wednesday that it is ceasing its surveillance of the Greek government's budget.

The Commission said that Greece had "delivered on the bulk of the policy commitments," allowing it to end "enhanced surveillance" of the country's budget on August 20. 

"As a result of Greece's efforts, the resilience of the Greek economy has substantially improved and the risks of spill-over effects on the euro area economy have diminished significantly," the Commission said.

EU embargo on Russian coal comes into force

According to euronews, European Union sanctions on Russian coal have come into force.

The import ban on all forms of Russian coal was agreed in April as part of the fifth package of sanctions against Russia with 10 August marked as the end of the wind-down period for imports.

Coal was the first Russian energy source to be sanctioned by the EU, with an oil embargo on Russian seaborne oil approved in June as part of the sixth round of sanctions and due to come into force at the end of the year.

Foreign Trade Data Exceeds Expectations, Showing China's Economic Resilience and Potential 

According to data released by the General Administration of Customs of China on the 7th, in the first seven months of this year, the total value of my country's import and export of goods trade was 23.6 trillion yuan, a year-on-year increase of 10.4%.

Global food commodity prices decline in July

According to FAO, the benchmark for world food commodity prices declined significantly in July, with major cereal and vegetable oil prices recording double-digit percentage declines, the Food and Agriculture Organization of the United Nations (FAO) reported today.

The closely-watched FAO Food Price Index averaged 140.9 points in July, down 8.6 percent from June, marking the fourth consecutive monthly decline since hitting all-time highs earlier in the year. The Index, which tracks monthly changes in the international prices of a basket of commonly-traded food commodities, nevertheless, remained 13.1 percent higher than in July 2021.

What are experts talking about?

"Foreign Trade Data Exceeds Expectations, Showing China's Economic Resilience and Potential" published by Xinhua. According to data released by the General Administration of Customs of China a few days ago, in the first seven months of this year, the total value of my country's import and export of goods trade was 23.6 trillion yuan, a year-on-year increase of 10.4%. Foreign trade has overcome many adverse effects and achieved rapid growth. Among them, US dollar-denominated exports increased by 18% year-on-year in July, which was higher than the general expectations of overseas media and economists. Overseas media and experts believe that the latest foreign trade data shows the resilience of China's economy and provides support for the continued steady development of China's economy.

"How to Support the Vulnerable and Speed up the Transition Away from Fossil Fuels" published by the International Monetary Fund (IMF). The article warns European governments not to respond to the worsening energy crisis with financial subsidies. Instead, consumers should bear the brunt of rising prices to encourage energy efficiency and help shift to green power more broadly.

Please note: the English version of this issue is slightly different from our Chinese one. The views and opinions expressed in this article do not necessarily reflect the official position of the CCCEU.