International Procurement Instrument Approved：Reciprocity in Procurement Markets for European Business

Introduction

On June 9th, the EU Parliament gave its final approval to the new International Procurement Instrument (IPI), which intends to encourage the opening up of global procurement markets by introducing measures limiting non-EU companies’ access to the open EU public procurement market if their corresponding governments do not offer similar access to public tenders to EU companies seeking business.

The ultimate end goal of the IPI is to open up protected markets and to end any discrimination against EU companies in third countries. It should be noted that the EU Commission has the power to determine whether and to what extent companies from a third country will be subject to an IPI measure, depending on the extent of the trade barriers.

Background

The EU public procurement market is one of the largest and most accessible in the world. However, many of the EU’s major trading partners apply restrictive practices in their markets that discriminate against EU businesses. The EU has opened its own public procurement market for many goods and services from third countries, as closed procurement markets undermine competition and transparency and increase the costs of public goods and services for taxpayers.

Scope of IPI

The scope of IPI will be limited to contracts above a certain threshold, namely, tenders worth at least €15 million for works and concessions (e.g., road or bridge construction) and €5 million for goods and services. Suppliers from least developed countries or more vulnerable developing countries will not be affected by IPI.

It will also now be mandatory for contracting authorities to consider social, environmental, and labour requirements when judging tender bids.

IPI Measures

If investment barriers exist in the public procurement market of a third country from which a bid originates, IPI measures can take the form of a price penalty or adjustments in the way tenders from the country concerned are assessed, or by excluding certain tenders from the country concerned, depending on certain criteria.

Such measures are of course a last resort, prior to adopting such action, the EU will firstly help to address the root of the problem in initiating investigations in cases of alleged restrictions for EU companies in third country procurement markets and engage in consultations with the country concerned on the opening of its procurement market. Finally, the EU may restrict access to the EU procurement market for foreign companies if they come from a country which continues to apply restrictions to EU companies.

Conclusion

The EU has long advocated for the end of protectionist measures on international public procurement markets, with the official adoption of the IPI, it certainly looks like a step in the right direction for both the EU economy as well as European businesses abroad entering into international public procurement markets. In addition, existing EU commitments, including the WTO Government Procurement Agreement and any bilateral trade agreements, will remain unaffected by this initiative.

After its official adoption by the EU Council, the regulation will enter into force on the 60th day after its publication in the Official Journal of the European Union.