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COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing rules on the access of third country goods and services to the European Union's internal market in public procurement and procedures supporting negotiations on access of European Union goods and services to the public procurement markets of third countries

/* SWD/2012/0057 final - COD/2012/0060 */
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52012SC0057

COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing rules on the access of third country goods and services to the European Union's internal market in public procurement and procedures supporting negotiations on access of European Union goods and services to the public procurement markets of third countries /* SWD/2012/0057 final - COD/2012/0060 */


ANNEX 5 - Analysis of public services according to COFOG

|| Rest of the world

(Classification of the Functions of Government) || || || || ||

|| Government || PP || Major industries affected || Potentially captive industries || Remarks

01 - General public services || || || || ||

01.1 - Executive and legislative organs, financial and fiscal affairs, external affairs || YES || YES || IT & Business services || - || General administration

01.2 - Foreign economic aid || YES || YES BUT || Construction, medical equipment || Development consulting || Mostly through grants

01.3 - General services || YES || YES || IT & Business services || - || General administration

01.4 - Basic research || YES || YES || IT & Business services || - || General administration

01.5 - R&D General public services || YES || YES || IT, precision equipment || Universities, research centres & precision equipment, supercomputers || EU univeristies may be bidding for projects abroad

01.6 - General public services n.e.c. || YES || YES || IT & Business services || - || General administration

01.7 - Public debt transactions || YES || YES BUT || Financial services || || Not an offensive interest in trade agreements - financial flexibility of central banks

01.8 - Transfers of a general character between different levels of government || YES || NO || || ||

02 - Defence || || || || ||

02.1 - Military defence || YES || YES || Defence industry || Defence industry || Not an offensive interest in trade agreements - security exemptions

02.2 - Civil defence || YES || YES || Defence industry || Defence industry || Not an offensive interest in trade agreements - security exemptions

02.3 - Foreign military aid || YES || YES || Defence industry || Defence industry || Not an offensive interest in trade agreements - security exemptions

02.4 - R&D Defence || YES || YES || Defence industry || Defence industry || Aerospace industry also affected

02.5 - Defence n.e.c. || YES || YES || Defence industry || Defence industry || Not an offensive interest in trade agreements - security exemptions

03 - Public order and safety || || || || ||

03.1 - Police services || YES || YES || Defence industry, vehicles || Defence industry || Not an offensive interest in trade agreements - security exemptions

03.2 - Fire-protection services || YES || YES || Firefighting industry || Firefighting industry ||

03.3 - Law courts || YES || YES || IT & Business services || - || General administration

03.4 - Prisons || YES BUT || YES || Defence & security services || Defence industry || WORKS CONCESSIONS

03.5 - R&D Public order and safety || YES || YES || Defence & security services || Defence industry ||

03.6 - Public order and safety n.e.c. || YES || YES || Defence & security services || Defence industry ||

04 - Economic affairs || || || || ||

04.1 - General economic, commercial and labour affairs || YES || YES || IT & Business services || || General administration

04.2 - Agriculture, forestry, fishing and hunting || YES || NO || || || Mostly through grants

04.3 - Fuel and energy || YES BUT || YES BUT || - || - || Whether purchases are PP depends on the country

04.3.1 - Coal and other solid mineral fuels (CS) || YES BUT || YES BUT || Mining equipment || Mining equipment || Whether purchases are PP depends on the country

04.3.2 - Petroleum and natural gas (CS) || YES BUT || YES BUT || Oil & Gas equipment || Oil & Gas equipment || Whether purchases are PP depends on the country

04.3.3 - Nuclear fuel (CS) || YES BUT || YES BUT || Nuclear energy industry || Nuclear energy industry || Whether purchases are PP depends on the country

04.3.4 - Other fuels (CS) || YES BUT || YES BUT || - || - || Whether purchases are PP depends on the country

04.3.5 - Electricity (CS) || YES BUT || YES BUT || Electricity production equip || Electricity production equip || Whether purchases are PP depends on the country

Production: nuclear || YES BUT || YES BUT || Nuclear energy industry || Nuclear energy industry || Whether purchases are PP depends on the country

Production: hydro-electric || YES BUT || YES BUT || Power generation equipment || Power generation equipment || Whether purchases are PP depends on the country

Production: construction of dams || YES BUT || YES BUT || Construction || ||

Production: solar, wind & geothermal || YES BUT || YES BUT || Solar & wind power equipment || Solar & wind power equipment || Whether purchases are PP depends on the country

Transmission || YES BUT || YES BUT || Electricity equipment || Electricity equipment || Whether purchases are PP depends on the country

Distribution || YES BUT || YES BUT || Electricity equipment || Electricity equipment || Whether purchases are PP depends on the country

04.3.6 - Non-electric energy (CS) || YES BUT || YES BUT || Gas distribution equipment || Gas distribution equipment || Whether purchases are PP depends on the country

04.4 - Mining, manufacturing and construction || YES BUT || YES BUT || Construction || Public Infrastructure construction ||

04.5 - Transport || YES BUT || YES BUT || Transport equipment || - || Not Airlines; other sectors in process of liberalisation

04.5.1 - Road transport (CS) || YES BUT || YES BUT || Buses, Road traffic equipment || Buses, Road traffic equipment || Whether purchases are PP depends on the country

Construction of roads || YES BUT || YES BUT || Construction || Public Infrastructure construction || WORKS CONCESSIONS

04.5.2 - Water transport (CS) || YES BUT || YES BUT || Port equipment || Port equipment || Whether purchases are PP depends on the country

Construction of ports & waterways || YES BUT || YES BUT || Construction || Dredging, port operation || WORKS CONCESSIONS

04.5.3 - Railway transport (CS) || YES BUT || YES BUT || High-speed trains, Rolling stock, signalling equipment, metro & trams || High-speed trains, Rolling stock, signalling equipment, metro & trams || Whether purchases are PP depends on the country

Construction of railways || YES BUT || YES BUT || Construction || Public Infrastructure construction, railway operation || WORKS CONCESSIONS

04.5.4 - Air transport (CS) || YES BUT || YES BUT || Construction, airport operation, ATC equipment || ATC equipment, airport operation || Whether purchases are PP depends on the country - AIRLINES EXCLUDED

Construction of airports || YES BUT || YES BUT || Construction || Public Infrastructure construction || WORKS CONCESSIONS

04.5.5 - Pipeline and other transport (CS) || YES BUT || YES BUT || Oil & Gas equipment || Oil & Gas equipment || Whether purchases are PP depends on the country

Construction of pipelines & other transport || YES BUT || YES BUT || Construction || Public Infrastructure construction || WORKS CONCESSIONS

04.6 - Communication || YES BUT || YES BUT || || || Whether purchases are PP depends on the country

Postal || YES BUT || YES BUT || Postal equipment || Postal equipment || Whether purchases are PP depends on the country

Telecommunication || YES BUT || YES BUT || Telecom equipment || Telecom equipment || Whether purchases are PP depends on the country

04.7 - Other industries (e.g. hotels, retail & tourism) || NO || NO || || ||

04.8 - R&D Economic affairs || YES || YES BUT || || Universities, research centres, specialised economic consulting || EU univeristies may be bidding for projects abroad

04.9 - Economic affairs n.e.c. || NO || NO || || ||

05 - Environmental protection || || || || ||

05.1 - Waste management || YES BUT || YES || Waste & water industry & mgmt || Waste & water industry & mgmt || Whether purchases are PP depends on the country

05.2 - Waste water management || YES BUT || YES || Waste & water industry & mgmt || Waste & water industry & mgmt || Whether purchases are PP depends on the country

05.3 - Pollution abatement || YES || YES || Specialised env. services industry || Specialised env. services industry ||

05.4 - Protection of biodiversity and landscape || YES || YES || Specialised env. services industry || Specialised env. services industry ||

05.5 - R&D Environmental protection || YES || YES || - || - || -

05.6 - Environmental protection n.e.c. || YES || YES || - || - || -

06 - Housing and community amenities || || || || ||

06.1 - Housing development || YES BUT || YES BUT || Construction || - ||

06.2 - Community development || YES BUT || YES BUT || Construction || - ||

06.3 - Water supply || YES BUT || YES || Waste & water industry || Waste & water industry || Whether purchases are PP depends on the country

06.4 - Street lighting || YES || YES || Street lighting || Street lighting ||

06.5 - R&D Housing and community amenities || YES || YES || - || - || -

06.6 - Housing and community amenities n.e.c. || YES BUT || YES || - || - || -

07 - Health || || || || ||

07.1 - Medical products, appliances and equipment || NO || NO || - || - || By COFOG definition - obtained by prescriptions - outside of scope

07.2 - Outpatient services || YES BUT || YES BUT || Pharma & Medical equipment || Pharma & Medical equipment || Public hospitals / depends from MS

07.3 - Hospital services || YES BUT || YES BUT || Pharma & Medical equipment || Pharma & Medical equipment || Public hospitals / depends from MS

07.4 - Public health services || YES BUT || YES BUT || Pharma & Medical equipment || Pharma & Medical equipment || Public hospitals / depends from MS

07.5 - R&D Health || YES BUT || YES BUT || Pharma & Medical equipment || Universities, research centres & precision equipment || EU univeristies may be bidding for projects abroad

07.6 - Health n.e.c. || YES BUT || YES BUT || - || - || Public hospitals / depends from MS

08 - Recreation, culture and religion || || || || ||

08.1 - Recreational and sporting services || YES BUT || YES BUT || Sport equipment || - || If public yes / depends from MS

Construction of sport facilities || YES BUT || YES BUT || Construction || - ||

08.2 - Cultural services || YES BUT || YES BUT || - || - || If public yes / depends from MS

08.3 - Broadcasting and publishing services || YES BUT || YES BUT || Radio & TV equipment || Radio & TV equipment || If public yes / depends from MS

08.4 - Religious and other community services || YES BUT || YES BUT || - || - || If public yes / depends from MS

08.5 - R&D Recreation, culture and religion || YES BUT || YES BUT || - || - || If public yes / depends from MS

08.6 - Recreation, culture and religion n.e.c. || YES BUT || YES BUT || - || - || If public yes / depends from MS

09 - Education || || || || ||

09.1 - Pre-primary and primary education || YES BUT || YES BUT || IT equipment || - || If public yes / depends from MS

09.2 - Secondary education || YES BUT || YES BUT || IT equipment || - || If public yes / depends from MS

09.3 - Post-secondary non-tertiary education || YES BUT || YES BUT || IT equipment || - || If public yes / depends from MS

09.4 - Tertiary education || YES BUT || YES BUT || IT, precision equipment || - || If public yes / depends from MS

09.5 - Education not definable by level || YES BUT || YES BUT || - || - || If public yes / depends from MS

09.6 - Subsidiary services to education || YES BUT || YES BUT || - || - || If public yes / depends from MS

09.7 - R&D Education || YES BUT || YES BUT || - || - || If public yes / depends from MS

09.8 - Education n.e.c. || YES BUT || YES BUT || - || - || If public yes / depends from MS

10 - Social protection || || || || ||

10.1 - Sickness and disability || YES || NO || - || - || Grants not PP; Grants authorities PP is covered

10.2 - Old age || YES || NO || - || - || Grants not PP; Grants authorities PP is covered

10.3 - Survivors || YES || NO || - || - || Grants not PP; Grants authorities PP is covered

10.4 - Family and children || YES || NO || - || - || Grants not PP; Grants authorities PP is covered

10.5 - Unemployment || YES || NO || - || - || Grants not PP; Grants authorities PP is covered

10.6 - Housing || YES || NO || - || - || Grants not PP; Grants authorities PP is covered

10.7 - Social exclusion n.e.c. || YES || NO || - || - || Grants not PP; Grants authorities PP is covered

10.8 - R&D Social protection || YES || NO || - || - || Grants not PP; Grants authorities PP is covered

10.9 - Social protection n.e.c. || YES || NO || - || - || Grants not PP; Grants authorities PP is covered

ANNEX 8

ANALYSIS OF THE OPENING OF

DOMESTIC PROCUREMENT MARKETS

Preliminary remarks:

As none of the countries in question has a monopoly of public television, we have considered useless to add any detail on broadcasting equipment, whose dependency is always PARTIAL and whose openness verdict is limited to the discriminatory rules applied on to goods (market)

The degree of openness is assessed by using the "openness test" as detailed in the report and its annexes. The assessment that follows and the determination of whether a specific market in a specific country is open or closed (de jure and de facto) is based on the examination of international commitments in the area of procurement, domestic (central and sub-central) legislation where available, feedback from the Commission Delegations in the respective third countries, feedback from EU industry on their practical experiences in this market, etc. For some markets and countries the Commission services acknowledge that the full range of data and information is not available.

In order to ensure a comprehensive reading of this assessment, the following categories have been used to evaluate the degree of domestic openness of each sector:

1:         Open

0.5.      Partially open (a priori open)

0:         Unclear/difficult to provide a clear assessment

-0.5:     Harmed by trade barriers (a priori closed)

-1:        Closed

Also, it is important to underline that in spite of the possible full closure of certain markets through domestic measures, some EU exports succeed to bypass the latter for two reasons:

1- Specialisation: good and services only available from EU suppliers or service providers

2- Lack of uniform compliance: protectionist domestic measures are not necessarily applied on a systematic basis

As a result, in spite of the assessment hereunder, some corrections have been taken into account in the calculations of the openness of sectors:

1-Specialisation: based on the industrial analysis in Appendix 5, we have identified those sectors where protectionist domestic measures are most likely not to have any affect because of the degree of specialisation.

2-Evene if a market has been considered as fully closed, a 10% default degree of openness has been included, as explained in the methodological box 6 of the Problem analysis.

Tables of content by countries:

1. United States                                                                                              pp 4-110

2. Japan                                                                                                          pp 12-19

3.  Canada                                                                                                      pp 20-25 4. Korea                                                                                                          pp 26-32 5. Israel                                                                                                          pp 33-39 6. Mexico                                                                                                       pp 40-47

7. Turkey                                                                                                        pp 48-54

8.  China                                                                                                         pp 55-62

9. India                                                                                                            pp 63-70

10. Russia                                                                                                       pp 71-77

11. Brazil                                                                                                        pp 78-85

12. Ukraine                                                                                                     pp 86-93

13. Australia                                                                                                   pp 94-101

1. United States 1.1 Defence Relevant market: defence goods for army, navy and air force

Dependency from public procurement: Full dependency

Degree of openness

Except for the coverage of the Department of Defence under the GPA US obligations (with security exemptions), this market is not opened de jure. A range of domestic protectionist measures are applied such as local content requirements (up to 50%) or local establishment requirements (ie. setting up of manufacturing capacities, requirements for substantial investments). The UK is also targeted by special measures limiting its access to considered sensitive areas.

Conclusion for the purposes of the IA: Fully closed (-1)

1.2 Aerospace

Relevant market: production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: Highly dependent

Degree of openness

Except for the coverage of the NY Port Authority and New Jersey related procurement under the GPA, the ATC equipment/airport market is not opened de jure. A range of domestic protectionist measures are applied such as price preferences (25% > above added value of the sector in the EU), local content requirements (up to 60%) or local establishment requirements (ie. setting up of manufacturing capacities, requirements for substantial investments).

Conclusion for the purposes of the IA: Fully closed – for ATC equipment

1.3 Postal machinery/Airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: Full dependency

Degree of openness

This market is not open de jure. In addition, a number of domestic protectionist measures are applied such as price preferences (ie. of 15% in Rhode Island or South Dakota), local content requirements (ie. US steel in Illinois, New York, Pennsylvania, Maryland, Louisiana )or local establishment requirements

Conclusion for the purposes of the IA: Fully closed (-1)

1.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities; sea rescue vessels for coast guards

Dependency from public procurement: Full dependency

Degree of openness

This market is not open de jure. In addition, a number of domestic protectionist measures are applied such as price preferences (ie. of 15% in Rhode Island or South Dakota), local preferences or local establishment requirements.

Conclusion for the purposes of the IA: Fully closed (-1)

1.5 - Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways, mass transit, power, water and dredging)

· Marginal for general public works (general public buildings) -

Degree of openness

The market is opened de jure in the segment of general building for federal administrations and some States (ie. California, Texas, Florida, NY, etc) and partially in the segment for power (only for Federal utilities, which represent the smaller portion of that procurement segment). Other segments such as highways and mass transit, airports, water supply and waste or dredging are not opened de jure. A number of domestic protectionist measures are applied such as price preferences (ie. normally of 6%), preferences for local labour (ie. Florida, Illinois, Ohio) or the so-called "bid preferences" in Ohio, Texas and Florida whereby when two bidders propose the same price for the same contract, the in-state bidder will be favoured[1].

This openness assessment has also taken into consideration GATS commitments. There are no restrictions on commercial presence (Mode 3), except for dredging. For some States (DC, ID, IO, KS, ME, MS, NV, OK, SC, SD, TN, TX and WV), engineers and architects must be residents of the State in question. This can be considered as a trade barrier.

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

1.6 - Construction materials

Relevant markets: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: Partial[2]

Degree of openness

The market is opened de jure in the segment of general building for federal administrations and some States (ie. California, Texas, Florida, NY, etc) and partially in the segment for power (only for Federal utilities, which represent the smaller portion of that procurement segment). Other segments such as highways and mass transit, airports, water supply and waste or dredging are not opened de jure. A number of domestic protectionist measures are applied such as price preferences, local content requirements (up to 50%), local manufacture requirements (up to 100%), US/State steel preferences in some States (Texas, Illinois) or the so-called "bid preferences" in Ohio, Texas and Florida.

Conclusion for the purposes of the IA: Fully closed (-1)

1.7 - Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: Highly dependent

Degree of openness

This market is not open de jure. A number of domestic protectionist measures are applied such as price preferences, local content requirements (up to 60%) or local establishment requirements (ie. setting up of manufacturing capacities, requirements for substantial investments).

Conclusion for the purposes of the IA: Fully closed (-1)

1.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: Highly dependent[3]

Degree of openness

Except for the coverage of the NY Port Authority and New Jersey related procurement under the GPA, this market is not open de jure. In addition, a number of domestic protectionist measures are applied such as price preferences (ie. of 15% in Rhode Island or South Dakota), local content requirements (ie. US steel in Illinois, New York, Pennsylvania, Maryland, Louisiana )or local establishment requirements

Conclusion for the purposes of the IA: Fully closed (-1)

1.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement: high

· While it is difficult to provide with a percentage, a substantial share of the US utilities is local or State-owned, at least partially.

· Federal utilities like the Tennessee Valley Authority follow public procurement rules and have been opened under GPA

Degree of openness

While federal utilities are opened de jure, this is not the case for state and below State-level utilities, which represent around 81% of local level procurement. In those cases where procurement is not open de jure, there are applicable domestic protectionist measures such as preferences for labour (Florida, Illinois, Ohio), local content requirements (ie. US steel), etc.

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

We would suggest a -0.5 category taking into account the importance of States not open de jure and of the existence of domestic preferences

1.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: Full (as most of the water management and sewage activities are within the remit of local authorities, the dependency rate is assumed to be 100%)

Degree of openness

This market is not opened de jure. Any entry into this market is subject to applicable domestic protectionist measures such as preferences for labour (florida, Illinois, Ohio), local content requirements (ie. US steel), preferences for NY businesses (in NY) etc.

There are no restrictions identified on commercial presence (GATS Mode 3).

Conclusion for the purposes of the IA: Fully closed (-1)

1.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc... purchased by cities and urban agglomerations.

Dependency from public procurement: High

· As most of the environmental services are within the remit of local authorities, the dependency rate is assumed to be 100%

· Contracting authorities may either purchase this type of goods or services, or actually outsource them (through concessions)

Degree of openness

This market is not opened de jure. Any entry into this market is subject to applicable domestic protectionist measures such as preferences for labour (florida, Illinois, Ohio), local content requirements (ie. US steel), preferences for NY businesses (in NY) etc.

There are no restrictions identified on commercial presence (GATS Mode 3).

Conclusion for the purposes of the IA: Fully closed (-1)

1.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by public hospitals

Dependency from public procurement: Partial - low[4]

Degree of openness

At federal level this procurement is open de jure. For procurement at State level there are domestic measures such as preferences for products (California, Florida, Ohio, Texas), preference for US and State contractors and products (Ohio), special treatment for NY businesses (in NY), etc

Conclusion for the purposes of the IA: "Partially open (0.5)" rather than "fully open (1)" given the State level measures.

1.13 Medical equipment

Relevant market: medical equipment products purchased by US public hospitals or health authorities. Includes laboratory research equipment and precision instruments (like cyclotrons, scanners).

Dependency from public procurement: Partial - low[5]

Degree of openness

At federal level this procurement is open de jure. For procurement at State level there are domestic measures such as preferences for products (California, Florida, Ohio, Texas), preference for US and State contractors and products (Ohio), special treatment for NY businesses (in NY), etc

Conclusion for the purposes of the IA: "Partially open (0.5)" rather than "fully open (1)" given the State level measures.

1.14 Specialised textiles

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement: Partial

· 100% Military uniforms for defence

· 100% Uniforms for fire-fighting

· Uniforms for utilities (e.g. non-radio-active textiles,...) - applies for PUBLIC utilities

· Bio-textiles and other health-related uniforms - Department of Health

· Overall uniforms

Degree of openness

Some segments are open de jure (ie. purchases by Department of Health) while others no (ie. purchases by Department of Defence). In addition, domestic preferences are applicable such as local preferences for fire-fighting textiles and the "Berry amendment" which imposes a 100% local establishment requirement and 100% local content requirement for purchses by DoD of non-US textiles, food and clothing.

Conclusion for the purposes of the IA: "Harmed by trade barriers - a priori closed (-0.5)"

1.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: Partial (depends on degree of specialisation of service delivered)

Degree of openness

Several segments are opened de jure (would depend of the contracting authority). In addition application of domestic preferences. Taking into account GATS commitments, there are no restrictions for building, consulting and advertising services while several residency restrictions are possible for auditing and accounting services (although it is not possible to assess the degree of their implementation).

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

1.16 Financial services

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management)

Dependency from public procurement: Partial (both specialised and generic services are sold to both private and public sectors)

 

Degree of openness

Several segments are opened de jure (would depend of the contracting authority). In addition, domestic preferences are applied. Existence of a wide range of GATS possible restrictions (although it is not possible to assess the degree of their implementation).

Conclusion for the purposes of the IA: Fully closed (-1)

1.17 Oil, gas and mining exploration equipment

Relevant market: Equipment for oil, mining and gas extraction and transport.

Dependency from public procurement: None (private sector)

Degree of openness

Not applicable

Conclusion for the purposes of the IA: Not relevant

1.18 Fixed telecom equipment

Relevant market: Telecom equipment for fixed telecom operators providing universal service-like public services.

Dependency from public procurement: Low (only possible exception for Rural Utilities Services)

Degree of openness

This market is not opened de jure. Restrictions on foreign bids on entities that have more than 20% of government capital.

Conclusion for the purposes of the IA: not relevant

1.19 Computer equipment and IT services

Relevant market: Computer equipment and software services sold government-wide; supercomputers for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Dependency from public procurement: Partial for low margin products and high for specific added-value products and services

Degree of openness

Several segments are opened de jure (would depend of the contracting authority). In addition, domestic preferences are applied. No applicable GATS restrictions

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

1.20 Street lighting

Relevant market: Lighting for streets and highways

Dependency from public procurement: full dependency

Degree of openness

Limited opening de jure given existence of the "federal highways and mass transit" derogation in the GPA. Existence in addition of domestic protectionist measures such as local content requirements (up to 50%), local manufacture equipment (up to 100%), preferences for US/State made steel (Texas, Illinois) or bid preference.

Conclusion for the purposes of the IA: Fully closed (-1)

1.21 Port Equipment

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: High

Degree of openness

Several segments are opened de jure (ie. Port Authority of NY and New Jersey) but not for local authorities or State authorities not covered by the GPA. Existence in addition of domestic protectionist measures such as local content requirements (up to 50%), local manufacture equipment (up to 100%), preferences for US/State made steel (Texas, Illinois) or bid preference.

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

2. JAPAN

2.1 Defence

Relevant market: defence goods for army, navy and air force

Dependency from public procurement: Full dependency

Degree of openness

Although the Ministry of Defense is covered there are security exemptions. The market for the rest is not open de jure.

Conclusion for the purposes of the IA: Closed (-1)

2.2 Aerospace

Relevant market:  production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: High

100% for ATC equipment ("airport basic infrastructures" / MLIT) 100% for astronomical and space-related satellites (JAXA) Unknown for communication satellites 100% for meteorological satellites (JAXA and JMA) Unknown for navigation satellites

 

Degree of openness

For ATC equipment/airports the market is open de jure. As regards satellites, this market is not open de jure. In this area while the eligibility is systematically taken into consideration by Ministries, there are also local establishment requirements and general administrative issues related to FDI in Japan

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

2.3 Postal machinery/airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: high

100% for postal machinery (Japan Post) Partial for airport sorting systems (Narita, Haneda-Int'l) Degree of openness

This market is open de jure for public airports and Japan Post.

Conclusion for the purposes of the IA: Open (1)

2.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities

Dependency from public procurement: full dependency

Degree of openness

Open de jure for MLIT and the Tokyo Metropolitan Government but the market is no open de jure for the lower administrative levels, responsible for fire-fighting. There are also local preferences and local establishment requirements and general administrative issues related to FDI in Japan

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0

2.5 Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways, mass transit, water and dredging)

· Airport terminals and power are private in Japan

· Marginal for general public works (general public buildings)

Degree of openness

While some segments of the market are open de jure (ie. general water infrastructure, national highways, general building construction for GPA covered entities), other segments are not open de jure (ie. mass transit due to the application of the operational safety clause). The latter segments will be affected also by local preferences and local establishment requirements together with complicated FDI rules.

Also, those segments open de jure are affected by registration and qualification procedures (keishin) and widespread existence of cartels in the construction market that make it very difficult to have a de facto access even in these de jure opened segments. The existence of the GPA threshold of 15 million SDR would also render very difficult for SMEs to win contracts in this area.

As regards GATS assessment, there are no restrictions on commercial presence but restrictions for architects and engineers.

Conclusion for the purposes of the IA:  Closed (-1)

2.6 Construction materials

Relevant market: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: Partial (same materials used for private construction)

Degree of openness

While some segments of the market are open de jure (ie. general water infrastructure, national highways, general building construction for GPA covered entities), other segments are not open de jure (ie. mass transit due to the application of the operational safety clause). The latter segments will be affected also by local preferences and local establishment requirements together with complicated FDI rules.

Also, those segments open de jure are affected by registration and qualification procedures (keishin) and widespread existence of cartels in the construction market that make it very difficult to have a de facto access even in these de jure opened segments. The existence of the GPA threshold of 15 million SDR would also render very difficult for SMEs to win contracts in this area.

Conclusion for the purposes of the IA:  Closed (-1)

2.7 Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: High

· JR East/West/Central - private operators with special or exclusive rights

· 100% for Metro networks - they are all committed in GPA

· None for Private operators

Degree of openness

This market is not open de jure. In addition the operational safety clause is widely used in this sector and there is proof of no publication of calls for tender for entities that have been committed internationally.

Conclusion for the purposes of the IA: Fully closed (-1)

2.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: Partial

· 100% for public buses purchased by city transportation bureaus

· Private operators of buses purchase their buses in the market

Degree of openness

This market is not open de jure. In addition the operational safety clause is widely used in this sector. In addition to the existence of local preferences, there is proof of no publication of calls for tender for entities that have been committed internationally.

Conclusion for the purposes of the IA: Fully closed (-1)

2.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement: None (fully private sector)

Degree of openness

Not applicable

Conclusion for the purposes of the IA: Not relevant

2.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: high

· Main infrastructure (canals, dams, artificial lakes) is in the responsibility of the Japan Water Agency (covered by GPA)

· Most sewage utilities ("Bulk water supply services") - Prefectures

· Water supply services are managed by municipalities (cities)

· There are also sometimes private operators, notably for the final delivery

Degree of openness

Some segments of the market are open de jure (ie. Japan Water Agency, sewage utilities, some municipal water supply services) but others not. Even if there are cases of EU companies wining conracts in areas not open de jure, there is also proof of local preferences

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

2.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc... purchased by cities and urban agglomerations.

Dependency from public procurement: High (within remit of municipalities)

Degree of openness

This market is open de jure for the main cities but not for Tokyo for example. There are cases of local preferences. No restrictions on commercial presence (GATS Mode 3) have been identified.

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

2.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by Japanese public hospitals or health authorities

Dependency from public procurement: Partial

· Ministry of Health

· National Hospital Organisation covers purchases of main public hospitals

· Municipalities cover municipal hospitals

· University hospitals are affiliated to universities; for public universities, purchases fall within the remit of National University Corporation

· There are several private hospitals

Degree of openness

This market is open de jure for Ministry of Health and other national entities (ie. National Hospital Organisation) the main cities but not for other cities. There are cases of local preferences

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

2.13 Medical equipment

Relevant market: medical equipment products purchased by US public hospitals or health authorities. Includes laboratory research equipment and precision instruments (like cyclotrons, scanners).

Dependency from public procurement: Partial

· Ministry of Health

· National Hospital Organisation covers purchases of main public hospitals

· Municipalities cover municipal hospitals

· University hospitals are affiliated to universities; for public universities, purchases fall within the remit of National University Corporation

· There are several private hospitals

Degree of openness

This market is open de jure for Ministry of Health and other national entities (ie.  Hospital Organisation) and GPA covered cities. There are cases of local preferences

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

2.14 Specialised textiles

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement: Partial

· 100% Military uniforms for defence

· 100% Uniforms for fire-fighting (municipalities)

· Uniforms for utilities (e.g. non-radio-active textiles,...) - private sector in Japan

· Bio-textiles and other health-related uniforms - Ministry of Health, National Hospital Organisation, National University Corporation, municipalities,...

· Overall uniforms

Degree of openness

This market is open de jure for Ministry of Health and other national entities (ie.  Hospital Organisation) and GPA covered cities. There are cases of local preferences

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

2.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: Depends on the degree of specialisation of the service delivered (consulting and legal services sold to aerospace or power generation are considered highly dependent while building clearing and auditing are considered generic services sold to private and public)

Degree of openness

It depends on the type of service and of the contracting authorities as advertising and building cleaning, for example, are open de jure but not legal services or consulting. There are also local preferences.

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

2.16 Financial services

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management)

Dependency from public procurement: Partial (both specialised and generic services are sold to both private and public sectors)

 

Degree of openness

This market is not open de jure. There are local preferences

Conclusion for the purposes of the IA: Closed (-1)

2.17 Oil, gas and mining exploration equipment

Relevant market: Equipment for oil, gas and mining extraction and transport. Technical surveying services.

Dependency from public procurement: No oil or gas in Japan (or transport privatised)

Degree of openness

Not applicable

Conclusion for the purposes of the IA: not appropriate

2.18 Fixed telecom equipment

Relevant market: Telecom equipment for fixed telecom operators providing universal service-like public services.

Dependency from public procurement: almost full dependency ("Last mile" systematically owned by NTT)

Degree of openness

This market is no open de jure. While the operational safety clause could be applied to date there is no proof of systematically discrimination on its basis.

Conclusion for the purposes of the IA: Open (1)

2.19 Computer equipment and IT services

Relevant market: Computer equipment and software services sold government-wide; supercomputers for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Dependency from public procurement: Partial for low-margin products, High for specific added value products and services

Degree of openness

This market is open de jure.

Conclusion for the purposes of the IA: Partially open (+0.5)

2.20 Street lighting

Relevant market: Lighting for streets and highways

Dependency from public procurement: full dependency

Degree of openness

While some segments of the market are open de jure (ie. Expressway Corporations, large cities), other segments are not open de jure (ie. non GPA covered municipalities). The latter segments will be affected also by local preferences and local establishment requirements together with complicated FDI rules.

Conclusion for the purposes of the IA: Partially open (+0.5)

2.21 Port Equipment

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: full dependency

Degree of openness

This market is open de jure (ie. GPA covers main ports)

Conclusion for the purposes of the IA: Open (1)

3. CANADA

3.1 Defence

Relevant market: defence goods for army, navy and air force

Dependency from public procurement: Full dependency

Degree of openness

Although the Ministry of Defense is covered de jure there are security exemptions. In addition there are also protectionist measures as the IRB policy of offsets.

Conclusion for the purposes of the IA: Fully closed (-1)

3.2 Aerospace

Relevant market:  production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: High (100% for satellites while ATC equipment is fully private)

Degree of openness

The satellites related market is not opened de jure. The Federal contracting Authority gives the right to prefer Canadian contractors in services and it is unclear whether IRB policy can apply with offsets (due to defense and security).

Conclusion for the purposes of the IA: Fully closed (-1)

3.3 Postal machinery/airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: Full dependency

Degree of openness

The postal machinery segment is opened de jure. Although the airport sorting systems market is not opened de jure, no discriminatory measures or practices have been identified.

Conclusion for the purposes of the IA: Open (1)

3.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure[6]. In addition, local preferences and the IRB policy of offsets apply.

Conclusion for the purposes of the IA: Fully closed (-1)

3.5 Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways, mass transit, power, water and dredging)

· Marginal for general public works (general public buildings)

Degree of openness

The segment of general building construction is open de jure. Transport related contracts (at federal, Crown corporations or sub-provincial level), water supply, dredging and power are not opened de jure. There are local establishment requirements (ie. For federal projects) and preferences to Canadian or locally-established companies. As regards assessment of GATS, in most Provinces engineers and architects must be residents.

Conclusion for the purposes of the IA:  Fully closed (-1)

3.6 Construction materials

Relevant market: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: Partial (same materials used for private construction)

Degree of openness

The segment of general building construction is open de jure. Transport related contracts (at federal, Crown corporations or sub-provincial level), water supply, dredging and power are not opened de jure. There are local preferences possible.

Conclusion for the purposes of the IA: Unclear / difficult to provide clear assessment (0)

3.7 Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. While there is no proof of discriminatory measures/practices in the majority of Provinces, there are domestic preferences in important markets such as Quebec or Ontario (Local content requirement - 25% minimum (local authorities can set up higher thresholds), except for locomotives)

Conclusion for the purposes of the IA: Harmed by trade barriers (-0.5)

3.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: Partial

100% for public buses (100% for main mass transit networks (Toronto, Montreal) None for coaches Degree of openness

This market is not opened de jure. Existence of local content requirements and price preference mechanism (5%) in Ontario.

Conclusion for the purposes of the IA: Unclear / difficult to provide clear assessment (0)

3.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement: High (Main utilities are either Crown Corporations such as Hydro Quebéc, Toronto Hydro or municipalities)

Degree of openness

This market is not opened de jure. Applicable of domestic preferences in key Provinces such as Ontario (local content requirements for renewable energy producers of up to 60%)

Conclusion for the purposes of the IA: Harmed by trade barriers (-0.5)

3.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: High (most contracts awared at the level of Provinces/municipalities)

Degree of openness

This market is not opened de jure. Local preferences are applied widely.

Conclusion for the purposes of the IA: Fully closed (-1)

3.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc... purchased by cities and urban agglomerations.

Dependency from public procurement: High (most contracts awared at the level of Provinces/municipalities)

Degree of openness

This market is not opened de jure. Local preferences are applied widely.

Conclusion for the purposes of the IA: Fully closed (-1)

3.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by health authorities

Dependency from public procurement: Partial

· Hospitals are part of the MASH sector, which falls under procurement rules

· There are private hospitals in Canada also

· 70% of health expenditure appears to be public-funded

· Hospitals are local and health authorities are in the Provinces

Degree of openness

This market is not opened de jure. Local preferences are applied widely.

Conclusion for the purposes of the IA: Fully closed (-1)

3.13 Medical equipment

Relevant market: medical equipment products purchased by health authorities

Dependency from public procurement: Partial

· Hospitals are part of the MASH sector, which falls under procurement rules

· There are private hospitals in Canada also

· 70% of health expenditure appears to be public-funded

· Hospitals are local and health authorities are in the Provinces

Degree of openness

This market is not opened de jure. Local preferences are applied widely.

Conclusion for the purposes of the IA: Fully closed (-1)

3.14 Specialised textiles

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement: Partial

· 100% Military uniforms for defence - federal

· 100% Uniforms for fire-fighting - municipalities

· Uniforms for utilities (e.g. non-radio-active textiles,...) - applies for PUBLIC utilities- hospitals (MASH)

· Overall uniforms

Degree of openness

The defense-related purchases are opened de jure while the fire-fighting/hospital related are not. Local preferences affect fire-fighting and overall uniforms purchases

Conclusion for the purposes of the IA: Unclear / difficult to provide clear assessment (0)

3.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: Partial/low (depends on degree of specialisation of the service delivered)

Degree of openness

Difficult to asses as it would depend on the type of contracting authority for building, cleaning, auditing, legal and consulting services. Advertising services are not opened de jure.. Existence of domestic preferences measures.

Several residency GATS restrictions applied for consulting, legal, engineering and auditing/accounting services

Conclusion for the purposes of the IA:  Unclear / difficult to provide clear assessment (0)

3.16 Financial services

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management)

Dependency from public procurement: Partial-low

 

Degree of openness

This market is not opened de jure. Domestic preferences apply

Conclusion for the purposes of the IA: Unclear / difficult to provide clear assessment (0)

3.17 Oil, gas and mining exploration equipment

Relevant market: Equipment for oil extraction and transport.

Dependency from public procurement: none (private sector)

Degree of openness

Not applicable

Conclusion for the purposes of the IA: not relevant

3.18 Fixed telecom equipment

Relevant market: Telecom equipment for fixed telecom operators providing universal service-like public services.

Dependency from public procurement: Low (private sector except in Saskatchewan)

Degree of openness

Not applicable

Conclusion for the purposes of the IA: Not relevant

3.19 Computer equipment and IT services

Relevant market: Computer equipment and software services sold government-wide; supercomputers for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Dependency from public procurement: Partial for low-margin products and High for specific added-value products and services (ie supercomputers and IT applications for hospitals, universities, etc)

Degree of openness

Some segments are opened de jure depending on the type of contracting authorities. Domestic protectionist measures are applied.

Conclusion for the purposes of the IA:  Unclear / difficult to provide clear assessment (0)

3.20 Street lighting

Relevant market: Lighting for streets and highways

Dependency from public procurement: full dependency

Degree of openness

This market is not opened de jure. Local preferences applied

Conclusion for the purposes of the IA:  Closed (-1)

3.21 Port Equipment

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: Full dependency[7]

Degree of openness

This market is not opened de jure. Local preferences applied

Conclusion for the purposes of the IA:  Closed (-1)

4. KOREA

Korea applies the principle of "reciprocity" in "international bidding" (i.e. open under the GPA). - > we interpret this as a de facto application of the general notes of the GPA. The legislation appears unclear in the area not covered by GPA, except for defence procurement and SME set asides. Foreign bidders appear to include companies that are controlled by more than 50% by a foreign shareholder.

The EU Delegation in Seoul notes that there is no systematic policy of discrimination against EU companies and that the latter have won contracts in some sectors not opened de jure to them.

4.1 Defence

Relevant market: defence goods for army, navy and air force

Dependency from public procurement:  Full dependency

Degree of openness

While the Ministry of Defense is covered by GPA commitments, there are security exemptions. There are also national protectionist measures such as local content, pre-authorisations needed to participate in a particular bid or offset

Conclusion for the purposes of the IA:  Fully closed (-1)

4.2 Aerospace

Relevant market:  production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: Partial

ATC equipment (Korea Airports Corporation and Inchon – closed to EU and to be privatised) 100% for astronomical and space-related satellites (Korea Aerospace Research Institute - KARI) 0% for communication satellites (Korea Telecom) 100% for meteorological satellites (Ministry of Science and Technology, KARI, Korea Meteorological Administration) Unknown for navigation satellites

Degree of openness

This market is not opened de jure. While their application seems rare, there are SMEs set aside applicable to this procurement market

Conclusion for the purposes of the IA: Fully closed (-1)

4.3 Postal machinery/airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: High (100% for postal machinery, partial for airport sorting systems)

Degree of openness

This market is partially opened de jure (only as regards Korea Post). While their application seems rare, there are SMEs set aside applicable to this procurement market

Conclusion for the purposes of the IA: Unclear / difficult to provide clear assessment (0)

4.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities

Dependency from public procurement: Full dependency

Degree of openness

This market is open de jure to a larger extent (ie. Korean Coast Guard and larger cities)

Conclusion for the purposes of the IA:  Partially open (0.5)

4.5 Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways/Korea Expressway Corporation, mass transit, water and dredging)

· Airport terminals – closed to EU and private in Korea

· Marginal for general public works (general public buildings)

Degree of openness

Some segments of this market are open de jure (ie. power, highways, general building construction, concession contracts) while others, such as mass transit related services are not. When opened de jure, the thresholds applied (ie. 15.000.000 SDRs) render very difficult the access of foreign SMEs to these contracts. In addition, local establishment requirements (ie. complex FDI rules) and local preferences are applied when not open de jure.

Conclusion for the purposes of the IA:  Partially open (+0.5)

4.6 Construction materials

Relevant market: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways/Korea Expressway Corporation, mass transit, water and dredging)

· Airport terminals – closed to EU and private in Korea

· Marginal for general public works (general public buildings)

Degree of openness

Some segments of this market are open de jure (ie. power, highways, general building construction, concession contracts) while others, such as mass transit related services are not. When opened de jure, the thresholds applied (ie. 15.000.000 SDRs) render very difficult the access of foreign SMEs to these contracts. In addition, local establishment requirements (ie. complex FDI rules) and local preferences are applied when not open de jure.

Conclusion for the purposes of the IA:  Partially open (+0.5)

4.7 Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. No discriminatory measures have been identified

Conclusion for the purposes of the IA: Partially open (0.5)

4.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: Partial

· 100% for public buses purchased by city transportation bureaus

· Private operators of buses purchase their buses in the market

Degree of openness

Only procurement of major cities is opened de jure.

Conclusion for the purposes of the IA: Partially open (0.5)

4.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement: full dependency

Degree of openness

This market is opened de jure except for some equipment such as transformers, switches, panels or insulated wire.

Conclusion for the purposes of the IA: Partially closed (-0.5)

4.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: High

Degree of openness

Some segments of the market are open de jure (ie. Korean Water Resources Corporation or water supply services by some cities). SMEs set-asides apply to this sector.

Conclusion for the purposes of the IA: Open (1)

4.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc... purchased by cities and urban agglomerations.

Dependency from public procurement: High (at municipal level)

Degree of openness

While procurement by some cities is opened de jure, not for other key areas. SMEs set-asides apply to this sector.

Conclusion for the purposes of the IA: Unclear / difficult to provide clear assessment (0)

4.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by public hospitals

Dependency from public procurement: Partial

· Ministry of Health – underlying organisations

· Municipalities cover municipal hospitals

· University hospitals are affiliated to universities (probably covered through Ministry of Science, Education and Research)

· There are several private hospitals

Degree of openness

While procurement by central Ministries and main cities is opened de jure, not for other key areas. SMEs set-asides apply to this sector.

Conclusion for the purposes of the IA: Unclear / difficult to provide clear assessment (0)

4.13 Medical equipment

Relevant market: medical equipment products purchased by US public hospitals or health authorities. Includes laboratory research equipment and precision instruments (like cyclotrons, scanners).

Dependency from public procurement: Partial

· Ministry of Health – underlying organisations

· Municipalities cover municipal hospitals

· University hospitals are affiliated to universities (probably covered through Ministry of Science, Education and Research)

· There are several private hospitals

Degree of openness

While procurement by central Ministries and main cities is opened de jure, not for other key areas. SMEs set-asides apply to this sector.

Conclusion for the purposes of the IA: Unclear / difficult to provide clear assessment (0)

4.14 Specialised textiles

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement:

· 100% Military uniforms for defence

· 100% Uniforms for fire-fighting (municipalities)

· Uniforms for utilities (e.g. non-radio-active textiles,...) - KEPCO

· Bio-textiles and other health-related uniforms - Ministry of Health, Ministry of Science, Education and Research and main cities

· Overall uniforms

Degree of openness

This market is partially opened de jure (ie. Ministry of Health and GPA covered cities). The SMEs set asides apply.

Conclusion for the purposes of the IA: Unclear / difficult to provide clear assessment (0)

4.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: partial/low (depends on degree of specialisation of service delivered).

Degree of openness

Some segments are opened de jure (depends on the type of contracting authority and type of service). The SMEs set asides apply.

Conclusion for the purposes of the IA: Unclear / difficult to provide clear assessment (0)

4.16 Financial services

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management)

Dependency from public procurement: Partial-low (both specialised and generic services are sold to both private and public sectors).

 

Degree of openness

This market is not opened de jure. The SMEs set asides apply.

Conclusion for the purposes of the IA: Closed (-1)

4.17 Oil, gas and mining exploration equipment

Relevant market: Equipment for oil, gas and mining extraction and transport.

Dependency from public procurement: No oil exploration. Other sectors are private

Degree of openness: not applicable

Conclusion for the purposes of the IA: not relevant

4.18 Fixed telecom equipment

Relevant market: Telecom equipment for fixed telecom operators providing universal service-like public services.

Dependency from public procurement: none

Degree of openness: not applicable

Conclusion for the purposes of the IA: not relevant

4.19 Computer equipment and IT services

Relevant market: Computer equipment and software services sold government-wide; supercomputers for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Dependency from public procurement: partial for low-margin products, high for specific added-value products and services

Degree of openness

This market is open de jure. The SMEs set aside apply.

Conclusion for the purposes of the IA: Open (1)

4.20 Street lighting

Relevant market: Lighting for streets and highways

Dependency from public procurement: Partial

Degree of openness

Opened de jure for highways and general building construction, including concession contracts.

Conclusion for the purposes of the IA: Open (1)

4.21 Port Equipment

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: High

Degree of openness

Main ports are covered through the cities.

Conclusion for the purposes of the IA: Open (1)

5. Israel

GPA apparently supersedes national procurement law and can be considered as directly applicable.  In this context, what is CLOSED DE JURE internationally is CLOSED DE FACTO

However, Israel applies an offset policy of 20% on all procurement by foreign firms. This makes any procurement OPEN DE JURE as being actually CLOSED DE FACTO. In these circumstances, we considered CLOSED DE JURE resulted in CLOSED DE FACTO. Offsets have been agreed in the GPA, yet to ensure consistency with other countries, it is considered as a measure in practice for the DE FACTO assessment

5.1 Defence Relevant market: defence goods for army, navy and air force

Dependency from public procurement: Full dependency

Degree of openness

The defence public procurement market of Israel is not open de jure. The Ministry of Defence is covered, but subject to security exceptions. Where the market is not open de jure, national protectionist measures apply – offsets. 

Conclusion for the purposes of the IA: Fully closed (-1)

5.2 Aerospace

Relevant market: production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: Partial

ATC equipment (Israel Airports Authority) 100% for all satellites (Israel Space Agency) Degree of openness

While the Israel aerospace market is open de jure for Airports Authority and not for the space agency. Offsets are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

5.3 Postal machinery/Airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: Full

100% for postal machinery (Israel Post) 100% for airports (Israel Airports Authority) Degree of openness

The market is open de jure but offsets are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

5.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities; coast guard vessels (non-military)

Dependency from public procurement: Full

100% for fire-fighting (Israel Fire and Rescue Services, municipalities)

Degree of openness

This market is not open de jure. Offsets are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

5.5 Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways/, mass transit, water and dredging

· Airport terminals – Israel Airports Authority

· Marginal for general public works (general public buildings)

Degree of openness

The market is open de jure for transport (with the exemptions of mass transit and airport terminals), for Mekhorot Water, for power (Israel Electric Corp) and highways (Ministry of Transport-National Highways Authority). For other segments the market is not open de jure (ie dredging) for transport, water supply, dredging and power. Offsets apply

Conclusion for the purposes of the IA: Fully closed (-1)

5.6 Construction materials

Relevant markets: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways/, mass transit, water and dredging

· Airport terminals – Israel Airports Authority

· Marginal for general public works (general public buildings)

Degree of openness

The market is open de jure for transport (with the exemptions of mass transit and airport terminals), for Mekhorot Water, for power (Israel Electric Corp) and highways (Ministry of Transport-National Highways Authority). For other segments the market is not open de jure (ie dredging) for transport, water supply, dredging and power. Offsets apply

Conclusion for the purposes of the IA: Fully closed (-1)

5.7 Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: Full

· National Metropolitan Authority (NMA)

· Israel Railways

Degree of openness

The market is open de jure for Israel Railways and not for NMA. Offsets apply.

 

Conclusion for the purposes of the IA: Fully closed (-1)

5.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: Partial

· 100% for public buses purchased by city transportation bureaus

· Private operators of buses purchase their buses in the market

Degree of openness

The market is open de jure but offsets apply

Conclusion for the purposes of the IA: Fully closed (-1)

5.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement: Full

Degree of openness:

The market is open de jure ( but with explicit exclusions for HS 8504 (transformers), HS 8535 (switches), HS 8537 (panels), HS 8544 (cables) and electric motors (cf. several 8501 sub-codes). Offsets are also applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

5.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: Full

Degree of openness:

The market is open de jure but offsets apply.

Conclusion for the purposes of the IA: Fully closed (-1).

5.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc...purchased by cities and urban agglomerations.

Dependency from public procurement: Full

Degree of openness:

The market is open de jure but offsets apply

Conclusion for the purposes of the IA: Fully closed (-1).

5.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by Israel public hospitals or health authorities.

Dependency from public procurement: Partial

· Ministry of Health – underlying organisations

· Municipalities cover municipal hospitals

· University hospitals are affiliated to universities

· There are several private hospitals

Degree of openness:

The market is open de jure for Ministry of Health (except for specific products), Ministry of Education, main cities and not for insulin and hemi-dialysis for Ministry of Health. Offsets are also applicable.

Conclusion for the purposes of the IA: Fully closed (-1).

5.13 Medical equipment

Relevant market: medical equipment products purchased by Japanese public hospitals or health authorities. Includes laboratory research equipment and precision instruments (like cyclotrons, scanners).

Dependency from public procurement: Partial

· Ministry of Health – underlying organisations

· Municipalities cover municipal hospitals

· University hospitals are affiliated to universities

· There are several private hospitals

Degree of openness:

The market is open de jure for Ministry of Health, except for specific products, Ministry of Education, main cities and not for audiometers, intravenous solutions, scalps, blood packs, syringes for Ministry of Health. Offsets are also applicable.

Conclusion for the purposes of the IA: Fully closed (-1).

5.14 Specialised Textiles 

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement: Partial

· 100% Military uniforms for defence

· 100% Uniforms for fire-fighting (Israel Fire and Rescue Service, municipalities)

· Uniforms for utilities (e.g. non-radio-active textiles,...)

· Bio-textiles and other health-related uniforms - Ministry of Health, Ministry of Science, Education and Research and main cities

· Overall uniforms

Degree of openness:

The market is open de jure for Min. of Health, GPA covered cities and not for Ministry of Defence, or other cities. Offsets are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

5.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)  

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: Partial; depends on degree of specialisation of service-delivered

Degree of openness:

The market is open de jure (depending on the type of contracting authority) for advertising, consulting, building cleaning, engineering services, auditing/accounting, legal services - depends on the type of contracting authority. Offsets are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

5.16 Financial services  

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management).

Dependency from public procurement: Partial

Both specialised and generic services are sold to both private and public sectors. However, sums to be managed by governments are generally much higher than in the private sector.

Degree of openness:

The market is not open de jure. Offsets apply.

 

Conclusion for the purposes of the IA: Fully closed (-1)

5.17 Oil equipment   

Relevant market: Equipment for oil extraction and transport. Technical surveying services.

Dependency from public procurement: none

Degree of openness: not applicable

Conclusion for the purposes of the IA: not relevant

5.18 Fixed telecom equipment   

Relevant market: Telecom equipment for fixed telecom operators providing universal service-like public services.

Dependency from public procurement: none

Degree of openness: not applicable

Conclusion for the purposes of the IA: not relevant

5.19 Computer and IT services

Relevant market: Computer equipment and software services sold government-wide; supercomputers for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Dependency from public procurement: PARTIAL for low-margin products, HIGH for very specific added-value products and services.

Degree of openness:

The market is open de jure for computer and IT services. Offsets are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

5.20 Street lightning, traffic signalling   

Relevant market: lighting for streets and highways

Dependency from public procurement: Full

Degree of openness:

The market is open de jure for highways (Ministry of Transport-National Highways Authority) and for the main cities, but not for the rest. It is not open de jure for: for transport, water supply, dredging and power. Offsets are applicable.

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

5.22 Port equipment   

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: High

· 4 port authorities are covered (Haifa, Eilat, Ashod, Israel Ports Development)

· 1 port authority is not covered (Marine Trust Ltd - port of Tel Aviv)

Degree of openness:

The market is not open de jure for: for transport, water supply, dredging and power. Offsets are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

6. Mexico

Mexico has partly opened the procurement of the federal government and State enterprises through its free trade agreement with the EU. If the FTA does not cover a specific procurement, then the Mexican government can apply a 50% local content requirement (cf. Article 28 of the Federal Law[8]).

The procurement of States has not been opened through the FTA. The laws of the 4 main States (Mexico State, Mexico DF, Jalisco, Nuevo Leon), which cover the 3 largest agglomerations (Mexico, Guadalajara and Monterrey), have been analysed.

- Estado de Mexico, Nuevo Leon and Jalisco: national preference by definition, unless the good is not found in Mexico (article 26 of the law of Jalisco[9], article 62 of the law of Nuevo Leon[10] and article 36 of the law of Estado de Mexico[11]).

- Mexico Federal District: The government decides whether it should undertake a national procedure (where goods need a 50% Mexican content) or an "international procedure" (where goods need a 35% Mexican content requirement[12]).

6.1 Defence Relevant market: defence goods for army, navy and air force

Dependency from public procurement: Full

Degree of openness

The defence public procurement market of Mexico is not open de jure. The Ministry of Defence is covered, but subject to security exceptions. Direct awards are possible in the defence sector.

Conclusion for the purposes of the IA: Fully closed (-1)

6.2 Aerospace

Relevant market: production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: Full

ATC equipment (SENEAM - Servicios a la Navegacion en el Espacio Areo Mexicano a department under the Secretaria Transportes y Comunaciones SENEAM is not listed in the EUMEX FTA differently from overseeing body the SCT) Satellites are purchased either by the SCT under open procedures or by the UAM -Universidad Autonoma de Mexico (not covered) Degree of openness

The ATC equipment/satellites market is open de jure but the situation is unclear on whether it is open for ATC equipment purchased by UAM. Certain national protectionist measures apply such as 50% local content requirement in cases of segments not opened de jure.

Conclusion for the purposes of the IA: Unclear/Difficult to provide clear assessment (0)

6.3 Postal machinery/Airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: High

100% for postal machinery (Servicio Postal Mexicano) High for airport sorting systems (100% for airports like Mexico that are controlled by ASA, but not for airports like Cancun that are run by concesions) Degree of openness

The market is open de jure and de facto.

Conclusion for the purposes of the IA: Fully open (1)

6.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities; sea rescue vessels of coast guard

Dependency from public procurement: Full

Degree of openness

This market is not open de jure. The Ministry of Defence is covered but subject to security exceptions. A number of domestic protectionist measures are applied such as a 35-50% local content requirement.

Conclusion for the purposes of the IA: Fully closed (-1)

6.5 Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services. 

Dependency from public procurement: High

· 100% for infrastructure construction (highways/CAPUFE, mass transit, water and dredging )

· Airport terminals – ASA or airport concessions

· Marginal for general public works (general public buildings)

Degree of openness

Openness test

A part of the market is open de jure, while another part is not. Transport segments such as airport terminals (ASA) are opened de jure, as well as power, highway and general building construction of the federal government. On the contrary, transport, general water infrastructure and general building construction in States and dredging is not opened de jure. A priori there are no protectionist measures in the area of services. Mexico has not clarified whether concession contracts to the EU are open in the EUMXFTA - a priori they are closed de jure.

Conclusion for the purposes of the IA:

"unclear (0)

6.6 Construction materials

Relevant markets: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: High

· 100% for infrastructure construction (highways/CAPUFE, mass transit, water and dredging)

· Airport terminals – ASA or airport concessions

· Marginal for general public works (general public buildings)

Degree of openness

A part of the market is open de jure, while another part is not. Transport segments such as airport terminals (ASA) are opened de jure, as well as power, highway and general building construction of the federal government. On the contrary, transport, general water infrastructure and general building construction in States and dredging is not opened de jure. In these cases local content requirements (35-50%) are applied. Also, Mexico has not clarified whether concession contracts to the EU are open in the EUMXFTA - a priori they are closed de jure.

Conclusion for the purposes of the IA:

"unclear (0)

6. 7 Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: High

· Ferrocariles de Mexico - very small

· Urban transport networks (Metro de Mexico)

Degree of openness

The market is open de jure for railways and not open de jure for urban transport. Where it is not open de jure, certain national protectionist measures apply such as a local content requirement (35%-50%).

Conclusion for the purposes of the IA:

Note: "harmed by trade barriers (-0.5)

6.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: Partial

· 100% for public buses (Red de Transportes de Pasajeros Mexico DF)

· Private operators of buses purchase their buses in the market

Degree of openness

The market is not open de jure. Where not open de jure, certain national protectionist measures apply such as 35%-50% local content requirement.

Conclusion for the purposes of the IA: Fully closed (-1)

6.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement: Full

Degree of openness: The market is open de jure and de facto.

Conclusion for the purposes of the IA: Fully open (1)

6.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: Full

· 100% CONAGUA

· 100% for water supply services managed by municipalities (cities)

Degree of openness:

The market is open de jure for CONAGUA and not open de jure for cities. Where it is not open de jure, no national protectionist measures apply to services, even at the state level. Mexico has not clarified whether concession contracts to the EU are open in the EUMXFTA – a priori they are closed de jure. The market is considered open de facto.

Conclusion for the purposes of the IA: Fully open (1)

6.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc...purchased by cities and urban agglomerations.

Dependency from public procurement: Full (mostly at municipal level)

· As most of the environmental services are within the remit of municipalities, the dependency rate is assumed to be 100%

Degree of openness:

The market is not open de jure for cities. Where it is not open de jure, no national protectionist measures apply to services, even at the state level. The market is considered open de facto.

Conclusion for the purposes of the IA: Open (1)

6.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by Mexican Public hospitals or health authorities.

Dependency from public procurement: Partial

· Ministry of Health – underlying organisations

· Social security (IMSS)

· There are several private hospitals

Degree of openness:

The market is open de jure and de facto.

Conclusion for the purposes of the IA: Fully open (1).

6.13 Medical equipment

Relevant market: pharmaceutical products purchased by Mexican Public hospitals or health authorities.

Dependency from public procurement: Partial

· Ministry of Health – underlying organisations

· Social security (IMSS)

· There are several private hospitals

Degree of openness:

The market is open de jure and de facto.

Conclusion for the purposes of the IA: Fully open (1).

6.14 Specialised Textiles 

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement: Partial

· 100% Military uniforms for defence

· 100% Uniforms for fire-fighting (municipalities)

· Uniforms for utilities (e.g. non-radio-active textiles,...) - KEPCO

· Bio-textiles and other health-related uniforms - Ministry of Health, Ministry of Science, Education and Research and main cities

· Overall uniforms

Degree of openness:

The market is open de jure for Ministry of health and covered cities and not open de jure for Ministry of Defence and uncovered cities. Where it is not open de jure, certain national protectionist measures can apply such as 35%-50% local content requirement.

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

6.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)  

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: Partial-low; depends on degree of specialisation of service-delivered[13]

Degree of openness:

The market is not open de jure. No de facto restrictions apply to services. It is open de facto.

Conclusion for the purposes of the IA: Fully open (1)

6.16 Financial services  

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management).

Dependency from public procurement: Partial-low (Both specialised and generic services are sold to both private and public sectors)

Degree of openness:

The market is not open de jure. No de facto restrictions apply to services. It is closed de facto.

 

Conclusion for the purposes of the IA:

"open (1)

6.17 Oil equipment   

Relevant market: Equipment for oil extraction and transport.

Dependency from public procurement: Full

Degree of openness:

The market is open de jure and de facto. The restrictions under the EUMXFTA are now over.

Conclusion for the purposes of the IA: Fully open (1)

6.18 Fixed telecom equipment   

Relevant market: Telecom equipment for fixed telecom operators providing universal service-like public services.

Dependency from public procurement: Full

Degree of openness:

The market is open de jure and de facto. The restrictions under the EUMXFTA are now over.

Conclusion for the purposes of the IA: Fully open (1)

6.19 Computer and IT services

Relevant market: Computer equipment and software services sold government-wide; supercomputers for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Dependency from public procurement: Partial for low-margin products, High for very specific added-value products and services.

Degree of openness: for low-margin products, HIGH for very specific added-value products and services.

· Generic computers and IT services are sold to both private and public sector

· Supercomputers and specific IT applications for hospitals - Ministry of Health and cities

· Supercomputers and specific IT applications for universities – Ministry of Education and Science

· Supercomputers and specific IT applications for aerospace, infrastructure management, power generation - high dependence (e.g. CAPUFE,…)

IF NOT OPEN de jure, list of applicable "national protectionist measures":

· Local content requirement (35%-50%)

Conclusion for the purposes of the IA: Fully open (1) would depend on the assessment above

6.20 Street lightning, traffic signalling   

Relevant market: lighting for streets and highways

Dependency from public procurement: Full

Degree of openness:

The market is open de jure for highways and not for cities. It is not open de jure for: transport, water supply, dredging and power. In those cases a list of applicable national protectionist measures apply such as a local content requirement (35%-50%). Mexico's concessions have not been opened to the EU.

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

6.22 Port equipment   

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: Full[14]

Degree of openness:

The market is not open de jure. A list of applicable national protectionist measures apply such as a local content requirement (35%-50%).

Conclusion for the purposes of the IA: Fully closed (-1)

7. TURKEY

Overall situation:

Turkey applies a 15% price preference margin for all domestic tenderers offering services and works and for goods of domestic origin. Below threshold values only domestic bidders can participate. According to the EU Delegation in Anakara, these restrictions have only been applied in 23% of procedures.

The Turkish law is modelled on the EU Public Procurement directives, but has fallen short of regulating the procurement of private utilities

Main source for analysis: SIGMA Report 2009 and internal reports from the EU Delegation in Turkey domestic tenderers offering services and works and for goods of domestic origin; below threshold values only domestic bidders can participate

7.1 Defence

Relevant market: defence goods for army, navy and air force

Dependency from public procurement: Full dependency

Degree of openness

Lack of clear defense procurement framework. This market is not opened de jure. European companies have been subjected to sanctions in this area for political reasons

Conclusion for the purposes of the IA: Fully closed (-1)

7.2 Aerospace

Relevant market:  production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: Full dependency (although telecommunication satellites are private)

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.3 Postal machinery/airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: Partial (airport sorting system are private)

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.5 Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways, mass transit, power, water and dredging)

· Marginal for general public works (general public buildings)

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA:  Harmed by trade barriers - a priori closed (-0.5)

7.6 Construction materials

Relevant market: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: Partial (same materials used for private construction)

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.7 Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: High

100% for municipal buses There are some private bus operators in Turkey Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement: Partial (distribution and production is not covered by procurement rules)

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc... purchased by cities and urban agglomerations.

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by public hospitals

Dependency from public procurement: High[15]

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.13 Medical equipment

Relevant market: medical equipment products purchased by US public hospitals or health authorities. Includes laboratory research equipment and precision instruments (like cyclotrons, scanners).

Dependency from public procurement: High[16]

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.14 Specialised textiles

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement: Partial

· 100% Military uniforms for defence (Ministry of Defence)

· 100% Uniforms for fire-fighting (Ministry of Forestry, municipalities)

· Uniforms for utilities (e.g. non-radio-active textiles,...) - public utilities

· Bio-textiles and other health-related uniforms - Ministry of Health, local hospitals

· Overall uniforms

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: Partial (it would depend on the degree of specialisation of the service provided)

· Building-cleaning, auditing and advertising - generic services sold to private and public services; no specific dependency

· Consulting and legal services - generic services to private and public services; no specific dependency

· Consulting and legal services - specialised services sold to aerospace, infrastructure management, power generation - high dependence

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.16 Financial services

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management)

Dependency from public procurement: Partial (Both specialised and generic services are sold to both private and public sectors).

 

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.17 Oil, gas and mining exploration equipment

Relevant market: Equipment for oil extraction and transport.

Dependency from public procurement: High (on the assumption that BOTAS - the state-owned gas and oil pipeline operator appears to fall under public procurement law)

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.18 Fixed telecom equipment

Relevant market: Telecom equipment for fixed telecom operators providing universal service-like public services.

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.19 Computer equipment and IT services

Relevant market: Computer equipment and software services sold government-wide; supercomputers for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Dependency from public procurement: Partial for low-margin products, High for very specific added-value products and services (ie. supercomputers and specific IT applications for hospitals, universities, aerospace, etc)

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.20 Street lighting

Relevant market: Lighting for streets and highways

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

7.21 Port Equipment

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: High

· Ports are owned by the Turkish State Railways

Degree of openness

This market is not opened de jure. Although there are no de jure discriminations against foreign bidders, it is subject to local preferences (up to 15%)

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

8. PEOPLE'S REPUBLIC OF CHINA

8.1 Defence

Relevant market: defence goods for army, navy and air force

Dependency from public procurement: Full dependency

Degree of openness

Analysis not applicable due to EU export ban on defence and warlike goods.

Conclusion for the purposes of the IA: Fully closed (-1)

8.2 Aerospace

Relevant market:  production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: High

100% for ATC equipment (Civil Administration of China) 100% for astronomical and space-related satellites (China National Space Administration) Unknown for communication satellites (China National Space Administration) 100% for meteorological satellites (China National Space Administration) Unknown for navigation satellites (China National Space Administration)

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%). The so-called "indigenous innovation policy" affects IT products and communication goods.

Conclusion for the purposes of the IA: Fully closed (-1)

8.3 Postal machinery/airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: full dependency

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%). The so-called "indigenous innovation policy" affects IT products and communication goods.

Conclusion for the purposes of the IA: Fully closed (-1)

8.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities

Dependency from public procurement: full dependency

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied.

Conclusion for the purposes of the IA: Fully closed (-1)

8.5 Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways, mass transit, power, water and dredging)

· Marginal for general public works (general public buildings)

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%).

Conclusion for the purposes of the IA:  fully closed (-1)

8.6 Construction materials

Relevant market: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: Partial (same materials are used for private construction)

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%).

Conclusion for the purposes of the IA:  fully closed (-1)

8.7 Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: full dependency

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%).

Conclusion for the purposes of the IA:  fully closed (-1)

8.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: High

100% for public buses (cities) None for coaches Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%).

Conclusion for the purposes of the IA:  fully closed (-1)

8.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement:

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%). The so-called "indigenous innovation policy" affects IT products and communication goods.

Conclusion for the purposes of the IA:  fully closed (-1)

8.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: High (mostly within the remit of local authorities)

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%). In addition there is a need to find a national partner as developer to the National Energy Agency

Conclusion for the purposes of the IA: fully closed (-1)

8.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc... purchased by cities and urban agglomerations.

Dependency from public procurement: high

· As most of the environmental services are within the remit of local authorities, the dependency rate is assumed to be 100%

· Contracting authorities may either purchase this type of goods or services, or actually outsource them (through concessions)

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied.

Conclusion for the purposes of the IA: fully closed (-1)

8.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by public hospitals

Dependency from public procurement: high

· Ministry of Health

· People's Liberation Army

· Provinces, municipalities and local cities

· Individual hospitals

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied.

Conclusion for the purposes of the IA: fully closed (-1)

8.13 Medical equipment

Relevant market: medical equipment products purchased by public hospitals or health authorities. Includes laboratory research equipment and precision instruments (like cyclotrons, scanners).

Dependency from public procurement: high

· Ministry of Health

· People's Liberation Army

· Provinces, municipalities and local cities

· Individual hospitals

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied.

Conclusion for the purposes of the IA: fully closed (-1)

8.14 Specialised textiles

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement:

· 100% Military uniforms for defence (People's Liberation Army)

· 100% Uniforms for fire-fighting (Ministry of Public Service)

· Uniforms for utilities (e.g. non-radio-active textiles,...) -

· Bio-textiles and other health-related uniforms - Ministry of Health, local hospitals

· Overall uniforms

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied.

Conclusion for the purposes of the IA: fully closed (-1)

8.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: depends of degree of specialisation of the service delivered

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied.

Conclusion for the purposes of the IA: fully closed (-1)

8.16 Financial services

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management)

Dependency from public procurement: partial (both specialised and generic services are sold to both private and public sectors)

 

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied.

Conclusion for the purposes of the IA: fully closed (-1)

8.17 Oil, gas and mining exploration equipment

Relevant market: Equipment for oil extraction and transport.

Dependency from public procurement: high

· CNOOC

· PetroChina

· China National Coal

· Shenhua Group

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%).

Conclusion for the purposes of the IA: fully closed (-1)

8.18 Fixed telecom equipment

Relevant market: Telecom equipment for fixed telecom operators providing universal service-like public services.

Dependency from public procurement: full dependency

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%). "Indigenous innovation policies" also affect IT products and communication goods.

Conclusion for the purposes of the IA: fully closed (-1)

8.19 Computer equipment and IT services

Relevant market: Computer equipment and software services sold government-wide; supercomputers for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Dependency from public procurement: partial for low margin products, high for specific added value products and services

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%). "Indigenous innovation policies" also affect IT products and communication goods.

Conclusion for the purposes of the IA: fully closed (-1)

8.20 Street lighting

Relevant market: Lighting for streets and highways

Dependency from public procurement: full dependency

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%).

Conclusion for the purposes of the IA: fully closed (-1)

8.21 Port Equipment

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: full dependency

Degree of openness

This market is not opened de jure. There are a number of national protectionist measures. For example, the Government Procurement law gives an overall priority for domestic products made in China by Chinese-controlled firms. There are local content requirements (up to 50%) and if a product or service does not contain local content then a price preference of 20% is applied. The Bidding law includes the possibility to decide, on an ad hoc basis, local content thresholds (that can be of 70%).

Conclusion for the purposes of the IA: fully closed (-1)

9. INDIA

India has no single corps of rules in the area of public procurement. Our analysis is nevertheless based on the General Financial Rules 2005 (and the Defence Procurement Procedure 2008) that apply to the central government, but are used as a reference by States and by Public Sector Undertakings.

The procurement chapter of the GFRs is not extremely detailed and does not clarify precisely the access of foreign bidders to Indian public procurement market. It does however suggest that foreign bidders have to be represented by an Indian agent and that foreign goods may be procured only when the goods in question are not available in India - it is unclear whether foreign goods sold in India are covered by such measure.

 

9.1 Defence

Relevant market: defence goods for army, navy and air force

Dependency from public procurement: Full dependency

Degree of openness

Although the Ministry of Defense is covered by procurement rules (with security exemptions) this market is not open de jure for EU suppliers. Also, offsets and transfers of technology are requested (ie. Buy and Make through Imported Transfer of Technology)

Conclusion for the purposes of the IA: Fully closed (-1)

9.2 Aerospace

Relevant market:  production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: Full dependency (except for communication satellites)

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.3 Postal machinery/airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: High (as partial for airport sorting systems)

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.5 Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways, mass transit, water and dredging) - National Highways Authority/metros/municipalities

· Airport terminals – Airports Authority of India, concessionaires

· Marginal for general public works (general public buildings)

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA:  Harmed by trade barriers - a priori closed (-0.5)

9.6 Construction materials

Relevant market: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways, mass transit, water and dredging) - National Highways Authority/metros/municipalities

· Airport terminals – Airports Authority of India, concessionaires

· Marginal for general public works (general public buildings)

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.7 Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: Full dependency[17]

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: High (private operators purchases buses in private sector)

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market. In this market there are also national policies developed/currently being developed aimed at promoting domestic industry and use of domestic products.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: Full dependency (all at State/municipal level)

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc... purchased by cities and urban agglomerations.

Dependency from public procurement: Full dependency (all at State/municipal level)

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by public hospitals

Dependency from public procurement: Partial

· Ministry of Health – underlying organisations

· States cover public hospitals in States

· University hospitals are affiliated to universities (probably covered through Ministry of Science, Education and Research)

· There are several private hospitals

Degree of openness

This market is not opened de jure. India maintains a list of 102 pharmaceutical goods that are subject to a price preference in favour of  pharmaceuticals produced by Indian PSUs (Dept of Chemicals and Petro chemistry OM N°50013/1/2006 (PI-IV) of 7 August 2006) Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.13 Medical equipment

Relevant market: medical equipment products purchased by US public hospitals or health authorities. Includes laboratory research equipment and precision instruments (like cyclotrons, scanners).

Dependency from public procurement: Partial

· Ministry of Health – underlying organisations

· States cover public hospitals in States

· University hospitals are affiliated to universities (probably covered through Ministry of Science, Education and Research)

· There are several private hospitals

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.14 Specialised textiles

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement: Partial

· 100% Military uniforms for defence

· 100% Uniforms for fire-fighting (municipalities)

· Uniforms for utilities (e.g. non-radio-active textiles,...) - NTPC

· Bio-textiles and other health-related uniforms - Ministry of Health, Ministry of Science, Education and Research and main cities

· Overall uniforms

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA:

9.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: Partial (depends on the degree of specialisation of the service delivered)

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.16 Financial services

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management)

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.17 Oil, gas and mining exploration equipment

Relevant market: Equipment for oil extraction and transport.

Dependency from public procurement: Full dependency (all Public Sector Undertakings)

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.18 Fixed telecom equipment

Relevant market: Telecom equipment for fixed telecom operators providing universal service-like public services.

Dependency from public procurement: Full dependency (all Public Sector Undertakings)

Degree of openness

This market is not opened de jure. In addition security restrictions are currently being applied on Chinese telecom products and it cannot be excluded these restrictions be extended to other third countries. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.19 Computer equipment and IT services

Relevant market: Computer equipment and software services sold government-wide; supercomputers for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Dependency from public procurement: Partial for low-margin products and High for specific added-value products and services (ie. supercomputers and specific IT applications for hospitals, universities, aerospace, power generation etc)

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.20 Street lighting

Relevant market: Lighting for streets and highways

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

9.21 Port Equipment

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: Full dependency[18]

Degree of openness

This market is not opened de jure. Practice shows that EU suppliers manage to enter this market although while there are is no proof of systematic discrimination, there are reports of burdensome administrative and technical requirements being applied on foreign bidders which could render difficult their access to this particular market.

Conclusion for the purposes of the IA: Harmed by trade barriers - a priori closed (-0.5)

10. RUSSIA

Overall situation:

 - We extrapolate our analysis of the Federal Law into the (future?) law governing state monopolies - the Federal Law only applies to federal, regional and local authorities.

- Russia is still not a member of WTO, and applies an average tariff of 13%[19]

(1) Procurement contracts

 - 15% preferences margin on specific goods (determined by Decree 427/2008 of MID[20]) vis-à-vis their "foreign" competitors in procurement contracts (this list does not contain specific services, nor computers). The goods are labelled in the Russian NACE, the ОКВЭД.

 - "Foreign products" are goods with less than 50% Russian content

 - There are no local establishment requirements

-  10-20% of set asides in favour of Russian SMEs.

(2) Concession contracts

There are no local establishment requirements and tie-bid preferences only.

Russia has indicated that it could take measures against countries blocking Russian companies abroad.

10.1 Defence

Relevant market: defence goods for army, navy and air force

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. There are also special laws that apply to the procurement of defence products with specific requirements and restrictions for foreign products and suppliers.

Conclusion for the purposes of the IA: Fully closed (-1)

10.2 Aerospace

Relevant market:  production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Fully closed (-1)

10.3 Postal machinery/airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: High

Partial for airport sorting systems (some airports like SVO or regional airports appear to follow PP procedures, others like DME/LED are fully private) 100% for postal machinery (Poshta Rossii) Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Fully closed (-1)

10.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Fully closed (-1)

10.5 Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways, mass transit, power, gas, water and dredging) - Avtodoroje (highways), urban transport networks (metros), power (RAO EES spin-offs, Rosatom), gas (Gazprom) and water (municipalities)

· Marginal for general public works (general public buildings)

Degree of openness

While this market is not opened de jure, no national protectionist measures have been identified that could restrict a de facto access to this market.

Conclusion for the purposes of the IA:  Open (1)

10.6 Construction materials

Relevant market: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: Partial (same materials used for private construction)

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Closed (-1)

10.7 Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Closed (-1)

10.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: Full dependency (urban networks depend from cities)

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Closed (-1)

10.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Closed (-1)

10.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: Full (mostly at local authorities level, concessions can be awarded)

Degree of openness

While this market is not opened de jure, no national protectionist measures have been identified that could restrict a de facto access to this market.

Conclusion for the purposes of the IA: Open (1)

10.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc... purchased by cities and urban agglomerations.

Dependency from public procurement: Full (mostly at local authorities level, concessions can be awarded)

Degree of openness

While this market is not opened de jure, no national protectionist measures have been identified that could restrict a de facto access to this market.

Conclusion for the purposes of the IA: Open (1)

10.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by public hospitals

Dependency from public procurement: high

· Ministry of Health

· Municipal hospitals

· Farmatsevticheskii Logisticheski Kompleks (buys medicines for the citizens)

· Private hospitals

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Closed (-1)

10.13 Medical equipment

Relevant market: medical equipment products purchased by US public hospitals or health authorities. Includes laboratory research equipment and precision instruments (like cyclotrons, scanners).

Dependency from public procurement: high

· Ministry of Health

· Municipal hospitals

· Farmatsevticheskii Logisticheski Kompleks (buys medicines for the citizens)

· Private hospitals

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Closed (-1)

10.14 Specialised textiles

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement: high

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Closed (-1)

10.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: depends on degree of specialisation of services delivered[21]

Degree of openness

While this market is not opened de jure, no national protectionist measures have been identified that could restrict a de facto access to this market.

Conclusion for the purposes of the IA: Open (1)

10.16 Financial services

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management)

Dependency from public procurement: Partial (both specialised and generic services are sold to both private and public sectors)

 

Degree of openness

While this market is not opened de jure, no national protectionist measures have been identified that could restrict a de facto access to this market.

Conclusion for the purposes of the IA: Open (1)

10.17 Oil, gas and mining exploration equipment

Relevant market: Equipment for oil extraction and transport.

Dependency from public procurement: Partial

· Gazprom (100%)

· ROSNEFT does not appear to be covered by PP rules

· Coal companies out of PP rules

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Closed (-1)

10.18 Fixed telecom equipment

Relevant market: Telecom equipment for fixed telecom operators providing universal service-like public services.

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Closed (-1)

10.19 Computer equipment and IT services

Relevant market: Computer equipment and software services sold government-wide; supercomputers for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Dependency from public procurement: Partial for low-margin products, High for specific added-value products and services

Degree of openness

While this market is not opened de jure, computers have been excluded from the price preference mechanism so no national protectionist measures have been identified that could restrict a de facto access to this market.

Conclusion for the purposes of the IA: Open (1)

10.20 Street lighting

Relevant market: Lighting for streets and highways

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Closed (-1)

10.21 Port Equipment

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: High

· Ports of St Petersburg and Novorossiysk follow PP rules

· Port of Vladivostok appears to be private

Degree of openness

This market is not opened de jure. There are price preferences (up to 15%) that would apply.

Conclusion for the purposes of the IA: Closed (-1)

11. BRAZIL

Overall situation:

(1) Procurement contracts

We shall assume a 25% preference margin on all goods and services in procurement contracts. Lei 8666/93 was amended by Medida Provisoria n°495 that gives the power to the Federal government to define a national preference margin in favour of Brazilian goods and services. This margin may reach up to 25% (calculated on the basis of the foreign product).

Brazil applies a local establishment requirement. To participate to a public procurement procedure, all participants must be established in Brazil. Foreign experience in public works is not taken into account for qualification.

There are additional specific local content requirements for Telebras and Petrobras.

(2) Concession contracts

There are no local establishment requirements and tie-bid preferences only.

11.1 Defence

Relevant market: defence goods for army, navy and air force

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.2 Aerospace

Relevant market:  production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: Full dependency[22]

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.3 Postal machinery/airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.5 Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways, mass transit, power, water and dredging)

· Marginal for general public works (general public buildings)

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable. These requirements do not apply in the case of concession contracts for which there is no proof of systematic discrimination of foreign bidders.

Conclusion for the purposes of the IA:  Unclear / Difficult to provide clear assessment (0)

11.6 Construction materials

Relevant market: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: Partials (same materials used for private construction)

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.7 Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: High

100% for metros (Sao Paulo, Rio, BH, Brasilia, Recife, Porto Alegre) 100% for railway equipment (ANTT, urban railways of Sao Paulo, CBTU) Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: No (all bus services are private)

Degree of openness

Not applicable

Conclusion for the purposes of the IA:

Not relevant

11.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement: Partial

· Eletrobras

· CESP

· CEMIG

· Copel

· CTEEP

· Private operators (including from abroad like Terna Brasile and Tractebel)

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: High (vast majority within the remit of local authorities)

Degree of openness

While this market is not opened de jure, there are concrete cases of municipalities or groups of municipalities having awarded concessions to EU suppliers (ie. Suez, Veolia and Aguas de Portugal)

Anyways, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable. These requirements do not apply in the case of concession contracts for which there is no proof of systematic discrimination of foreign bidders.

Conclusion for the purposes of the IA: Unclear / Difficult to provide clear assessment (0)

11.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc... purchased by cities and urban agglomerations.

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable. These requirements do not apply in the case of concession contracts for which there is no proof of systematic discrimination of foreign bidders.

Conclusion for the purposes of the IA:  Unclear / Difficult to provide clear assessment (0)

11.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by public hospitals

Dependency from public procurement: Partial

· Ministry of Health

· Municipal hospitals

· Private hospitals

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.13 Medical equipment

Relevant market: medical equipment products purchased by US public hospitals or health authorities. Includes laboratory research equipment and precision instruments (like cyclotrons, scanners).

Dependency from public procurement: Partial

· Ministry of Health

· Municipal hospitals

· Private hospitals

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.14 Specialised textiles

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement: Partial

· 100% Military uniforms for defence (Ministry of Defence)

· 100% Uniforms for fire-fighting (Ministry of Defence, munipalities)

· Uniforms for utilities (e.g. non-radio-active textiles,...) - public utilities

· Bio-textiles and other health-related uniforms - Ministry of Health, local hospitals

· Overall uniforms

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: Depends on the degree of specialisation of the service delivered (ie. Building-cleaning, auditing and advertising are consideredgeneric services sold to private and public services with no specific dependency while consulting and legal services are specialised services sold to aerospace, infrastructure management, power generation and thus with high dependence)

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders the local establishment requirements are applicable. These measures are not applied in the case of concession contracts.

Conclusion for the purposes of the IA: Fully closed (-1)

11.16 Financial services

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management)

Dependency from public procurement: Partial (both specialised and generic services are sold to both private and public sectors)

 

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders the local establishment requirements are applicable. These measures are not applied in the case of concession contracts.

Conclusion for the purposes of the IA: Fully closed (-1)

11.17 Oil, gas and mining exploration equipment

Relevant market: Equipment for oil extraction and transport.

Dependency from public procurement: Full dependency[23]

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.18 Fixed telecom equipment

Relevant market: Telecom equipment for fixed telecom operators providing universal service-like public services.

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.19 Computer equipment and IT services

Relevant market: Computer equipment and software services sold government-wide; supercomputers for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Dependency from public procurement: Partial for low-margin products, High for specific added-value products and services

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.20 Street lighting

Relevant market: Lighting for streets and highways

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

11.21 Port Equipment

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: High

· Ports are by law under federal administration through State companies (CODESP, CODRJ and other companhias de docas)

· Some ports are private (Tubarao)

Degree of openness

This market is not opened de jure. In addition, in case EU suppliers succeed in participate in tenders, the local content requirements (up to 25%) and the local establishment requirements are applicable.

Conclusion for the purposes of the IA: Fully closed (-1)

12. UKRAINE

Ukraine is an important bordering country for several Member States (in particular Poland). It is therefore important to analyse the situation in Ukraine. However the analysis of the Ukranian procurement legislation has proven to be quite difficult for various reasons.

While Ukraine has committed itself to approximate its procurement legislation to the EU public procurement directives and there have been some recent legislative amendments which have taken Ukraine closer to reach that goal (e.g. establishment of an independent review body, introduction of framework agreements), the Ukranian law is still modelled on the Uncitral Model Law.

Due to the partially different legal approach towards the definition of the entities covered (especially in terms of state-owned enterprises), the regular (and recent) changes of the scope of the Ukrainian PP law (which can be also expected in the near future) it is therefore very important to take all care before interpreting the legislation, either as a closure or as an opening.

The wide presence of state-owned companies (railways, space, medical equipment) implies that there must be important mechanisms whereby the latter have precedence in procurement procedures. We have not found any provision pointing systematically to "in-house".

Therefore, more than the analysis, what matters in Ukraine is the actual application of the rules where we do not have sufficient information for a throughout analysis.

Furthermore, the situation in Ukraine is constantly evolving: any conclusion taken today maybe altered in the very near future. The Buy Ukraine measures were withdrawn on 1 January 2011, Ukraine is asking for accession to the GPA and at the same time the EU is to conclude its FTA with Ukraine which will have substantial impact both on legislative background, scope and market access. Yet, political instability in Ukraine is currently complicating the ratification of the FTA.

In this context, we have kept the present analysis for Ukraine, but we leave it with careful caveats both for its short-term and long-term prospects. It means also that the situation of Ukraine shall lave to be carefully monitored.

12.1 Defence

Relevant market: defence goods for army, navy and air force

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. It is unclear whether the situation in practice has changed since then.

Conclusion for the purposes of the IA: Fully closed (-1)

12.2 Aerospace

Relevant market:  production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: High

100% for ATC equipment (Ukrainian State Air Traffic Service Enterprise – UkSATSE) 100% for space vehicles and satellites (Ukrainian Space Agency), but these activities are under the responsibility of State enterprises (e.g. Yuzhnoi Konstrukturoe Biuro) These satellite enterprises are themselves covered by PP rules (and have PP pages)

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. It is unclear whether the situation in practice has changed since then but experience show this market is protected in practice.

Conclusion for the purposes of the IA: Fully closed (-1)

12.3 Postal machinery/airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. The situation of non-discrimination should therefore be applied.

Conclusion for the purposes of the IA: Partially opened (0.5)

12.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. The situation of non-discrimination should therefore be applied.

Conclusion for the purposes of the IA: Partially opened (0.5)

12.5 Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways, mass transit, power, gas, water and dredging) – Ministry of Public Works, city administrations

· Marginal for general public works (general public buildings)

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, there are applicable and significant exemptions for special infrastructure projects (ie. European Football Championship 2012 and other sports infrastructures). The local content policy through Government Resolution of 24 June 2009 No. 647 was in force until 1 January 2011.

Conclusion for the purposes of the IA:  Partially opened (0.5)

12.6 Construction materials

Relevant market: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways, mass transit, power, gas, water and dredging) – Ministry of Public Works, city administrations

· Marginal for general public works (general public buildings)

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, there are applicable and significant exemptions for special infrastructure projects (ie. European Football Championship 2012 and other sports infrastructures). These may have less impact on construction materials themselves. The local content policy through Government Resolution of 24 June 2009 No. 647 was in force until 1 January 2011.

Conclusion for the purposes of the IA:  Partially opened (0.5)

12.7 Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: Full dependency[24]

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, it is unclear whether the exception on rail services actually applies to railway equipment

Conclusion for the purposes of the IA: Fully closed (-1)

12.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: Partial

None for coaches 100% for public buses (100% for main urban transport networks), but manufacturing of buses are under the responsibility of State enterprises (e.g. Yuzhnoi Konstrukturoe Biuro, Yuzhmash) State enterprises are themselves covered by PP rules (and have PP pages) Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, it is unclear whether the exception on urban services actually applies to railway equipment

Conclusion for the purposes of the IA: Fully closed (-1)

12.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. In theory, the situation of non-discrimination should therefore be applied but the practice is still unclear. There is also the existence of "in house" preferences for some State monopolies (ie. coal and windpower) which would therefore close access to foreign bidders in some power generation segments and not in others (ie. nuclear).

Conclusion for the purposes of the IA: Partially open (0.5)

12.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. In theory, the situation of non-discrimination should therefore be applied but the practice is still unclear.

Conclusion for the purposes of the IA: Partially open (0.5)

12.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc... purchased by cities and urban agglomerations.

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. In theory, the situation of non-discrimination should therefore be applied but the practice is still unclear.

Conclusion for the purposes of the IA: Partially open (0.5)

12.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by public hospitals

Dependency from public procurement: Partial

Ministry of Health Municipal hospitals There are also healthcare private institutions in Ukraine Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. In theory, the situation of non-discrimination should therefore be applied but the practice is still unclear.

Conclusion for the purposes of the IA: Partially open (0.5)

12.13 Medical equipment

Relevant market: medical equipment products purchased by US public hospitals or health authorities. Includes laboratory research equipment and precision instruments (like cyclotrons, scanners).

Dependency from public procurement: Partial

Ministry of Health Municipal hospitals There are also healthcare private institutions in Ukraine

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. In theory, the situation of non-discrimination should therefore be applied but the practice is still unclear.

Conclusion for the purposes of the IA: Partially open (0.5)

12.14 Specialised textiles

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement: High

· 100% Military uniforms for defence – Ministry of Defence

· 100% Uniforms for fire-fighting – municipalities and Ministry of Emergency Situations

· Uniforms for utilities (e.g. non-radio-active textiles,...) – cf. electric power

· Overall uniforms

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. In theory, the situation of non-discrimination should therefore be applied but the practice is still unclear.

Conclusion for the purposes of the IA: Partially open (0.5)

12.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: Depends on the degree of specialisation of the service delivered

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. In theory, the situation of non-discrimination should therefore be applied but the practice is still unclear.

Conclusion for the purposes of the IA: Partially open (0.5)

12.16 Financial services

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management)

Dependency from public procurement: Both specialised and generic services are sold to both private and public sectors.

 

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. In theory, the situation of non-discrimination should therefore be applied but the practice is still unclear.

Conclusion for the purposes of the IA: Partially open (0.5)

12.17 Oil, gas and mining exploration equipment

Relevant market: Equipment for oil extraction and transport.

Dependency from public procurement: None (Gas transmission is excluded from procurement rules, coal mining is privatised and there is no oil extraction in Ukraine).

Degree of openness

Not applicable

Conclusion for the purposes of the IA: Not appropriate

12.18 Fixed telecom equipment

Relevant market: Telecom equipment for fixed telecom operators providing universal service-like public services.

Dependency from public procurement: Full dependency

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. In theory, the situation of non-discrimination should therefore be applied but the practice is still unclear.

Conclusion for the purposes of the IA: Partially open (0.5)

12.19 Computer equipment and IT services

Relevant market: Computer equipment and software services sold government-wide; supercomputers for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Dependency from public procurement: Partial for low-margin products, high for very specific added-value products and services.

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, Ukraine has set up a local content policy through Government Resolution of 24 June 2009 No. 647, which was in force until 1 January 2011. In theory, the situation of non-discrimination should therefore be applied but the practice is still unclear.

Conclusion for the purposes of the IA: Partially open (0.5)

12.20 Street lighting

Relevant market: Lighting for streets and highways

Dependency from public procurement: Partial

· 100% for infrastructure construction (highways) – Ministry of Public Works, city administrations

· Cities

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, there are applicable and significant exemptions for special infrastructure projects (ie. European Football Championship 2012 and other sports infrastructures). The local content policy through Government Resolution of 24 June 2009 No. 647 was in force until 1 January 2011.

Conclusion for the purposes of the IA:  Closed (-1)

12.21 Port Equipment

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: High (Ports are state companies, ie Odessa, Sevastopol)

Degree of openness

This market is not opened de jure. Although the Ukrainian law foresees non-discrimination, there are applicable and significant exemptions for special infrastructure projects (ie. European Football Championship 2012 and other sports infrastructures). The local content policy through Government Resolution of 24 June 2009 No. 647 was in force until 1 January 2011.

Conclusion for the purposes of the IA:  Closed (-1)

13. Australia 13.1 Defence Relevant market: defence goods for army, navy and air force

Dependency from public procurement: Full

Degree of openness

The defence public procurement market of Australia is not open de jure. Australia's public procurement legislation is based on guidelines, from which some procurements such as defence are exempt.

Conclusion for the purposes of the IA: Fully closed (-1)

13.2 Aerospace

Relevant market: production of satellites, ATC equipment, and navigation systems

Dependency from public procurement: Partial

As 100% of the ACT equipment (Air Services Australia is an agency from the Ministry of Transport) is dependent on public procurement. There is no dependency for satellites (the work is done by the Australian Space Research Institute, a non-profit organisation).

Degree of openness

The ATC equipment/airport market is not open de jure. However, there is no discriminatory measure in place nor a proof of systematic discrimination of foreign bidders.

Conclusion for the purposes of the IA: Fully open (1)

13.3 Postal machinery/Airport sorting systems

Relevant market: production of postal machinery and airport sorting systems

Dependency from public procurement: Partial

0% for airport sorting systems as airports (which are service concessions) are not subject to procurement legislation. 100% dependency for postal machinery – Australia Post is a government corporation and as such is bound to certain principles of purchase. There is no evidence that these principles are discriminatory. Degree of openness

This market is not open de jure. However, there is no discriminatory measure in place nor a proof of systematic discrimination of foreign bidders.

Conclusion for the purposes of the IA: Fully open (1)

13.4 Fire-fighting and sea rescue equipment and transport

Relevant market: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities; sea rescue vessels and helicopters

Dependency from public procurement: Full

Degree of openness

This market is not open de jure. No protectionist measures are applied by the federal Australian Maritime Safety Authority. A number of domestic protectionist measures are applied at state level such as: 20 % price preference for SME above $A700.000 and an additional country industries PPM of 2.5% or 5% (Local Jobs First Plan) applied by New South Wales; local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria (Victorian Industry Participation Policy) in Victoria; Western Australia applies 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000 and price preference of 5% or 10%; many of the 500+ local governments apply price preferences. For sea rescue the market is open de facto, whereas for fire-fighting it is closed de facto.

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

13.5 Construction services

Relevant market: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Dependency from public procurement: Partial

· Highways, metro and railways - national highways under Dept of Transportation; can involve States, public-private partnerships and local authorities

· Urban transport - States and/or local authorities

· Airports - private

· Power - private

· Water - State or local utilities (depends on the State)

· Marginal for general public works (general public buildings)

Degree of openness

The market is not open de jure. The federal market is open de facto on the basis of lack of discriminatory measures or systematic practical discrimination. The market at the level of the States and local authorities is closed de facto. A number of national protectionist measures are applied. Such measures include: in New South Wales – a price preference: 2.5% or 5% for SME (Local Jobs First Plan); in Victoria - local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria. (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference of 5% or 10%. In addition, many of the 500+ local governments apply price preference

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

13.6 Construction materials

Relevant markets: cement, concrete, steel, glass, and stones for public works projects.

Dependency from public procurement: Partial

The dependency is partial, as the same materials are used for private construction.

Degree of openness

The market is not open de jure. The federal market is open de facto on the basis of lack of discriminatory measures or systematic practical discrimination. The market at the level of the States and local authorities is closed de facto. A number of national protectionist measures are applied. Such measures include: in New South Wales – a price preference: 2.5% or 5% for SME (Local Jobs First Plan); in Victoria - local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria. (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference of 5% or 10%. In addition, many of the 500+ local governments apply price preference

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

13.7 Railway equipment (rolling stock, including trams)

Relevant market: rolling stock for trains, urban railways, metros and tramways

Dependency from public procurement: Partial

 100% for urban railways, metros and tramways - Infrastructure Australia and States Railways - operators are private Metro of Sydney - concession to Veolia Freight railways are out of scope of public procurement.

Degree of openness

The market is not opened de jure. The federal market is open de facto, while the market at the level of states and local authorities is closed de facto. A number of domestic protectionist measures are applied such as: in New South Wales - a price preference: 2.5% or 5% for SME (Local Jobs First Plan); in Victoria – a local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria. (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference: 5% or 10%. In addition many of the 500+ local governments apply price preference.

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

13.8 Urban buses

Relevant market: public buses and coaches purchased by mass transit authorities

Dependency from public procurement: High (States and cities organise urban transport)

Degree of openness

The market is not opened de jure. For both state and local authorities the market is closed de facto. A number of domestic protectionist measures are applied such as: in New South Wales - a price preference: 2.5% or 5% for SME (Local Jobs First Plan); in Victoria – a local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria. (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference: 5% or 10%. In addition many of the 500+ local governments apply price preference.

Conclusion for the purposes of the IA: Fully closed (-1)

13.9 Power generation equipment

Relevant market: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Dependency from public procurement: None (private sector)

Degree of openness: not applicable

Conclusion for the purposes of the IA: not relevant

13.10 Water management/sewage

Relevant market: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Dependency from public procurement: Full (100% utilities at local level)

Degree of openness:

The market is not open de jure. De facto it is closed. A number of domestic protectionist measures are applied such as: in New South Wales - a price preference: 2.5% or 5% for SME (Local Jobs First Plan); in Victoria – a local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria. (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference: 5% or 10%. In addition many of the 500+ local governments apply price preference.

Conclusion for the purposes of the IA: Fully closed (-1)

13.11 Waste management and other environmental services

Relevant market: Urban cleaning services, noise abatement, waste collection, etc...purchased by cities and urban agglomerations.

Dependency from public procurement: Full

· As most of the environmental services are within the remit of municipalities, the dependency rate is assumed to be 100%

Degree of openness:

The market is not open de jure. De facto it is closed. A number of domestic protectionist measures are applied such as: in New South Wales - a price preference: 2.5% or 5% for SME (Local Jobs First Plan); in Victoria – a local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria. (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference: 5% or 10%. In addition many of the 500+ local governments apply price preference.

Conclusion for the purposes of the IA: Fully closed (-1)

13.12 Pharmaceutical products

Relevant market: pharmaceutical products purchased by Australian Public hospitals or health authorities.

Dependency from public procurement: Partial

· State Department of Health purchases on behalf of public hospitals

· Federal Department Of Health purchases on behalf of public hospitals

· Public hospitals use procurement procedures on the State Department website

· Purchase by pharmacies and Private Hospitals are not covered by public procurement

Degree of openness:

The market is not open de jure. At the federal level, the market is open de facto while at the state or local level the market is closed de facto. A number of domestic protectionist measures are applied such as: in New South Wales - a price preference of 20% for SME above A$700.000 and an additional county industries PPM of 2.5% or 5% (Local Jobs First Plan); in Victoria – a local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria. (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference: 5% or 10%. In addition many of the 500+ local governments apply price preference.

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

13.13 Medical equipment

Relevant market: medical equipment products purchased by Australian public hospitals or health authorities. Includes laboratory research equipment and precision instruments (like cyclotrons, scanners).

Dependency from public procurement: Partial

· State Department of Health purchases on behalf of public hospitals

· Federal Department Of Health purchases on behalf of public hospitals

· Public hospitals use procurement procedures on the State Department website

· Purchase by pharmacies and Private Hospitals are not covered by public procurement

Degree of openness:

The market is not open de jure. At the federal level, the market is open de facto while at the state or local level the market is closed de facto. A number of domestic protectionist measures are applied such as: in New South Wales - a price preference of 20% for SME above A$700.000 and an additional county industries PPM of 2.5% or 5% (Local Jobs First Plan); in Victoria – a local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria. (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference: 5% or 10%. In addition many of the 500+ local governments apply price preference.

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

13.14 Specialised Textiles 

Relevant market: Specialised textiles for defence, fire-fighting and health

Dependency from public procurement: Partial

· 100% Military uniforms for defence

· 100% Uniforms for fire-fighting (municipalities)

· Uniforms for utilities (e.g. non-radio-active textiles,...) - private

· Bio-textiles and other health-related uniforms - Ministry of Health, Ministry of Science, Education and Research and main cities - depends on the type of hospital

· Overall uniforms

Degree of openness:

The market is not open de jure. At the federal level, the market is open de facto while at the state or local level the market is closed de facto. A number of domestic protectionist measures are applied such as: in New South Wales - a price preference of 20% for SME above A$700.000 and an additional county industries PPM of 2.5% or 5% (Local Jobs First Plan); in Victoria – a local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria. (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference: 5% or 10%. In addition many of the 500+ local governments apply price preference.

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

13.15 Business services (consulting, "auditing/accounting", advertising, building-cleaning and legal services)  

Relevant market: Consulting services, auditing services, advertising and legal services sold government-wide.

Dependency from public procurement: Depends on degree of specialisation of service-delivered

Degree of openness:

The market is not open de jure. At the federal level, the market is open de facto while at the state and local level, as well as for advertising services the market is closed de facto. Advertising services are not covered by Federal Guidelines. A number of domestic protectionist measures are applied such as: in New South Wales - a price preference of 20% for SME above A$700.000 and an additional county industries PPM of 2.5% or 5% (Local Jobs First Plan); in Victoria – a local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria. (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference: 5% or 10%. In addition many of the 500+ local governments apply price preference.

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

13.16 Financial services  

Relevant market: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management).

Dependency from public procurement: unknown

Degree of openness:

The market is not open de jure. At the federal level, the market is open de facto while at the state and local level is closed de facto. A number of domestic protectionist measures are applied such as: in New South Wales - a price preference of 20% for SME above A$700.000 and an additional county industries PPM of 2.5% or 5% (Local Jobs First Plan); in Victoria – a local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria. (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference: 5% or 10%. In addition many of the 500+ local governments apply price preference.

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

13.17 Oil equipment   

Not relevant – oil exploration is fully private in Australia

13.18 Fixed telecom equipment   

Not relevant – telecom is private in Australia

13.19 Computer and IT services

The market is not open de jure. At the federal level, the market is open de facto while at the state and local level is closed de facto. A number of domestic protectionist measures are applied such as: in New South Wales - a price preference of 20% for SME above A$700.000 and an additional county industries PPM of 2.5% or 5% (Local Jobs First Plan); in Victoria – a local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria. (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference: 5% or 10%. In addition many of the 500+ local governments apply price preference.

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

13.20 Street lightning, traffic signalling   

Relevant market: Street lightning and highways

Dependency from public procurement: Partial

· Department of Infrastructure

· Cities.

Degree of openness:

The market is not open de jure. At the federal level, the market is open de facto while at the state and local level is closed de facto. A number of domestic protectionist measures are applied such as: in New South Wales - a price preference of 2.5% or 5% (Local Jobs First Plan); in Victoria – a local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference: 5% or 10%. In addition many of the 500+ local governments apply price preference.

Conclusion for the purposes of the IA: Unclear/difficult to provide clear assessment (0)

13.21 Port equipment   

Relevant market: port equipment like cranes (container, general and general cranes)

Dependency from public procurement: Partial

· Many ports are private (Sydnet, Newcastle, Melbourne)

· The largest port (Port Hedland) is a port authority (in Western Australia)

Degree of openness:

The market is not open de jure. At the state and local level is closed de facto. A number of domestic protectionist measures are applied such as: in New South Wales - a price preference of 2.5% or 5% (Local Jobs First Plan); in Victoria – a local content requirement in tender selection above A$3 million in metropolitan Melbourne and above A$1 million in regional Victoria (Victorian Industry Participation Policy); in Western Australia - local content: 20% impost on the value of imported procurement content and 20% is applied to procurement values above $A750.000, as well as a price preference: 5% or 10%. In addition many of the 500+ local governments apply price preference.

Conclusion for the purposes of the IA: Fully closed (-1)

[1] For this assessment it is considered this type of domestic preference will not result in a barrier to EU suppliers given the small probability of receiving exactly the same bids.

[2] As the same materials are used for private construction.

[3] Only for public buses and not for coaches.

[4] US/State Department of Health purchases on behalf of public hospitals. Private hospitals, which make a large chunk of the US health market, are not covered by public procurement

[5] Idem as above

[6] Cities are responsible for fire-fighting and DND purchases of aircraft are not covered

[7] Ports of Vancouver, St John, Sept Iles, Montreal, Québec, Halifax, Hamilton and Thunder Bay are in the AIT (Agreement on Internal Trade)

[8] http://www.diputados.gob.mx/LeyesBiblio/pdf/14.pdf

[9] http://www.ceajalisco.gob.mx/transparencia/pdf/ley/estatal/reglamento_ley_adquisiciones.pdf

[10] http://www.nl.gob.mx/pics/pages/subasta_base/Ley+de+Adquisiciones+Arrendamientos+y+Contratacion+de+Servicios+del+Estado+de+Nuevo+Leon.pdf

[11] http://www.mexico.compranet.gob.mx:8009/html44/ley_adq2000.html

[12] http://www.comisa.df.gob.mx/transparencia/fraccion_i/LeyAdquisicionesDF.pdf

[13] ie. consulting and legal services sold to aerospace or power generation are considered highly dependent, building cleaning is considered a generic service told to both private and public

[14] Administraciones portuarias have been regrouped under the API is Administración Portuaria Integral and  depend from Secretaria Comuncaciones y Transportes - This covers the main ports of Veracruz and Lazaro Cardenas

[15] According to Alsac Umit (2007) in "Use of E-Procurement in Turkey's Public Health Sector",  Journal of Public Procurement › Vol. 7 Nbr. 3, September 2007, "As of the end of 2004; main public entities using public resources for health care are the Ministry of Health, state hospitals and revolving funds related to the Ministry of Health, Social securities Institution (SSI-social security organization for private sector employees and blue collar public sector employees) and hospitals related to SSI, Bag-Kur (social security institution for self employed), Emekli-Sandigi (government employees retirement fund) and hospitals related to universities, Ministry of National Defense and local authorities."

[16] Idem as above.

[17] Under Ministry of Railways

[18] Under Ministry of Shipping

[19] World Bank - http://info.worldbank.org/etools/docs/library/89443/Tu_0601/Tarr.pdf

[20] http://goszakaz.ru/concurs/changes/12

[21] ie. consulting and legal services sold to aerospace or power generation highly dependent while building cleaning and advertising are generic services sold to public and private

[22] 100% for ATC equipment (Ministry of Defence), for astronomical and space-related satellites (Agência Espacial Brasileira, Instituto Nacional de Pesquisa Espacial), 100% for communication satellites (Embratel), for meteorological satellites (Agência Espacial Brasileira, Instituto Nacional de Pesquisa Espacial) and for navigation satellites (Agência Espacial Brasileira, Instituto Nacional de Pesquisa Espacial)

[23] Mining (Vale do Rio Doce) has been privatised in 1997

[24] 100% for Railways – Ukrainian State Railways, 100% for metros (KP Kiev, KP Kharkov…)

100% for tramways (city networks), but manufacturing of tramways are under the responsibility of State enterprises (e.g. Yuzhnoi Konstrukturoe Biuro, Yuzhmash), State enterprises are themselves covered by PP rules

Disclaimer: This impact assessment commits only the Commission's services involved in its preparation and does not prejudge the final form of any decision to be taken by the Commission.

TABLE OF CONTENT

1.               Introduction. 4

2.               Procedural issues and consultation of interested parties. 4

2.1       Organisation and timing. 4

2.2       Consultation and expertise. 5

2.3       Impact assessment Board. 6

3.               Problem definition. 7

3.1       Context 7

3.1.1        Background. 7

3.1.2        The importance of public procurement to certain sectors of the EU economy. 7

3.1.3        The exposure of EU businesses active in these sectors to foreign competition. 8

3.1.4        But most public procurement markets in third countries remain closed to EU business  10

3.1.5        Domestic barriers are driven by strong national agendas to protect and promote domestic industry  13

3.2       The EU lacks leverage to open up public procurement markets. 14

3.2.1        The EU’s current difficulties in opening public procurement markets in third countries  14

3.2.2        The unconditional openness of the EU’s non-committed procurement undermines the EU’s negotiating leverage. 14

3.3       Some Member States appear to have taken national measures that may be infringing the common commercial policy (CCP) 15

3.4       Consequences. 16

3.4.1        EU companies are being deprived of business opportunities abroad, thus reducing their leadership and preventing them from creating economies of scale. 17

3.4.2        The exports of companies that bypass domestic measures can be affected at any moment by protectionist measures  17

3.4.3        EU jobs are not created and in some cases they are destroyed by the distortions resulting of protectionist measures  17

3.4.4        Many sectors dependent on public procurement are being forced into technology transfers, further reducing their competitiveness, or to conduct innovative activities abroad. 18

3.4.5        Domestic barriers are also preventing the internationalisation of SMEs. 18

3.4.6        An uneven level playing field for EU firms. 18

3.4.7        The EU could face WTO/FTA litigations for not respecting its international obligations  19

3.5       Subsidiarity. 19

3.6       Desired effects. 19

4.               Objectives. 20

4.1       General objectives: 20

4.2       Specific objectives: 21

4.3       Operational objectives: 21

5.               Policy options. 22

5.1       Baseline scenario ('Nothing Happens') 22

5.2       Non-Legislative Approach. 23

5.2.1        Option 2A: 'Soft Law' 23

5.2.2        Option 2B: Reinforcement of on-going negotiations. 24

5.3       Legislative Approach with supervision by European Commission. 24

5.3.1        Option 3A: Approach based on an overall access restriction for not covered procurement at the EU level (option 3A) 25

5.3.2        Option 3B: Approach based on individual decisions by the EU contracting entities and a Commission driven mechanism in the case of not covered procurement (option 3B) 25

5.3.3        Option 3C: Option for contracting entities to accept companies, goods and services not covered by the EU's international commitments, subject to notification of the Commission and Commission option to impose access to the EU's public procurement market 26

5.4       Option 4: Legislative approach: Instrument without supervision by European Commission (extension of Article 58 to the whole scope of the directives) 26

5.5       Option 5: 'Buy Europe' type legal framework. 26

5.6       Option 6: correcting unfair 'abnormally low tenders' (complementary option) 27

6.               Analysis of impacts. 27

6.1       Key impacts to be analysed. 27

6.2       Overall assumptions. 27

6.3       Cross-cutting impacts: 28

6.3.1        Exports, jobs, FDI and internationalisation of SMEs. 28

6.3.2        Retaliatory measures. 29

6.3.3        Overall environmental and social  impacts. 29

6.4       Baseline scenario ('nothing happens') 29

6.5       Option 2A: 'Soft Law' 29

6.6       Option 3: Legislative Approach with supervision by European Commission. 31

6.6.1        Option 3A.. 31

6.6.2        Option 3B.. 32

6.6.3        Option 3C.. 34

6.7       Option 4: Legislative Approach without supervision by European Commission ('Article 58') 35

6.8       Option 5: Buy Europe. 36

6.9       Option 6: correcting unfair 'abnormally low tenders' 36

7.               Comparing the options. 36

7.1       Review of different options by objectives and impacts. 36

7.1.1        Comparison in terms of effectiveness, efficiency and coherence. 38

7.1.2        Comparison by type of stakeholder 40

7.1.3        Choice of the legal instrument 40

7.2       Preferred Option. 41

8.               Monitoring and evaluation. 41

1. Introduction

In the negotiations on a revised Government Procurement Agreement (GPA) in the context of the World Trade Organisation (WTO) and in bilateral negotiations with third countries, the EU has advocated an ambitious opening of international public procurement markets. However, many third countries are reluctant to (further) open their procurement markets to international competition, which limits business opportunities of EU companies in these markets as they have maintained or even introduced protectionist measures, especially in the wake of the economic crisis.

In contrast, the EU has so far kept its public procurements (PP) markets largely open to international competition. With the exception of some provisions which limit the scope to supply contracts in the Utilities-sector[1], the EU has not fully exercised its power to regulate the access of foreign goods, services and companies to the EU PP market.

In the context of the rising importance of emerging economies, the absence of a level playing field leads to an important number of problems. The EU’s principal problem is a lack of leverage in its international negotiations with trading partners to redress the imbalance and to gain substantial market access commitments to the benefit of EU business. Also, contracting authorities face several problems when applying the international commitments of the EU, although there is no clear evidence of discriminatory practices against foreign tenderers.

The initiative being assessed in the present report aims at solving these problems by firstly strengthening the position of the EU when negotiating access for EU companies' access to PP markets of third countries, in order to obtain the (further) opening of our trading partners' PP markets. Secondly, it seeks to clarify the rules governing access to the EU's PP market of third country companies, goods and services. Ultimately the objective is to improve, in line with the new EU 2020 strategy, business opportunities for EU firms with the consequent benefits for economic growth in the EU, competitiveness of EU businesses within and outside the EU, an increase in employment and promotion of innovation.

2. Procedural issues and consultation of interested parties

The European Commission announced in its Communications "Towards a Single Market Act"[2] and "Trade, Growth and World's Affairs"[3] its intention to present in 2011 a proposal to strengthen the position of the EU when negotiating further access for EU companies to PP markets of countries outside the EU and provide the means for creating a more level playing field for EU industry active in PP market. This initiative would at the same time clarify the rules governing access to the EU's PP market of goods, services and companies from outside the European Union. This proposal is part of the Commission's work programme for 2011 (COM (2010) 623 final), but had a short delay.

2.1       Organisation and timing

Directorate-General for Trade and Directorate-General Internal Market and Services are the lead services for conducting the impact assessment related to this proposal. The impact assessment was initiated in the second part of 2010 and was supported by an inter-service steering group that involved 12 DGs[4] in addition to the 2 lead DGs The inter-service steering group met on five occasions: 19 January, 27 May, 27 July, 5 October 2011, and 30 January 2012.

2.2       Consultation and expertise

To gather the views of interested stakeholders, the Commission services organised, in addition to individual meetings, a series of consultations and outreach activities.

An open internet consultation[5] was carried out between 7 June and 2 August 2011[6] . It consisted of three detailed questionnaires aimed at (i) contracting authorities and Member States (MS), (ii) businesses and/or their representatives and (iii) other potentially interested stakeholders (citizens, NGOs, trade unions). The Commission received a total of 215 contributions[7]. A summary report of the contributions is given in Annex I. As part of this process the Commission services organised a public hearing on 8 July 2011 in Brussels. Social partners also had the opportunity to express their views in the Liaison Forum organised by DG Employment on 7 February 2011. Specific consultations were also conducted with EU Delegations in third countries and the MS in the Advisory Committee for Public Contracts. Specific topics (Article 58 and abnormally low tenders) have been also addressed in the consultation on the Modernisation of Public Procurement Policy.

At the outset it should be noted that not all stakeholders took equal part in the consultation or expressed their views with the same force. In fact, not all Members States responded to the consultation. Equally some stakeholders were overrepresented both in terms of the MS in which they were based or the sectors they represented. For these reasons, the open consultation did not provide a necessarily fully representative picture of opinions and the results should therefore be read with some caution. Still, the Commission's minimum standards for consultations were met.

However, stakeholders consulted generally welcomed the initiative from the European Commission. A large majority emerged among all types of respondents in agreement with the Commission's description of the current level of access to the EU PP market for goods, services and companies from outside the EU as well as in support of the identified objectives of the initiative.

As regards the outlined policy options it is important to note that the views expressed were divergent: overall, a significant majority of stakeholders appear to support a legislative initiative (around 65%), while an important minority of around 35% prefer the option 'nothing happens'. However, views within the different groups of stakeholders also diverge as to the preferred option. Among contracting entities and government authorities (including from third countries), for example, two-thirds are in favour of the option 'nothing happens' or the non-legislative option, while for businesses and other stakeholders some 75% are in favour of a legislative initiative. There are also divergent opinions as to what that legislative option should be. Although almost half of respondents support for the legislative option 'approach A'[8], while a significant number of respondents also favour alternative approaches. It is worth noting that, although being the least preferred legislative option, 'approach B'[9] also received the support from a considerable number of respondents.

The main reasons put forward by stakeholders in favour or against one or the other policy option included the importance of best value for money, the competitiveness and productivity that could be undermined by some of the policy options, the risk of retaliation by our trading partners, the administrative burden that could be attached to such an initiative and the fact that the initiative would endanger the status of the EU as an advocate of open markets. Trade unions and non-governmental organisations (NGOs) have been fairly neutral on the choice of options and have rather focused their contributions on the need for third countries to respect ILO Conventions when tendering in the EU or urging the EU to open its borders to maintain fair trade vis-à-vis least developed countries.

Also, a slight majority of respondents (all from the business community) believe that other issues like different labour costs and rights outside the EU or abnormally low tenders by foreign state-supported firms are affecting the conditions of access of foreign goods, services and companies to the EU PP market.

In the Liaison Forum of DG Employment the European construction industry explained the difficulties they face to compete with state-owned firms from third countries like China, whereas the EU business trade federation explained that the focus of this initiative should the opening of third countries market (rather than the closure of the EU procurement market). The EU business trade federations also called for the EU to be more forceful in international negotiations.

The views of stakeholders were taken into account in preparing this impact assessment, including in the problem analysis, as is highlighted in several instances in the analysis that follows, including the annexes (e.g. the experiences of respondents with foreign trade barriers in PP have been collected in Annex 9).

 2.3      Impact assessment Board

This impact assessment was first reviewed by the Commission's Impact Assessment Board (IAB) on 9 November 2011. Based on the Board's recommendations, the impact assessment has been revised as follows: the problem definition has been reshuffled in order to focus on the central issue identified across the impact assessment, the need for further opening of third countries' procurement markets and the problems of compliance of EU international commitments. The scale of options to be considered has been broadened. In addition to a more active negotiating policy the impact assessment takes into account the extension of the current regime of articles 58 and 59 of directive 2004/17 to all procurements covered by the EU directives and the possibility for selective acceptance of non covered procurement. Finally, the analysis of impacts has been refined to upgrade the measurement of retaliation and the employment figures. Annex 10 provides a more detailed review of how the IAB's first opinion has been incorporated in the revised report, resubmitted on 8 February 2012.

In its opinion on the resubmitted report, the IAB acknowledges the improvements made to the report and the incorporation of the recommendations it made in its first opinion. However, the IAB believes there are still a number of areas where the assessment could be strengthened and identifies a number of actions to further improve  the report (i.e. refine presentation of the options, improve the presentation of the model used to estimate the impacts, better justify the proportionality of the preferred option, etc). The present final impact assessment report has integrated to the extent possible these recommendations. Annex 11 provides a more detailed review of how the IAB's second opinion has been incorporated in the final report.

3. Problem definition

3.1       Context

3.1.1    Background

Governments are in all countries major actors in the economy. Purchases of goods and services by public authorities and the entities they control represent 17%[10] of the world's GDP.

International trade of a wide array of industries, for which public purchasers are either the sole purchaser or a very large client, is strongly affected by the policies pursued by countries in the area of PP, not least measures taken to reserve public contracts to domestic companies, goods or services.

To ensure open, transparent and non-discriminatory procurement the EU has been one of the founding Parties to the GPA in the WTO together with 14 other major industrialised economies[11]. In addition, the EU has also actively sought to open PP of other countries when engaging in bilateral free trade agreement (FTA) negotiations[12]. But PP is excluded from the GATT and GATS and this leaves room for many countries to depart from national treatment principle and to maintain or introduce measures that reserve public contracts for domestic firms and goods.

Notwithstanding these efforts and as explained further, the EU has not been able to obtain an ambitious opening of PP in the world mainly because it has lacked leverage to do so in international negotiations. Because of the economic consequences for EU businesses that result from uneven level of market access some MS are taking measures to limit access to their procurement markets, although these would be most likely illegal. In addition, EU contracting authorities lack guidance on how to apply the existing international commitments and restrictions.

3.1.2    The importance of public procurement to certain sectors of the EU economy

Some 10 billion EUR of EU exports find their way in global procurement markets (0,08% of EU GDP), out of which 5 billion EUR have been secured through binding commitment in GPA/FTAs (0,4% of all EU exports). Although the impact of GPA/FTAs PP chapters[13] on EU trade is relatively small in absolute terms, it directly affects industries active in 22 key markets[14] of goods and services - with a total turnover estimated to amount to 25% of the EU GDP and to employ 31 million persons[15] - in which the customers are exclusively or mostly public purchasers[16] or for which public authorities are large clients[17]. It also affects "niche" industries (fire-fighting equipment, postal machinery). Also, rules in the area of concessions affect a wide array of large companies involved in the management of public-private partnerships and infrastructures like motorways.

Table 1 - Overview over 22 selected markets and their dependence on public procurement

|| US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || AU

Defence || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2

Aerospace || 1,5 || 1,5 || 1,5 || 1 || 1 || 2 || 1,5 || 2 || 2 || 2 || 2 || 1

Post & Apt sorting || 2 || 1,5 || 2 || 1 || 2 || 1,5 || 2 || 1,5 || 2 || 2 || 1 || 1

Fire-fight Sea rescue || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2

Construction || 1 || 1 || 1,5 || 1 || 1 || 1,5 || 1 || 1 || 1 || 1 || 1 || 1

Constr. Equipment || 1 || 1 || 1,5 || 1 || 1 || 1,5 || 1 || 1 || 1 || 1 || 1 || 1

Railway equipment || 1,5 || 1,5 || 2 || 2 || 2 || 1,5 || 2 || 2 || 2 || 2 || 2 || 1

Urban buses || 1,5 || 1 || 1 || 1 || 1 || 1 || 1,5 || 2 || 1,5 || 0 || 1,5 || 1,5

Power generation || 1,5 || 0 || 1,5 || 2 || 2 || 2 || 2 || 2 || 2 || 1 || 1 || 0

Water & Sewage || 1,5 || 1,5 || 1,5 || 1,5 || 2 || 2 || 1,5 || 2 || 2 || 1,5 || 2 || 2

Waste mgmt & env || 1 || 1,5 || 1,5 || 1,5 || 2 || 2 || 1,5 || 2 || 2 || 2 || 2 || 2

Pharmaceuticals || 0,5 || 1 || 1 || 1 || 1 || 1 || 1,5 || 1,5 || 1 || 1 || 1,5 || 1

Medical equipment || 0,5 || 1 || 1 || 1 || 1 || 1 || 1,5 || 1,5 || 1 || 1 || 1,5 || 1

Specialised textiles || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1,5 || 1 || 1 || 1 || 1

Business services || 0,5 || 0,5 || 0,5 || 0,5 || 1 || 0,5 || 1 || 1 || 1 || 1 || 1 || 0,5

Financial services || 0,5 || 0,5 || 0,5 || 0,5 || 1 || 0,5 || 1 || 1 || 1 || 1 || 1 || 0,5

Oil, Gas & Min eq. || 0 || 0 || 0 || 0 || 0 || 2 || 2 || 1 || 2 || 2 || 1,5 || 0

Fixed telecom eq. || 0 || 2 || 0 || 0 || 0 || 2 || 2 || 2 || 2 || 2 || 2 || 0

Computer & ITserv || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Street lighting || 2 || 2 || 2 || 2 || 2 || 1,5 || 2 || 2 || 2 || 1,5 || 2 || 1,5

Broadcasting equip || 0 || 0,5 || 0,5 || 0,5 || 0,5 || 0 || 1,5 || 0 || 0 || 0 || 0,5 || 0,5

Port equipment || 1,5 || 2 || 2 || 2 || 2 || 2 || 2 || 1,5 || 2 || 2 || 1,5 || 1

Average sectors || 1,09 || 1,18 || 1,25 || 1,16 || 1,30 || 1,43 || 1,57 || 1,52 || 1,52 || 1,36 || 1,45 || 1,02

Legend

0= no dependency (customers are private); 2= full dependency (customers are public)

Source: analysis of dependency is provided in Annex 8 and in methodological box 1 of Annex 3 (p.2)

3.1.3    The exposure of EU businesses active in these sectors to foreign competition.

EU industries active in the 22 markets strongly influenced by PP legislations are exposed to increasing foreign competition within the EU while their exports are not protected against protectionist measures or practices by the EU’s trading partners.

Table 2 - Public procurement markets that the EU has committed internationally vis-à-vis 13 selected countries (and their relative dependency to public procurement)

|| International current commitments vis-à-vis 13 selected countries

|| UE* || US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || UA* || AU

Defence || 2 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Aerospace || 1,5 || 0 || 1 || 0 || 0 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Post & Apt sorting || 2 || -1 || 0 || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Fire-fight & Sea Rescue || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Construction  Dredging || 1 || 0 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Constr. Equipment || 1 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Railway equipment || 2 || -1 || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Urban buses || 2 || -1 || -1 || -1 || -1 || -1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Power generation || 1,5 || 1 || -1 || -1 || 0 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Water & Sewage || 2 || -1 || 1 || -1 || 1 || 1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Waste mgmt & env || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Pharmaceuticals || 1 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Medical equipment || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Specialised textiles || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Business services || 0,5 || 0 || 0 || 0 || 0 ||   || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Financial services || 0,5 || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Oil, Gas & Min equipmt || 0 || || || || || || || || || || || || ||

Fixed telecom equipmt || 0 || || || || || || || || || || || || ||

Computer & IT serv || 1 || 0 || 0 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Street lighting || 2 || 1 || 1 || 1 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Broadcasting equip || 1 || 1 || 1 || 1 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Port equipment || 2 || 1 || 1 || -1 || 1 || 1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

*Dependency from PP of each sector (from a scale of 2 full dependency to 0 no dependency at all) - coverage by EU PP directives (same indicators as in table 1)

** Degree of openness: 1= fully COMMITTED, 0=Partially COMMITTED (e.g. only some goods have a secured access), -1= NOT COMMITTED AT ALL

Examples: The EU has not committed its urban transport and railway operators to Japan (hence the -1 for the railway sector), business services procurement has been committed vis-à-vis the US for central government but not for local government tenders (hence the 0); there are no restrictions against Korean construction materials (hence the 1). The methodology of the assessment of openness is provided in the Annex 3 "Problem analysis" and detailed in Annex 8. Sources: cf. Annex 8

Box 1: Estimating foreign participation in the EU public procurement market

Two methods for estimating foreign participation in the EU PP market have been used since there is no way to trace statistically the nationality of the imported goods purchased by EU contracting authorities:

(a)           Actual participation of foreign firms in the EU PP market based on an exhaustive analysis of all contract award notices of 2007 to identify all contracts awarded to non-EU firms[18] and a sample-based analysis of contract award notices in 2007-2009, with the help of a D&B database (in the context of the analysis of cross-border procurement in the EU)[19]. This leads to 10.7-14.7 billion EUR estimation for the 12 main trading partners.

(b)           Potential penetration rates of foreign goods and services in the EU PP market either by extrapolating the overall import penetration rate of the public sector or the specific import penetration rate of each NACE category. This leads to 10-17 billion EUR estimation for the 12 main trading partners.

Finally, in the consultation of stakeholders, 20% of responding contracting authorities indicated that they had received bids from abroad or containing foreign goods and services, 19% indicated that they had awarded a contract to a foreign firm and only 3% indicated that it had rejected a foreign bid.

3.1.4    But most public procurement markets in third countries remain closed to EU business

While realistically, the EU cannot expect a full liberalisation of PP, it is important, as highlighted by several stakeholders in their submissions, to ensure that businesses in sectors where it has a so-called "offensive interests"[20] can access foreign procurement markets (e.g. construction, railways...). But only 25% of the PP of the 12 major trading partners[21] has been committed internationally (i.e. subject to international procurement agreements)[22]. For instance, only 5% of metro networks (in passengers) or only 18% of the estimated procurement of the 50 world largest cities is currently committed internationally. Furthermore, many of the Parties to the GPA have either not committed their regional and local procurement (e.g. USA, Canada) at all or only very little. The US and Japan protect their railways and construction industries by applying sector-specific restrictions in the GPA. Commission services estimate that the US, Japan and Canada have, in spite of market access increases granted in the recent revision of GPA, only committed 32%, 28% and 16% of their respective "contestable"[23] PP markets (cf. tab 1).

Additionally, at this stage, the EU has to date not concluded any agreement on PP with key developed or emerging economies, such as China, India, Brazil (Mercosur), Russia, Turkey and Australia. Although the EU is currently negotiating an opening of PP with China, India and Mercosur, negotiations are difficult and the EU expectations are still largely unfulfilled[24]. There is no PP chapter in the customs union agreement with Turkey. A positive note, though, is the conclusion of FTA negotiations with Ukraine, Colombia, Peru, Iraq and Central America together with substantial PP commitments (e.g. canal de Panama).

Table 3 - International commitments with main trade partners

|| TRADING PARTNER ||             EU27

|| Contestable PP Market (Contracts above the GPA thresholds) || Internationally committed (above thresholds) || EU commitments vis-à-vis TRADING PARTNERS (country specific derogations included)

European Union || 370 || 95% ( maximum coverage offered) ||

United States || 559 || 32% || 46%

Japan || 96 || 28% || 70%

Canada || 59 || 16% || 10%

Korea || 25 || 65% || 77%

Mexico || 20 || 75% || n/a

Israel || 2,1 || 75% || n/a

China || 83 || 0% || 0%

Russia || 18 || 0% || 0%

India || 19 || 0% || 0%

Brazil || 42 || 0% || 0%

Turkey || 23,7 || 0% || 0%

Australia || 20 || 0% || 0%

TOTAL || 967 || 25% || 18%

Sources: WTO, MARKT own estimations (reflect GPA after conclusion of negotiations 2011)

In fact, some 50% of the PP of the EU’s 12 major trading partners is actually affected by domestic barriers such as offsets, set asides, price preference mechanisms, local establishment and national content requirements, leaving the EU with a maximum estimate of 12 billion EUR of untapped exports[25] (0,1% of EU GDP). In Annex 8, there is a substantial analysis of all these measures (for each main trading partner and each market).

Box 2: Measuring the openness of the EU's 12 main trading partners

The size of contestable PP markets of the 12 main trading partners of the EU (outside the EEA/EFTA) has been measured on the basis of an in-depth analysis of national accounts and GPA statistical reports (for GPA trading partners) and/or on the basis of estimations made by the WTO itself. For GPA Parties, the objective has been to measure the percentage of purchases of goods and services by governments actually covered by the GPA. All the details of these calculations are provided in Annex 6.

The analysis of markets detailed on table 5, which takes into account of the opening of 22 markets on the basis of domestic legislations laid down in Annex 8, has served to estimate the "correction" to apply to the percentages of procurement committed. Additionally, based on the industrial analysis laid down in Annex 9, some industries like the pharmaceutical industry have been considered "fit" to the jump the trade barriers identified in Annex 8 (price preferences, local establishment and local content requirements...). More details can be found in Annex 3 (meth. box 7).

The real degree of openness of each of the 12 trading partners has been done on the basis of the re-corrected rate[26]. Ratios of exports in the normal course of trade are then extrapolated to these open markets, taking into account the natural lower penetration of imports in the public sector.

Many of the countries with which the EU has signed an agreement in the field of procurement have closed certain parts of PP market not committed internationally to foreign bidders through set asides for SMEs[27], 'buy national measures'[28], local content requirements[29] and substantial carve outs within their international commitments[30].. EU companies also experience enormous difficulties in trying to participate in procurement procedures in non-GPA/FTA/SAA[31] countries. Many of these countries maintain a range of protectionist measures.[32]

Respondents to the public consultation have largely echoed these problems by highlighting in their contributions trade barriers in railways (US, Japan, China, Korea and Canada), construction (Japan, China and Korea), textiles (US, Canada and India), power (Korea, China) and computers (US).

Table 4 - Exporting through public procurement - what is open and closed? (12 main non-EEA/EFTA trading partners)

Source: own estimations based on data from COMEXT, WTO, DG MARKT and national accounts

EU firms in highly innovative sectors like pharmaceuticals or sorting equipment sometimes manage to bypass these measures due to the specialised nature of their products (cf. Annex 9 - industrial analysis). The EU remains, together with the US, the largest exporter of pharmaceuticals in the world.

However, such a degree of specialisation is difficult to attain in the remaining sectors like construction and railways where the space for differentiation is narrower. As a result, international trade remains low in these sectors and firms often need to move their industrial activities to third countries, most often through joint ventures, to gain access. The share of international trade in these sectors remains low[33].

3.1.5    Domestic barriers are driven by strong national agendas to protect and promote domestic industry

The opening of procurement markets in several of the EU’s trading partners has been prevented by strong national agendas driven by domestic pressures from sectors that have been sheltered from international competition for years ("protectionist hysteresis") and in emerging economies, by the desire to climb the industrial technology ladder  ("infant industry argument"). Also, federal administrative structures often complicate market openings. Overall these barriers serve purposes of industrial policy as several domestic barriers coincide with markets where trading partners have offensive interests[34].

Box 3 - Drivers of protectionist measures in the main trading partners

In US and Japan several sectors have, for example, been sheltered from competition for many years and the adjustment costs of moving away from current restrictions are considered to be very high ("protectionist hysteresis"). Most of the measures affecting foreign goods in the US PP market date back to the New Deal in the 1930s and 1940s (preferences for US steel in the Buy American, preferences for textile of the Berry Amendment) or the Eisenhower administration (procurement set asides under the Small Business Act).  In Japan, the construction industry has relied for many years on public projects to survive and railway orders appear to be split among several domestic manufacturers.

Emerging economies often protect their nascent industries initially to get a toehold in the market, and later to climb the technological ladder and/or to create the economies of scale to create national champions active around the world (this also involves imposing technology transfer requirements). China has had a very active industrial policy to promote its telecommunications, railways and green technologies, and this policy objective is also reflected in its PP policy. India has been trying to foster its pharmaceutical industry[35] and is moving towards a National Industrial Policy protecting industries considered strategic such as green technologies, among others. Furthermore, governments of emerging economies are often themselves the owners of their national champions (20% of all Chinese exports are made by state-owned firms).

Finally, federal or quasi-federal countries like US, Canada, India or Japan face institutional and political difficulties in committing the procurement of their sub-central and/or local governments that use procurement as tool of local economic developments and that have the authority to decide individually whether or not to open their own procurements to non-domestic bidders (e.g. US States decide individually whether to join the GPA).

In addition, several major trading partners combine these protectionist policies with unregulated subsidisation of some of their "national industry champions". Based on these distortive state aids and sheltered in captive domestic markets these companies can submit excessively low bids in EU tenders procedures.

3.2       The EU lacks leverage to open up public procurement markets

3.2.1    The EU’s current difficulties in opening public procurement markets in third countries

In the WTO trade negotiations, market openings in PP can currently only be “traded” against market openings in PP. As the GPA is a plurilateral agreement[36]  it is not part of the overall multilateral trading system that is part of the Doha Development Round. As a result, within the WTO market openings in PP cannot be traded against, say, lower tariffs.

While this is not the case in EU bilateral procurement negotiations the EU still tends to have major difficulties in opening PP, in particular with emerging economies like Brazil and India, that consider PP an "offensive interest of rich countries" that has to be traded against an "offensive interest of developing countries" (services for India and agriculture for Brazil). Yet, some of these "offensive interest of developing countries" like services and agriculture are extremely sensitive for the EU.

3.2.2    The unconditional openness of the EU’s non-committed procurement undermines the EU’s negotiating leverage.

The negotiation position of the EU is weakened by the existing asymmetry between market access commitments and effective market access. The EU approach has been to negotiate on the basis of a maximum opening, possibly restricted via country specific derogations (which do not make up to the possible asymmetry anyways). As a result, the EU has already made extensive commitments covering large parts of its procurement market. Besides, in areas not committed internationally, the EU PP market remain de facto open[37] and this has reduced the EU's room of manoeuvre in negotiations as it has few additional areas left to “offer” to commit. On that basis, no specific regulatory framework has to date been adopted at EU level in order to reflect in EU law the exact extent of procurement committed internationally via the GPA/FTAs etc ("covered procurement") or of procurement subject to country specific derogations and reciprocity clauses in those international agreements. Also, the EU not adopted any regulatory measure setting the terms of access of third countries' bids to EU procurement procedures, except in the area of utilities (i.e. Articles 58 and 59 of utilities Directive 2004/17/EC). Besides, there is no implementing legislation in the EU for the treatment of services. Most of these contracting authorities, both as a result of this absence of legal clarity but also on a mere economic consideration, tend to admit all foreign bids, regardless of whether that specific procurement falls under the scope of the EU's international commitments (cf. infra). The same appears to be true for the use of existing restrictions in the utilities directive (the so-called Article 58) - for which contracting authorities appear to have no guidance on how to use it and no Member State has reported cases where Article 58 has actually been used. The de facto openness is confirmed by high profile contracts awarded to non-EU firms in areas not only not committed internationally but also in areas where EU companies reciprocally face huge difficulties (railways in Japan, construction in China)[38].

Moreover, countries like US and Japan have secured access to their offensive interests in 1994 - most of their exports go through the existing commitments that the EU has made vis-à-vis them. If one extrapolates the composition of EU imports in the normal course of trade to the EU PP market, imports through non-committed markets are likely to be 5 times those of committed markets[39]. As a result, third countries don't feel the need to negotiate with the EU to obtain any international commitments. This lack of incentives to negotiate is even stronger when trading partners are currently able to both satisfy their offensive interests in the EU and face strong domestic pressures to maintain their markets closed (railways procurement in Japan and construction in China). If third countries opened those markets where they also have offensive interests, they could free up to 4 billion EUR of EU exports and create some 60.000 jobs (cf. pp 11-13 of Annex 7).

3.3       Some Member States appear to have taken national measures that may be infringing the common commercial policy (CCP)

The public consultation has confirmed that MS and contracting authorities feel they lack practical instruments and detailed guidance to understand and cope with the complexity of EU's international procurement commitments and with the range of country specific derogations, which increases the risk of  mistakes in their assessment of whether contracts are covered by international commitments of the EU[40]. MS and procuring entities have reacted differently to a situation some have perceived as a "legal vacuum". As explained above, most procuring entities do not appear to systematically discriminate[41]. For instance, the rates of error were above average among the contracts awarded to foreign firms. None of the MS has reported precise cases of discrimination. Neither have trading partners, if ever, complained of systemic problems in accessing the EU PP market.

As explained previously, several MS have on the other hand taken measures to regulate the access by non-EU firms, goods and services to their procurement market. Except in Spain, the measures are optional (Austria, Cyprus, Hungary and UK). It is unclear whether these measures are always compatible with the international commitments of the EU[42] and there are examples of national legislations or isolated court decisions based on the concept of "strict reciprocity"[43] for the procurement sector concerned.

Notwithstanding this, the present situation retains the risk of commitments not being applied consistently or divergently between authorities[44] and also reduces significantly the EU leverage and credibility in international negotiations. This was also noted by several respondents to the consultation. In particular, the possible differences in the treatment of foreign bids on each MS nationwide procurement markets send conflicting signals to trading partners[45].

Since regulating the access to the EU procurement market for suppliers from third countries clearly falls under the remit of the Common Commercial Policy (CCP), MS are however not entitled to legislate in this area on their own. Equally, contracting authorities would not have the authority to take decisions on their own without any previous authorisation from the EU level, except when applying Article 58 of the "Utilities" Directive.

Finally, because of their lack of consistency, these measures have failed to fulfil their objective, namely to provide negotiations leverage to open new PP markets.

3.4       Consequences

3.4.1    EU companies are being deprived of business opportunities abroad, thus reducing their leadership and preventing them from creating economies of scale

EU firms are missing out some 12 billion EUR of untapped exports (if procurement markets were fully open, the EU could potentially add some 180 000 jobs) in several sectors and in particular in sectors where they are strong[46]. Also, among of the businesses responding to the consultation, 75% considered that greater access to foreign markets would lead to greater economies of scale, 75% that it would reduce fixed costs to enter the market in question and 80% that it would allow them to obtain references to win other private/public orders.

3.4.2    The exports of companies that bypass domestic measures can be affected at any moment by protectionist measures

As shown in graph 3, some 25% of the procurement non-covered by international commitments is either open (no domestic barriers) or EU exports manage to bypass domestic barriers. For instance, in Turkey, restrictions against foreign goods are only applied in 23% of procedures. EU firms and their subsidiaries have obtained landmark contracts awarded in various countries. Also, thanks to their high skills and high revealed quality elasticity, the EU pharmaceutical industry and the airport or postal sorting equipment industries have the capacity to bypass existing domestic barriers (cf. Annex9).

However, the 2,2 billion EUR of exports bypassing domestic barriers cannot be taken for granted. They can in the absence of the guarantees provided by legal commitments be hit at any moment by the reinforcement of the use of domestic barriers. Additionally, at the same time several emerging economies are climbing the quality ladder[47], improving their revealed quality elasticity and reliance on high skills, further reducing their dependence on EU goods, services and firms (Israel and India have developed important industries of generic medicines), ultimately reducing the potential to bypass domestic barriers.

3.4.3    EU jobs are not created and in some cases they are destroyed by the distortions resulting of protectionist measures

The case of the local content requirements of the Buy American measures is a telling example These measures have been successful in artificially transferring industrial activity to the United States, departing from the purely rational allocation of resources and factors that would have taken place if procurement markets were 100% fully open (job creation or destruction due to the normal course of trade owing to decisions of business strategy, due to lower labour costs or to transportation costs).

Although it is difficult to quantify how many EU jobs have been lost to artificial US domestic procurement barriers, available information or examples received in the framework of the public consultation illustrate the problem[48]. Finally, there are also industrial relocation effects: civil aerospace industries have had to relocate to the US because of industrial plants serve both public and private customers[49]. 

3.4.4    Many sectors dependent on public procurement are being forced into technology transfers, further reducing their competitiveness, or to conduct innovative activities abroad

Several emerging economies force foreign companies to enter into technology transfers as a condition for participating and/or being awarded a contract in PP procedures. Thus PP is used in several emerging economies as part of broader industrial policies to force a transfer of technology in ways departing from the normal commercial considerations. This is notably the case of China[50] and its 'indigenous innovation initiative'[51].

This has also been a problem for sectors like railways. Although 43% of all railway equipment exports originate in the EU, international trade only represents 10% of the whole sector sales. PP restrictions in the US, but also in all the BRICs, have further pushed the EU railway factories away from the EU through joint ventures. In contrast, Japanese, Korean and Chinese rolling stock producers have been able to export to the EU without setting up any meaningful manufacturing activity in the EU.

3.4.5    Domestic barriers are also preventing the internationalisation of SMEs  

SMEs face particular difficulties to overcome local establishment and national content requirement barriers as they generally lack the means to set up subsidiaries or even to have any kind of permanent commercial presence[52]. In reality they almost never have access to procurement that is not legally opened via international agreements[53]. As proximity and a common language plays an important role in cross-border procurement participation, access to some non-EU markets (North and South America, Russia and Turkey) may even be more vital for some SMEs than access to other MS' procurement markets (typically SMEs from UK, Spain, Portugal, Bulgaria, Poland, Estonia, Latvia, Lithuania, Ireland, France and Belgium)[54]. PP barriers can therefore contribute in holding back the internationalisation of EU SMEs[55].

3.4.6    An uneven level playing field for EU firms

EU companies are more and more exposed to competition from foreign companies that are protected in their home market by domestic legislations (as indicated previously, the closure of procurement markets where trading partners have themselves offensive interests represents some 4 billion EUR of potentially untapped exports for the EU) and that are actively (financially) supported by their governments at home and abroad, as voiced by several respondents to the stakeholder consultation.

The closure of the PP market through domestic protectionist measures for specific industries ensures a guaranteed source of state-supported revenues in their home market (Japanese railway industry), even if these companies are not actually State-owned (e.g. Chinese construction giants, Russian aerospace industry) it may put them in a position to submit abnormally low bids.  These problems have been extensively explained by the EU construction industry during the Liaison Forum. Several businesses have highlighted problems such as the "financial dumping" of state-owned firms from certain emerging economies that also benefit from very low credit lines of national banks.

While open trade is to the benefit of all a, distorted competition based on state aid and abnormally low tenders acts ultimately to the detriment of the competitiveness of the EU industry not only in its own market but also is its expert markets.

The current rules on abnormally low tenders (Articles 57 of Directive 2004/17/EC and Article 58 of Directive 2004/18/EC) give contracting entities the option to exclude tenders, amongst others if this operator has illegally received state-aid, after enquiring in writings about the elements likely to explain the price gap. However, this procedure presents some certain weaknesses[56], most of which are being addressed in the proposed new PP directives.

3.4.7    The EU could face WTO/FTA litigations for not respecting its international obligations

Finally, the implementation problems of the EU international obligations could lead the EU to face WTO/FTA litigations in the WTO, which would undermine its credibility in international procurement negotiations.

3.5       Subsidiarity

The question of subsidiary does not arise in the context of this initiative, since the access of companies, goods and services from third countries to the EU's PP market falls into the scope of the CCP, an exclusive competence of the EU (Article 3 of the TFEU). Therefore, the rules that govern the access of third country companies, goods and services must be taken at EU level and can not be taken by MS. Also, the rules on award of contracts are coordinated by the EU public procurement directives 2004/17/EC and 2004/18/EC and transposed by MS.

3.6       Desired effects

In this context, actions should be taken to:

· Fully open PP markets across the world to unleash 12 billion EUR of potential EU exports, or at least force third countries to open those markets where they have themselves offensive interests (this could unleash some 4 billion EUR of opportunities and create 60.000 jobs). In the EU, the level of foreign penetration should remain as it is (in line with the normal course of trade).

· Ensure that, on a sector-by-sector basis, third countries are not applying domestic protectionist measures to support their own industries that are exporting to the EU.

· Ensure that, in spite of the openness of its contracting authorities, the EU will not face WTO/FTA litigations for lack of respect of its international commitments, which would undermine the credibility of EU in international trade negotiations.

· Ensure that measures are applied consistently in the EU both in terms of conditions of access (i.e. which markets are open?) but also in terms of PROs (avoid therefore the so-called "fragmentation of internal market").

It is also important to indicate that the present initiative does not envisage any additional specific actions focused on solving problems relating to different labour standards notably or promotion of fair trade as suggested in the response to the consultation by trade unions and NGOs respectively[57]. These are issues that affect trade overall and imports dependent on PP is too small to exert any solution to these questions. These actions will neither serve to solve the problem of leverage of the EU in procurement negotiations, nor to improve the respect of EU international obligations. Finally, policy choices relating to strategic procurement belong rather to the revision and modernisation of PP policy and other policy initiatives.

4. Objectives

4.1       General objectives:

The 2010 Commission Communications on a "Single Market Act" and "Trade, Growth and World Affairs" have both highlighted fair competition and access to PP markets as one of the key tools for economic growth and job creation, in particular in the context of the recent economic crisis.

Against this background, the present legislative initiative would serve as a tool for further opening PP markets in third countries to improve business opportunities for EU firms. In doing so, it is believed that the initiative will:

GO1: Increase the competitiveness of EU businesses, both in the EU and internationally;

GO2: Boost the internationalisation of SMEs in a globalised economy;

GO3: Increase employment in the EU.

GO4: Promote innovation

The present impact assessment shall identify the most suitable policy option that will reach the above-described general objective. To this aim, the general objectives have been translated into specific and operational objectives:

4.2       Specific objectives:

SO1: Increase exports of EU goods, services and firms in non-EU PP markets

SO2: Create EU leverage in international procurement negotiations

SO3: Strengthen the playing field for EU companies in the internal market

SO4: Improve legal certainty with regard to access to the EU's procurement market by third countries' companies, goods and services.

SO5: Ensure respect for the EU's international agreements

SO6: Avoid breaches of the EU Treaties

4.3       Operational objectives:

OO1: Improve market access for EU goods, services and firms in non-EU PP markets (cf. SO1 and SO3)

OO2: Create incentives for trading partners to remove barriers to the access of their public procurement markets (cf. SO2)

OO3: Clarify the rules of access to the EU's public procurement market for non-EU tenders, including on how to determine the origin of goods and services in the context of tendering procedures (cf. SO4)

OO4: Reduce the risk of challenges against the EU in the framework of the WTO or dispute settlement mechanisms in bilateral FTAs (cf. SO5)

OO5: Preserve the consistency of EU trade policy towards non-EU economic operators in tendering procedures (cf. SO6)

OO6: Preserve the consistency of the EU internal market and in the customs union (cf. SO6)

5. Policy options

The Commission has identified a number of policy options that are most likely to achieve, on their own or in combination, the objectives set out in the previous chapter.

1. Baseline scenario ("Nothing happens")

2. Non-legislative approach

Approach A ("Soft-law"): more active use of existing provisions for utilities (Article 58 of Directive 2004/17/EC), guidance on EU's international commitments, use of infringement- and  dispute settlement- procedures

Approach B: Tougher approach of the European Union  in  negotiations on public procurement

3. Legislative approach: Instruments with supervision by the European Commission

Approach A: obligation for contracting entities to exclude companies, goods and services not covered by the EU's international commitments

Approach B: option for contracting entities to exclude companies, goods and services not covered by the EU's international commitments, subject to notification of the Commission and Commission option to restrict access to the EU's public procurement market

Approach C: option for contracting entities to accept companies, goods and services not covered by the EU's international commitments, subject to notification of the Commission and Commission option to impose access to the EU's public procurement market

4. Legislative approach: Instrument without supervision by European Commission

Extension of the existing provisions for utilities (Article 58 of Directive 2004/18/EC) to all contracting entities and to service and works contracts (with guidance) and use of strategic procurement provisions

5. Legislative approach: 'Buy Europe'

Application of  price penalties for non-covered goods and services

6. Complementary approach: correcting unfair 'abnormally low tenders'

5.1       Baseline scenario ('Nothing Happens')

The baseline scenario shows how the problems described in the problem definition will most likely evolve without any further action by the EU. Under this scenario:

The present legal framework regulating market access remains in place (Article 58 of Directive 2004/17) The new PP legislation is extended to cover service concessions, to include production processes and life-cycle cost in awarding/selection criteria The EU continue to negotiate (1) bilaterally with US, Japan, India, ASEAN, Canada and Mercosur  and (2) the accession of China to GPA The FTA with Ukraine enters into force MS maintain their domestic legislations on access to procurement (without any action from the Commission).[58]

Box 4 - Detailing the 'baseline scenario'

In terms of improvement of the access to third countries procurement markets through existing negotiations, a pessimistic scenario and an optimistic scenario shall be analysed. In both scenarios, the results achieved so far with in GPA (opening of Korean railways market, opening of Japanese concessions and lifting of offsets in Israel) and full opening of Canadian procurement market can be reached. It is nevertheless very difficult to predict when and under what conditions China or Russia would accede to GPA, how the US will conduct its bilateral procurement negotiations and whether the EU will start procurement negotiations with Turkey, Australia, South Africa and ASEAN nations (but Singapore and Malaysia).

Under a pessimistic scenario, it cannot be excluded that (1) bilateral trade negotiations with India or Mercosur are never concluded (eventually for other reasons than procurement) and (2) bilateral trade negotiations with Japan are never started.

Under an optimistic scenario, it can be expected that: (1) India and Brazil (Mercosur) commit their central government procurement (including railways in India and power generation in Brazil) and (2) Japan opens its railways as a fulfilment of its commitments under the GPA.

The implementation problems will not significantly change - and actually could worsen - as additional MS may be tempted to take domestic measures, in disregard of the EU's exclusive competence of CCP. As indicated earlier, this could lead the EU to face WTO/FTA litigations and ultimately undermine the credibility of the EU in international procurement negotiations. Alternatively, the Commission may have to take MS to the ECJ for infringing the exclusive competence of the EU for the CCP, but this would increase the perception of openness of the EU precisely at a moment when the EU is lacking leverage.

Finally, the recently adopted new PP legislation does not solve the leverage of the EU in international trade negotiations although the extension of the current rules to most services and, in particular, to service concessions may, if adopted, open new possibilities in negotiations. Also, the possibility to include life cycle cost and production processes in selection/awarding criteria may also allow contracting authorities to block products that do not respect minimal environmental and social standards (e.g. child or prison labour, disproportionate carbon footprint...).

5.2       Non-Legislative Approach

5.2.1    Option 2A: 'Soft Law'

To give incentives to trading partners to negotiate market access and to strengthen market access in particular in railways, the Commission would provide guidance[59] on how to better use articles 58 and 59 of the so-called 'Utilities'[60] Directive 2004/17/EC (these articles were introduced at the time of the first GPA negotiations). Guidance would ensure that international commitments are respected. Furthermore, the Commission would make a more active use of existing tools such as infringement procedures against those MS that violate Article 58 of the Directive 2004/17/EC or the exclusive competence of the EU on the CCP. Finally, a more active use of dispute settlement mechanisms in the context of WTO/FTAs would target direct infringement of international commitments by trading partners.

5.2.2    Option 2B: Reinforcement of on-going negotiations

During the Liaison Forum, the business trade associations asked that the EU could negotiate more forcefully to further open up PP across the globe. It should be reminded that since the adoption of the Communication "Global Europe" the EU has systematically sought the inclusion of comprehensive procurement chapters, including market access, in all of its trade negotiations.

Box 5 - Detailing what could be a reinforcement of on-going negotiations

Under this option, the EU would reinforce this approach and thus (1) encourage trading partners to join GPA, (2) seek the development or the expansion of market access commitments on government procurement in existing FTAs (Chile, Mexico) or (3) try to convince trading partners to include market access in the discussions of the trade provisions of on-going PCA negotiations (such as EU-Australia PCA).  The EU would also reinforce its consultations with industry so as to enhance its assessment of the market issues and opportunities in third countries

In fact, except for Australia and Turkey, the EU is already negotiating forcefully along the aforementioned lines. The EU has recently successfully concluded the GPA negotiations offering new market access (Canada, Korea, dismantling of Israeli offsets) or commitments to further negotiations (US, Japan[61]), has linked the conclusion of the EU-India FTA negotiations to a substantial procurement chapter and the EU-Mercosur negotiations were only re-launched on the condition of the inclusion of a PP chapter.

In this context it should be noted that India has submitted a new bill on procurement and Mercosur countries are negotiating the opening of procurement to each other.

The EU has still an ambitious set of negotiations programmed in the medium-term: Russia has taken commitments to join GPA, China's accession to GPA and bilateral negotiations with Japan and US, and possibly with a number of ASEAN countries beyond those with which negotiations are already on-going.

In reality, this option would basically amount to a continuation of existing policy and would fail to address one of the core issues, namely the lack of proper leverage to open third country PP markets[62]. It shall therefore be considered as an extension of the baseline scenario.

5.3       Legislative Approach with supervision by European Commission

To ensure that international obligations are respected and to increase the leverage in procurement opening negotiations, under this legislative option (with three alternative approaches), the Commission would, as responsible for the conduct of the common trade policy and the consistency of the internal market, have the final say for each award to be either refused (options 3B) or accepted (options 3A and 3C) by contracting authorities.

Under the different approaches set out below the legislative initiative would define and regulate access to PP covered and not covered by the EU's international commitments[63] and establish  "procurement rules of origin" (PROs) to identify the origin of goods and services[64]. In line with the concerns expressed by NGOs, it would also grant full access to goods and services from least developed countries.

Options 3A and 3C take as a starting point that non-covered PP is a priori closed (acceptances to open have to be cleared by the Commission), whereas option 3B considers that it is a priori open (rejections have to be cleared by the Commission).

The scope of the legislative initiative would mirror the scope of the PP directives[65] with the possible inclusion of service concessions at a later stage. The initiative would also exclude defence procurement, which is subject specifically to EU Directive 2009/81/EC[66].

5.3.1    Option 3A: Approach based on an overall access restriction for not covered procurement at the EU level (option 3A)

Under the first approach EU contracting entities would be required, in principle, to exclude third country goods, services and companies not covered by the international commitments of the EU. However, in four cases (cf. infra) the initiative would establish "exceptions" to the obligation to exclude for instance in cases of “emergency” and/or of “overriding reasons of general interest”, but also in those areas identified in the consultation of contracting authorities (to avoid obstacles to the procurement of goods and services unavailable in the EU (e.g. fuel)[67], for health-related procurement (e.g. pharmaceuticals, medical equipment - whose number of bids is also below-average 2-3 bids on average) or in case of disproportionate sourcing costs (e.g. fuel or computers[68]).

EU contracting entities would be required to notify (ex post) the European Commission of their decision to accept third countries' goods, services and companies not covered by the EU's international commitments and the derogation on which they are based. This ex post notification would be made, for instance, in the contract award notice[69].

5.3.2    Option 3B: Approach based on individual decisions by the EU contracting entities and a Commission driven mechanism in the case of not covered procurement (option 3B)

5.3.2.1. At the level of MS: individual contracting entities' decisions under the supervision of the European Commission (3 B 1)

Under this approach contracting entities may exclude bids from third countries after being cleared by the Commission and provided that they announced in the contract notice that they intend to reject foreign bids that consist of non-covered goods and services. This will allow the Commission to monitor the situation and ensure a consistent treatment of foreign bids throughout the EU. The decision from the Commission would be assessed on the basis of a 'substantial reciprocity test"[70], which takes into account the current market access situation in the country of origin concerned and the commitments undertaken in the GPA/FTAs/SAAs, as well on the basis of situation of existing trade negotiations[71]. The Commission would take a decision within take 6-8 weeks.

5.3.2.2. At the EU level: the Commission-driven mechanism ("3 B2")

As a complement to 3B1, the Commission would be entitled to conduct enquiries about the market access situation for EU goods, services and companies in specific third countries, and, based on the evidence of existing trade barriers, to initiate negotiations with these countries to remove the existing trade barriers or undertake market access commitments.  Should negotiations fail, the Commission would have the power to consider and adopt restrictive measures[72] on goods and services originating in third countries when EU goods, services and companies do not enjoy sufficient access to the PP market of these countries. The assessment would take place on the basis of similar criteria to those of 3B1, and upon positive conclusion to remove these barriers[73]. In addition, under this approach, exemptions would allow contracting entities not to apply the restrictive measures adopted at the EU level in the 4 specific cases also applying to option 3A.

5.3.3    Option 3C: Option for contracting entities to accept companies, goods and services not covered by the EU's international commitments, subject to notification of the Commission and Commission option to impose access to the EU's public procurement market

This option would give contracting entities the possibility, subject to clearance of the Commission, to accept companies, goods and services that do not benefit of international market access commitments. They would, first have to announce in the contract notice that they would like to accept these companies, goods and services. If they actually receive such goods and services they must notify the Commission. The Commission would take a decision based on 'substantial reciprocity' within take 6-8 weeks.

5.4       Option 4: Legislative approach: Instrument without supervision by European Commission (extension of Article 58 to the whole scope of the directives)

The provisions of Articles 58 and 59 would be extended to services, works, bodies governed by public law, central and local authorities. Guidance on its use would be provided through explanatory documents (as per option 2). Finally, this initiative would use the same core elements as option 3.

5.5       Option 5: 'Buy Europe' type legal framework

Another option could consist in introducing prohibitive price preference mechanisms in the EU akin to those used in the US or in Brazil, either in specific sectors or for all procurement, to shelter EU goods and services from foreign competition. Yet, the credibility of the EU in its fight against precisely the same protectionist measures in PP would be severely damaged. As a result, this option would not solve the main problem (i.e. the closure of foreign PP markets), and as a result will not be further analysed[74]. Last but not least, in the consultation of stakeholders, price penalties were dismissed both by contracting authorities and businesses.

5.6       Option 6: correcting unfair 'abnormally low tenders' (complementary option)

The options outlined could be complemented by an option that would, in addition to the strengthened rules on the proposed  PP directives and in line with our international obligations, increase the transparency requirements in case of abnormally low bids from  third countries resulting from unfair competition practices (in non-covered PP). On this basis, contracting authorities could be required to inform in writing competing bidders every time they intend to accept abnormally low bids[75].

6.  Analysis of impacts

6.1       Key impacts to be analysed

The instrument is expected to generate a certain number of jobs and a certain increase in exports against which the costs of each option have to be analysed (sensitivity analysis). As a result, a number of key impacts shall be analysed for each option:  trade (exports, imports, potential retaliation, supply chains of EU firms), foreign direct investment (FDI), jobs, competitiveness (identification of sectors affected by each option, effect on level playing field, internationalisation of SMEs), leverage, rules clarification effect, public finances[76], administrative burden[77], competition (impact on the number of bidders), innovation, consumers (final users of public services), and environment.

6.2       Overall assumptions

Assumptions are explained in detail in Annex 4 ("Analysis of impacts") and can be summarised as follows:

· Market behaviour: the main incentives of contracting authorities are to lower as much as possible the risk of litigation, to purchase efficiently and quickly (cf. PwC study): optional restrictions will not be used systematically by contracting authorities (and certainly not for fuel, pharmaceuticals, medical equipment and computers[78]): depending on the option, we will assume a rate of rejection of 25%, 50% or 75%[79]; businesses are always interested to participate in procurement procedures

· Retaliatory effects: - cf. 6.3.2 (cf. infra)

· Leverage: Leverage is calculated on the basis of a leverage index that measures the percentage of closed markets of the trading partner in comparison to the EU (cf. Annex 7 methodological annex)

Box 6 – Overview of the models used to calculate impacts

The impact on exports is derived from an analysis of the markets that the EU's trading partners will open (cf. box 7 and Annex 7). The jobs that would be created as a result of the additional exports are based on an extrapolation of an on-going analysis of the impact of exports and jobs conducted by DG TRADE and the JRC (this model might slightly overestimate job creation as it does not take into account efficiency gains and spare capacity). The impact on public finances is calculated on the basis of a model measuring the relation between savings and competition (number of bids). The impact on competition is measured on the basis of the number of bids received on average by specific types of purchasers. Finally, the impact on administrative burden is calculated on the basis of the standard cost model. The cost of opportunity caused by periods of notification has been taken into account, but quantification of uncertainty and litigation costs remains subjective and difficult to quantify.

6.3       Cross-cutting impacts:

6.3.1    Exports, jobs, FDI and internationalisation of SMEs

The success of this legislative instrument largely depends on the third country market openings that would be achieved following its adoption, and these are difficult to predict as they depend on the outcome of international trade negotiations. If these fail, the problems previously identified[80] will continue.

To determine the efficiency of each the options, the costs of each option will be compared to the more realistic objective of 4 billion EUR additional exports (cf. box 7).

Box 7 – Additional exports and jobs

Full opening scenario - If the 12 largest non-EU/EEA trading partners fully open their PP markets in all negotiations due notably to the leverage generated by this instrument, it could increase EU exports by a 12 billion EUR (although this situation is probably too optimistic), which in turn would then generate 180 000 jobs (cf. Annex 5).

Realistic opening scenario- If the EU negotiates symmetrically and obtains the access of all the markets where these 12 trading partners have offensive trade interests (which is more realistic since these are areas which our trading partners need to secure), then the instrument could result in 4 billion EUR of additional exports, which in turn would generate 60.000 jobs.

The contribution of this instrument to the internationalisation of SMEs will depend on the countries and sectors, whose procurement markets will be opened through negotiations. An opening of the Brazilian procurement market will particularly impact Portuguese SMEs, whereas the opening of the Russian procurement market is more likely to impact SMEs in, say, Poland or Bulgaria. Similarly, the capacity of SMEs to participate will depend on the sector in which they are involved.

Finally, the impact of the instrument on FDI is difficult to evaluate. For goods in non-covered procurement, some companies may have to set up manufacturing activities in the EU. However, for services, the fact that restrictions would apply to subsidiaries of foreign companies could discourage FDI in the EU.

6.3.2    Retaliatory measures

Predicting reactions by trading partners is a difficult and subjective prospective exercise. The problem of retaliation is analysed in-depth in 1.3.2 of Annex 4 (pages 3-4). In this context, it is proposed to envisage 3 scenarios of retaliation[81] by trading partners: "no retaliation", "simple retaliation" and "massive retaliation/boycott" (cf. infra). Still, the scenarios "no retaliation" and "boycott" will be used as boundaries to measure costs and benefits of each of the envisaged options.

Box 8 – Retaliation scenarios

(a) No retaliation - none of the trading partners takes measures restricting exports of EU goods and services to their procurement market.

(b) Simple retaliation - the trading partners that have not enacted crosscutting retaliatory measures (like India and Australia) introduce such measures and Turkey reinforces its existing measures on the same scale as the EU. 

(c) Boycott (or 'massive retaliation') - trading partners completely close their PP open domestically but not committed internationally, to "boycott" EU goods and services.

The "simple retaliation" scenario shall be considered as the average scenario, as it is the most plausible. Not considering any retaliation would be a too optimistic approach, whereas a "boycott" scenario is most likely too pessimistic (trading partners also thrive under open trade, trading partners that maintain protectionist measures lack arguments to retaliate, trading partners may find it less costly to negotiate than to retaliate and trading partners may be bound within pre-existing agreements).

6.3.3    Overall environmental and social  impacts

Measures imposing barriers to foreign goods and services ' access to EU markets may indeed undermine the incentive of foreign firms to adopt stricter environmental and social standards used by EU firms. Given the large size of the EU procurement market, this can eventually slow down the shift of foreign firms towards the adoption of less polluting techniques, production of environmentally friendly goods and services and higher labour welfare standards.

6.4       Baseline scenario ('nothing happens')

The pessimistic and optimistic scenarios of negotiations point to respectively some 0.8 – 1.2 billion EUR of additional exports and between 12.000 - 18.000 new jobs. There would still be about 11 billion EUR of untapped exports. Current protectionist policies may distort business investment decisions and could artificially lead to jobs being shifted outside the EU.

6.5       Option 2A: 'Soft Law'

1)         Impacts on trade and jobs:

-           Imports and retaliation: As contracting authorities have little incentives to use Article 58 (2), if we assume a 50% usage, option 2A could lower imports of foreign goods for 1 billion EUR (cf. table below and impact analysis)[82]. Based on the analysis performed China appears to be the most impacted (their exports would decrease by 0.5 billion EUR)[83]. Option 2A could possibly result in retaliation of around 0.4 billion EUR (costing some 6 000 jobs).

-           Exports and jobs: the option 2A could at the very maximum deliver 2 billion EUR of exports and create 30,000 jobs, as it does not fully close the EU PP market[84].

-           Supply chains[85]:  the impact will be limited as utilities sectors do not depend much on the import of computers, telecom equipment or pharmaceuticals from the US or China (not more than 5 % of their purchases).

2)         Competitiveness (equal level playing field): This initiative will impact 7 utilities' sectors[86] out of the 22 analysed. In those sectors, some of our trading partners have offensive interests[87], as for instance, Japan and Korea in railway equipment. A more level playing field could be obtained in all the utilities' sectors, but not elsewhere. Still, this option alone does not solve the problem of state-supported abnormally low tenders. The initiative will partially stimulate the internationalisation of SMEs.

3)         Leverage effect: Based on the ratio of closed markets in the EU and in the trading partners, we have calculated a leverage index (cf. Annex 7 - methodological annex). In particular, the leverage vis-à-vis Korea, Brazil, Japan and Turkey, but remains very limited vis-à-vis US and Mexico.

Table 7 - Leverage index

|| Option 2 || Baseline

|| Leverage index || Leverage index

USA || 1% || 0%

Japan || 27% || 0%

Canada || 21% || 0%

Korea || 56% || 0%

Mexico || 0% || 0%

Israel || 0% || 0%

China || 11% || 0%

Russia || 17% || 0%

India || 10% || 0%

Brazil || 35% || 0%

Turkey || 25% || 0%

Australia || 0% || 0%

Sources: WTO, DG MARKT, Eurostat, own calculations

4)         Rules clarification: The guidance on the scope of committed and non-committed procurement as well as on PRO would improve the legal certainty when rejecting foreign goods in the tendering procedures of utilities improving the consistency of EU trade policy, without fully ensuring it. Also, as the use of restrictions is optional, several patterns of use may emerge throughout MS and the cohesion of the internal market may not be guaranteed. However, the improvement will be confined to the utilities purchases and no clarification will be provided for the remaining sectors not covered by Article 58 which constitutes about 90% of the EU PP market).

5)         Public finances: The impact is negligible (up to 50 million EUR if Article 58 is applied systematically) and reduces the current savings of the PP directives by only 0.25%[88].

6)         Administrative burden: The impact is negligible (2 million EUR)[89]: total administrative burden of PP increases by 0.05 % and there is no effect on the total cost of PP procedures[90] (cf. Annex 4, page [?]).

7)         Impact on competition and innovation: Competition could be affected in electricity, railways and postal operators’ procurement, which have some 3 bids on average. This could reduce incentives to innovation for key technological purchases (smart grids, high-speed trains, renewable energy...).

8)         Impact on consumers: The financial impact for utilities' consumers is minimal (0,1 EUR per person per year)[91]

9)         Environmental impact: Enhanced application of Art. 58 could negatively impact the worldwide diffusion of EU standards in utilities' sectors (Buses in Clean Vehicles Directive). (cf. Annex 4, page [?]).

6.6       Option 3: Legislative Approach with supervision by European Commission

6.6.1    Option 3A

1)         Impact on trade and jobs

-           Imports: The potential impact on trade flows would be important as option 3A could affect up to 9.1 billion EUR of imports of goods and services. However, as contracting authorities are very likely to waive the restrictions for fuel, computers (both because of sourcing constraints), medical equipment and pharmaceuticals (for obvious reasons to overriding interest), probably the real impact will amount to only around 4.1 billion EUR. Also, non-GPA/FTA countries will be severely impacted by the restrictions, and imports may be shifted from them to GPA/FTA countries (e.g. computers from China would be replaced by Taiwanese computers) - restrictions on goods in GPA are very limited[92].

-           Supply chains:  We estimate the impact on supply chains to be between 0.6-0.8 billion EUR with China and US (cf. Annex 4, pp.25)

-           Potential retaliations by third countries could impact up to some 1.1 billion EUR of EU exports of goods and services (16 500 jobs) or, in the Boycott scenario, some 4,6 billion EUR.

-           Exports and jobs: The initiative can realistically lead to market openings worth 4 billion EUR of additional exports (60.000 jobs)

2)         Competitiveness (equal level playing field): This option would affect 19 out of 22 sectors concerned, as contracting authorities will not be in a position to apply restrictions for high-tech medical equipment, pharmaceuticals ('reasons of overriding interest') and computers ('supply constraints')[93]. It would not substantially change the low EU market share in high performance computing (HPC)[94] because of exceptions due to 'sourcing constraints'. Still, this option alone does not solve the problem of state-supported abnormally low tenders.

3)         Leverage: Leverage increases for all countries, in particular with Brazil, but less so vis-à-vis the US because of the large trade in pharmaceuticals with the index ranging from 0% in the case of Mexico and Israel to Brazil with 181%[95].

4)         Rules clarification: Under option 3A, the guidance on the EU international commitments as well as on PRO would improve legal certainty and should avoid the problems caused by the erroneous use of symmetric reciprocity clauses. This would respectively improve the consistency of internal market (restrictions are applied identically in all MS) and trade policy. However, as contracting authorities apply the restrictions themselves, the problem of implementation errors and noncompliance with the EU’s international commitments is not mitigated.

5)         Public finances The overall impact on public finances is negligible, reducing the current estimated savings of the directives by only 0,6%[96].

6)         Administrative burden: The administrative burden is expected to amount 5,5 million EUR, (production of certificate of origin for businesses and exceptions for pharmaceuticals, medical equipment, fuel and computers) increasing therefore the total administrative burden of PP by 2,7 % and would not affect the total cost of PP procedures[97] (for more details, p. 31 of Annex 4).

7)         Impact on competition and innovation: Effects on competition depend on the type of good and service (overall there are 5 bids per tender in the EU). Still, those areas where competition is weakest (pharmaceuticals), contracting authorities will be able to use exceptions. Similar effects to those of option 2 can be expected in railways and energy.

8)         Impact on consumers of public services: The financial impact for taxpayers and consumers of public services is minimal (0,2 EUR per person per year).[98]

9)         Environmental impact: The use of an instrument modelled on option 3A could negatively impact the worldwide diffusion of EU standards in utilities' sectors (Buses in Clean Vehicles Directive).

6.6.2    Option 3B

1)         Impact on trade and jobs:

-           Imports: The potential impact on trade flows would amount to 1 billion EUR  - we assume a rate of rejection of 25% (cf. supra). Contracting authorities would most likely not apply these restrictions for computers, pharmaceuticals, medical equipment and fuel. As in option 3A, one can expect a trade reallocation between GPA/FTA countries and non- GPA/FTA countries.

Table 11 - Impact on imports (billion EUR)

|| EU IMPORTS (Bn EUR)

|| Total || Option 3B closed || OPEN

USA || 6,7 || 0,20 || 6,5

Japan || 2,0 || 0,08 || 1,9

Canada || 0,4 || 0,03 || 0,4

Korea || 0,9 || 0,05 || 0,9

Mexico || 0,1 || 0,00 || 0,1

Israel || 0,2 || 0,00 || 0,2

China || 5,2 || 0,43 || 4,8

Russia || 0,7 || 0,10 || 0,6

India || 0,3 || 0,06 || 0,2

Brazil || 0,1 || 0,03 || 0,1

Turkey || 0,3 || 0,03 || 0,3

Australia || 0,1 || 0,02 || 0,1

|| 17,0 || 1,0 || 16,0

Sources: WTO, DG MARKT, Eurostat, own calculations

-           Supply chains: Under the assumption of a rate of rejection of 25%, the impact on supply chains is set to be between 0,1-0,2 billion EUR with China and US

-           Potential retaliations by third countries could impact up to some 0.3 billion EUR of EU exports of goods and services (some 4 500 jobs).

-           Exports and jobs: The initiative can realistically lead to market openings worth 4 billion EUR of additional exports (60.000 jobs)

2)         Competitiveness (equal level playing field): This option will cover all the relevant sectors of the economy. The mechanism foreseen under 3B2 will allow industries that consider having problems of level playing field to carry forward their request to the Commission. Still, this option alone does not solve the problem of state-supported abnormally low tenders.

3          Leverage: Leverage increases for all countries[99], but remains influenced by the rates of rejection of the notification mechanism under option 3B1, while a major element of leverage of option 3B is to use the capacity to close specific markets as a threat (option 3B2)[100].

4)         Rules clarification: This option will provide maximum clarity and reduce the margin of errors as the Commission will have the final say on the possibility to discriminate, hence ensuring the consistency of the CCP, while reducing the risk of any breach of the Treaty. Still, as the use of restrictions is optional, several patterns of use may emerge and the cohesion of the internal market may not be guaranteed.

5)         Public finances: Similarly, the overall impact on public finances is negligible, reducing the current estimated savings of the directives by only 0,21%.[101]

6)         Administrative burden: The administrative burden, in particular in relation to option 3B1, is expected to amount 3,5 million EUR, (production of certificate of origin for businesses and exceptions for pharmaceuticals, medical equipment, fuel and computers) increasing therefore the total administrative burden of PP by 2,7 % and would not affect the total cost of PP procedures[102] (for more details, p. 31 of Annex 4). Still, the management of notification and complaints under this option amounts to 0,1 million EUR.[103]  The cost of opportunity of 6-8 weeks waiting amounts to 38 million EUR[104]. It is difficult to assess the cost of uncertainty resulting from the notification process as well as of any potential, if any, litigation risks. Overall, the total quantifiable cost of option 3B is expected to amount to up to around 41 million EUR.

7)         Impact on competition and innovation/ 8.Impact on consumers/ 9. Environmental impact– cf. option A

6.6.3    Option 3C

Under option 3C, contracting authorities must notify if they intend to accept offers from third countries. Probably they have no incentives to do so, except (again) for fuel, computers, medical equipment and pharmaceuticals (cf. option 3A). For the remaining purchases, we shall assume a rate of acceptance of 25% (or a rate of rejection of 75%) since contracting authorities will have no incentives to accept a foreign offer. Several impacts will be similar to those of option 3A.

1)         Trade and jobs

Impact on incoming trade flows: This option would have 75% of the retaliation, supply chain and import impacts of option 3A (rate of usage, as contracting authorities may opt to accept foreign offers). In terms of exports, it could lead to 4 billion EUR of additional exports (60.000 jobs)

2)         Competitiveness (equal level playing field): cf. option 3A

3)         Leverage: The leverage index under this option ranges from 0% in the case of Mexico and Israel to 136% in the case of Brazil.[105]

4)         Rules clarification: cf. option 3A

5)         Public finances: cf. option 3A

6)         Administrative burden:  Option 3C has dramatic implications in terms of administrative burden as it applies a 6-8 week period on the goods covered by a exception in option 3A1 and on 25% of the remaining procedures, resulting in some 200 million EUR of administrative burden (for more details, cf. Annex 4 pp. 44-46)

7)         Impact on competition and innovation: cf. option 3A

8)         Environmental impact: cf. option 3A

6.7       Option 4: Legislative Approach without supervision by European Commission ('Article 58')

The effects of option 4 will be similar to those of a weaker option 3A, except for the administrative burden. Article 58 will never be used for medical equipment, fuel, pharmaceuticals and computers. For other goods, as in option 2, we can assume a rate of use of 50%.

1)         Trade and jobs

-           Imports: The potential impact on trade flows would be as important as in option 3A and could affect up to 9.1billion EUR of imports of goods and services. However, as contracting authorities are very likely to waive the restrictions for fuel, computers, medical equipment and pharmaceuticals, probably the real impact will amount to only to 2 billion EUR will be impacted (because the assumed rejection rate is 50%). Also, non-GPA/FTA countries will be severely impacted by the restrictions, and imports may be shifted from them to GPA/FTA countries (e.g. computers from China would be replaced by Taiwanese computers).

-           Supply chains:  We estimate the impact on supply chains to be between 0.3-0.4 billion EUR with China and US (cf. Annex 4, pp.25)

-           Potential retaliations by third countries could impact up to some 1 billion EUR of EU exports of goods and services (some 15,000 jobs).

-           Exports and jobs: The initiative can realistically lead to market openings worth 4 billion EUR of additional exports (60.000 jobs)

2)         Competitiveness (equal level playing field): cf. option 3A

3)         Leverage: Leverage increases for all countries, in particular with Brazil, but less so vis-à-vis the US because of the large trade in pharmaceuticals.  The leverage index under this option ranges from 0% in the case of Mexico and Israel to 91% in the case of Brazil.[106]

4)         Rules clarification: Under option 4, the guidance on the EU international commitments as well as on PRO would improve legal certainty and avoid the problems caused by the erroneous use of symmetric reciprocity clauses. Yet, final decisions on access would be taken by contracting authorities themselves. This would improve the consistency of internal market and trade policy, but would not fully ensure it.

5)         Public finances: The overall impact on public finances is negligible (less than in option 3A).

6)         Administrative burden: The administrative burden is expected to amount 3,5 million EUR, (production of certificate of origin for businesses) increasing therefore the total administrative burden of PP by 1,7 % and would not affect the total cost of PP procedures[107].

7)         Impact on competition and innovation: cf. option 3A

8)         Impact on consumers: cf. option 3A

9)         Environmental impact: cf. option 3A

6.8       Option 5: Buy Europe

Not further analysed (cf. 5.5)

6.9       Option 6: correcting unfair 'abnormally low tenders'

This complementary option would practically mostly affect bids originating from China, India and Russia. It is important to underline that 20% of Chinese imports originate from State-owned enterprises[108]. Contracting authorities, afraid of possible challenges by other bidders based on the information received from the contracting authority, would carefully weight decisions to accept abnormally low tenders. This option could have some negative impacts on administrative burden and public finances[109]. Also, retaliation cannot be excluded, in particular, if the award of an important contract to third country is affected. Overall, option 6 can reinforce the leverage of the EU when combined with each of the options envisaged.

7. Comparing the options

7.1       Review of different options by objectives and impacts

The following table compares how well the different options examined above meet the objectives sought by a review of the scheme. This comparison is based on three criteria: effectiveness (clarification, PROs, leverage, level playing field); efficiency (retaliation, public finances, administrative burden); and consistency of EU trade policy, EU internal market and respect of EU's international obligations. All the options can be complemented by option 5.

Table 14 - Comparison of options compared to 'no policy change'

|| || No policy change || Option  2 || Option 3A || Option 3B || Option 3C || Option 4 || Option 6

Effectiveness || Increase exports and jobs || 0 || + || ++ || ++ || ++ || ++ || ≈

Clarify rules of access to EU PP market for non-EU tenderers (define what is open and what is closed and PROs) || 0 || ≈ || + + || + + || + + || + || 0

Create incentives for trading partners to open their PP market (= leverage effect) || 0 || ≈ || + || + /++ || + || + || ≈

Strengthen the level playing field for EU companies in the EU || 0 || + || + || + || + || + || + +

Efficiency How limited will be: || The retaliation effect from trading partners? || 0 || - || - - || - / ≈ || - - || - || - / ≈

The impact on supply chains of EU firms? || 0 || - || - - || - / ≈ || - - || - || - / ≈

The impact on public finances? || 0 || ≈ || - / ≈ || ≈ || - / ≈ || ≈ || ≈

The impact on administrative burden? || 0 || ≈ || - || - - || - - || - || - / ≈

Coherence || Preserve the consistency of the EU trade policy || 0 || ≈ || + || + + || + || + || 0

Preserve the consistency of the EU Internal Market || 0 || ≈ || + + || + || + || + || 0

Ensure the respect of International Agreement || 0 || ≈ || + || + + || + || + || 0

0 - no change; '≈' minimal change; '+'improvement'; '-' worsening'

7.1.1    Comparison in terms of effectiveness, efficiency and coherence

7.1.1.1 Effectiveness:

Exports and jobs: Option 2 is likely to create 2 billion EUR of additional exports and 30.000 jobs, whereas options 3 and 4 are likely to create 4 billion EUR of additional exports and 60.000 jobs. Option 6 has a limited scope and cannot be considered to have a broad impact on exports. However, the 1 billion EUR of additional exports and 15.000 jobs of the on-going negotiations have to be deducted from all the options.  Also, the ability of each option to reach the export 4 billion EUR will vary with the leverage of each option (cf. infra). To compare the options, we shall therefore consider a prudent 3 billion EUR for options 3B, 3C and 4 and consider 4 billion EUR only for option 3A, which has the greater leverage.

Clarification of the rules and PROs: The main element to distinguish options here is the scope of the instrument. Legislative acts as described in Options 3A, 3B, 3C and 4 will clarify the whole scope of the legislation, by reflecting in EU law all the international commitments of the EU, compared to Option 2 which will do that but will remained confined to the utilities. Yet, Option 4 score a little less as it relies on explanatory documents, whereas under Options 3A, 3B and 3C international commitments would be annexed to the legislation.

Leverage: Option 3A, 3C and 4 creates more leverage than Option 3B1, but the capacity of option 3B2 to tailor threats vis-à-vis trading partners and their offensive interests (and EU' s defensive interests) gives Option 3B a leverage superior to Option 3B1 alone but slightly inferior or equal to Option 3A. For instance, in option 3B, the Commission can start at any moment enquiries on the access of the railways and construction sectors that are the most affected by protectionism in PP.

Strengthening of the level playing field: Option 2 only creates level playing field in industries selling to utilities, whereas both Option 3A, 3B, 3C and 4 cover all industrial sectors. Options 3A and 3B don't create leverage in fuels, medical equipment, pharmaceuticals and computers, whose purchases would be waived under option 3A or not notified under option 3B. This is not a problem for the pharmaceutical industry, which is capable of bypassing restrictions of trading partners thanks to its high-quality differentiation. Still, none of the options addresses directly the problem of state-sponsored abnormally low tenders.

In varying degrees, option 3A, 3B, 3C and 4 are the most effective options compared to option 2. Option n°5 will contribute to improve the level playing field, but will alone neither solve the problems of leverage to open third countries' markets (in particular in countries like US or Australia that have a small degree of government intervention) nor questions related to the respect of international commitments by the EU.

7.1.1.2 Efficiency:

Retaliation: It seems reasonable to assume that the level of potential retaliation would be proportional to the level of usage of the restrictions in the EU. In this context, the consequent result is that options 3A, 3C and 4 retaliation is 2 times larger than option 3B (in the simple retaliation scenario). The latter is therefore the option that causes the least potential negative impacts in terms of inter alia job losses.

Supply chains - Supply chains of EU firms in China or US are mostly affected in options 3A, 3C and 4.

Public finances: None of the options affects significantly public finances, although  Option 3A "costs" more – some 0.25% of the directives savings. This is mostly due to the very small number of procedures involved and the large level of competition in the EU PP market anyway (5 bids on average).

Administrative burden: While the costs for the production of certificate of origin is higher for 3 A, 3 B and, in particular 3C, generate an important burden, with a 6-8 week delay of consultation of the Commission.  Option 6 could generate additional burden to courts and delays in contracts. Options 2 and 6 have a much smaller administrative burden because they do not rely on the Commission's prior authorisation, hence speeding up the award procedure.

As shown in table 15a, the efficiency of each option is in all options mostly derived from the costs of retaliation and supply chains of EU firms in US and China, which are in absolute terms more important than administrative burden and public finance impacts.

Table 15a - Total costs of each option (Bn EUR)

|| Retaliation || || || || Total (ret scenario)

|| None || Simple || Massive || SC || PF || AB || None || Simple || Massive

Option 2 || 0,0 || 0,4 || 1,3 || 0,0 || 0,1 || 0,0 || 0,1 || 0,5 || 1,4

Option 3A || 0,0 || 1,1 || 4,6 || 0,7 || 0,1 || 0,0 || 0,8 || 1,9 || 5,4

Option 3B || 0,0 || 0,5 || 1,0 || 0,2 || 0,0 || 0,0 || 0,2 || 0,7 || 1,2

Option 3C || 0,0 || 1,1 || 4,6 || 0,7 || 0,1 || 0,2 || 1,0 || 2,1 || 5,6

Option 4 || 0,0 || 1,1 || 4,6 || 0,7 || 0,1 || 0,0 || 0,8 || 1,9 || 5,4

SC= supply chains of EU firms in US and China; PF= public finances and AB = administrative burden

Options 3B is the most efficient of all options both in absolute and relative terms. Option 2 also scores well but mostly because its scope is more limited (otherwise it scores as option 4). Option 3B (and 2) is the only option whose costs do not offset the 4 billion EUR of additional exports if trade partners open those markets - cf. table 15d. The comparison is based on the ratio total costs to the net benefit (i.e. the benefits of the baseline scenario are deducted from the total benefits). 

Table 15b- Costs & benefits of options (Bn EUR) - simple retaliation scenario

SIMPLE RETALIATION || BENEFIT || COST (% net benefit)

|| Baseline || FULL || OI || COST || Baseline || FULL || OI

Option 2 || 1 || 12 || 2 || 0,5 || - || 4% || 45%

Option 3A || 1 || 12 || 4 || 1,9 || - || 18% || 65%

Option 3B || 1 || 11 || 3 || 0,7 || - || 7% || 37%

Option 3C || 1 || 11 || 3 || 2,1 || || 21% || 107%

Option 4 || 1 || 11 || 3 || 1,9 || - || 19% || 97%

Baseline= baseline scenario (negotiations); FULL= trading partners fully open their markets; OI = trading partners only open those markets where they have offensive interests to obtain the symmetric markets in the EU

Table 15c- Costs & benefits of options (Bn EUR) - No retaliation scenario

No retaliation || BENEFIT || COST (% net benefit)

|| Baseline || FULL || OI || COST || Baseline || FULL || OI

Option 2 || 1 || 12 || 2 || 0,1 || - || 0% || 5%

Option 3A || 1 || 12 || 4 || 0,8 || - || 7% || 27%

Option 3B || 1 || 11 || 3 || 0,2 || - || 2% || 10%

Option 3C || 1 || 11 || 3 || 1 || || 10% || 50%

Option 4 || 1 || 11 || 3 || 0,8 || - || 8% || 40%

Table 15d- Costs & benefits of options (Bn EUR) - Massive retaliation scenario

Boycott - massive retaliation || BENEFIT || COST (% net benefit)

|| Baseline || FULL || OI || COST || Baseline || FULL || OI

Option 2 || 1 || 12 || 2 || 1,4 || - || 13% || 140%

Option 3A || 1 || 12 || 4 || 5,4 || - || 49% || 180%

Option 3B || 1 || 11 || 3 || 1,2 || - || 12% || 60%

Option 3C || 1 || 11 || 3 || 5,6 || || 56% || 280%

Option 4 || 1 || 11 || 3 || 5,4 || - || 54% || 270%

7.1.1.3 Coherence:

Preserve the consistency of EU trade policy: Options 3B and 3C preserve better the consistency of EU trade policy as it ensures that decisions are taken at EU level i.e. in full knowledge of all the legal, economic and political consequences. In option 3A and 4, this is left to the discretion of contracting authorities.

Preserve the consistency of the EU internal market: Option 3A, 3B and 3C ensure that there are no varying practices in the treatment of foreign goods and services in the EU. Option 2 also, but only for utilities. However, under option 3B and 3C, there may be diverging patterns in the notification by contracting authorities, implying that the consistency of the internal market may not ensured.

Ensure the respect of international agreements: Option 3B ensures that the Commission controls discriminatory practices against foreign services and goods, mitigating the risk of erroneous practices. In options 3A, 3C and 4, this is left (partially in 3C) to the discretion of contracting authorities.

As a result, Option 3B that scores better overall in terms of consistency.

7.1.2    Comparison by type of stakeholder

PP is a market with sellers (businesses), that want to maximise their business opportunities (they have all incentives to reduce competition), and buyers (contracting authorities) that are keen on minimising litigation costs, speed and better value for money.

It is therefore unsurprising that contracting authorities have chosen option 2 or 'nothing happens' as their favourite options and businesses have opted for option 3A and, to some extent, option 3B.

7.1.3    Choice of the legal instrument

The objectives presented in Chapter 3 can only be achieved with a legally binding instrument, whether a regulation[110] or a detailed directive[111]. A non-binding legislative instrument would not be appropriate to implement the policy options as there is a need for a harmonised legal framework governing foreign access to the EU PP market to ensure the consistency of CCP and internal market. A regulation appears to be the best regulatory choice for these policy options in terms of effectiveness, legal certainty and uniformity[112].

7.2       Preferred Option

Option 3B scores overall better in terms of consistency, but, more importantly, it is the most efficient of all options. This situation results from the lower retaliation costs of option 3B (compared to option 3A and 4) and the fact that it optimises leverage (the Commission can chose the sectors to close to obtain satisfactory results in terms of market access). At the same time, option 3B (and 3C) fares worse in administrative costs. Of course, retaliation and impact on supply chains of EU firms are short-term impacts. The evaluation of this instrument in the future will allow determining whether the other options are not most efficient to deal with the more long-term impacts of administrative burden and public finances.

Option 3B can be completed by option n°6 which gives it more force to ensure the equal level playing field by addressing the problem of abnormally low tenders. Finally, this should not weaken Commission efforts in negotiations.

As a result, the combination of options that best meets the objectives of the scheme in the most effective, efficient and coherence are option 3B together with options 6 (mechanism to address abnormally low tenders) and 2B (continuation of forceful negotiations). 

8. Monitoring and evaluation

The table below includes suggestions for indicators that can be used to assess the progress and effectiveness of the preferred option in achieving the specific policy objectives set out for the external procurement initiative.

Specific objectives || Proposed indicators

Increase export of EU goods, services and firms in non-EU PP markets || · Additional procurement-related exports · Number of sectors (among the 22 selected) that have been opened abroad compared to the current number · Expansion of trade flows in the area of procurement · Data on overall impact on European economy and competitiveness: GDP and job growth due to additional PP markets · Rate of EU SMEs participating in international trade and public procurement.

Create EU leverage in international procurement negotiations || · Leverage index · Number of investigations launched by the European Commission · Increased number of procurement bilateral dialogues/negotiations · Removal of procurement trade barriers against EU suppliers in specific third countries · Number of third countries against which trade "restrictions" are implemented

Specific objectives || Proposed indicators

Strengthen the level playing field for the EU companies in the internal market || · Number of sectors (among the 22 selected) that have been overall opened abroad compared to the current number · Number of sectors (among the 22 selected) that have been symmetrically committed compared to the current number · Use of the notifications system · Number of notifications approved/refused by the European Commission

Improve legal certainty with regard to the access to the EU procurement market of third countries companies, goods and services. || · Effective reflection of international procurement commitments in EU legislation · Changes in national law to reflect international commitments in the area of public procurement

Ensure the respect of the international agreements of the EU || · Decreased recourse to WTO/FTAs dispute settlement mechanisms

Avoid breaches of the EU Treaty || · Number of infringements against Member States directly related to the access of non-EU companies, goods or services to the EU’s public procurement market

The Commission will ensure that the MS' (and their contracting authorities’) compliance with obligations laid down in the external procurement initiative is adequately monitored. The Commission will inform the European Parliament and Council regularly on the implementation of the new initiative.

The effectiveness of the instrument put into place should be subject to regular monitoring and an independent evaluation should be conducted three years at the latest after entry into force of the initiative in order to assess the extent to which its implementation, results and impacts on the European economy, businesses opportunities for EU suppliers and society in general are consistent with the objectives set.

The Commission will communicate the evaluation results to the European Parliament and Council.

List of Annexes and Glossary

Annexes

Annex 1 – Problem tree

Annex 2 - Consultation analysis

Annex 3 – Problem analysis

Annex 4 – Impact analysis

Annex 5 – COFOG analysis

Annex 6 – Analysis of public procurement markets

Annex 7 – Methodological annex

Annex 8 – Sectoral analysis

Annex 9 – Industrial analysis

Annex 10 – Follow-up of the first opinion of the Board

Annex 11 – Follow-up to the comments of the second opinion of the Impact Assessment Board

GLOSSARY

Public procurement directives - Public procurement directives 2004/17/EC and 2004/18/EC coordinate public procurement procedures in the EU. Defence procurement is regulated by Directive 2009/81/EC. Directive 2077/66/EC coordinates the remedies system in the area of public procurement.

The EU Public procurement directives do not cover contracts falling under certain values (the so-called thresholds), defence procurement contracts and service concessions The directives have a simplified legal framework for public contracts for the so-called 'IIB services' (e.g. social and health services, utilities services,...)

- Government Procurement Agreement (GPA): WTO plurilateral agreement with 15 Parties (EU, Japan, US, Canada, Israel, Chinese Taipei, Korea, Singapore, Hong Kong, Norway, Aruba, Liechtenstein, Armenia and Iceland). Each Party commits parts of its public procurement market. Commitments are expressed in terms of purchases covered (goods,  services, construction services) and purchasers covered (central government, local government,  entities operating in the utilities sectors- including state-owned companies-, namely energy, transport and drinking water).

Free Trade Agreements (FTA) - The EU has negotiated (and is negotiating) a wide range of bilateral and regional trade agreements, mainly Free Trade Agreements, which include a specific public procurement chapter modelled on the rules of GPA together with market access commitments

Defensive interests - cf. "offensive interests"

Offensive interests: Sectors where a country has comparative advantages or where its companies have a substantial share of international trade have a high turnover ranking compared to their foreign competitors or where foreign companies employ a substantial number of workers. Sectors to be protected are known as "defensive interests".

Procurement committed internationally: Public entities and types of purchases that are included in the GPA or in the Public Procurement Chapter of an FTA.

Procurement not committed internationally:

            (a) Excluded procurement - Purchasers and types of purchases that are expressly       mentioned in the GPA or in the FTAs as falling outside the scope of the agreement -            i.e. procurement expressly not committed. The GPA contains for instance country     specific derogations due to the lack of reciprocity on a particular sector or for    purchases of certain entities (e.g. The EU does not extend the benefits of the GPA to             Japan for the procurement of its urban transport entities).

            (b) Unscheduled procurement - (1) public procurement not explicitly committed in      GPA/FTAs/SAAs and (2) all EU public procurement vis-à-vis third countries with which the EU has not signed an international agreement.

Procurement "open" domestically - public procurement that is not closed by national protectionist measures, although not internationally committed by a country in the GPA or in FTAs.

 

Procurement open de facto - public procurement which remains de facto open in spite of national protectionist measures that are bypassed by sophisticated products/services or measures that are not applied systematically.

Procurement rules of origin (PROs) - Rules of origin for bidders in public procurement: i.e. rules of origin for goods and nationality of bidder in services.

Procurement trade deficit/surplus - Difference between the exports and imports resulting from the opening of public procurement in the EU and other markets.

Strict reciprocity clauses - clauses in national legislation that condition the opening of a specific procurement market to the opening of exactly the same procurement market in another country (e.g. if Israel does not open the procurement of its airports to  EU companies/goods/services, then the procurement of EU airports should not be open to Israeli companies/goods/services).

[1]          Articles 58 and 59 of Directive 2004/17 on utilities public procurement procedures

[2]       COM(2010)608

[3]       COM(2010)612

[4]       DG Budget, DG Competition, DG Economic and Financial Affairs, DG Taxation and Customs Union, DG Employment, Social Affairs and Inclusion, DG Enterprise and Industry, DG Environment, DG Energy, DG Mobility and Transport, the Legal Service, the European External Action Service (EEAS) and the Secretariat-General.

[5]       Commission databases from DG Trade, DG Internal Market, DG Employment and DG Enterprise were used to raise awareness about this consultation.

[6]       Replies received until 15 September 2011 were nonetheless taken into account

[7]       Written submissions were also received in addition to the on-line responses

[8]       Approach A: EU procuring entities would be required in principle to exclude third country goods, services and companies not covered by international commitments of the EU.

[9]       Approach B: Subject to notification to the Commission, EU procuring entities would have the option to decide to exclude third country goods, services and companies not covered by international commitments of the EU. In addition, the Commission would be entrusted with a specific tool to conduct enquiries about the market access situation for EU goods, services and companies and to impose restrictive measures on goods and services originating in third countries when EU goods, services and companies do not have sufficient access to the public procurement market of these countries.

[10]     Government consumption of the world, The World in figures, The Economist, 2010

[11]     EU, US, Japan, Canada, Korea, Taiwan, Israel, Singapore, Hong Kong, Switzerland, EEA countries and Aruba

[12]     For example in the agreements concluded with Switzerland, Mexico, Chile, Columbia, Peru, Korea, and countries in the Balkans as part of the Stabilisation and Association Agreements (hereinafter "SAA") plus in on-going FTA negotiations with Canada, India, Singapore, Malaysia, and Mercosur.

[13]     Free Trade Agreements contain chapters of public procurement with commitments to ensure transparent and non-discriminatory procurement (often modelled on GPA) and on procuring entities and types of purchases (the latter two are the so-called market access commitments)

[14]     Additional information in annexes: identification of markets in Annex 5, methodological box 1 of Annex 3 and Annex 9 on the industrial analysis (correspondence NACE/key markets)

[15]     Including private demand

[16]     For instance, defence, urban transport and railways equipment, power generation, telecom equipment

[17]     For instance, medical equipment and pharmaceutical industries, the construction industry, the IT services, and the “green economy”

[18]     Including their subsidiaries, data used for GPA Statistical Report 2007

[19]     Cross-Border Procurement Above the EU Thresholds, Ramboll HTU Chur, March 2011

[20]     The notion “offensive interests” covers sectors where a country has comparative advantages and where its companies are competitive compared to their foreign competitors. Sectors to be protected where a country’s companies are not very competitive are known as "defensive interests".

[21]     The 12 major trading partners are: US, Japan, Canada, Korea, Mexico, Israel, China, Russia, Brazil, Turkey, India and Australia; EEA and Switzerland, who are among the vary largest trading partners of the EU are not included given their imbrications with the EU economy and the fact their legal regimes are akin to the directives. Ukraine has been analysed (cf. annex 8), but since Ukraine has committed to apply a legal regime akin to the EU public procurement in the recently completed EU-Ukraine FTA, it shall be assimilated to the EEA-EFTA countries in this impact assessment.

[22]     For more details on the measurement of public procurement markets, please refer to the methodological boxes 3, 4, 6 and 7 of Annex 3 (Prob. analysis)

[23]     I.e. above the thresholds applied by the EU in the GPA (the so-called 'above-threshold procurement) - data reflects latest GPA negotiation outcomes

[24]     As regards China, its GPA accession process started in 2008, but as the negotiations currently stand, the EU's market access expectations are still largely unfulfilled. Similarly, procurement is one of the most difficult subjects in the on-going FTA negotiations with India and Mercosur.

[25]     This amount represents the 53% of public procurement closed by domestic measures - cf. table 4

[26]     As all sectors are weighted equally, this rate could be distorted in countries where the degree of domestic opening is different from the scope of international commitments (Japan). Yet, as US and China represent two-thirds of all EU potential export markets, this bias is not likely to significantly influence the overall rate of opening

[27]     For example, an important portion of procurement in the US and Korea is earmarked for domestic SMEs.

[28]     In the context of the financial and economic crisis, the US included additional "buy national measures" to shield from international competition procurement funded by its stimulus package or new subsidizing policies.

[29]     Canada has added local content requirements for solar panels

[30]     Countries like Japan maintain carve outs within their international commitments (operational safety clause in urban transport and railways in Japan), further reducing the portion of procurement legally opened to EU suppliers.

[31]     Stabilisation and Association Agreements with FYR of Macedonia, Serbia, Bosnia and Herzegovina, Albania, Montenegro, Kosovo and Croatia

[32]     China, Russia and Brazil have recently introduced or reinforced "Buy national measures" imposing either the exclusion of goods originating in third countries, or a strong preference for domestic goods through price bonuses. Other measures consist in allowing competition from third countries but only on less favourable terms than those foreseen for domestic suppliers (e.g. in China, EU suppliers often have to set up joint-ventures with a Chinese partner in order to be allowed to bid).

[33]     International infrastructure works represent only 11% and 15% of the total turnover of EU and Chinese construction companies and international trade flows of railway equipment only represent 10%)

[34]     Annex 3, pp 19-20, tables 9a-9b

[35]      Pharmaceuticals is the only sector where India applies price preferences vis-à-vis foreign goods

[36]     i.e. it only applies to those members of WTO that wish to accede to it -

[37]      Although, as explained, implementation problems may point to a less optimistic situation.

[38]     For instance, out of the 10,7 billion EUR of contracts awarded to non-EU companies (including their subsidiaries), one third (3,5 billion EUR) were awarded in non-covered procurement. A Japanese rolling stock producer is, for example, the selected bidder for a 5 billion EUR contract for trains in the UK, although GPA commitments do not cover railways. The metro networks of 2 of the largest cities in Europe run with Russian and Korean rolling stock. A major state-owned Chinese works contractor obtained the 300 million EUR for the construction of a motorway in Poland.

[39]     cf. pp 29-30 of Annex 3

[40]     Contracting authorities have to indicate in their publication notices whether a contract is covered by GPA. The analysis of contract award notices (CANs) in TED reveals that contracting authorities either make mistakes on the coverage of GPA (28% of CANs contain erroneous assessments), either don't even bother responding (16% of cases). Contracting authorities have difficulties to identify the category of entity to which they belong and often consider themselves as falling in the category "other" (some 30% - cf. evaluation of EU public procurement directives). 38% of contracting authorities responding to the stakeholder consultation did not know how to assess the scope of GPA, 27% considered that the GPA applies to all the purchases covered by the directives and 95% indicated that they never used rules of origin.

[41]     19% contract award notices did not indicate whether the contract fell under the GPA or not and 36% indicated that their contract was not covered by GPA while it actually fell in the scope of the GPA. In the Commission consultation, only 3,8% of contracting authorities actually disregarded a bid because of its origin. Also, trading partners have not complained of systemic problems in the EU public procurement market. The issues touched upon by 3 trading partners (US, Japan, Mexico) in several foras are identical to those experienced by EU firms in the internal market (access of SMEs, delayed payments and language barriers).

[42]     cf. Annex 3, methodological box 8.

[43]     For instance, one of the Member States applies a strict reciprocity clause on construction. This could put at risk the EU commitments in GPA where the EU has sometimes offered, to other trading partners, access to contracts of threshold values lower than those offered by the trading partners to the EU. However, the European Commission has so far never been informed of any case of discrimination based on 'strict reciprocity' clauses.

[44]      The analysis of contract award notices (CANs) in TED reveals that contracting authorities either make mistakes on the coverage of GPA (28% of CANs contain erroneous assessments), either don't even bother responding (16% of cases). Contracting authorities have difficulties to identify the category of entity to which they belong and often consider themselves as "other" (some 30% - cf. evaluation of EU public procurement directives). 38% of contracting authorities responding to the stakeholder consultation did not know how to assess the scope of GPA, 27% considered that the GPA applies to all the purchases covered by the directives and 95% indicated that they never used rules of origin.

[45]     Third countries, aware of the gaps between the level of access to EU procurement markets subject to international commitments and the actual access conditions, remain reluctant to undertake market access commitments. At the same time it puts into question the capacity for the EU to ensure that its Member States apply the market access rules uniformly across the EU

[46]     The EU railway industry, which has a 50% market share in the world (UNIFE), has been prevented from participating in any substantial order of rolling stock in Japan. The EU construction industry - still the most internationalised in the world (8% of all non-EU public works[46]) - is completely absent of the Japanese, Korean and Chinese markets for public works.  The EU telecom industry has also been discriminated against in Brazil (and India).

[47]     ECB (2011), Working Paper Series, N° 1310, Is China climbing the quality ladder?

[48]     A EU supplier of electric goods has explained that it had to move its industrial operations to the US to meet the requirements of its main client, the US federal government. Similarly, the Alliance for American Manufacturing provides several examples of EU firms that moved their industrial activities to the US creating jobs in the US thanks to Buy American and ARRA (an Austrian and a German railway manufacturer, a Dutch steel producer...). Information on ARRA and jobs by the Alliance for American Manufacturing is available under http://www.americanmanufacturing.org/files/buyamericaworks2_10v2_0.pdf

[49]     ECORYS/ DG Enterprise (2009) - FWC Sector - Competitiveness of the EU Aerospace Industry

[50]      Additionally, there is no guarantee that China will open its protected sectors to competition once these are industrially mature. China agreed to many exemptions in WTO negotiations for high-technological products. Through parallel technology, it started producing similar technologies. After a few years, China introduced its tariff in line with WTO to protect its newborn industry.

[51]     Under the "indigenous innovation initiative", preference is given to high-tech equipment (computers, telecom equipment, green technologies) produced in China and whose intellectual property rights has been registered in China and is disclosed to the Chinese government, who becomes its owner

[52]     In the EU public procurement market, SMEs have won 47% of direct cross-border procurement contracts. Indirect cross-border procurement through affiliates is dominated by large enterprises.

[53]     In fact, as SMEs face other difficulties like language, lack of local contacts, market openings are not even a necessary condition for access, but not even a sufficient condition. More generally, it can be assumed that SMEs cannot participate in procurements not committed internationally (cf. example of Mexican SMEs in EU PP in 2.3).

[54]     Spanish SMEs export more to Latin America than to the EU12 Member States (BRUEGEL, The Global Operations of EU firms)

[55]      According to the most recent study on the internationalisation of SMEs by ENTR, only about 13% of EU SMEs are active in markets outside the EU.

[56]     The notion of “an abnormally low tender” is vague and is left to the discretion of contracting entities. In addition, the investigation on the elements justifying the price gap is mandatory only when the entity intends to reject the abnormally tenders. Also, other tenderers are not informed that the entity intends to accept abnormally low tenders.

[57]     However, the Commission will continue addressing these issues, notably the respect for the ILO core labour standards, in other relevant frameworks, including FTA negotiations and policy dialogues with partner countries, as well as modernisation of PP policy. Labour standards will also continue being addressed through promotion of corporate social responsibility practices, including along the supply chain and other actions, such as taking social considerations into account in public procurement.

[58]     It is also assumed for the purposes of this Impact Assessment that EU trading partners will not add discriminatory measures affecting the level of domestic openness.

[59]     Explanatory documents would help contracting entities to identify procurement covered by the international market access commitments of the EU under the GPA/FTAs/ SAAs sector-by-sector or/and country by country and apply the relevant rules of origin of goods (Community Customs Code).

[60]     Utilities are an important part of the excluded procurement.

[61]     Public procurement is an important consideration for the possible launch of the EU-Japan FTA.

[62]      Pessimistic/Minimalistic and Optimistic/Maximalist outcomes of negotiations are described in the baseline scenario

[63]     The definition of not covered procurement would include "unscheduled procurement" (procurement not explicitly offered in GPA/FTAs - e.g. railways and concessions in GPA - or not committed vis-à-vis countries that have no public procurement agreement with the EU) and "excluded procurement" (procurement explicitly excluded in GPA through country-specific derogations and reciprocity clauses. Country specific derogations regulating access to remedies would not be implemented as they could infer with rights that are constitutionally guaranteed in some Member States.

[64]     The PROs for goods will be those in the Community Customs Code and the origin of services will be established on the basis of the origin of the service supplier. On the basis of GATS definitions, this would mean that if the supplier is established outside the EU or in the EU, but owned or effectively controlled by foreign companies, the service would be considered to be foreign.

[65]     The choice of this scope is based on the consideration that procurement contracts within the scope of these Directives present the most important business opportunities for cross-border trade within and outside the EU.

[66]     Under this directive, Member States have retained the power to decide whether or not their contracting authority/entity may allow economic operators from third countries to participate in contract award procedures.

[67]     The consultation of contracting authorities shows that 10% of contracting authorities have procured goods outside the EU because these were not available in the EU. The level of bids in fuel is very low (2 bids)

[68]     Imported computers represent up to 70% of all computers and the EU public procurement market absorbs up to 8% of the whole EU demand of computers (source: SBS, EU GPA statistical report, own estimations).

[69]      In complement to infringement procedures based on the TFEU, the initiative would also provide the Commission with the possibility to pursue possible abuses of these derogations (exceptions) through other appropriate measures in order to ensure compliance as well as uniform application of the aforementioned derogations.

[70]     The substantial reciprocity test will consist in an desk-based analysis of existing protectionist measures in national legislation (as in Annex 8) in a relevant market and the effective level of access granted to EU economic operators, goods and services in public procurement in the country concerned ; it will also take into account retaliatory aspects

[71]     When there is a need to avoid possible interference of rejection by contracting entities with negotiations with a trading partner conducted on the basis of the instrument outlined under "3 B2", the Commission could impose a standstill or "pre-emption" period blocking the possibility for contracting entities to reject non-covered goods and services from a specific country. However, this pre-emption system does not apply when the Commission negotiates with trading partners on market access in the context of GPA accessions or regular FTAs negotiations.

[72]     The restrictive measures would consist either in prohibiting access to (specific parts of) the EU's procurement market, for specific contracts or in imposing a departure from equal treatment (through price penalties for instance). These measures could only target procurement that is not covered by the EU's international commitments, and would not apply to least developed countries.

[73]      If the trading partner accepts to negotiate or to remove the barrier in question, the Commission would, following appropriate decision making procedures, have the authority to lift/suspend authorise the suspension of the restrictive measures adopted.

[74]     In addition to this undermining effect for the EU overall negotiating position, such options would directly encourage sectoral protectionist tendencies within the EU and create major irritants to further opening in the context of GPA/FTA negotiations

[75]     Definition of abnormally low tenders as per the proposed directives

[76]     Calculations on the basis of procurement savings as a logarithmic function of the number of bidders - cf. Annex 4 for more details

[77]     Calculations on the basis of the standard cost model – includes burden on Commission, more details in Annex 4

[78]     Contracting authorities will have much difficulty to discriminate against products that are massively imported (fuel or computers - 70% of EU computers are imported) or with low competition (pharmaceuticals and medical equipment) as this would generate "disproportionate costs" or "unavailability". Health-related products also fall in the concept of "overriding reasons of general interest").

[79]     50% is the neutral rate of use of rejection (if no transaction costs to reject or accept), 25% is the rate of rejection if contracting authorities have to ask the permission to reject foreign tenders and 75% id the rate of rejection if contracting authorities have to ask the permission to accept foreign tenders. The objective is to rank options (rather than an absolute value). Contracting authorities may be actually keener to use 'abnormally low bids' - further reducing the potential rate of rejection from abroad.

[80]     E.g. artificial measures leading to relocation or technology transfers.

[81]     It is assumed that trading partners would if they react only take measures in areas not committed vis-à-vis the EU.

[82]     Or 2,5 billion EUR in the boycott scenario

[83]     See table 9 in Annex [?]

[84]     We have extrapolated the leverage of option 2A to option 3 (full closure of the market). the ratio varies between 20% and 50% (except for the US, where it stays at 6%)

[85]     For further details are available in page 25 of Annex 4 with references to literature (Vanassche, Branstetter-Foley (2007), Zhi Wang/Shang-Jin Wei

[86]     Aerospace, airport and postal sorting equipment, railways, urban buses, water, power generation, port equipment but not construction

[87]     cf. competitiveness analysis in Annex and in problem analysis

[88]     See pp [?] Annex 4]

[89]      If all utilities would decide to apply Article 58 and thus request systematically a certificate of origin then the maximum total administrative burden will amount to 115.000 EUR The cost of the certificates of origin has been estimated to be 5 EUR (cf. Impact assessment Rules of origin in the General System of Preferences). The burden on the resources of the Commission would amount to some 2 million EUR for the additional WTO/FTA litigations and infringements.

[90]      cf  PWC study that estimates the cost of PP procedures to 5 billion euros.

[91]      Further explained in Annex 4.

[92]      For further details see table 8 in Annex 4.. Japan, Korea and Taiwan face few restrictions in GPA in terms of market access (70% to 85% of the EU procurement market has been committed to these countries), there are almost no restrictions on goods and, last but not least, most of Chinese producers of computers are also themselves companies from these countries.

[93]     This is not a problem for the pharmaceutical industry and, to some extent, the medical equipment sector, at least for the moment, in terms of conditions of access, since they tend to be able to bypass the existing barriers.

[94]      European High-Performance Computer suppliers have a market share of only 4,3%

[95]     For further details see Table 10

[96]     See Annex 4 page [?]

[97]     cf  PWC study that estimates the cost of PP procedures to 5 billion euros.

[98]     See Annex 4 page [?]

[99]     In particular with Brazil, but less so vis-à-vis the US because of the large trade in pharmaceuticals. Based on the ratio of closed markets in the EU and in the trading partners, we have calculated a leverage index ranging from 0% in the case of Mexico and Israel to 45% in the case of Brazil.(cf. methodological annex).

[100]    For further details see Table 12 in Annex 4.

[101]    See Annex 4

[102]    cf PWC study that estimates the cost of PP procedures to 5 billion EUR

[103]    We carefully assume that 3 full-time officials would analyse the yearly an estimated 550 notifications (each notification should at least last 1 day to handle), leading to a cost of 187.000 EUR (with 25% of overhead).  Option 3B2 should be handled by an additional official (as EU procurement exports amount to only 1% of EU exports, if the anti-dumping service of DG TRADE has 154 officials, proportionally the Commission only needs an additional official. This assumption is careful as option 3B2 would rely on trade investigation and negotiation tasks covered by current human resources available to the Commission, and would benefit from their economies of scale.

[104]    The cost of opportunity was calculating by applying an interest rate of 3% to the total value of contracts (1,1 billion EUR)  (for 6-8 weeks)

[105]    For further details see Table 12b in Annex 4.]

[106]    For further details see Table 12b in Annex 4..

[107]    PWC, Ecorys, Public Procurement in Europe: Cost and Effectiveness - the cost of PP procedures is estimated at 5 billion euros.

[108]    Zhi Wang, Shang-Jin Wei, The Chinese export bundle in Emerging Giants: China and India in the world economy (Eichengreen-Gupta-Kuma), p.171

[109]    Although abnormally low prices are not a guarantee of sound public expenditure. The Chinese state-owned construction company that apparently submitted an abnormally low tender for the construction of a Polish highway was ultimately not in a financial position to finish its works

[110]    A regulation is of a general application and is binding in its entirety and directly applicable in all Member States

[111]    A Directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods (Article 288 TFEU)

[112]    A regulation would directly apply and would avoid varying interpretations in the Member States and their contracting authorities, ensuring a better consistency of the common commercial policy and the internal market).

ANNEX 7

METHODOLOGICAL ANNEX

In the context of the Impact Assessment, the following impacts have been measured and analysed:

· Rules clarification

· Sectors most affected and level playing field

· Trade flows: Imports (including supply chains)

· Trade flows: Exports (retaliation and potential exports)

· Employment

· Leverage

· Public finances (and innovation)

· Administrative burden

· Environment

· Innovation

"Rules clarification" and "sectors most affected and level playing field" have been dealt in the problem analysis and in the Annex 9 "industrial analysis". The various retaliation scenarios are explained in the Annex 4 "Impact Analysis" and in the Impact Assessment itself. The latter also provides information on environmental and innovation impacts.

We shall therefore focus ourselves on the remaining impacts.

2- TRADE FLOWS / IMPORTS:

2.1 Overall methodology

Two exercises of measurement of foreign participation in the EU public procurement market have been undertaken:

(a) Actual participation of foreign firms in the EU public procurement market

- An exhaustive analysis of all contract award notices of 2007 to identify all contracts awarded to non-EU firms: 10,7 billion EUR were awarded to firms from the 12 main non-EEA/EFTA trading partners (thus, 2,9% of the whole 2007 procurement market).

- A sample-based analysis of contract award notices in 2007-2009, with the help of a D&B database (in the context of the analysis of cross-border procurement in the EU): 12,4-13,9% of all contract awards (in value) were identified as awarded to foreign companies (including their subsidiaries), out of which 32% were from non-EEA/EFTA countries (thus, 4% of the whole 2007 procurement market). No absolute values were provided - still, if extrapolated to 2007, the amount would have been 14,7 billion EUR.

(b) Potential penetration rates of foreign goods and services in the EU public     procurement market

There is no way to trace statistically the nationality of the imported goods purchased by EU contracting authorities:

- Applying the overall import penetration rate of the public sector: as the imports of goods and services from the 12 trading partners represented 840 billion EUR (7% of EU GDP) in 2007.  After applying a re-correction for the lower import rate of the public sector (due to the composition of government purchases), the expected level of foreign penetration of foreign goods and services should be globally ceteris paribus 2,9% or 2,5% (without fuel and agricultural products) of the EU public procurement market (i.e. 9,3-10,7 billion EUR).

- Applying the specific import penetration rates of the goods and services procured throughout EU procedures: If we extrapolate the overall import rate of each NACE category in the EU public procurement market (cf. Annex 7) for goods and we public contracts for services awarded to subsidiaries of foreign companies, one obtains 25 billion EUR (6,5% of the whole 2007 procurement market), out of which 17 billion EUR for 12 main non-EEA/EFTA trading partners (4,6% of the whole 2007 procurement market). More details are available in pages 1-7 of Annex 7.

Finally, in the consultation of stakeholders, 20% of contracting authorities indicated that they had received bids from abroad or containing foreign goods and services, 19% indicated that they had awarded a contract to a foreign firm and only 3% indicated that it had rejected a foreign bid.

2.2 Measuring penetration of foreign goods and services in the EU public procurement market (IMPORTS)

Methodological approach used in the Impact Assessment

Yet, in accordance with WTO law, the GPA provides access not to firms but to foreign goods and services. It is therefore necessary to estimate the volume of goods and services imported in the public procurement market.

In the context of this impact assessment, it is proposed to segment the public procurement market into CPV/NACE codes and to extrapolate the ratio of imports of each CPV/NACE segment (private and public market) into the public procurement market. The GPA statistical report provides the breakdown of public procurement per CPV code. CPV codes can be assimilated to NACE codes.

We have used the EU GPA statistical report 2007, which gives breakdowns of public procurement by CPV code and type of entity.

The EU GPA statistical report is modelled on the scope of EU public procurement directives and makes the distinction between covered and non-covered procurement. It also reflects the structure of expenditure of public procurement.

It allows therefore extrapolating the impact of restrictive measures that would result from the implementation of restriction such as the country specific derogations.

Exports are provided by NACE Codes, which can be compared to CPV Codes.

For each NACE division, we have calculated the ratio of extra-EU imports of a country X to the EU market (total turnover + imports extra EU - exports extra EU) based on SBS Survey 2007 of ENTR.

We have then calculated the exports in covered and non-covered procurement markets.

Table 1 - Imports in the public procurement market per NACE/CPV codes

|| REVISED - No ADDED VALUE

|| % imports || PP market (all entities) || imported goods in PP (Bn EUR)

PRODUCTS OF AGRICULTURE, HUNTING AND RELATED SERVICES || || 0,08 || 0,0

FISH AND OTHER FISHING PRODUCTS, SERVICES INCIDENTAL TO FISHING || || 0,01 || 0,0

COAL AND LIGNITE; PEAT || 54% || 0,08 || 0,9

CRUDE PETROLEUM AND NATURAL GAS; SERVICES INCIDENTAL TO OIL AND GAS EXTRACTION EXCLUDING SURVEYING || 1,49

URANIUM AND THORIUM ORES || 0,11

METAL ORES || 49% || 0,00 || 0,0

OTHER MINING AND QUARRYING PRODUCTS || || 0,55 ||

PRODUCTS OF FORESTRY, LOGGING AND RELATED SERVICES || || 0,19 || 0,0

FOOD PRODUCTS AND BEVERAGES || 6% || 2,78 || 0,2

TOBACCO PRODUCTS || 0% || 0,01 || 0,0

TEXTILES || 35% || 0,41 || 1,2

WEARING APPAREL; FURS || 2,84

LEATHER AND LEATHER PRODUCTS || 0,15

WOOD AND PRODUCTS OF WOOD AND CORK (EXCEPT FURNITURE), ARTICLES OF STRAW AND PLAITING MATERIALS || 9% || 0,17 || 0,0

PULP, PAPER AND PAPER PRODUCTS || 8% || 0,55 || 0,0

PRINTED MATTER AND RECORDED MEDIA || || 0,92 || 0,0

COKE, REFINED PETROLEUM PRODUCTS AND NUCLEAR FUEL || 13% || 4,30 || 0,6

CHEMICALS, CHEMICAL PRODUCTS AND MAN-MADE FIBRES || 19% || 15,47 || 2,9

RUBBER AND PLASTIC PRODUCTS || 9% || 0,72 || 0,1

OTHER NON-METALLIC MINERAL PRODUCTS || 5% || 0,12 || 0,0

BASIC METALS || 24% || 0,97 || 0,2

FABRICATED METAL PRODUCTS, EXCEPT MACHINERY AND EQUIPMENT || 6% || 8,91 || 0,5

MACHINERY AND EQUIPMENT N.E.C. || 17% || 7,35 || 1,2

OFFICE MACHINERY AND COMPUTERS || 70% || 8,00 || 5,6

ELECTRICAL MACHINERY AND APPARATUS N.E.C. || 16% || 4,20 || 0,7

RADIO, TELEVISION AND COMMUNICATION EQUIPMENT AND APPARATUS || 39% || 3,20 || 1,2

MEDICAL, PRECISION AND OPTICAL INSTRUMENTS, WATCHES AND CLOCKS || 36% || 11,35 || 4,1

MOTOR VEHICLES, TRAILERS AND SEMI-TRAILERS || 8% || 4,56 || 0,4

OTHER TRANSPORT EQUIPMENT || 33% || 11,28 || 3,7

FURNITURE; OTHER MANUFACTURED GOODS N.E.C. || 25% || 1,66 || 0,4

RECOVERED SECONDARY RAW MATERIALS || 0 || 0,01 || 0,0

ELECTRICAL ENERGY, GAS, STEAM AND HOT WATER || || 15,10 || 0,0

COLLECTED AND PURIFIED WATER, DISTRIBUTION SERVICES OF WATER || || 0,33 || 0,0

|| || TOTAL || 23,9

The same is also done for services:

Table 2 - Imports of services per CPC code

|| || || % imports || PP market || PPimported

Construction work. || ESTAT || Construction services || 0,5% || 102 || 0,5

Repair, maintenance and installation services. || ESTAT || || 0 || 12 || 0,0

Land transport services and transport via pipeline services. || ESTAT || Land transport services and transport via pipeline services. || 2,8% || 6 || 0,2

Air transport services. || ESTAT || Air transport services. || 30,5% || 0,6 || 0,2

Postal and telecommunications services. || ESTAT || Postal and telecommunications services. || 2,0% || 3,4 || 0,1

ESTAT || Postal services || 2,3% || ||

ESTAT || Telecom services || 1,9% || ||

Insurance and pension funding services, except compulsory social security services and insurance-related services. || ESTAT || Insurance services || 5,1% || 18,4 || 0,9

Services auxiliary to financial intermediation. || ESTAT || Financial services

Real estate services. || ESTAT || || 0 || 0,4 ||

Computer and related services. || ESTAT || Computer & information services || 3,1% || 36 || 1,1

Architectural, construction, legal, accounting and business services. || ESTAT || Architectural, construction, legal, accounting and business services. || 3,8% || 23,5 || 0,9

ESTAT || Legal, accounting, consulting || 3,0% || ||

ESTAT || Advertising & market research || 7,6% || ||

ESTAT || Architectural, engineering || 3,2% || ||

Printing, publishing and related services. || ESTAT || || 0 || 1,6 || 0,0

Sewage- and refuse-disposal services, sanitation and environmental services. || COMEXT || Sewage & refuse diposal || 0 || 8,7 || 0,0

As a result, one finds that the total imports can be estimated to 23,9 billion EUR of goods and 3,9 billion EUR of services.

It is important to underline that for the US, the NACE 35 contains both the imports of airplanes and railway equipment. Since the former are seldom purchased in the context of public procurement, we had to withdraw aircraft imports from the extrapolation.

Under these circumstances, the real total imports can be estimated at 21 billion EUR of goods and 4 billion EUR of services, hence 25 billion EUR.

The 12 largest non-EU trading partners account for 17 billion EUR of goods and services, hence 60% of this trade. The remaining 40% contains notably the EFTA and Switzerland, which shall not be affected by the instrument, and purchases of fuel and energy from other countries than the 12 main trading partners (Middle East, Africa).

This approach has many advantages. First and foremost, it could dwell on previous analyses of the size of public procurement markets. Furthermore, it takes into account the real size of government consumption by incorporating import penetration in the public sector. Yet, its main drawback is that it may underestimate an above-average EU penetration of specific products and services.  

For this reason, we propose to undertake a countercheck through another methodology.

Countercheck - Using tariff lines

It was possible to countercheck imports with the main tariff lines expressed in H.S. codes of products that tend to be absorbed by public procurement.

This list was pre-selected by ECORYS

The choice of products takes into account the supply chains of the products in question. For instance, only exports of final products were taken into consideration. In particular, although the purchases of railways fall in the scope of public procurement procedures, railway companies will buy trains through procedures, whereas parts will be purchased by railway equipment industries (certainly in countries like China). Also, among pharmaceutical products, only off-the-shelve products were taken, as the latter tend to be purchased by final consumers, eventually with social benefits.

In this context, the following tariff lines were taken onboard:

Table 3 - Tariff lines (ECORYS)

2941:ANTIBIOTICS

3003:MEDICAMENTS CONSISTING OF TWO OR MORE CONSTITUENTS MIXED TOGETHER FOR THERAPEUTIC OR PROPHYLACTIC USES, NOT IN MEASURED DOSES OR PUT UP FOR RETAIL SALE (EXCL. GOODS OF HEADING 3002, 3005 OR 3006)

3005:WADDING, GAUZE, BANDAGES AND THE LIKE, E.G. DRESSINGS, ADHESIVE PLASTERS, POULTICES, IMPREGNATED OR COVERED WITH PHARMACEUTICAL SUBSTANCES OR PUT UP FOR RETAIL SALE FOR MEDICAL, SURGICAL, DENTAL OR VETERINARY PURPOSES

3006:PHARMACEUTICAL PREPARATIONS AND PRODUCTS OF SUBHEADINGS 3006.10.10 TO 3006.60.90

4406:RAILWAY OR TRAMWAY SLEEPERS "CROSS-TIES" OF WOOD

7302:RAILWAY OR TRAMWAY TRACK CONSTRUCTION MATERIAL OF IRON OR STEEL, THE FOLLOWING : RAILS, CHECK-RAILS AND RACK RAILS, SWITCH BLADES, CROSSING FROGS, POINT RODS AND OTHER CROSSING PIECES, SLEEPERS "CROSS-TIES", FISH-PLATES, CHAIRS, CHAIR WEDGES, SOLE PLATES "BASE PLATES", RAIL CLIPS, BEDPLATES, TIES AND OTHER MATERIAL SPECIALISED FOR JOINTING OR FIXING RAILS

8310:SIGN-PLATES, NAME-PLATES, ADDRESS-PLATES AND SIMILAR PLATES, NUMBERS, LETTERS AND OTHER SYMBOLS, OF BASE METAL, INCL. TRAFFIC SIGNS (EXCL. THOSE OF HEADING 9405, TYPE AND THE LIKE, AND SIGNAL BOARDS, SIGNAL DISCS AND SIGNAL ARMS FOR TRAFFIC OF HEADING 8608)

8401:NUCLEAR REACTORS; FUEL ELEMENTS "CARTRIDGES", NON-IRRADIATED, FOR NUCLEAR REACTORS; MACHINERY AND APPARATUS FOR ISOTOPIC SEPARATION; PARTS THEREOF

8410:HYDRAULIC TURBINES, WATER WHEELS, AND REGULATORS THEREFOR (EXCL. HYDRAULIC POWER ENGINES AND MOTORS OF HEADING 8412)

8416:FURNACE BURNERS FOR LIQUID FUEL, FOR PULVERISED SOLID FUEL OR FOR GAS; MECHANICAL STOKERS, INCL. THEIR MECHANICAL GRATES, MECHANICAL ASH DISCHARGERS AND SIMILAR APPLIANCES; PARTS THEREOF

8526:RADAR APPARATUS, RADIO NAVIGATIONAL AID APPARATUS AND RADIO REMOTE CONTROL APPARATUS

8530:ELECTRICAL SIGNALLING, SAFETY OR TRAFFIC CONTROL EQUIPMENT FOR RAILWAYS, TRAMWAYS, ROADS, INLAND WATERWAYS, PARKING FACILITIES, PORT INSTALLATIONS OR AIRFIELDS (EXCL. MECHANICAL OR ELECTROMECHANICAL EQUIPMENT OF HEADING 8608); PARTS THEREOF

8601:RAIL LOCOMOTIVES POWERED FROM AN EXTERNAL SOURCE OF ELECTRICITY OR BY ELECTRIC ACCUMULATORS

8602:RAIL LOCOMOTIVES (EXCL. THOSE POWERED FROM AN EXTERNAL SOURCE OF ELECTRICITY OR BY ACCUMULATORS); LOCOMOTIVE TENDERS

8603:SELF-PROPELLED RAILWAY OR TRAMWAY COACHES, VANS AND TRUCKS (EXCL. THOSE OF HEADING 8604)

8604:RAILWAY OR TRAMWAY MAINTENANCE OR SERVICE VEHICLES, WHETHER OR NOT SELF-PROPELLED, E.G., WORKSHOPS, CRANES, BALLAST TAMPERS, TRACKLINERS, TESTING COACHES AND TRACK INSPECTION VEHICLES

8605:RAILWAY OR TRAMWAY PASSENGER COACHES, LUGGAGE VANS, POST OFFICE COACHES AND OTHER SPECIAL PURPOSE RAILWAY OR TRAMWAY COACHES (EXCL. SELF-PROPELLED RAILWAY OR TRAMWAY COACHES, VANS AND TRUCKS, RAILWAY OR TRAMWAY MAINTENANCE OR SERVICE VEHICLES AND GOODS VANS AND WAGONS)

8606:RAILWAY OR TRAMWAY GOODS VANS AND WAGONS (EXCL. SELF-PROPELLED AND LUGGAGE VANS AND POST OFFICE COACHES)

8608:RAILWAY OR TRAMWAY TRACK FIXTURES AND FITTINGS (EXCL. SLEEPERS OF WOOD, CONCRETE OR STEEL, SECTIONS OF TRACK AND OTHER TRACK FIXTURES NOT YET ASSEMBLED AND RAILWAY OR TRAMWAY TRACK CONSTRUCTION MATERIAL); MECHANICAL, INCL. ELECTROMECHANICAL, SIGNALLING, SAFETY OR TRAFFIC CONTROL EQUIPMENT FOR RAILWAYS, TRAMWAYS, ROADS, INLAND WATERWAYS, PARKING FACILITIES, PORT INSTALLATIONS OR AIRFIELDS; PARTS OF THE FOREGOING

8705:SPECIAL PURPOSE MOTOR VEHICLES (OTHER THAN THOSE PRINCIPALLY DESIGNED FOR THE TRANSPORT OF PERSONS OR GOODS), E.G. BREAKDOWN LORRIES, CRANE LORRIES, FIRE FIGHTING VEHICLES, CONCRETE-MIXER LORRIES, ROAD SWEEPER LORRIES, SPRAYING LORRIES, MOBILE WORKSHOPS AND MOBILE RADIOLOGICAL UNITS

8709:WORKS TRUCKS, SELF-PROPELLED, NOT FITTED WITH LIFTING OR HANDLING EQUIPMENT, OF THE TYPE USED IN FACTORIES, WAREHOUSES, DOCK AREAS OR AIRPORTS FOR SHORT DISTANCE TRANSPORT OF GOODS; TRACTORS OF THE TYPE USED ON RAILWAY STATION PLATFORMS; PARTS OF THE FOREGOING VEHICLES, N.E.S.

8710:TANKS AND OTHER ARMOURED FIGHTING VEHICLES, MOTORISED, WHETHER OR NOT FITTED WITH WEAPONS, AND PARTS OF SUCH VEHICLES, N.E.S.

8904:TUGS AND PUSHER CRAFT

8905:LIGHT-VESSELS, FIRE-FLOATS, DREDGERS, FLOATING CRANES, AND OTHER VESSELS THE NAVIGABILITY OF WHICH IS SUBSIDIARY TO THEIR MAIN FUNCTION; FLOATING DOCKS, FLOATING OR SUBMERSIBLE DRILLING OR PRODUCTION PLATFORMS (EXCL. FISHING VESSELS AND WARSHIPS)

8906:VESSELS, INCL. WARSHIPS AND LIFEBOATS (EXCL. ROWING BOATS AND OTHER VESSELS OF HEADING 8901 TO 8905 AND VESSELS FOR BREAKING UP)

8907:RAFTS, TANKS, COFFER-DAMS, LANDING STAGES, BUOYS, BEACONS AND OTHER FLOATING STRUCTURES (EXCL. VESSELS OF HEADING 8901 TO 8906 AND FLOATING STRUCTURES FOR BREAKING UP)

8908:VESSELS AND OTHER FLOATING STRUCTURES FOR BREAKING UP

9005:BINOCULARS, MONOCULARS, ASTRONOMICAL AND OTHER OPTICAL TELESCOPES, AND MOUNTINGS THEREFOR; OTHER ASTRONOMICAL INSTRUMENTS AND MOUNTINGS THEREFOR (EXCL. INSTRUMENTS FOR RADIO-ASTRONOMY AND OTHER INSTRUMENTS OR APPARATUS SPECIFIED ELSEWHERE)

9009:PHOTOCOPYING APPARATUS INCORPORATING AN OPTICAL SYSTEM OR OF THE CONTACT TYPE AND THERMO-COPYING APPARATUS

9011:OPTICAL MICROSCOPES, INCL. THOSE FOR PHOTOMICROGRAPHY, CINEPHOTOMICROGRAPHY OR MICROPROJECTION (EXCL. BINOCULAR MICROSCOPES FOR OPHTHALMOLOGY AND INSTRUMENTS, APPLIANCES AND MACHINES OF HEADING 9031)

9012:ELECTRON MICROSCOPES, PROTON MICROSCOPES AND DIFFRACTION APPARATUS

9014:DIRECTION FINDING COMPASSES; OTHER NAVIGATIONAL INSTRUMENTS AND APPLIANCES (EXCL. RADIO NAVIGATIONAL EQUIPMENT)

9015:SURVEYING, INCL. PHOTOGRAMMETRICAL SURVEYING, HYDROGRAPHIC, OCEANOGRAPHIC, HYDROLOGICAL, METEOROLOGICAL OR GEOPHYSICAL INSTRUMENTS AND APPLIANCES (EXCL. COMPASSES); RANGEFINDERS

9018:INSTRUMENTS AND APPLIANCES USED IN MEDICAL, SURGICAL, DENTAL OR VETERINARY SCIENCES, INCL. SCINTIGRAPHIC APPARATUS, OTHER ELECTRO-MEDICAL APPARATUS AND SIGHT-TESTING INSTRUMENTS, N.E.S.

9020:BREATHING APPLIANCES AND GAS MASKS (EXCL. PROTECTIVE MASKS HAVING NEITHER MECHANICAL PARTS NOR REPLACEABLE FILTERS, AND ARTIFICIAL RESPIRATION OR OTHER THERAPEUTIC RESPIRATION APPARATUS)

9021:ORTHOPAEDIC APPLIANCES, INCL. CRUTCHES, SURGICAL BELTS AND TRUSSES; SPLINTS AND OTHER FRACTURE APPLIANCES; ARTIFICIAL PARTS OF THE BODY; HEARING AIDS AND OTHER APPLIANCES WHICH ARE WORN OR CARRIED, OR IMPLANTED IN THE BODY, TO COMPENSATE FOR A DEFECT OR DISABILITY

9022:APPARATUS BASED ON THE USE OF X-RAYS OR OF ALPHA, BETA OR GAMMA RADIATIONS, WHETHER OR NOT FOR MEDICAL, SURGICAL, DENTAL OR VETERINARY USES, INCL. RADIOGRAPHY OR RADIOTHERAPY APPARATUS, X-RAY TUBES AND OTHER X-RAY GENERATORS, HIGH TENSION GENERATORS, CONTROL PANELS AND DESKS, SCREENS, EXAMINATION OR TREATMENT TABLES, CHAIRS AND THE LIKE

9402:MEDICAL, SURGICAL, DENTAL OR VETERINARY FURNITURE, E.G. OPERATING TABLES, EXAMINATION TABLES, HOSPITAL BEDS WITH MECHANICAL FITTINGS AND DENTISTS'' CHAIRS; BARBERS'' CHAIRS AND SIMILAR CHAIRS HAVING ROTATING AS WELL AS BOTH RECLINING AND ELEVATING MOVEMENT; PARTS THEREOF

9704:POSTAGE OR REVENUE STAMPS, STAMP-POSTMARKS, FIRST-DAY COVERS, POSTAL STATIONERY, STAMPED PAPER AND THE LIKE, USED, OR IF UNUSED, NOT OF CURRENT OR NEW ISSUE IN WHICH THEY HAVE, OR WILL HAVE, A RECOGNISED FACE VALUE

This leads to the following imports into the EU public procurement market:

Table 4 - Imports (measured through tariff lines)

|| || Tariff lines || Tariff lines

|| GPA Reports || MIN || MAX

USA || 6,7 || 3,6 || 13

Japan || 2,0 || 0,9 || 2,5

Canada || 0,4 || 0,2 || 0,4

Korea || 0,9 || 0,2 || 0,4

Mexico || 0,1 || - || -

Israel || 0,2 || - || -

China || 5,2 || 1,5 || 2,6

Russia || 0,7 || 0,2 || 0,2

India || 0,3 || 0,07 || 0,3

Brazil || 0,1 || 0,05 || 0,1

Turkey || 0,3 || 0,1 || 0,1

Australia || 0,1 || - || -

To circumvent the problem of health-related tariff lines, we have created a minimum and maximum impact calculation. In fact, in 2007, only 15 billion EUR of pharmaceutical products and 11 billion EUR of medical equipment were purchased through a procedure covered by the EU directives - yet the of health-related expenditure on goods and services amounted to 4,12% of the EU GDP, thus some 500 billion EUR. As a result, pharmaceutical products and medical equipment tenders published in the OJ amounted to respectively only 3% and 2% of the whole health-related expenditure. To be sure, not to minimise any impact on imports, we have therefore applied the 16% rate of public expenditure covered by the directives in the minimalistic scenario (the maximalist scenario takes into account a rate of 100%).

The range of values remains broadly the same except with China and the US. As far as China is concerned, the GPA Reports methodology considers imports of 5 billion EUR whereas the tariff lines approach consider only 2 billion EUR.

We shall nevertheless use the data of GPA reports extrapolation to avoid the distortions created by health expenditure. For the sake of prudence, we shall consider the figure of 5 billion EUR. As far as the US is concerned, the main problem is indeed pharmaceuticals bringing a range between 3 and 13 billion EUR. Given the important difference, we preferred to take the value of 6 billion EUR of imports.

3- TRADE FLOWS/ EXPORTS: Measuring penetration of foreign goods and services in the ublic procurement market of the 12 largest trading partners (EXPORTS)

3.1-Methodological note - Estimating real and potential EU exports going to foreign public procurement markets

Theoretical framework

To measure the impact of market access problems in international procurement markets, we shall estimate:

1 - EU exports to foreign public procurement markets that are open (either internationally or nationally) - these shall be called 'real procurement exports'

2- EU exports that can't be realised because of existing restrictions under the domestic legislation of the main trading partners - these shall be called 'unfulfilled procurement exports'

Based on the sector analysis explained in the problem definition, we have analysed the situation of access from a international and national legislation point of view and declared whether markets were OPEN DOMESTICALLY or NOT OPEN.

We have made additional assumptions on those exports that bypass restrictions - because of high added value and/or because of non-application of restrictions.

Practical example

EU firms in the Japanese public procurement market

The Japanese public procurement market committed internationally is estimated at 22 billion EUR. If Japan were to commit the remaining share of its public procurement market, it would open 74 billion EUR.

Imports from the EU represent 2,2% of the total Japanese demand and the import penetration rate in the public sector in Japan is 4,7% whereas the overall share of imports in Japan is 6,8%. The lower penetration rate is due to the structure of purchases of the public sector compared to the whole economy. As a result, if we apply a correcting factor of the lower penetration rate in the public sector as to the rest of the economy, we can extrapolate are expected to win 1,5% of the Japanese public procurement market.

Since Japan has committed under the GPA some 22 billion EUR, it can be extrapolated that EU firms have obtained 1,5% of this market, hence some 330 million EUR.

It is very difficult to measure whether EU companies have obtained contracts in the public procurement market of Japan that has not been committed internationally.

If the remaining public procurement market that Japan has not committed internationally were to be fully open, then we could extrapolate that EU firms would ceteris paribus obtain some 1,1 billion EUR of contracts (1,5% of that market).

If the remaining public procurement market that Japan has not committed internationally were to be fully closed (we assume that restrictions are systematically applied), then we could extrapolate that EU firms are ceteris paribus have 1,1 billion EUR of unfulfilled export opportunities.

In reality, we understand that there is some access to the Japanese public procurement market that has not been committed internationally for several potential reasons:

1. Japan has an open domestic legislation

2. Some EU exports have a strong high-tech content with firms that are monopolists in their own sector

3. Japan has restrictions but it does not apply them systematically

Japanese domestic legislation

It is therefore necessary to apply a correction to the percentages of procurement markets that have been committed internationally (for the percentages, please refer to the methodological box 3 on the size of public procurement markets in the problem definition).

Japan committed 28% of its public procurement market whereas the EU committed 70% of its procurement to Japan.

For the re-correction on domestic legislation, please refer to the methodological box 6 in the problem definition.

Japan has no restrictions in its domestic legislation for 72% of its public procurement market and the EU has no restriction either - it opens 100% of its market.

Table 5 - Reviewed estimation of openness

|| Effective || De jure

US || 34% || 32%

JP || 70% || 23%

CA || 36% || 4%

KR || 76% || 77%

IL || 75%* || 75%

MX || 78% || 75%*

TW || ||

CN || 0% || 0%

RU || 1% || 0%

IN || 32% || 0%

BR || 31% || 0%

TR || 17% || 0%

AU || 33% || 0%

High-tech exports and systematic application of restrictions

Independently from all sector analysis, we consider that a series of high-added value sectors ultimately manage to bypass protectionist measures.

Based on the taxonomy of Peneder, established in Sectoral Growth Drivers and Competitiveness in the European Union (2008), and the review of several sectors in the competitiveness studies of ENTR, we have assumed that no restrictions affected the pharmaceutical and airport and postal sorting equipment industries (cf. competitiveness analysis) - ("Bypass I" openness)

Finally, to take into account of the non-application of restrictions even in regimes where there is an obligation to discriminate, we assumed a 90% closure instead of 100%. ("Bypass II" openness) - it is symmetric to the assumed level of closure of the EU (which is "open").

Table 6 - Bypassing barriers - real market access

|| Bypass II || Bypass || De facto || De jure

US || 51% || 41% || 34% || 32%

JP || 82% || 72% || 70% || 28%

CA || 50% || 40% || 36% || 16%

KR || 90% || 80% || 76% || 65%

IL || 38%* || 28%* || 17%* || 75%

MX || 88% || 78% || 78% || 75%

CN || 24% || 14% || 1% || 0%

RU || 53% || 43% || 32% || 0%

IN || 47% || 37% || 31% || 0%

BR || 38% || 28% || 17% || 0%

TR || 50% || 40% || 33% || 0%

AU || 63% || 53% || 51% || 0%

Ultimately, Japan opens 82% of its public procurement market to EU exports of goods and services, whereas the EU opens 100% to Japan.

Finally, the analysis cannot be consistently counterchecked with tariff lines because the breakdown of purchases by goods, services and works in third countries is unknown. Some purchases typically public maybe absorbed by grants systems or reimbursement systems. In the EU, public purchases represent 19% of GDP, yet the EU public procurement directives cover only 3% of GDP[1].

Israeli offsets - methodological challenges

Israeli offsets present a particular methodological challenge as they affect procurement committed internationally. As a result, although Israel committed 75% of its public procurement in GPA, all GPA Parties have accepted in 1994 that it applies a regime of offsets throughout its committed procurement. As a result, the effective access rate is probably 17%. Israel is therefore specific from the point of view of this methodology as it is the only country whose share of committed procurement is greater than the share of its really accessible procurement.

Additionally, one of the main achievements of the re-negotiation of GPA has been the progressive dismantling of Israeli offsets. As a result, in the forthcoming years, the real percentage wll be growing to the level of internationally committed public procurement.

3.2 – Measuring potential additional exports created by negotiations

Based on the pessimistic and the optimistic scenario of the baseline scenario, a series of markets is assumed as moving from "closed" to "open".

Table 8 - Baseline scenario: optimistic scenario

|| US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || UA || AU

Defence || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Aerospace || -0,5 || 0 || -1 || -1 || -1 || 0 || -1 || -1 || 0 || -1 || -0,5 || -1 || 1

Post & Apt sorting || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Firefight & Sea Rescue || -1 || 0 || 1 || 0,5 || 1 || -1 || -1 || -1 || 0 || -1 || -0,5 || 0,5 || 0

Construction & Dredging || 0 || 0 || 1 || 0,5 || 1 || 0 || -1 || 1 || 0 || 0 || -0,5 || 0,5 || 0

Constr. Equipment || -1 || 0 || 1 || 0,5 || 1 || 0 || -1 || -1 || 0 || 0 || -0,5 || 0,5 || 0

Railway equipment || -1 || 0 || -0,5 || 0 || 1 || -0,5 || -1 || -1 || 1 || -1 || -0,5 || -1 || 0

Urban buses || -1 || -1 || 1 || 0,5 || -1 || -1 || -1 || -1 || 0 || || -0,5 || -1 || -1

Power generation || -0,5 || || -0,5 || 0,5 || 1 || 1 || -1 || -1 || 0 || 1 || -0,5 || 0,5 ||

Water & Sewage || -1 || 0 || 1 || 1 || 1 || 1 || -1 || 1 || -0,5 || 0 || -0,5 || 0,5 || -1

Waste mgmt & env || -1 || 0 || 1 || 0 || 1 || 1 || -1 || 1 || 0 || 0 || -0,5 || 0,5 || -1

Pharmaceuticals || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 0 || 1 || 1 || 1 || 1

Medical equipment || 0,5 || 0 || 1 || 0 || 1 || 1 || -1 || -1 || 0 || 0 || -0,5 || 0,5 || 0

Specialised textiles || -0,5 || 0 || 1 || 0 || 1 || 0 || -1 || -1 || 0 || 0 || -0,5 || 0,5 || 0

Business services || 0 || 0 || 1 || 0 || 1 || 1 || -1 || 1 || 1 || 0 || -0,5 || 0,5 || 0

Financial services || -1 || -1 || 1 || -1 || 1 || 1 || -1 || 1 || 0 || 0 || -0,5 || 0,5 || 0

Oil, Gas  Mining equipmt || || || || || || 1 || -1 || -1 || 0 || 0 || -0,5 || ||

Fixed telecom eq. || || 1 || || || || 1 || -1 || -1 || 0 || 0 || -0,5 || 0,5 ||

Computer & IT serv || 0 || 0,5 || 1 || 1 || 1 || 1 || -1 || 1 || 0 || 0 || -0,5 || 0,5 || 0

Street lighting || -1 || 0,5 || 1 || 1 || 1 || 0 || -1 || -1 || 0 || 0 || -0,5 || -1 || 0

Broadcasting equip || || 1 || 1 || -1 || 1 || || -1 || -1 || 0 || 0 || -0,5 || -1 || -1

Port equipment || 0 || 1 || 1 || 1 || 1 || -1 || -1 || -1 || 0 || 0 || -0,5 || -1 || -1

Table 9 - Baseline scenario: pessimistic scenario

|| US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || UA || AU

Defence || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Aerospace || -0,5 || 0 || -1 || -1 || -1 || 0 || -1 || -1 || -0,5 || -1 || -0,5 || -1 || 1

Post & Apt sorting || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Firefight & Sea Rescue || -1 || 0 || 1 || 0,5 || 1 || -1 || -1 || -1 || -0,5 || -1 || -0,5 || 0,5 || 0

Construction & Dredging || 0 || 0 || 1 || 0,5 || 1 || 0 || -1 || 1 || -0,5 || 0 || -0,5 || 0,5 || 0

Constr. Equipment || -1 || 0 || 1 || 0,5 || 1 || 0 || -1 || -1 || -0,5 || -1 || -0,5 || 0,5 || 0

Railway equipment || -1 || -1 || -0,5 || 0 || 1 || -0,5 || -1 || -1 || -0,5 || -1 || -0,5 || -1 || 0

Urban buses || -1 || -1 || 1 || 0,5 || -1 || -1 || -1 || -1 || -0,5 || || -0,5 || -1 || -1

Power generation || -0,5 || || -0,5 || 0,5 || 1 || 1 || -1 || -1 || -0,5 || -1 || -0,5 || 0,5 ||

Water & Sewage || -1 || 0 || 1 || 1 || 1 || 1 || -1 || 1 || -0,5 || 0 || -0,5 || 0,5 || -1

Waste mgmt & env || -1 || 0 || 1 || 0 || 1 || 1 || -1 || 1 || -0,5 || 0 || -0,5 || 0,5 || -1

Pharmaceuticals || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || -0,5 || 1 || 1 || 1 || 1

Medical equipment || 0,5 || 0 || 1 || 0 || 1 || 1 || -1 || -1 || -0,5 || -1 || -0,5 || 0,5 || 0

Specialised textiles || -0,5 || 0 || 1 || 0 || 1 || 0 || -1 || -1 || -0,5 || -1 || -0,5 || 0,5 || 0

Business services || 0 || 0 || 1 || 0 || 1 || 1 || -1 || 1 || -0,5 || -1 || -0,5 || 0,5 || 0

Financial services || -1 || -1 || 1 || -1 || 1 || 1 || -1 || 1 || -0,5 || -1 || -0,5 || 0,5 || 0

Oil, Gas Mining equipmt || || || || || || 1 || -1 || -1 || -0,5 || -1 || -0,5 || ||

Fixed telecom eq. || || 1 || || || || 1 || -1 || -1 || -0,5 || -1 || -0,5 || 0,5 ||

Computer & IT serv || 0 || 0,5 || 1 || 1 || 1 || 1 || -1 || 1 || -0,5 || -1 || -0,5 || 0,5 || 0

Street lighting || -1 || 0,5 || 1 || 1 || 1 || 0 || -1 || -1 || -0,5 || -1 || -0,5 || -1 || 0

Broadcasting equip || || 1 || 1 || -1 || 1 || || -1 || -1 || 0 || -1 || -0,5 || -1 || -1

Port equipment || 0 || 1 || 1 || 1 || 1 || -1 || -1 || -1 || -0,5 || -1 || -0,5 || -1 || -1

This, in turn, affects the percentages of the real opening of several markets, and thus in concrete exports (some 0,8 billion EUR to 1,2 billion EUR). The calculation of the exports is derived from the additional markets multiplied by the percentage of overall exports corrected by public consumption.

The sectors of these additional exports are known (cf. tables supra) as their exports per worker. If we table on an unaltered ration of exports per worker, then we obtain the number of jobs created.

 

To complete the analysis, it is possible to simulate:

(a) A full opening of public procurement markets. In this context, based on this simulation, up to 3,7 million jobs could be created.

Table 10 - Full opening (Optimax scenario)

Optimax || || || || || || || || || || || || ||

|| US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || UA || AU

Defence || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Aerospace || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Post & Apt sorting || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Firefight & Sea Rescue || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Construction & Dredging || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Constr. Equipment || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Railway equipment || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Urban buses || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Power generation || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Water & Sewage || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Waste mgmt & env || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Pharmaceuticals || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Medical equipment || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Specialised textiles || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Business services || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Financial services || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Oil, Gas Mining equipmt || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Fixed telecom eq. || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Computer & IT serv || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Street lighting || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Broadcasting equip || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Port equipment || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

(b) An opening by trade partners that only matches their offensive interests (the grey squares with 1 refer to the markets where trading partners have offensive interests and that would be assumed in this scenario to be "opened"). This would have an effect on exports of 4 billion EUR and create 700.000 jobs.

Table 11 - Openings in offensive interests of trade partners

|| US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || UA || AU

Defence || 1 || -1 || -1 || -1 || -1 || -1 || -1 || 1 || -1 || -1 || -1 || 1 || -1

Aerospace || 1 || 1 || -1 || 1 || -1 || 0 || 1 || 1 || 1 || -1 || -0,5 || 1 || -1

Post & Apt sorting || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Firefight & Sea Rescue || -1 || 0 || 1 || 0,5 || -1 || -1 || -1 || 1 || -0,5 || -1 || -0,5 || 0,5 || 0

Construction & Dredging || 0 || 1 || -1 || 1 || -1 || 0 || 1 || 1 || -0,5 || 1 || 1 || 0,5 || 0

Constr. Equipment || -1 || 1 || 0 || 1 || -1 || 1 || 1 || -1 || -0,5 || -1 || -0,5 || 0,5 || 0

Railway equipment || -1 || 1 || -0,5 || 1 || -1 || -0,5 || 1 || -1 || -0,5 || -1 || -0,5 || -1 || 0

Urban buses || -1 || -1 || 0 || 0,5 || -1 || -1 || || -1 || -0,5 || 1 || -0,5 || -1 || -1

Power generation || 1 || 1 || -0,5 || 1 || -1 || 1 || 1 || -1 || 1 || -1 || -0,5 || 0,5 || 0

Water & Sewage || -1 || 0 || -1 || 1 || -1 || 1 || -1 || 1 || -0,5 || 0 || -0,5 || 0,5 || -1

Waste mgmt & env || -1 || 0 || -1 || 0 || -1 || 1 || -1 || 1 || -0,5 || 0 || -0,5 || 0,5 || -1

Pharmaceuticals || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Medical equipment || 1 || 1 || -1 || 0 || 1 || 1 || -1 || -1 || -1 || -1 || -0,5 || 0,5 || 0

Specialised textiles || -0,5 || 0 || 0 || 0 || -1 || 0 || -1 || -1 || -1 || -1 || -0,5 || 0,5 || 0

Business services || 1 || 0 || 0 || 0 || -1 || 1 || -1 || 1 || 1 || -1 || -0,5 || 0,5 || 0

Financial services || 1 || 1 || 1 || -1 || -1 || 1 || -1 || 1 || -1 || -1 || -0,5 || 0,5 || 0

Oil, Gas Mining equipmt || 0 || 0 || 0 || 0 || 0 || 1 || -1 || -1 || -1 || -1 || -0,5 || 0 || 0

Fixed telecom eq. || 0 || 1 || 0 || 0 || 0 || 1 || 1 || -1 || -1 || -1 || -0,5 || 0,5 || 0

Computer & IT serv || 1 || 0,5 || 0 || 1 || -1 || 1 || 1 || 1 || 1 || -1 || -0,5 || 0,5 || 0

Street lighting || -1 || 0,5 || -1 || 1 || 0 || 0 || || -1 || -1 || -1 || -0,5 || -1 || 0

Broadcasting equip || 0 || 1 || 1 || -1 || 1 || 0 || || -1 || -1 || -1 || -0,5 || -1 || -1

Port equipment || 0 || 1 || -1 || 1 || -1 || -1 || 1 || 1 || -1 || -1 || -0,5 || -1 || -1

4- EMPLOYMENT

An analysis based on a standard methodology based on symmetric EU27 (and individual) Member States I-O tables (developed by the IPTS/Seville for Eurostat) to identify and quantify all downstream jobs associated with the production of extra-EU exports shows that in 2007 the whole of EU sales to the rest of the world (worth around 1382 bn Euros) were associated with 21.4 millions jobs EU-wide. Note that the aim of the methodology is to capture not only the jobs associated with the production of the exported goods and services but all employment in downstream sectors that are embodied in sales to foreign markets. On the basis of the above and applying the same ratio of jobs per billion of exports, that would suggest that 4 bn Euros of additional exports might be associated with around 60.000 jobs in the EU27.

5- Leverage index

Methodological note - How to estimate leverage?

Theoretical framework

In public procurement negotiations, each country seeks to maximise its potential exports of goods and services in the procurement market of the country with whom it negotiates.  

In this context, countries negotiate the access (1) to the procurement of specific public authorities or state-owned companies for (2) specific goods and services for (3) contract values above a certain value (the so-called thresholds).

Of course, each country has a specific industrial structure with a particular pattern of industrial sectors that weight in its exports (the so-called 'offensive interests' of a country).

Similarly, public authorities have a specific pattern of consumption that reflects the type of public services (cf. COFOG classification) they deliver. For instance, they tend to buy construction services for infrastructure works, pharmaceuticals (hospitals) and rolling stock (railway and urban transport).  At the same time, they are not particular purchasers of domestic appliances or food.

Countries that have become Parties of GPA or which negotiated public procurement chapters in FTAs have partially opened their procurement market; i.e. they have selected specific entities and goods/services whose procurement is open to foreign goods and services (the so-called 'market access commitments').

The challenge of each international procurement negotiation is therefore to secure that the exports of its offensive interests are covered by the  'market access commitments' of their trading partner.

Let's take a country A specialised in pharmaceuticals and a country B specialised in railway equipment.

If A and B negotiate a first international procurement agreement and mutually open their pharmaceutical procurement markets, then A will meet its offensive interests and increase its exports, whereas B will not be able to export its railway equipment (we assume that both A and B reflect their international commitments in their national legislations).

If A and B re-negotiate their agreement, B will pressure A to open its railway procurement market.  Still, as A has satisfied its exports of pharmaceuticals, it may have no incentives to open its railway procurement, in particular if wishes to protect its ailing railway equipment industry.

However, if A in spite of its international commitments has left its entire procurement market, country B will still have access to the procurement of country A for railway equipment. Although B knows country A can at any moment close its railway equipment market, B will consider that it has sufficient access to country A.

To measure the leverage that each country has in a negotiation it is necessary to compare the relative size of the potentially unfulfilled exports resulting from existing protectionist measures and their application.

Application - Example: EU and Japan mutual exports

Let's assume that the EU public procurement market is fully open and the EU imports 2 billion EUR from Japan, out of which 1,6 billion EUR go through GPA commitments and 0,4 billion EUR go through markets non-committed in GPA.

Let's assume that the Japanese public procurement market is open in those areas that Japan has committed in the GPA and is fully closed in those areas that Japan has not committed internationally. We also assume that Japan applies systematically its restrictions (this is to be understood as an example only).

As a result, 0,3 billion of EU exports go through Japan's existing commitments, whereas 1,1 billion EUR of exports are unfulfilled because Japan applies systematically its restrictions.

In this context:

Ratio of Japanese potential exports affected by restrictions in the EU public procurement market: 0% (potential exports= real exports)

Ratio of EU potential exports affected by restrictions in the Japanese public procurement market:  77% (potential exports= 1,1 billion EUR; real exports=0,3 billion EUR).

Leverage of the EU vis-à-vis Japan= 0%/77%=0

If the leverage ratio is equal to 0% the EU has no leverage

If the leverage ratio is equal to 100%, both trading partners have the same leverage

If the leverage ratio is above 100%, the EU has a greater leverage.

6- Public finances (and innovation)

Linking procurement and savings

In 2008, a preliminary work was performed on the link between the number of bidders and the relationship between the estimated contract value and the actual contract value. The results of this study concluded to average savings of 5-8%, ultimately resulting therefore in savings of 20-30 billion EUR.

Although more sophisticated analyses were performed in the context of the evaluation of the public procurement directives, they did not come to profoundly divergent conclusions. The savings of the directives are assumed to be of 5% (i.e. in the area of 20 billion EUR)

The first analysis has the advantage of providing a straightforward link between the level of competition and these "estimated savings" based on 2007 data.  Moreover, it is based on the analysis of 13000 contract award notices. Since it could eventually overestimate the potential savings resulting from procurement, it will certainly not underestimate the negative effects on public finances of a reduced setting of competition.

Further to the interlink analysis, we tested a logarithmic regression (Savings=k*LOG(BIDS)), and obtained the following results:

- Log(BIDS) was found to be again a significant variable (p-value at 0%)

- k=0,15 (the first additional offer will create a saving of 4,5%, the second additional offer will create a  saving of 2,5%, …)

- adjusted R-square= 61% (the linear regression provided for a R-square=52%)

The analysis can be provided upon request.

Analysis in the context of this impact assessment

The idea is to measure the "savings loss" from the reduction of competition resulting from the EU restrictions. The "savings loss" is the reduction of savings because of the reduction of competition.

Example:

If the number of bids diminishes from 5 to 4, then:

5 bidders - saving=10,4% (=0,15*LOG(5))

4 bidders - savings=9% (=0,15*LOG(4))

"Savings loss"= 1,4% (the difference between 5 and 4 bidders)

If the market impacted by the measure is worth 5 billion EUR, then the impact is 1,4% of 5 billion=80 million EUR).

Public finances and the GDP

Of course, the impacts on the trade balance caused by retaliation have to be measured in the whole economy. This is further detailed in the impact on the overall economy (cf. infra).

Impact on innovation

The impact on innovation has been made from the starting point that the reduction of competition impacts also competition.

Yet, what matters most is avoiding that competition falls in the trap of oligopoly or monopoly. If, say, a market has generally 4 bids; this instrument may reduce competition to 3 bids - making therefore collusion less costly in terms off transaction costs and signalling. This would even worse when going from 3 bids to 2 bids.

Therefore, the best simulation to measure negative impacts on innovation is obviously to analyse the situation from the perspective of the current level of competition.

We have therefore reviewed the number of bidders per CPV sector to identify those markets where competition s small (less than 3 bids).

7- Administrative burden

For the calculation of the administrative burden we have used the Standard Cost Model.

Cost of information obligations

The cost of certificates of origin was taken from the impact assessment on Rules of origin for the Generalised System of Preferences (GSP), where they were assumed to cost 5 EUR.

For notifications, the cost incurred has been calculated on the basis of an estimation provided by contracting authorities themselves in the consultation, where most respondents indicated half a day in EFT (thus 240 minutes).

Cost of labour

We have assumed 22 EUR/h as an average EU salary.

Frequency

The cost of the procedure has been calculated on the basis of the number of procurement procedures impacted by the option, and if the obligation fell on the winner or on all the participants (in which case, we used 5 bidders, which happens to be the average number of bidders).

Cost of opportunity if delays

We have calculated a cost of opportunity for businesses based on average interest rate of 3% of the contract value.

We have not been able to estimate the cost of opportunity for contracting authorities that have to wait.

[1] We made a research in the page of the main US hospitals and we did not find any reference to public procurement. The only public authority in the US in charge of purchases of pharmaceuticals is the Department of Health, and the Department of Veteran Affairs whose procurement budget of 25 billion USD represents only 1% of the whole US health expenditure.

ANNEX 6

METHODOLOGICAL ANNEX

Measuring public procurement in the main trading partners

1- the problem: no reliable data

There is no reliable data set providing information on the public procurement markets of the main world economies. Parties of the GPA are required to publish statistical reports on a yearly basis, yet to few exceptions, none of the data sets is complete. Moreover, data is confined to the procurement markets covered by the GPA, thus providing no information on the procurement market not covered by GPA. Finally, some of the Parties like the US use commitments rather than expenditure, causing additional problems of comparability.

The EU has produced its first complete statistical report in 2007. It is based on data collected by the Member States. It differs slightly from the data published under indicator 3, which is based on the Official Journal (TED).  Yet, the advantage of the EU statistical report is that it provides data also for those areas that are not covered by GPA but covered by the directives (railways - but not defence) and it provides breakdowns that are typical for GPA (e.g. central government authorities not covered by GPA).

We shall divide the analysis of public procurement markets into two parts:

· Main GPA Parties: US, Japan, Korea and Canada

· Other procurement markets: Israel, Mexico, China, Brazil, Russia, India, Australia and Turkey.

Any statistical analysis of Parties to the GPA requires taking into account all the existing exceptions and cannot be based solely on a global estimation. We recognise that this measurement has not been possible for Israel and Mexico. Yet, as explained in the real access measurement, the problem in Israel isn't so much the extent of its commitments in the GPA, as the application of offsets across its whole procurement market. In the case of Mexico, commitments are not easily calculated as the Public procurement chapter refers to the NAFTA. To be rather on the safe side, we have assumed a 75% rate of opening, to be prudent in terms of assessment of closure.

An analysis of the size of the US, Japanese, Korean and Canadian procurement markets is provided in annex. The estimation for the US has been discussed with the Federal Office of Management Budget (OMB) and the USTR. Estimations for Japan and Canada have been produced in 2007 based on extrapolations. Yet, the GPA statistical reporting has not contradicted the analysis of these markets.

For the remaining countries (together with Israel and Mexico), we have relied on estimations made by WTO itself - based on the idea that the "contestable" procurement market is worth some 2,5% of each country's GDP.

Further information on the public procurement markets of the following countries can be found under:

2- Global estimations of the size of other public procurement markets:

· Mexico:  27 billion USD/ 20 billion EUR - WTO estimate based on 2,5% GDP contestable market assumption

· Israel: 2,1 billion EUR based on the national accounts

· China: 87 billion EUR - WTO estimate based on 2,5% GDP contestable market assumption

· India: 19 billion EUR - own estimations and - WTO estimate based on 2,5% GDP contestable market assumption

· Australia: 27 billion USD/ 20 billion EUR - WTO estimate based on 2,5% GDP contestable market assumption

· Brazil: 42 billion EUR - own estimations and - WTO estimate based on 2,5% GDP contestable market assumption

·  Russia: 18 billion EUR - - own estimations and - WTO estimate based on 2,5% GDP contestable market assumption

· Turkey: 23,7 billion EUR, OECD SIGMA Report, Turkey Public Procurement Assessment 2009

3- Estimations for the main GPA Parties in 2007: US, Japan, Canada and Korea

3.1 - the US public procurement market

|| || || || ||

|| || || || ||

|| Federal procurement || USD || Comments || EUR ||

|| Total procurement || 459 || || 335 ||

|| Below-threshold procurement = 0% || || || ||

|| || || || ||

|| Defence goods  exclusions || 81,5 || || ||

|| DoD - other goods excluded || 11,8 || (1) || ||

|| R&D services || 54,8 || || ||

|| Transportation services || 6,3 || || ||

|| Dredging services || ? || || ||

|| Management and operation of facilities || 20,6 || || ||

|| Lease & Rent facilities || 4,8 || || ||

|| Maintenance; repair and alter real property || 11,6 || || ||

|| Public utilities services || 13,1 || || ||

|| ADP telecommunications || 24,0 || || ||

|| Printing services || 0,3 || || ||

|| FAA procurement || 0,5 || || ||

|| Launching services || ? || || ||

|| Purchases of buildings || 0,1 || || ||

|| Social security administration* || 0,6 || * Offered to the EU in the US GPA offers

|| Services purchased for military forces located overseas || 8,7 || || ||

|| Total restrictions || 239 || || 174 ||

|| || || || ||

|| Sub-total before set asides || 220 || || 93 ||

|| || || || ||

|| Small Business set aside || 48,5 || 22% || ||

|| Minorities set asides || 0,0 || 0% || ||

|| Below-threshold procurement (40% above threshold) || 103,1 || 40% || ||

|| Below-threshold procurement (100% above-threshold) || 0 || 0% || ||

|| || || || ||

|| 40% of federal procurement is above the thresholds || || ||

|| Accessible market at federal level || 69 || || 50 ||

|| Accessible market (as a percentage) || 12% || || ||

|| || || || ||

|| 100% of federal procurement is above the thresholds || || ||

|| Accessible market at federal level || 172 || || 125 ||

|| Accessible market (as a percentage) || 29% || || ||

|| (1) For buses we assumed an impact of 1 billion out of the 19 billion of purchases of motor vehicles

|| || || || ||

|| || || || ||

|| || || || ||

|| || || || ||

|| State & Local procurement || USD || Comments || EUR ||

|| Total State & Local PP in 50 States || 1539 || || 1123 ||

|| || || || ||

|| Total 37 State government covered || 539 || || 393 ||

|| || || || ||

|| || USD || USD || USD ||

|| Statistical correction for States with limited entities || US Report || Most likely || Correction ||

|| Connecticut || 9,8 || 4 || 5,8 || (a)

|| Delaware || 2,6 || 0,7 || 1,9 || (b)

|| Hawaii || 5,9 || 0,2 || 5,7 || (c )

|| Idaho || 3 || 0,2 || 2,8 || (b)

|| Illinois || 25,2 || 10 || 15,2 || (d)

|| Iowa || 7,1 || 2,8 || 4,3 || (e )

|| Kentucky || 11,8 || 0,25 || 11,55 || (l)

|| Maine || 4,7 || 2 || 2,7 || (e )

|| Maryland || 14,8 || 5,2 || 9,6 || (g)

|| Michigan || 21,2 || 0,7 || 20,5 || (f)

|| Mississipi || 9,5 || 0,1 || 9,4 || (g)

|| Missouri || 11,9 || 0,3 || 11,6 || (f)

|| Nebraska || 3,4 || 0,1 || 3,3 || (f)

|| New Hampshire || 2,97 || 0,1 || 2,9 || (f)

|| Oregon || 7,5 || 0,5 || 7,0 || (f)

|| South Dakota || 1,6 || 0,1 || 1,5 || (f)

|| Texas || 42,8 || 13 || 29,8 || (h)

|| Wyoming || 1,87 || 0,3 || 1,57 || (f)

|| || 188 || 41 || 147 ||

|| || || || ||

|| || USD || Comments || EUR ||

|| Sub total after statistical corrections I || 392 || || 286 ||

|| || || || ||

|| Purchases exceptions || || || ||

|| Arkansas - Office of Fish and Game || 0,04 || (i) || ||

|| Arkansas - construction || 0,8 || (j) || ||

|| Kansas - construction || 1 || (j) || ||

|| Kansas - automobiles || 0,2 || (k) || ||

|| Kansas - aircraft || 0,1 || (m) || ||

|| Kentucky - construction || 0 || (l) || ||

|| Montana - goods || 1,1 || (n) || ||

|| New York - transit cars & buses || 0,9 || (o) || ||

|| Oklahoma - construction || 1 || (j) || ||

|| Rhode Island - no boats, cars & buses || 0 || (m) || ||

|| South Dakota - beef || 0 || (m) || ||

|| Tennesee - no services & construction || 6,6 || (p) || ||

|| Washington - no fuel, paper, boats, ships, vessels || 0 || (m) || ||

|| || 11,7 || || ||

|| || || || ||

|| Sub total after statistical corrections II || 380 || || 278 ||

|| || || || ||

|| Federal funds for highways & mass transit || || || ||

|| Minimal || 28,9 || (q) || ||

|| Maximal || 37,6 || (r ) || ||

|| || || || ||

|| Sub total after Federal Funds h & MT - minimal || 351 || || 256 ||

|| || || || ||

|| Small Business set aside || 77,3 || 22% || ||

|| Minorities set asides || 0,0 || 0% || ||

|| Below-threshold procurement || 10% || || ||

|| || || || ||

|| Accessible market at State level || 27 || || 20 ||

|| || 9% || || ||

|| || || || ||

|| || || || ||

(a) Gen adm, Transportation& Education exp || || || ||

(b) Gen adm & Education exp || || || ||

(c ) || Gen adm expenditure - Yet, the SPO manages 60 million USD of contracts for other agencies, therefore no need to exclude the construction services

(d) CMS indicates that the State of Illinois buys for 10 billion USD || ||

(e ) || Transportation& Education exp+ CPA || || || ||

(f) Gen adm expenditure || || || ||

(g) Gen adm, Environment, Transportation & security exp || || ||

(h) Texas facilities Commission - could be even up to 1 billion only || ||

(i) no need for Parks and recreation || || || ||

(j) data on construction provided || || || ||

(k) we exclude from total share of PP the ratio of cars to all PP from federal gov ||

(l) Gen adm expenditure, without construction || || ||

(m) we assume almost nul || || || ||

(n) we exclude from total share of PP the ratio of goods from federal gov ||

(o) 50% of ratio capital outlay to total expenditure of transit at State level in NY ||

(p) we exclude from total share of PP the ratio of services from federal gov ||

(q) Funds at the prorata of the States covered || || ||

(r ) || idem but projects financed by federal funds have a bigger value than the fund allocation itself (because of taxes)

|| || || || ||

|| || || || ||

|| Utilities || 7 || || ||

|| || || || ||

|| || || || ||

|| 40% of federal procurement is above the thresholds || || ||

|| Total offered by the US to EU firms || 103 || || 75 ||

|| || 15% || || ||

|| || || || ||

|| 100% of federal procurement is above the thresholds || || ||

|| Total offered by the US to EU firms || 206 || || 151 ||

|| || 32% || || ||

IMPORTANT REMARK: some of the figures on services at federal level are being reviewed with the US authorities in the framework of GPA negotiations.

The main sources for the assessment of the US public procurement market have been:

The US FPDS Report 2007 for Annex 1 (federal public procurement) US Census 2007 for Annex 2 (State’s public procurement)

3.1.1 - Annex 1 – Federal public procurement

1. “Total procurement”: 459 billion USD – source: FPDS Report 2007, page 10

2. “Defence goods exclusion”: 81,5 billion USD - source: FPDS Report 2007, page 28; sum of the actions reported in dollars under FSC 10, 12, 13, 14, 15, 16, 17, 19, 20, 28, 31, 58, 59 and 95

3. “DoD – other goods excluded”: 11,8 billion USD  - source: FPDS Report 2007, page 28; sum of the actions reported in dollars under FSC 23, 51, 52, 83, 84, 89 amounts to 16,5 billion USD. The exception is measured by applying the percentage of purchases of DoD (i.e; 330 billion USD out of 459 billion USD, or 72%).

Important remark on minimalistic impact assumptions:

-For the bus exception under Note (d) of Annex 1, the EU took the assumption to consider that only 1 billion USD out of the 19 billion USD spent on FSC 23 were buses (the EU welcomes any additional clarification on this matter)

4. “R&D services”: 54,8 billion USD - source: FPDS Report 2007, page 26

5. “Transportation services”: 6,3 billion USD - source: FPDS Report 2007, page 27, sum of the actions reported in dollars under V “Transport, travel, relocation” in “Total Federal Other Services and Construction”

Important remark on minimalistic impact assumptions:

“Launching services” (NASA) – a zero impact was considered as the NASA procurement data does not contain the procurement of launching services. Yet, other departments like Dept of Commerce may actually procure directly the launching of their satellites to NASA.

6. “Management and operation of facilities”: 20,6 billion USD - source: FPDS Report 2007, page 27, sum of the actions reported in dollars under M “Operation of Government owned facility” in “Total Federal Other Services and Construction”

7. “Lease & Rent facilities”: 4,8 billion USD -  source: FPDS Report 2007, page 27, sum of the actions reported in dollars under X “Lease and Rent facilities” in “Total Federal Other Services and Construction”

8.“Maintenance; repair and alter real property”: 11,6 billion USD, source: FPDS Report 2007, page 27, sum of the actions reported in dollars under Z “Maintenance; repair and alter real property” in “Total Federal Other Services and Construction”

9.“Public utilities services”: 13,1 billion USD, source: FPDS Report 2007, page 27, sum of the actions reported in dollars under S “Utilities and housekeeping” in “Total Federal Other Services and Construction”

10.“ADP telecommunications”: 24 billion USD - source: FPDS Report 2007, page 27, sum of the actions reported in dollars under D “ADP and Telecommunications” in “Total Federal Other Services and Construction”

11. “Printing services”: 0,3 billion USD - source: FPDS Report 2007, page 27, - sum of the actions reported in dollars under T “Photo, Map, Print, Publication” in “Total Federal Other Services and Construction”

12. “FAA procurement”: 0,5 billion USD - some of all procurement contracts provided on the FAA website in February 2008 not affected by thresholds and set asides

13. “Launching services” – cf. supra

14. “Purchases of buildings”: 0,1 billion USD, - source: FPDS Report 2007, page 30, - sum of the actions reported in dollars under FSC E “Purchase of structures/facilities” in “Total Federal Other Services and Construction”

15. “Social security administration” (*): 0,6 billion USD - source: FPDS Report 2007, page 11 – dollars of all reported actions (it may be necessary to take into account overlaps with other exceptions)

16. Services purchased for military forces located overseas: 8,7 billion USD - source: FPDS Report 2007 and own calculations. 42 billion USD were “procurements performed outside the US and US territories”, if we apply the share of services covered (213 billion USD – 80 billion USD all the aforementioned exceptions) and the share of DoD procurement out of the 459 billion USD.

17. Set asides: Small Business set aside / Minorities set asides - source: FPDS Report 2007, page 35: SBA eligible procurement: 378 billion USD, “Small business dollars” = 83 billion USD (hence, 22%) . Yet, with all the overlaps, we estimate that this exception weights 48,5 billion USD.

18.  As a result of footnote 8 of the US General Notes, the following additional services may eventually not be covered vis-à-vis EU service providers (this zone is being clarified with US authorities):

G – Social Services – 1,6 billion USD

P – Salvage Services – 0,3 billion USD

Q – Medical services – 12,3 billion USD

U- Education and training – 2,5 billion USD

19. Important remark on non estimated derogations:

The has not been possible to estimate the following derogations:

(a) - Note (e) of Annex 1 on “specialty metals, defined as steels melted in steel manufacturing facilities located in the United States or its possessions, where the maximum alloy contents exceeds one or more of the following limits, must be used in products purchased b DOD:

(1) manganese, 1.65 per cent; silicon, 0.60 per cent;  or copper, 0.06 per cent;  or which contains more than 0.25 per cent of any of the following elements:  aluminium, chromium, cobalt, columbium, olybdenum, nickel, titanium, tungsten, or vanadium;  (2) metal alloys consisting of nickel, iron‑nickel and cobalt base alloys containing a total of other alloying metals (except iron) in excess of 10 per cent;  (3) titanium and titanium alloys;  or (4) zirconium base alloys;”

(b) - Dredging

© - The procurement of the TSA has NOT been deducted from the Department of Homeland Security – could the US clarify the amount of this restriction?

(d) - “United States Agency for International Development (not including procurement for the direct purpose of providing foreign assistance)” – we assumed the full amount of 3,5 billion USD as covered by GPA (i.e. it isn’t foreign assistance) – could the US confirm whether this is correct?

(e) - Department of Energy (pursuant to Article XXIII, national security exceptions include procurements made in support of safeguarding nuclear materials or technology and entered into under the authority of the Atomic Energy Act, and oil purchases related to the Strategic Petroleum Reserve) – could the US clarify the amount of this restriction?

(f) - General Services Administration (except Federal Supply Groups 51 and 52 and Federal Supply Class 7340) - – could the US clarify the amount of this restriction?

(g) - Department of Homeland Security (except procurement by the Transportation Security Administration, and the national security considerations applicable to the Department of Defense are equally applicable to the U.S. Coast Guard) - – could the US clarify the amount of this restriction?

(h) Department of Agriculture (not including procurement of agricultural products made in furtherance of agricultural support programmes or human feeding programmes) – could the US clarify whether supplies under NAICS 11 should be deducted?

(i) Department of Commerce (not including shipbuilding activities of NOAA, as excluded in Annex 4) – could the US clarify the amount of this restriction?

3.1.2 - Annex 2 – States’ public procurement

State’s public procurement covered under Annex 2 of the GPA has been estimated by using the subsets of direct expenditure (i.e. capital outlay and current operation, minus compensation) in the US Census 2007 – as in the US GPA statistical report.

Obviously, expenditure for the States and territories NOT covered by GPA (including the District of Columbia) and the local expenditure of all States and territories has not been included.

The estimations provided in the US statistical report for the following States, for which the US provides generic coverage, remain unchanged compared to the statistical report:

· Arizona

· Arkansas*

· California

· Colorado

· Florida

· Kansas*

· Louisiana

· Massachusetts (although the list is exhaustive, we have assumed a full State coverage)

· Minnesota

· Montana*

· New York*

· Oklahoma*

· Pennsylvania

· Rhode Island*

· Tennessee*

· Utah

· Vermont

· Washington*

· Wisconsin

For the States marked with an asterisk (*) in this document, horizontal derogations were estimated on the basis of the expenditure functions that best matched the description of the derogation – explanations are provided in footnotes (i), (j), (k), (l), (m), (n), (o) and (p).

However, for the remaining States covered by GPA, only the share of the expenditure functions understood as covered by US commitments in Annex 2 for each State has been taken into account in the direct expenditure of the State in question.

For instance, in the case of Connecticut, only 4 entities have been committed –i.e. Department of Administrative Services, Connecticut Department of Transportation, Connecticut Department of Public Works and the Constituent Units of Higher Education. None of these entities appears to be competent for expenditure functions like “Health & Hospitals”, “ Police protection”, “Natural resources”, “Correction”, and “Park and recreation”. As a result, none of these should in our view be taken into account to estimate Connecticut’s public procurement, as it is currently the case in the US GPA statistical report.

As a result, only the share of those functions (probably) covered should be taken into account (i.e. “Education”, “Highways”, “General Administration”) in the direct expenditure minus compensation estimation of Connecticut’s public procurement. For education, only the part relevant to higher education should be taken into account and as the “Connecticut Department of Transportation” is probably also responsible for airports, this line of expenditure should also be incorporated – although to understanding, as for highways, there are also exclusions to foreign suppliers in airport procurement. We also took into account the line “General Buildings” ,  when the Department of Public Works was covered.

According to the US Census 2007 and the US GPA Report, direct expenditure minus compensation amounts to 9,8 billion USD. Yet, higher education expenditure (to which we deduct compensation) only amounts to 1,7 billion USD (i.e. 2,1 billion USD multiplied by the share of compensation in direct expenditure of Connecticut).  By applying the same methodology to administrative services and transportation, we obtain 4 billion USD of potential procurement.  If these assumptions are rights, it is therefore necessary to correct the US statistical report by replacing the reported value of 9,8 billion USD by a value of 4 billion USD, hence needing a 5,8 billion USD re-correction.

A similar analysis has been conducted for the remaining States, where as indicated previously only the relevant expenditure functions have been taken into account. The EU is ready to go State by State to verify its calculations and verify the best estimate of actual coverage. The overall methodology is provided in the table for each of the States under footnotes (a), (b), (c ), (d), (e), (f), (g), (h) and (l) in the overall estimation table.

To avoid any potential underestimation of the US public procurement market, the public procurement of Illinois and Texas, for which only the central purchasing agency has been committed in the GPA, additional sources were taken into account. The Department of Central Management Services claims in its website that the State of Illinois purchases for 10 billion USD, yet the general administrative services expenditure function (minus compensation) amounts to 0,8 billion USD.  The Texas Facilities Commission provides in one of its financial reports some 13 billion USD of expenditure, yet general administrative services expenditure function (minus compensation) amounts to 1 billion USD.

This implies that according to our estimations, the public procurement covered by GPA at State level, not taking into account the impact of thresholds and mass transit exceptions, is 380 billion USD, and that the restrictions that are not considered in the US statistical report amount to some 160 billion USD.

Impact of Mass transit and highway funds, State preferences programmes and thresholds

Thresholds and mass transit have a horizontal impact on the procurement committed by the US in Annex 2.

Should the Highway and Mass Transit Funds appear indeed to be valued at 45 billion USD, if we apply the share of highway expenditure of the States covered by GPA (some 77 billion USD out of the 83 billion USD) and the share of State and local (respectively 66 billion USD and 21 billion USD), the exception can be estimated to be worth some 28,5 billion USD. Yet, since there appear to be toll revenues for highways, the actual value of projects undertaken may be higher (up to 37,6 billion USD if we apply a 30% mark-up). The EU is eager to enter into a detailed discussion to better estimate the impact of the mass transit and highway funds.

Furthermore, we have applied the small business set-asides and minorities set asides (22%) for all the States to estimate the value of the various preference programmes applied by the States covered by the GPA, such as, for instance:

· Small and disadvantaged business preference, preference for economic “target areas” and “enterprise zones” in California

· Small business set asides in Illinois

· Preference for minority businesses, the disabled and in-state service providers in Texas

· Preference for US made materials in Wisconsin

· Preference for minority and disadvantage businesses in Oklahoma

· Preference for New York businesses in New York

· Preference for minority-owned businesses in Florida

· Preference for small business, “targeted groups” and disadvantaged areas in Minnesota

· (...)

If we apply a 10% threshold percentage at State level, then the accessible market at State level amounts to 27 billion USD and the total offered by the US to EU firms amounts to 151 billion USD.

3.1.3 - Utilities

In this case, we have relied on data from the GPA Reports (which is expenditures-based). For utilities, it is also worth underlining that some data is provided above the thresholds and some with disregard to the thresholds.

2 - Japan

(a) Open markets under current GPA commitments

According to C1 estimations, Japanese above-threshold procurement amounted to 96 billion EUR in 2007, although only 22 billion EUR were offered to economic operators from other GPA Parties.

(b) Entities and purchases not offered under current GPA commitments

General restrictions in Japan were estimated to amount to 74 billion EUR in 2007.

(1) Entities not offered (ratione personae):

Cities, towns and villages: The GPA only covers the higher levels of Japanese administrative structure (i.e. Prefectures and so-called "Largest Cities"). The public procurement of those lower levels - such as Tokyo's 23 "special wards" (some of them with a population exceeding 500.000 inhabitants), "core cities", "special cities", etc… - that are excluded from the GPA amount to 12.5 billion EUR.

Entities not included in the Japanese Annex 3: two main categories of entities seem to escape from GPA coverage i.e. local public corporations and national health entities. C1 estimates that their procurement amounts to some 40 billion EUR, thus half of all the Japanese above-threshold public procurement.

(2) Purchases not offered (ratione materiae)[1]

Services uncovered by the GPA are estimated to amount 4.9 billion EUR, corresponding mainly to business services such as banking, audit and management consulting.

(3) Defence in Japan: Based on the experience of C3 with the analysis of defence budgets and IISS[2], C1 estimates that above-threshold[3] purchases of warlike material amounted to 4 billion EUR.

(4) SME set aside: (see point 2.2): 4.2 billion EUR.

(5) Higher thresholds for construction and architectural services (see point 2.3): 3.2 billion EUR.

(6) Specific restrictions: A series of specific exceptions apply to the purchases of specific entities. Very often these actually preclude the access to the main type of purchases of that entity (e.g. operational safety requirements for the procurement of the Urban Development Corporation, the Tokyo Metro Co. and the Japan Railway Construction Public Corp.). In the worst-case scenario, where all these exclusions would actually preclude all procurement to companies from other GPA Parties, a total of 5.1 billion EUR would also need to be deducted.

(c) Restricted markets under GPA commitments (specific derogations against EU firms)

There are no specific derogations applying in Japan GPA commitments against EU companies.

3-Canada

(a) Open markets under current GPA commitments

According to C1 estimates, above-threshold procurement in Canada amounts to 59 billion EUR, although only 2 billion EUR (3.2% of all estimated Canadian PP) is actually open to other GPA Parties because of the magnitude of restrictions applying.

(b) Entities and purchases not offered under current GPA commitments

General restrictions in Canada were estimated to amount to 57 billion EUR in 2007. By adding all the ratione personae and ratione materiae exclusions, because of overlaps (estimated at 1.3 billion EUR), the amount is greater than 58 billion EUR.

(1) Entities not offered (ratione personae):

Provinces and local administrations: Canada does not offer the access to the procurement of its provinces, therefore cutting the access to some 51 billion EUR (above the GPA thresholds). This exclusion affects access to utilities' procurement in Canada as a whole.

Entities of Annex 3: Although Canada has an Annex 3 to the GPA, it is not accessible to EU suppliers because many of the operators are private (Canada Post, VIA Rail). Their procurement amounts to 1.2 billion EUR.

Missing federal entities: Some federal contracting authorities are not covered by the GPA (e.g. Canadian Commercial Corporation, whose above-threshold procurement amounts to 1 billion EUR). According to the Canadian official public procurement database, Contracts Canada, their combined market size amounts to 1.06 billion EUR.

(2) Purchases not offered (ratione materiae)[4]

Excluded services: According to Contracts Canada, excluded services at federal level amount to 1.23 billion EUR (above the GPA thresholds,). These cover notably education and training, translation, communication, transport and financial services

Excluded construction works: According to Contracts Canada, excluded works at federal level amount to 0.01 billion EUR (above the GPA thresholds). These cover dredging services, site preparation for mining and construction contracts for Transport Canada (unless these are not published).

(3) Defence in Canada: According to Contracts Canada, the Canadian National Defence is the largest contracting authority in Canada and its above-threshold purchases amounted to 2.7 billion EUR in 2007.

(c) Restricted markets under GPA commitments (specific derogations against EU firms)

Based on data of Contracts Canada, it is either impossible to estimate all specific derogations against EU firms at federal level (shipbuilding, communication equipment, agricultural products purchased within agricultural programs) or useless (national security exemptions or urban transport equipment which is anyway excluded since local authorities do not open their own public procurement). Still, based on the information available on Contract Canada, one reaches at least 1 billion EUR of derogations.

4-Korea

(a) Open markets under current GPA commitments

According to C1 estimations, Korea's above-threshold procurement amounted to 24.6 billion EUR in 2007, although only 12.3 billion EUR were offered to EU firms.

(b) Entities and purchases not offered under current GPA commitments

General restrictions in Korea were estimated to amount to 9.9 billion EUR in 2007.

(1) Entities not offered (ratione personae):

Lower-local local governments: Korea's offer indicates that any entity with a separate legal personality that is not listed in not covered. In the case of sub-central contracting entities Korea offer access to provincial-level metropolitan government entities whose list includes 17 entities: Seoul Metropolitan Government, 15 more metropolitan cities and the Special Self-Governing Province of Jeju Island).  Therefore Korea does not offer access to procurement of lower-level local government entities (75 cities –si- 86 counties –gun- and 69 autonomous districts –gu-) estimated at about 1.1 billion EUR.

(2) Purchases not offered (ratione materiae)[5]:

Restrictions for supplies, services and works (including SME set asides and excluding defence) not offered were estimated at about 2.5 billion EUR.

Supplies: the following supplies have not been offered: defence supplies, aircrafts, ships, space vehicles, railway equipment, motor vehicles, engines turbines & components, agricultural machinery and equipment, agricultural supplies, communication equipment, etc.

Services: building cleaning services, research and development services, postal, courier and some telecommunication services, financial services, some transport services (e.g. by internal waterways, air, rail, road and pipeline) and arbitration services.

Works contracts are not covered if they fall under the SME set aside program or are related to national security and defence.

(3) Defence in Korea: Based on the public procurement of the Ministry of National of Defence in 2004 from GPA statistical report of Korea, C1 estimates that the excluded defence procurement in 2007 amounts at about 5.4 billion EUR.

(4) SME set aside:  0.4 billion EUR, it is included in total amount for point (2) Restrictions ratione materiae. See point 2.1 (a) for further information.

(5) Higher thresholds for construction procurement of Annex 2 and Annex 3 entities: 0.9 billion EUR. See point 2.2 (a) for further information.

(c) Restricted markets under GPA commitments (specific derogations against EU firms)

Specific derogations against EU firms are estimated to amount 2.4 billion EUR in 2007.

(6) Specific restrictions refer to contracts awarded by Korean National Railroad Administration, procurement for airports by Annex 1 entities and procurement for urban transport (including subways) by Annex 1 and Annex 2 entities.

5-Recent additions after the conclusion of the re-negotiation of GPA

US - no substantial change - the US has committed 3,5 billion USD of additional procurement. Taking into consideration other existing restrictions, the total volume of markets added by the US amount to 1,7 billion EUR (Transport Security Administration and 10 minor federal agencies); these amounts do not alter significantly the market access (32%).

Japan - Japan has added some 5 billion EUR of works concessions - source: the Government of Japan, own estimations. Japan opens therefore now 28% of its public procurement market.

Canada - Canada has opened 6 billion EUR of regional procurement (Provinces). it opens therefore now 16% of its procurement market.

Korea - Korea has added its urban transport operators and some local authorities, adding therefore some 2 billion EUR of additional procurement opportunities.

[1]  The value presented for purchases not offered (ratione materiae) already excludes the overlap with the entities not offered e.g. purchases of banking services by core cities. Therefore, the real value of the purchases not offered is higher.  

[2] The International Institute for Strategic Studies is a UK-based think thank conducting scientific research in the area of international peace and security and publishes in particular detailed statistics of defence expenditure.

[3]  Assuming that above-threshold procurement represents 32% of procurement at central level, as indicated in Japanese GPA Reports. For local authorities, a threshold of 16% was assumed (thus half of the former)

[4] The value presented for purchases not offered (ratione materiae) already excludes the overlap with the entities not offered e.g. purchases of banking services by the Canadian Commercial Corporation. Therefore, the real value of the purchases not offered is higher.  

[5] The value presented for purchases not offered (ratione materiae) already excludes the overlap with the entities not offered e.g. purchases of banking services by counties "gun". Therefore, the real value of the purchases not offered is higher.  

ANNEX 11

- FOLLOW UP TO THE COMMENTS OF THE SECOND OPINION OF THE IMPACT ASSESSMENT BOARD -

Comments of the 2nd opinion of the IAB:

Deduct for all options the baseline impact of 1 billion EUR

Tables 15b/c/d - the ratios of efficiency of each option take into consideration the benefits of the baseline scenario (1 billion EUR of exports).

Add synthetic explanation of the impact model

This is done in the new box 6.

Apply measurement of leverage to the exports impact of each option

cf. Exports and jobs under 7.1.1.1

Strengthen interplay between option 6 (abnormally low tenders) and the other options

cf. 6.9 - option 6 increases leverage of all options (if combined of course)

Add cost of uncertainty to the administrative burden of notification system

cf. Box 6,

cf. 6.6.2 (administrative burden)

Use a more thorough model to assess the administrative burden of option 3B2

cf. footnote 103

Add liability risk for the Commission in the cost of notification system

cf. Box 6,

cf. 6.6.2 (administrative burden)

Downplay job impacts by deducting spare capacity and efficiency gains

cf. box 6

Design of the options

Options have remained intact

ANNEX 2

Summary of the contributions to the public consultation

Access of third countries to the EU's public procurement market

1. BACKGROUND

Public procurement rules define how public authorities spend public money when buying goods, works or services on the open market. Solid public procurement rules prevent governments from favouring a specific economic operator and guarantee sound competition between market players, which helps governments to find best value for taxpayers' money.

Public procurement represents a substantial part of the EU's and other trading partners' economies. In the EU, it corresponds to 17% of GDP. Through international commitments, such as the WTO Government Procurement Agreement (GPA) and trade agreements concluded with third countries or regions, the EU has shown strong advocacy for an ambitious opening of international public procurement markets. It has committed itself to granting market access to a large part of its public procurement market for most foreign goods, services and companies.

In contrast to the EU’s policy favouring greater openness, many third countries are reluctant to (further) open their procurement markets to international competition.  Certain trading partners have also maintained or introduced protectionist measures hitting, among others, EU companies. This clearly limits business opportunities for EU companies in these markets.

The European Commission announced in its Communications "Towards a Single Market Act"[1] and "Trade, Growth and World's Affairs"[2] its intention to present in 2011 a policy proposal with the aim to clarify the rules governing access to the EU's public procurement market of goods, services and companies from outside the EU. Moreover, this initiative should ensure a level playing field on the EU's public procurement market and strengthen the position of the EU when negotiating further access for EU companies to public procurement markets of countries outside the EU.

In the framework of the impact assessment conducted for this initiative, the Commission launched on 7 June 2011 an on-line consultation. The consultation period ended on the 2nd of August 2011, but the replies received until 15 September were taken into account.

The consultation consisted of three questionnaires that were targeted to different groups of stakeholders. One questionnaire was specifically designed for businesses and trade associations representing businesses, one other for contracting authorities/governments and the third questionnaire for other interested stakeholders (i.e. citizens, NGOs, trade Unions, think tanks, etc). The questions on the initiative itself were common in the three questionnaires, the differences in the questionnaires pertaining to the type of information asked on the stakeholders.

This document contains a brief and non-exhaustive summary of the replies that have been given to the consultation. The individual contributions that have been authorised for publication are published on the website of the Directorate-general Internal Market and Services and Directorate-general Trade.[3]

2. CONTRIBUTING STAKEHOLDERS

General overview

The Commission received in total 215 contributions of Member States, public authorities, contracting authorities and contracting entities, regional and local authorities, companies, trade unions, trade associations, NGOs and citizens, all based in the European Union. Furthermore, the Commission also received contributions from stakeholders outside the EU, including from third country governments, businesses or trade organisations. Contributions were received directly through the on-line questionnaire or in written form (ie. position papers, formal letters, etc).

Contracting authorities/government

During the consultation in total 90 contracting authorities and governments (hereafter "contracting authorities") have replied to the consultation. An important majority (73%) of the replies of contracting authorities/governments to the consultation came from Germany, while there were also a number of contributions from Austria, Estonia, Latvia, the United Kingdom, and one from Belgium, Czech Republic, Denmark, France, Hungary, Italy, the Netherlands, Sweden. While there were quite a number of contributions by national/federal ministries, almost half of the contributions came from municipalities and regional authorities. Some replies came from universities, central purchasing bodies and utilities operators in the water, railway or urban transport sectors. In addition, some replies were received from foreign governments (Australia, Japan, New Zealand).

c. Businesses and trade organisation representing businesses

The "business" questionnaire was addressed to stakeholders representing the business community whether as an individual company or an association representing businesses. There were 82 responses to this specific questionnaire. Both types of respondents were largely represented in the consultation responses, with a slight majority some (52%) of individual businesses. There was an equivalent representation of SMEs and large companies (over 250 employees). Responses were received from businesses or their representatives located in 18 Member States, with the most significant number of responses (either in number or by representativeness) received from France and Germany, followed by the United Kingdom, Spain and Belgium (where a large number of business trade representatives are located). It is worth noting that contributions were also received from businesses and/or their associations from the United States, Switzerland and Japan. Responses were received from all sectors of economic activity listed in the consultation document, in particular from sectors such as construction, power machinery, electrical machinery and equipment, transport equipment, railway equipment, IT services, architectural and engineering services, consulting services or maintenance services.

Other interested stakeholders

The general questionnaire was addressed to any stakeholder who did not considered itself a representative of the business community or a contracting authority/government but was nevertheless interested in this initiative. There were 42 replies to this questionnaire, mostly from individual citizens although responses were also received from trade unions, NGOs, think thanks and other stakeholders such as museums, educational and professional institutions, etc.

3. SUMMARY OF THE MAIN VIEWS OF STAKEHOLDERS ON THE INITIATIVE[4]

3.1       Problem definition

Respondents generally welcomed the initiative from the European Commission. A large majority emerged among all types of respondents in agreement with the consultation's introductory description of the current level of access to the EU public procurement market for goods, services and companies from outside the EU.

It is worth noting that a number of replies identified additional issues which respondents believe the Commission should take into account in its description of the current level of access and that are believed may impact their procuring activities both within and outside the European Union. Some of the issues raised concerned abnormally low tenders, different social and environmental standards, insufficient protection of intellectual property rights, access to finance by state-owned enterprises, etc.

3.2       Objectives

All types of stakeholders also supported in their majority the identified objectives of the initiative.

3.3       Policy Options

As regards which policy option would be preferable the views are divergent and vary depending on the group of respondents. Overall, the least preferred option among all stakeholders seems to be the "non-legislative" option entailing the adoption of soft-law or an increased use of available dispute mechanisms.

An important majority of stakeholders appear to support a legislative initiative; while an important minority prefer the option 'nothing happens' (mostly contracting authorities - cf. graph hereunder). The different groups of stakeholders have rather divergent views of the option that would have to be preferred. Among contracting entities and government authorities for example there is a clear majority in favour of the option 'nothing happens' or the non-legislative option, while for businesses and other stakeholders there is an important majority in favour of a legislative initiative. Among those stakeholders in favour of a legislative initiative there are also divergent opinions as to what that legislative option should be. Although there is large support for the legislative option with approach A, there are a significant number of respondents in favour of an alternative approach to A or B. It is worth noting that, although being the least preferred approach by those supporting a legislative option, approach B also received the support from a considerable number of respondents.

The main reasons put forward by stakeholders in favour or against one or the other policy option included the importance of best value for money and competiveness and productivity that could be hindered by some of the policy options, the risk of retaliation by the EU's trading partners, the administrative burden that could be attached to such an initiative and the fact that the initiative could endanger the status of the EU as an adherent of open markets. Some of the third country governments and non-EU business representatives that replied underlined that they have open public procurement markets and would be concerned that the new EU policy would have an adverse effect on the access of their companies, goods and services to the EU's public procurement market.

Among respondents, there is strong support for the application of conditions to the access to the EU's public procurement market by companies, goods and services from third countries. Indeed there is limited support for a policy that would give these companies, goods and services always access to the EU's public procurement market, except in the case of least developed countries where there is a large majority of respondents that favour that policy (although it is worth noting that contracting authorities are the least supportive of the latter). As regards the particular conditions of access to the EU's public procurement market, a large majority of stakeholders (some 65%) is of the opinion that access to the EU's public procurement market should only be given to third country goods, services and companies in so far as EU firms, goods and services have an equivalent level of access to the public procurement markets of these third countries. An important number of respondents (some 30% is of the opinion that companies, goods and services from countries outside the EU should only have access to the EU public procurement market if this has been agreed in an international agreement concluded by the EU.

If the new EU policy in this area would be introduced allowing the adoption of restrictions on access to the EU's public procurement market an important majority some (60%) of respondents believe these restrictions should have a general character and apply to all countries outside the EU and all market sectors which are not covered by international commitments. Although a significant number of respondents (more than 60%) do not have an opinion on the form those restrictions should take, those responding largely believe they should consist in an exclusion of the companies, goods and services of third countries (rather than price penalties or other differential treatment). As regards possible restrictions, it is interesting to note that in general all types of respondents believe that it is not relevant to make a distinction between SMEs and other companies.

Finally, larger majorities (some 60%) emerge supporting the view that should any restrictions be introduced on the access to the EU's public procurement markets these should be decided at EU level rather by Member States or contracting entities. Notwithstanding this, stakeholders not directly involved in procurement activities (i.e. citizens, NGOs) are among those that expressed larger support to decisions at a lower administrative level than the EU.

4. DETAILED OVERVIEW OF VIEWS EXPRESSED BY STAKEHOLDERS[5]

Contracting authorities

1. Contracting authorities and globalisation

The experience of the responding contracting authorities with third country companies, goods and services in the framework of EU public procurement procedures seems fairly limited. Only a quarter of these authorities have ever received a tender submitted by a company from outside the EU or has ever awarded a contract to such a company. More or less the same percentage of the contributing contracting authorities indicated having received a bid offering goods/services from third countries. Finally, less than 5% of contracting authorities has ever disregarded a bid from a company from outside the EU or goods or services form outside the EU on the basis of their origin.

A very limited percentage (some 5%) of contracting authorities have ever used the Community customs code to identify the origin of the goods. Almost all contracting authorities estimate that the tenders they receive are made up for between 0 and 5% of goods/services from countries outside the EU or made by companies from countries outside the EU. Slightly less than 10% of contracting authorities indicate that they procure goods and services from outside the EU because these are not available in the EU.

2. Perceived impacts of third country access to the EU's public procurement market

The impact of participation of companies outside the EU on their own procuring activities was, in general, considered to be slightly negative by the contributing contracting authorities. While a majority (some 60%) considers that the participation of companies outside the EU has no impact on the quality of tenders, nor on their ability to procure sustainable goods and services, more than a quarter of respondents feels that the participation of companies from outside the EU third country has negative effects on the quality of tenders and its ability to procure sustainable goods and services. The impact on prices is perceived a bit differently. According to almost half of the respondents the participation of third country companies does not have any impact on prices in the market. A big minority. Approximately 45% however estimates that prices decrease as a consequence of the participation of third countries companies. Finally, a small percentage is of the view that prices increase due to third country company's participation.

Regarding the consequences of the openness of the EU's public procurement market and the EU's economy in general contracting authorities have rather mixed opinions. The openness of the EU's economy in general and its public procurement market in particular is not generally considered by contracting authorities to help EU companies doing business in third countries (60% of respondents).  On the quality of the tenders, an important majority of contracting authorities considers that the openness of the EU's public procurement market does not increase their quality.

On the other hand, a very large majority is of the opinion that the openness of the EU's public procurement market decreases prices in the market. In line with this opinion also a very large majority of stakeholders feels that competition from third countries in EU public procurement procedures undermines the capacity of EU firms to be competitive in terms of price. Moreover, a slight majority some 52%) of the contributing contracting authorities considers that the openness of the EU economy in general and its public procurement market increases competitive pressure and thus promote greater productivity and innovation. In line with this opinion a majority (some 60%) of contracting authorities also disagree with the statement that competition from third countries undermines the capacities of EU firms to invest in innovation. Furthermore, a majority of contracting authorities is of the opinion that third country competition helps to increase the productivity of EU firms. Finally, it is worth noting that some 60%   of contracting authorities disagreed with the statement that competition from third countries provides useful savings for taxpayers. It is not entirely clear how that relates to the point of view of a considerable majority that is of the opinion that the openness of the EU's public procurement market decreases prices in the market.

The social and environmental impacts of competition from third countries in public procurement procedures were considered to be rather negative. Although a majority some 60% of contracting authorities disagreed with the statement that the openness of the EU's public procurement market does support the procurement of sustainable goods and services, an important minority supported it. As to the statements that competition from third countries leads to deterioration of social conditions in their sector or leads to job losses in your sector a significant respectively some 60% disagreed with them. However, important minorities agreed to the statements, meaning that in their view competition from third countries leads to job losses and deterioration of social conditions in their sector. Concerning the statement that competition of third countries in public procurement procedures leads to deterioration of environmental standards in the sector there were as many contracting authorities that agreed as ones that disagreed.

3. Views on the preferred policy options

Although almost all contracting authorities appear to find reciprocity important they have quite different opinions on what policy option would be preferable. Most contracting authorities (a big minority of them) prefer the option "nothing happens" (some 42%)  and almost a quarter of them prefers the non-legislative option, which would mean that the EU would use soft law (publish guidance on how applying existing tools) and would make more active use of existing tools such as WTO/FTA dispute settlement mechanisms. An important minority (some 31%)  is in favor of a legislative approach. More than half of these authorities prefer "approach A" under which EU procuring entities would in principle be required to exclude third country goods, services and companies not covered by international commitments of the EU. A little less than half of these preferred "approach B" which would give EU procuring entities the possibility to decide to exclude third country goods, services and companies not covered by international commitments of the EU, subject to notification to the Commission. Only one contracting authority proposed a different legislative option in order to guarantee conformity assessment, quality of conformance and safety for people's health and for environment.

4. Views on the substance of a new policy

Two-thirds of the responding contracting authorities state that they do not know the conditions under which companies, goods and services from countries outside the EU can currently participate in public procurement procedures in the EU. A bit more than a quarter of them indicated that they know the conditions and find them clear, while a small percentage stated that they do know these conditions, but do not find them clear. The question on whether the rules governing the access to the EU's public procurement market of companies, goods and services originating outside the EU should be modified was replied to in a varied manner. Two-thirds replied "don't know"; some 30% replied negative to this question, while only a very small percentage replied that these rules should be changed.

Contracting authorities generally consider that reciprocity is important in public procurement. Almost half of the contracting authorities are of the opinion that access to the EU's public procurement market should only be given to third country goods, services and companies in so far as EU firms, goods and services have an equivalent level of access to the public procurement markets of these third countries. More than a quarter considers that companies, goods and services from countries outside the EU should only have access to the EU public procurement market if this has been agreed in an international agreement concluded by the EU. A small percentage (some 15%) of the contracting authorities are of the opinion that companies, goods and services from countries outside the EU should always have access to the EU public procurement market. Finally, a majority is of the opinion that companies, goods and services should always have access to the EU's public procurement market if they come from the least developed countries.

The possible restrictive measures should have, in the view a majority of contracting authorities, a general character and apply to all countries outside the EU and all market sectors, which are not covered by the EU's international commitments. There was much less support for the idea to have these measures imposed only in case of market access problems in specific countries, to target only specific market sectors or to target specific market sectors in case of market access problems in specific countries. The preferred form of the restrictive measures is for 42% of the responding contracting authorities an exclusion of companies, goods and services originating in countries outside the EU from public contract award procedures. Almost a quarter of contracting authorities prefers the imposition of price penalties, while an important minority prefers other differential treatment, such as leaving it fully open to contracting authorities. But, most of contracting authorities responded 'Don't know'

Contracting authorities shared the Commission's view that exemptions to the possible restrictions should be foreseen in the legislation. A very large majority agreed to the need of such an exemption in case of unavailability of the goods or services concerned in the EU and a majority in case of emergency or disproportionate costs of EU goods and services. Only somewhat more than a quarter of the responding contracting authorities agreed that an exemption should be foreseen for companies, goods and services from least developed countries.

On the level of administration where decisions should be taken on possible restrictions a slight majority some 55% of contracting authorities is of the opinion that decisions should be taken at EU level. A rather small percentage some 20%)  supports decisions by Member States, by individual contracting authorities or by individual contracting authorities on the basis of uniform, EU wide principles. There is little support for decisions by individual contracting authorities that have to notify the European Commission.

In the consultation the Commission also posed some question on a possible notification by contracting authorities of their intention and/or decision to restrict the access of certain third country companies, goods or services. This notification could then ensure uniform application throughout the EU. Both with respect to the ex ante notification and the ex post notification there was a very slight majority against an obligation to notify, either ex ante or ex post.

With regard to the notification procedure a very large majority of the contracting authorities are of the opinion that this procedure should reflect that in some situations the EU has included in current GPA/FTA agreements restrictions to market access and that in other situation there is no agreement between the EU and the relevant third country. A majority of the contracting authorities also feels that it would be a valid reason for the Commission to agree to a proposed exclusion if there is a lack of substantial reciprocity in the country and sector concerned or an effective restriction under the GPA/FTA between the EU and the third country. The same majority is of the opinion that a lack of substantial reciprocity in the country and sector concerned or an effective restriction under the GPA/FTA between the EU and the third country should be taken into account where the Commission proposes restrictive measures at EU level under approach B.

The administrative burden flowing from the notification obligations are estimated by contracting authorities to be relatively low. The time required to draft and send a one page notification by electronic means (containing the type and amount of procurement concerned as well as the country(-ies) targeted by the envisaged access restrictions) would costs according to almost half of the authorities 1 to 4 man-hour and according to a big minority between 4 man-hour to 1 man-day. Only some contracting authorities estimate that this would cost more man-day. On the other hand the duration of the notification procedure until the moment of a possible decision of the Commission (6-8 weeks) is seen by a very large majority to be burdensome for all types of purchases. Close to a quarter of the contracting authorities see this as acceptable for all types of purchases or acceptable in some cases, depending on the type of purchase. Lastly, a very large majority of contracting authorities is of the opinion that (very) significant administrative burdens would result from having to identify the origin of the goods, services or companies in case restrictive measures have to be applied.

Businesses and/or their representatives

1. Procurement profile

For almost all respondents, public procurement is an important part of their business activities. Within this context, an overwhelming majority of (some 85%) respondents note that they supply goods and services to both the private and public sectors. On the latter, respondents supply to all types of public sector organisations, in particular to central governments and regional or local authorities. It must be highlighted that a large number of respondents supply also to the utilities sectors, in particular to the railway and urban transport operators.

As regards their procurement activities, a majority of respondents note that they are regularly bidding for contracts outside the EU. A large majority of those bidding outside the EU do so by tendering directly. The analysis of the responses indicates as well that EU businesses also opt for a combination of the latter with local agents and locally established partners.

Respondents put forward a wide range of reasons that would prevent them from bidding in public procedures outside the EU. While all the possible reasons listed by the consultation document were highlighted by respondents, the existence of administrative obstacles, the belief that domestic bidders would be favoured and unfair competition were amongst the reasons most chosen.

Opinion is divided on the specific knowledge or experience of respondents with limitations put on the participation of foreign suppliers in tendering procedures outside the EU. Again, the complete exclusion of foreign suppliers from bidding, the requirements to be locally established or to set up a joint venture with a local company and the burdensome or additional administrative, technical requirements for foreign bidders are identified as important measures limiting access on EU businesses' participation in bids outside the EU.

2. Perceived effects of third country access to the EU's public procurement market

An important majority of respondents note that the level of competition in the EU from companies from outside the EU is significant in all the key sectors of the EU's economy, in particular in the sectors of construction, machinery, transport (railway) equipment and services. As regards competition in tendering procedures, while an important number of respondents do not know whether they were tendering against companies originating outside the EU, a slight majority believes it was (some 52%).

The consultation also tried to assess the views of stakeholders on the impact of competition from third countries in EU public procurement procedures. The responses from the business community show an overall negative opinion on the impact of third countries' competition on the activities of EU companies in the EU's procurement market. An important majority of respondents agree or fully agree with statements such as that competition from third countries in EU public procurement procedures undermines the capacity of EU firms to be price competitive, leads to the deterioration of environmental and social conditions in their respective sectors, leads to job losses or undermines the capacity of EU firms to invest in innovation. Respondents also largely disagree (some 55%)with statements such as that competition from third countries provide useful savings for taxpayers, helps to increase the productivity of EU firms or is an incentive to increase R&D budgets.

Opinions were also requested on the potential advantages or disadvantages of the "openness" of the EU's public procurement market. Businesses seem to be divided on their assessment of that openness as regards, for example whether it can support the procurement of sustainable goods or services. Larger majorities emerge in disagreement with statements suggesting that this openness would increase the quality of the tenders(some 53%), help EU companies do business in third countries (some 44%) or on that the competitive pressure that results from that openness promotes greater productivity and innovation (some 49%). Businesses' however largely agree that an open EU's public procurement market contributes to decreasing market prices(some 60%).

The consultation document aimed also to gather the opinion of business stakeholders as regards the potential benefits of securing greater access to public procurement in non-EU markets. Overall, respondents view greater access to non-EU procurement markets as very beneficial. A large majority of stakeholders believe this greater access could lead to greater economies of scale (some 75%), increase investment opportunities abroad, reduce fixed costs to penetrate those foreign markets (some 75%) , improve their knowledge about processes and products and contribute to getting the references needed to win other purchasing orders (some 80%).

3. Views on the preferred policy options

Opinions vary as regards the businesses views on what policy option they would prefer the Commission to pursue. A very large majority of respondents are in favour of the adoption of legislative action, opinions diverge on what that action should be. Within those favouring a legislative option, opinions are mostly divided among those supporting approach A and those supporting a different approach from option A or B (described below), the outlined approach B being the least preferred legislation option.

Those having provided specific reasons for their stated policy preferences note that while approach A would better ensure coherence of treatment of foreign suppliers and a level playing field across the EU, this approach could have negative impacts on the possibility for contracting entities to apply the "best value for money" principle (due to less choice for contracting authorities). Respondents in favour of approach B believe it would be the most appropriate tool to gain leverage vis-à-vis third countries but highlight that it could result in imbalances as regards treatment of foreign suppliers in different Member States.

Some of the proponents of a different legislative solution than the proposed approach A or B have suggested their alternative proposals, in particular a variation of approach A but with a mandatory ex-ante notification to the European Commission when need for a waiver complemented with the Commission being given a right to supervision and intervention to investigate cases of potential abnormally low offers. Other responses also suggest as an alternative policy option the adoption of a "buy Europe" policy across the board, except when international commitments exist, or to provide the Commission with a tool to guard the implementation of international agreements and be able to take restrictive actions in cases of lack of comparable and effective market access or significant trade imbalances. It is also worth noting that a significant number of respondents note that a legislative option should not preclude the recurring to measures outlined in the non-legislative options (i.e. guidance on existing rules, recourse to dispute settlement mechanisms, etc).

It should also be highlighted that some respondents in favour of taking no action or non-legislative measures provided specific arguments in favour of their position. Among the elements underlined, it is believed by these respondents that restrictive measures could be seen as "protectionist" by key trading partners and could result in retaliation by those third countries and trade disputes that could affect negatively EU businesses operations outside the EU. Also, some respondents believe that restrictions would affect negatively the global supply chains and decrease EU's firms' competitiveness (i.e. due to impacts on sub-contracting, joint ventures or delays in supply).

 

4. Views on the substance of a new policy

A slight majority of respondents believe that other issues to the ones listed in the consultation document are also affecting the conditions of access to the EU public procurement market for goods, services and companies from countries outside the EU and that these would need to be described and addressed in the future initiative. These respondents mention issues such as abnormally low tenders, state aid, insufficient protection of intellectual property rights or "financial dumping" by which state-owned enterprises have access to very low credit lines from their national banks. It is worth noting that almost the same number of respondents replied "do not know" to this question.

To the question whether businesses' know the applicable conditions by which companies, goods and services from countries outside the EU can participate in the public procurement procedures in the EU stakeholders are divided between those who know the rules and those that do not know them. Among the former, a majority do not find those rules clear enough.  A large majority of respondents believe that these rules should be modified.

Stakeholders were also asked to give their opinion on a number of elements which could help the Commission built, if considered appropriate, an instrument to set the terms of access of companies, goods and services of third countries to the EU's public procurement market.

An overwhelming majority of respondents (some 92%) believe that companies, goods and services from countries outside the EU should only have access to the EU's public procurement market under certain conditions, either access to the EU's public procurement market should only be granted in so far as European firms, goods and services have an equivalent level of access to the public procurement market of those third countries or only if access has been given by means of an international agreement the EU has concluded.

If the new EU policy in this area would be introduced allowing for the adoption of restrictions on access to the EU's public procurement market an important majority of respondents believe these restrictions should have a general character and apply to all countries outside the EU and all market sectors which are not covered by international commitments. As regards possible restrictions, in the stakeholders' views it is not relevant to make a distinction between SMEs and other companies.

Although a significant number of respondents do not have an opinion on the form those restrictions should take, of those responding to the question, an important majority believe they should consist in an exclusion of the companies, goods and services of third countries (rather than price penalties or other differential treatment). A large majority also believe any restrictions should be decided at EU level rather than by Member States or contracting entities.

If individual contracting entities were allowed to take restrictions, an important majority (some 70%) of respondents believes they should be subject to an ex ante notification to the European Commission. No majority could be derived as regards a potential ex post notification, where opinions were extremely divided.

It is worth noting that while a majority of stakeholders responded positively to the questions regarding the application of the "substantial reciprocity" criteria for the adoption of exclusions or restrictive measures under approach B, a large number of respondents opted for the "do not know" option on those detailed questions.

The vast majority of stakeholders agreed with the proposed exemptions to possible restrictions on access to the EU public procurement (unavailability of goods and services concerned in EU, emergency, goods and services from least-developed countries a        nd disproportionate costs). It appears the exemption "in case of disproportionate costs of EU goods and services" is considered less important by business stakeholders.

Overall, a big minority (some 40%) of business stakeholders believe their sector would be disproportionally affected in a positive manner by the application of market access restrictions against foreign companies, goods or services. A large number of respondents nevertheless did not know this would affect them (some 31%).

Finally, opinion is largely divided as to whether companies, goods and services originating in least developed countries should always have access to the EU's procurement market, although most businesses think they should always have access. It is worth noting that around one third of respondents did not give an opinion on this matter.

Other stakeholders

1. Perceived effects of third country access to the EU's public procurement market

The consultation document aimed to gather the opinion of stakeholders as regards the impact of the "openness" of the EU's public procurement market. The contribution of trade unions and NGOs is specifically detailed hereafter (point 4).

The responses gathered show that it is difficult to clear state that openness of the EU's public procurement market positively or negatively impacts tendering activities in the EU. The impact is considered positive on aspects such as the procurement of sustainable goods and services and on the decrease of market prises while considered negative on other elements such as the quality of tenders or the ability to tender in third countries.

More specifically, over half of the respondents agreed with the statement that the openness of the EU's procurement market supports the procurement of sustainable goods and services. On the contrary, the majority of respondents note their disagreement with the statement that the openness of the EU's procurement market increases the quality of tenders. The majority of respondents also agree with the statement that openness decreases the prices in the market.

The vast majority of stakeholders fully disagreed or disagreed with the statement indicating that openness of the EU's procurement market helps them doing businesses in third countries. Finally, the opinion was divided on whether that openness increases competitive pressure and thus promotes greater productivity and innovation.

The consultation also tried to assess the views of stakeholders on the impact of competition from third countries in public procurement procedures. Again, opinion seems to be divided in a number of elements although it appears that there is an overall negative opinion on the impact of third countries' competition on the activities of EU companies in the EU's procurement market. An important majority of respondents agree that competition from third countries leads to deterioration of social conditions, undermines the capacity of EU firms to be competitive in terms of price and to invest in innovation. There is also a majority of other stakeholders in disagreement with the statement that competition helps to increase European firms' productivity. Opinion is shared on whether competition from third countries leads to job losses, although a slight majority of the respondents agree with that statement. Also, opinion is divided on whether competition is an incentive to increase R&D budgets and on whether it leads to the deterioration of environmental standards (although in the latter there is a majority of "do not know" responses).

2. Views on the preferred policy options

The situation is different as regards the opinions expressed by these stakeholders on what policy option they would prefer the Commission to take forward.  Overall, there seems to be a majority of respondents in favour of a legislative option, but within this opinions also diverge as regards which legislative approach should be preferred and no particular option seems to emerge. Of all the choices that respondents had to respond to this particular consultation question, the least preferred option is the so-called "non legislative" option, where the EU would use soft law and would make more active use of existing tools such as WTO/FTA dispute settlement mechanisms.

3. Views on the substance of a new policy

A slight majority of respondents believe that other issues to the ones listed in the consultation document are also affecting the conditions of access to the EU public procurement market for goods, services and companies from countries outside the EU and that these would need to be described and addressed in the future initiative. A number of respondents provided further details of what issues should also be addressed. The case of foreign bidders that benefit from protected domestic markets or public subsidies and that bid with abnormally low prices, the difference in labour costs and rights in third countries, the protection of domestic SMEs, were among the other issues raised by respondents. It is worth noting that an important number of respondents (around 30%) replied "do not know" to this question.

To the question whether stakeholders know the applicable conditions by which companies, goods and services from countries outside the EU can participate in the public procurement procedures in the EU over half of the responses were positive, but opinions were shared as to whether these rules are clear or unclear. Opinions were shared as well to the question on whether those rules should be modified, with a slight majority in favour of modifying them. In addition, some respondents indicated that social and environmental considerations should also be taken into account when considering an amendment to those rules.

Stakeholders were also asked to give their opinion on a number of elements which could help the Commission built, if considered appropriate, a tool to set the terms of access of companies, goods and services of third countries to the EU's public procurement market.

A majority of respondents believe that access to the EU's public procurement market should only be granted in so far as European firms, goods and services have an equivalent level of access to the public procurement market of those third countries. If the new EU policy on this area would be introduced allowing for the adoption of restrictions on access to the EU's public procurement market an important majority of respondents believe these restrictions should have a general character and apply to all countries outside the EU and all market sectors which are not covered by international commitments. As regards possible restrictions, in the stakeholders' views it is not relevant to make a distinction between SMEs and other companies.  Although a majority do not have an opinion on the form those restrictions should take, of those responding to the question, a majority believes they should consist in an exclusion of the companies, goods and services of third countries (rather than price penalties or other differential treatment). Opinion is shared as to whether restrictions should be decided at EU or Member State level. If individual contracting entities were allowed to take restrictions, the majority of respondents believes they should not be subject to any notification obligations to the European Commission, whether ex-ante or ex-post to the actual exclusion. It is worth noting that a majority of stakeholders opted for the "do not know" option on detailed questions regarding the application of "substantial reciprocity".

The vast majority of stakeholders agreed with the proposed exemptions to possible restrictions on access to the EU public procurement. It appears the exemption "in case of disproportionate costs of EU goods and services" is considered less important.

A majority of stakeholders also believes that companies, goods and services originating in least developed countries should always have access to the EU's procurement market.

4. Specific views of trade unions and NGOs

Trade unions: All the contributions take the view that government purchases should promote in the first place good quality employment and sustainable goods and services, as a matter of policy choice or example. They are divided on the question of openness of public procurement markets, either to developed countries or emerging economies, which ultimately appears often as a secondary issue compared to the inclusion of social and environmental criteria in the modernisation of public procurement legislation (e.g. inclusion of criteria such as ILO labour convention ratification as a condition of opening public procurement and/or production processes (e.g. prohibition of child labour) as selection or awarding criteria).

NGOs: most of the contributions received were from fair trade organisations. These were concerned with the impact that a closure of the EU public procurement could have on developing countries, in particular in the context of fair trade. The NGOs called rather to the inclusion of sustainable development considerations in public procurement.

[1] COM(2010)608

[2] COM(2010)612

[3] See the following link: http://ec.europa.eu/internal_market/consultations/index_en.htm and http://trade.ec.europa.eu/consultations/

[4] Unless specified, in this overview of the view of stakeholders the wording is standardised.  The indications used in the text refer to the following spread:  "Very small percentage": below 10%; "Small percentage": between 10 and 20%; "Important minority": between 30 and 40%; "Big minority": between 40 and 50%; "Slight majority": between 50 and 55%; "Majority": between 55 and 65%; "Important majority": between 65 and 75%: 

"Very large majority": between 75 and 85%;  "Overwhelming majority": more than 85%. 

[5] Respondents that replied "Don't know" to a question are not taken into account in the calculation of the majority. Furthermore, it is noted that the Commission also received contributions from stakeholders in other formats than the on-line questionnaire. These replies have been taken into account in the calculations of the views of the different groups of stakeholders, where it was possible to deduct a specific reply to specific questions of the consultation.

ANNEX 10  FOLLOW-UP OF THE FIRST OPINION OF THE BOARD

# || Action || Opinion || Checklist page || Check list box || Page   (new IA) || Action || Page   (old IA)

0.00 || Steering Group || || || || || ||

0.10 || Consultation of steering group || || || || || Still to be done ||

0.20 || Take onboard first batch of comments from Steering Group meeting (05 OCT) || || || || || cf. infra comments from DG ENTR/ECFIN/SJ ||

1.00 || Stakeholders consultation || || || || || ||

1.10 || Incorporate views of consultation of European Social Partners (FEB 2011) || C5 || 8 || 14 || 6 || Comments added on IA || 2

1.20 || Present opinion of NGOs (separate from trade unions) || C5 || 8 || 14 || 7 || Comments added on IA and Annex 2 || 4/ Anx 2

1.30 || Present opinion of trade opinions (separate fromNGOs) || C5 || 8 || 14 || 7 || Comments added on IA and Annex 2 || 4/ Anx 2

1.40 || Identify stakeholders that want social and env considerations as amendment of EU PP dir || C5 || 8 || 14 || Anx 2 || Reference to NGOs & fair trade + trade unions and ILO conventions || 4/ Anx 2

1.60 || Reflect views of stakeholders: add references in text of IA overall || C5 || 8 || 14 || Pb definition: footnote 44 (p17), page 13, 3.4.1/3.4.5/3.4.6 in pages 18-19, Options: footnote 67, page 27 under 5.5, Impacts:footnote 77 (cf. annex 4) || references on the consultation of stakeholders have been added to the problem definition (e.g. contracting authorities implementation problems, types of restrictions faced, economies of scale, consequences of barriers, level playing field), options (references in introduction of some options, goods to be excluded by the instrument, price penalties problems on buy Europe option), impacts (analysis of burden of notifications) || overall

1.70 || Replace subjective assessments like "important" by numbers and percentages || C5 || 8 || 14 || overall || Comments added on IA and Annex 2 || 4/ Anx 2

1.80 || Replace "close to 215" by "215" || - || 9 || 16 || Anx 2/p2 || corrected in page 2 of Annex 2 || Anx 2/p2

1.90 || Add the link in footnote 3 of annex 2, page 1 || - || 9 || 16 || Anx 2/p2 || corrected in page 2 of Annex 2 || Anx 2/p2

2.00 || Problem definition || || || || || ||

2.01 || shorten text || D || || || || 32 pages without tables/ 43 pages with tables (hence 3 pages less than in first submission in spite of additional options and impacts to analyse) ||

2.10 || Clarify the nature of the problem || || || || || ||

2.11 || what is the main issue? Answer: Closure of third countries markets (*) || B || 1 || 2 || 15 to 17 || Prob def has been redrafted. Main issue: lack of leverage to open 3rd countries PP markets + no respect of current PP int'l obligations by EU c.a. || pp 6 to 18

2.12 || explain why assymetric trade liberalisation could have negative impact on welfare (econ theory) || - || 1 || 2 || 19 & 20 || cf. 3.4.6 uneven level playing field || 16 & 17

2.13 || explain why sectoral trade deficits are suffered by the EU (econ theory) || - || 1 || 2 || 19 & 20 || cf. 3.4.6 uneven level playing field || 16 & 17

2.14 || explain why status quo leads to job losses: find evidence (econ theory) || - || 1 || 2 || 18 || cf. 3.4.3 - EU jobs are not created and in some cases they are destroyed by the ARTIFICIAL distortions resulting of protectionist measures || 16 & 17

2.15 || explain why competition is unfair (econ theory) || - || 1 || 2 || 19 & 20 || cf. 3.4.6 uneven level playing field / link with state aid || 16 & 17

2.16 || explain why technological transfers are a problem (they also occur in the normal course of trade) || - || 1 || 2 || 18 & 19 || cf. 3.4.4 tech transfers are a problem when they are based on artificial measures driven by industrial policies || 16 & 17

2.20 || Clarify the scale/magnitude of the problem || || || || || ||

2.21 || discuss significance of the problem in view of the size of national PP markets || C1 || 1 || 2 || 8 & 9 || cf. 3.1.2 impact is very small in volume but problem affects industries whose turnover amounts to 25% of EU GDP and 31 million jobs; explanation on the level of foreign penetration in the EU PP market || 6 & 14

2.22 || take into consideration the "evidence from the Single Market" || C1 || 1 || 2 || Box 1 p11 || Box 1 p11+ in-depth explanation on the level of foreign penetration in the EU PP market in Annex 3 || 14

2.23 || take into consideration constraints imposed by existing market access commitments (problems of foreign companies in EU PP) || C1 || 1 || 2 || 17 || part 3.3 - 1st paragraph + footnote 41 || 14

2.24 || indicate magnitude of the problem for SMEs || C1 || 1 || 2 || || No available data ||

2.25 || Indicate magnitude of the problem for the economy in general || C1 || 1 || 2 || 8 || cf. 3.1.2 - size of the problem in terms of EU GDP and exports, but also information on the sectoral impact - also, for jobs || 6 & 9

2.26 || indicate share of contracts awarded to foreign companies || C1 || 1 || 2 || Box 1 p11 || Box 1 p11+ in-depth explanation on the level of foreign penetration in the EU PP market in Annex 3 || 15

2.27 || justify values of 90% and 100% in openness of the EU || - || 1 || 3 || - || no more reference to the 90% of opeining in ES (because of the ES law restrictions) || -

2.30 || Clarify the desired effects || || || || || ||

2.31 ||  in terms of accessibility to foreign PP markets: provide benchmark || B & C1 || - || - || 17, 21 & 22 || cf. 3.6 - 4 billion EUR when other countries open up the PP markets where they have offensive interests (rather than the idealistic 12 billion EUR if all markets were open) || 14, 19-20

2.32 ||  in terms of accessibility to EU PP markets by 3rd CY goods/firms: benchmark || B & C1 || - || - || 20 & 21 || cf. 3.6 - no benchmark - foreign penetration should be in line with the normal course of trade || 19-20

2.33 ||  in terms of Single Market integration || B & C1 || - || - || 20 & 21 || cf. 3.6 - measures must be applied consistently || 19-20

2.34 ||  in terms of environmental standards || B & C1 || - || - || 20 & 21 || cf. 3.6 - comment on the fact that these issues belong to the  modernisation of PP policy || 19-20

2.35 ||  in terms of labour standards || B & C1 || - || - || 20 & 21 || cf. 3.6 & footnote 57- comment on the fact that these issues belong to the  modernisation of PP policy || 19-20

2.40 || Consistency of text and tables || || || || || ||

2.41 || renumber tables || - || 1 || 2 || everywhere || Tables are re-numbered and sources || everywhere

2.42 || check consistency of figures in tables || - || 1 || 2 || everywhere || done (additional verification always useful) || everywhere

2.43 || 12, 13 or 14 trading partners? || - || 1 || 2 || everywhere || text and tables now refer to 12 trading partners || everywhere

2.44 || are specific "never applied" (p8) or "most of the time never applied" (pX)? || - || 1 || 3 || - || deleted || -

2.45 || Re-draft footnote on GPA question in contract notices (refers to numbers and value- confusing) || - || 1 || 3 || - || Not applicable anymore - problem definition has extensive data on errors in contract notices. || -

2.50 || Additional explanations || || || || || ||

2.51 || Explain current difficulties of 3rd CY importers in the EU PP market || - || 1 || 3 || 17 || part 3.3 - 1st paragraph + footnote 41 ||

2.52 || Explain the problem of fragmentation of the internal market || - || 1 || 3 || 21 & 22 || cf. 3.6 - 4th bullet point - PROs || 18

2.53 || Explain concept of "offensive interests" || - || 1 || 3 || 11 || cf. footnote 20 || 8

2.60 || Legal issues || || || || || ||

2.61 || is there any legal base to consider that non covered PP is closed? || - || 1 || 3 || 8 || 3.1.1 - departure of national treatment - reference added in text || 6

2.62 || are there examples of breaches of EU int'l commitments? || - || 1 || 3 || - || No, only theorethical ones. No active discrimination was found || -

2.63 || why was article 59 never used in the past? || - || 1 || 3 || - || cf. IA analysis || -

2.64 || clarify whether the fact many countries consider that non-cov procurement is closed is legal or not || - || 1 || 3 || 8 || 3.1.1 - departure of national treatment - reference added in text || 6

2.65 || review text on subsidiarity || - || 1 || 3 || 20 || cf. 3.5 || 18

2.70 || Baseline scenario || || || || || ||

2.71 || on-going negotiations (GPA, CA, CN, IN, BR): maximum outcome: provide benchmark (**) || C1 || 2 || 4 || 24 || cf. optimistic scenario in baseline || 22

2.72 || on-going negotiations (GPA, CA, CN, IN, BR): minimum outcome: provide benchmark (**) || C1 || 2 || 4 || 24 || cf. pessismitic scenario in baseline || 22

2.73 || impact of launch of FTA negotiation with Japan || C1 || 2 || 4 || 24 || baseline scenario || 22

2.74 || impact of current revision of PP directives || C1 || 2 || 4 || 24 || baseline scenario || 22

2.75 || what actions for Commission if persistent breaches to the Treaty? || C1 || 2 || 4 || 24 || baseline scenario || 22

2.76 || justify the horizon of 5 years || - || 2 || 4 || - || no need anymore - reference to 5 years deleted || -

3.00 || Objectives || || || || || ||

3.10 || Sharpen the distinction between specific and operational objectives || - || 4 || 4 || ? || ? || ?

3.20 || Why is there an objective "clarify rules of origin"? - explain || - || 4 || 4 || 23 || it has been merged with objective OO3 of overall clarification of rules || -

3.30 || Consistency of terminology in problem tree and objectives || || || || Anx 1 || New problem tree in Annex 1 || Anx 1

4.00 || Options || || || || || ||

4.10 || Simplify and clarify presentation of options || || || || || ||

4.11 || shorten text - avoid repetition in presentation of options || - || 6 || 5 || || shortened ||

4.12 || shorten text - avoid repetition in dicussions of the scope of the instrument || - || 6 || 5 || || done || -

4.14 || clarify contents: explain how each option would address identified problems || - || 6 || 5 || 24-28 || introductory sentences || 20-27

4.15 || rather than sub-options, justify a choice for rules of origin in services and justify it || - || 6 || 5 || - || done under footnote 64 || 23

4.16 || no need to explain "ground for exceptions" || - || 6 || 5 || - || deleted || -

4.17 || no need to explain again the concept of non-covered procurement || - || 6 || 5 || - || deleted || -

4.18 || clarify the "substantial reciprocity test" || - || 6 || 5 || 28 || cf. footnote 70 || 24

4.20 || Add option 2B on improvement of existing negotiations (GPA/FTA) -"target neg partner forcefully" || C2 || 6 || 5 || 25 || added || 24

4.30 || Add option 3C on closure by default: notification only for contracts awarded to 3rd countries || C2 || 6 || 5 || 27 || added || 27

4.40 || Add option 4 on improvement of existing directives (strategic PP + article 58 overall with guidance) || C2 || 6 || 5 || 27 || added || 27

4.50 || Add option 5 on abnormally low tenders || C2 || 6 || 5 || 27 || added || 28

4.60 || Add option 6 'Buy Europe' akin to Buy American/Buy Chinese (to be discarded) || - || 6 || 5 || 27 || added || 28

4.70 || Legal issues || || || || || ||

4.71 || provide int'l legal basis of impose restrictive measures in response to the  absence of sufficient access to other PP markets as PP disciplines are excluded from GATT and GATS || - || 6 || 5 || 8 || It is legal -cf. 3.1.1 - departure of national treatment - reference added in text || 6

4.72 || justify the choice of the instrument in the preferred option || - || 6 || 5 || 40 || cf. 7.1.3 || 18

5.00 || Analysis of impacts || || || || || ||

5.10 || Methodology || || || || || ||

5.11 || Add short text on the methodology to increase transparency of presentation || C3 || 9 || 6 || 29 || added, cf. footnotes 76-77-78-79 || 28

5.12 || Add short text on the methodology to justify assumptions || C3 || 9 || 6 || 29 || added || 28

5.13 || Retaliation: use different assumptions (sensitivity analysis) || - || 9 || 6 || 30, 40 || cf. 6.3.2, Chapter 7 tables 15, Box 7 p30 || 40

5.14 || Retaliation: not appplicable for countries that apply already protectionnist measures || C3 || 9 || 6 || 30 || favoured retaliation scenario: "simple retaliation" does not include retaliation from countries that apply protectionist measures || 28

5.15 || Retaliation: why would countries retaliate as "open trade" is beneficial economically || - || 9 || 6 || 30 || "Simple retaliation' takes this argument onboard (cf. box 7) || 31

5.16 || Increase of exports: use different assumptions (sensitivity analysis) || - || 9 || 6 || 29-30 || 6,3,1 - exports have been included as an impact and as benchmark against which the costs of all options are compared, including the baseline scenario. || 40

5.17 || "protectionnist hysteresis" - qualitative assmt NOT for the calculation of leverage || - || 9 || 6 || - || deleted || -

5.18 || explain why lossening of local ets/content requ -> relocation of businesses in the EU || - || 9 || 6 || 18-19 || explanation on artificial measures in pb def || 16

5.20 || Add impacts || || || || || ||

5.21 || Analysis of impacts: environment || C3 || 8 || 6 || 28-37 || added || 30-43

5.22 || Analysis of impacts: supply chain || C3 || 8 || 6 || 28-37 || added || 30-43

5.23 || Analysis of impacts: consumers || C3 || 8 || 6 || 28-37 || added || 30-43

5.24 || Analysis of impacts: competition || C3 || 8 || 6 || 28-37 || added || 30-43

5.25 || Analysis of impacts: competitiveness || C3 || 8 || 6 || 28-37 || added || 30-43

5.26 || Analysis of impacts: public finances || C3 || 8 || 6 || 28-37 || added || 30-43

5.27 || Analysis of impacts: jobs || C3 || 8 || 6 || 30-39 || added || 30-43

5.30 || Option "nothing happens" || || || || || ||

5.31 || explain why status quo leads to job losses: find evidence (econ theory) || - || 9 || 6 || 18 & 32 || explanation on artificial measures in pb def (3.4.3) and footnote 48 & 80 || 17 & 32

5.40 || Option 2 - Article 58 || || || || || ||

5.41 || explain why appl of art58 would put EU bidders in same situation as 3rdCY because of retaliation || - || 9 || 7 || - || deleted || -

5.42 || explain choice of 25% || - || 9 || 7 || 30 || Section 6,2 and footnote 79 explains that the 25%-50%-75% are relative rates of usage to rank options || 30

5.50 || Option 3A || || || || || ||

5.51 || explain problems for high performance computer || - || 9 || 7 || 35 || page 34 footnote 94 || 32

5.52 || explain why restrictions don't apply to 4 goods (fuel, pharma,…) || - || 9 || 7 || 27 || cf. page 27 +footnotes 68, 69 & 78 || 23

5.53 || inconsistencies between text and tables || - || 9 || 7 || everywhere || tables checked || everywhere

5.54 || add re-affectation effect || - || 9 || 7 || 33-34 || page 33-34+ footnote 92 + Annexes 4 & 7 || 32

5.54 || add negative effect on GDP - explain || - || 9 || 7 || - || deleted || -

5.60 || Option 3B || || || || || ||

5.61 || consistency of sentences for pre-emption || - || 9 || 7 || - || deleted || -

5.62 || explain choice of 25% || - || 9 || 7 || 30 || Section 6,2 and footnote 79 explains that the 25%-50%-75% are relative rates of usage to rank options || 30

5.63 || Impact on administrative burden: add impact of 6-8 weeks || - || 9 || 7 || 37 || page 37+ footnotes 103, 104 + Annex 4 p31 || 38

5.64 || Impact on administrative burden: add impact for Commission (resources) || - || 9 || 7 || 37 || page 37+ footnotes 103, 104 + Annex 4 p31 || 38

5.65 || Impact on administrative burden: add impact for Commission (market supervision and surveys) || - || 9 || 7 || 37 || page 37+ footnotes 103, 104 + Annex 4 p31 || 38

5.66 || need to draft market supervision reports || - || 9 || 7 || - || ? || -

5.67 || add that firms won't naturally cooperate to file complaint against 3rd CY (** 6), they will prefer via MS or trade assoc || - || 9 || 7 || - || deleted || -

5.70 || Analysis of impacts for new options 3C || || || || || ||

5.71 || Impact on administrative burden: add impact of 6-8 weeks || - || - || - || 37 || page 39 + annex 4 pp 44-46 || 39

5.72 || Impact on administrative burden: add impact for Commission (resources) || - || - || - || 37 || page 39 + annex 4 pp 44-46 || 39

5.73 || Impact on administrative burden: add impact for Commission (market supervision and surveys) || - || - || - || 37 || page 39 + annex 4 pp 44-46 || 39

5.74 || Check all impacts || - || - || - || || pages 35-36 || -

5.80 || Analysis of impacts for new options 4 || || || || || ||

5.81 || explain why appl of art58 would put EU bidders in same situation as 3rdCY because of retaliation || - || - || - || - || deleted || -

5.82 || explain choice of 25% || - || - || - || 30 || Section 6,2 and footnote 79 explains that the 25%-50%-75% are relative rates of usage to rank options || 30

6.00 || Comparing the options || || || || || || -

6.10 || Comparison table || || || || || ||

6.11 || explain difference between '0' and "=" || - || 11 || 7 || 40 || done - cf. table 14 || 39

6.20 || Case for preferred option || || || || || ||

6.21 || Reinforcement in absolute and relative terms || C4 || - || - || 42 || done - cf. Chapter 7 || 43-46

6.23 || Explain why stakeholders least preferred option was actually selected || C4 || - || - || 43 || new point 7.1.2 || 45

6.24 || comparison between 3A and 3B should take into account admin burden of 6-8 weeks || C4 || - || - || 40 || Table 14 takes into account - also, cost of opportunity of waiting 6-8 weeks taken into account in calculation of admin burden) || 42

6.30 || Link text and table || || || || || ||

6.31 || option 2 "=" for clarification objective and "-" for S1 (exports) and S2 (leverage) || - || 11 || 7 || 39 || corrected || -

6.32 || why are leverage effects in option 3A and 3B identical? || - || 11 || 7 || 39 || Option 3B has better leverage now || 42

6.33 || explain why is there a positive impact of option 3B to exports || - || 11 || 7 || - || deleted as the analysis of impacts on exports has been fully reviewed || 42

7.00 || Monitoring of objectives || || || || || || -

7.10 || Add indicator for participation of SMEs to int'l procurement || || 8 || 12 || 42 || done (proposed indicator to the objective 'increase exports') || 42

7.20 || Add brief assessment of possibility of compliance issues || || 8 || 13 || - || ? ||

8.00 || Presentation issues || || || || || || -

8.10 || Pages in all annexes || D || - || - || - || done || -

8.20 || Replace appendixes by annexes || D || - || - || - || done || -

8.30 || Legiswrite || D || - || - || - || format cleaned and reviewed || -

8.40 || All tables must be numbered || D || - || - || - || done || -

8.50 || Add table of contents || D || - || - || - || done || -

8.60 || Data sources and units in all tables || D || - || - || - || done || -

8.70 || error in page 23  - refer to contracts above the thresholds || || 5 || 6 || || done, cf. footnote 65 || 14

ANNEX 3

PROBLEM ANALYSIS

Economic scope

In spite of world trade liberalisation in the 90s and following the first steps initiated in the 80s, public procurement, namely the trade of goods and services purchased by public authorities and state-owned companies, has only been partially liberalised de jure in the WTO or through bilateral agreements.

Yet, since government consumption amounts to 17% of the world’s GDP, public procurement disciplines affect a substantial share of world trade flows.  It affects industries whose customers are exclusively or mostly public purchasers (e.g. defence, railway equipment) or for which governments are large clients (IT and business services, office equipment). 

Public procurement disciplines affect sales and exports of many European firms for which customers are exclusively or mostly public purchasers. All sales and exports of defence material, aerospace equipment, railway equipment, fire-fighting equipment, port equipment, dredging, water management goods and services, street lighting, sorting machineries for airports and posts are subject to public procurement procedures. Two-thirds of the EU top construction companies export sales depends on foreign public procurement[1]. Similarly, a substantial[2] share of the exports of urban buses, pharmaceutical products, medical, fixed telecom, machinery for oil and gas extraction, specialised textiles, and power generation equipment are still subject to public procurement procedures.

Also, public procurement disciplines affect sales and exports of other goods and services like office equipment and business services.

Finally, because of the size of the EU public procurement market, public procurement disciplines also affect EU imports, in particular in the main public expenditure headings like infrastructure construction, IT services, business services, airport equipment[3], defence materials, railway equipment, urban buses, pharmaceutical products, medical and power generation equipment. Postal machinery, fixed telecom and oil extraction equipment are only marginally affected as oil companies, postal and telecom operators are for the most part outside of the scope of the EU public procurement directives.

All in all, the turnover of all the industrial sectors active in those markets represents some 25% of the EU's GDP and up to 3,7 billion jobs.

Methodological box 1 as per Annex 5

Defining the sectors impacted by public procurement trade disciplines

Government consumption takes two forms: either public authorities or undertakings actually purchase products and services as other economic actors, or public authorities and/or undertakings are monopsonists (i.e. they are the sole to purchase specific products or services).

Businesses that find themselves in the second category actually fully depend on public procurement procedures to sell their products and services.  The openness Opening of public procurement markets in the world directly affects the business model of these companies and their business prospects.

It is difficult to use public procurement statistics across the world to measure the degree of dependence from the public sector. Only GPA Parties produce procurement data (but not always), and only for the procurements committed in the GPA. We have therefore no data on the total public purchases of specific goods and services.  On the other hand, we have difficulties in reconciling EU input-output matrices with EU public procurement statistics because of the distortions caused by the thresholds (public expenditure can go through subsidies or grants instead of procurement).

To solve this problem, we have established a typology of economic sectors captive of the public sectors using the UN COFOG classification of public services, which is presented in detail in Annex 5 and we have reviewed the status of corresponding “potential”[4] public purchasers/ customers outside the EEA/EFTA. We have of course reviewed the main trading partners and economies with which the EU has a formalised agreement opening public procurement (US, Canada, Japan, Korea, Mexico and Israel) and/or none (China, Brazil, India, Russia, Australia and Turkey). The analysis has not been extended to EEA countries, nor to Switzerland and Ukraine, which apply a legislative regime analogous to the EU public procurement directives (in the case of Ukraine, this application is contingent to the entry into force of the EU-Ukraine FTA),

On the basis of the COFOG analysis, we have established a list of 22 markets (i.e. specific goods and services sold to specific operators):

Defence: warlike goods for army, navy and air force

Aerospace: production of satellites, ATC equipment, and navigation systems

Postal machinery/Airport sorting systems: production of postal machinery and airport sorting systems

Fire fighting and sea rescue equipment and transport: fire-fighting vehicles/aircraft and rescue helicopters purchased by fire-fighting authorities; sea rescue vessels.

Infrastructure Construction and dredging: infrastructure construction (highways, mass transit, power, water and dredging) and general public works (general public buildings) - this also includes architectural and engineering services.

Construction materials: cement, concrete, steel, glass, and stones for public works projects

Railway equipment: rolling stock for trains, urban railways, metros and tramways

Urban buses: public buses and coaches purchased by mass transit authorities

Power generation: All forms of energy power generation equipment (solar panels, nuclear reactors, windmills, hydroelectric power turbines,...) purchased by utilities.

Water management / sewage: Goods and services relevant to all the aspects of water management, canalisation, desalination, sewage and distribution purchased by federal and local authorities.

Waste management and other environmental services: Urban cleaning services, noise abatement, waste collection purchased by cities and urban agglomerations.

Pharmaceuticals: pharmaceutical products purchased by public hospitals or health authorities.

Medical equipment: medical equipment products purchased by public hospitals or health authorities. Includes laboratory research equipment and precision instruments (like cyclotrons, scanners).

Specialised textiles: Specialised textiles for defence, fire fighting and health

Business services (consulting, auditing/accounting, advertising, legal services sold government-wide): Consulting services, auditing services, advertising and legal services sold government-wide.

Financial services: Banking and insurance services sold government-wide. These can entail very general financial services sold government-wide to very specialised services (clearing, investment banking, portfolio management)

Oil, mining and gas exploration equipment: Equipment for mining and quarrying, oil and gas extraction and transport. (Infrastructure works covers Installation of pipelines)

Fixed telecom equipment: Telecom equipment for fixed telecom operators providing universal service-like public services.

Computer/IT equipment and software: Computer equipment and software services sold government-wide; supercomputers, servers and specific software for hospitals, universities, research centres, infrastructure, aerospace and power generation.

Street lighting: Lighting for streets and highways

Port equipment: port equipment like cranes (container, general and general cranes)

Broadcasting equipment: specific equipment for public radio and television.

Determining the degree of dependency from public procurement

For each of the 12 countries in the framework of analysis (and the EU), we have determined whether the main purchasers of the 22 sectors were public or private and whether they conducted calls for tender – either by reviewing the national legislation and/or the entities’ websites.

For those sectors that have been completed, the analysis will be available for the annexes.

By its very nature, defence has been considered as systematically public.

Table 1a hereunder summarises the findings in terms of dependency (more details can be found in Annex 8). We have categorised dependency with 4 marks: 2 (full dependency - all the purchasers are public and follow public procurement rules), 1,5 (high dependency - almost all purchasers - or at least the main ones are public and follow public procurement rules), 1 (partial - part of the purchasers are public or follow public procurement rules), 0.5 (almost none - maybe one purchasers follows public or follow public procurement rules) and O (the whole sector is private).

This analysis allows identifying both sectors and those countries most dependent on public procurement disciplines. Defence, railways, fire fighting, port equipment and street lighting have high degrees on dependency whereas business services, broadcasting equipment, oil extraction equipment have several private clients and have low degrees of dependency. There is also a stark contrast between countries which important state intervention in the economy and thus a high reliance on procurement disciplines as China, India and Russia and countries with lower state intervention like the US and Australia, where many services usually public are private (e.g. hospitals, universities).

Table 1a - Degree of dependency of selected markets in 12 countries

|| US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || AU

Defence || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2

Aerospace || 1,5 || 1,5 || 1,5 || 1 || 1 || 2 || 1,5 || 2 || 2 || 2 || 2 || 1

Post & Apt sorting || 2 || 1,5 || 2 || 1 || 2 || 1,5 || 2 || 1,5 || 2 || 2 || 1 || 1

Firefight & Sea Rescue || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2 || 2

Construction & Dredging || 1 || 1 || 1,5 || 1 || 1 || 1,5 || 1 || 1 || 1 || 1 || 1 || 1

Constr. Equipment || 1 || 1 || 1,5 || 1 || 1 || 1,5 || 1 || 1 || 1 || 1 || 1 || 1

Railway equipment || 1,5 || 1,5 || 2 || 2 || 2 || 1,5 || 2 || 2 || 2 || 2 || 2 || 1

Urban buses || 1,5 || 1 || 1 || 1 || 1 || 1 || 1,5 || 2 || 1,5 || 0 || 1,5 || 1,5

Power generation || 1,5 || 0 || 1,5 || 2 || 2 || 2 || 2 || 2 || 2 || 1 || 1 || 0

Water & Sewage || 1,5 || 1,5 || 1,5 || 1,5 || 2 || 2 || 1,5 || 2 || 2 || 1,5 || 2 || 2

Waste mgmt & env || 1 || 1,5 || 1,5 || 1,5 || 2 || 2 || 1,5 || 2 || 2 || 2 || 2 || 2

Pharmaceuticals || 0,5 || 1 || 1 || 1 || 1 || 1 || 1,5 || 1,5 || 1 || 1 || 1,5 || 1

Medical equipment || 0,5 || 1 || 1 || 1 || 1 || 1 || 1,5 || 1,5 || 1 || 1 || 1,5 || 1

Specialised textiles || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1,5 || 1 || 1 || 1 || 1

Business services || 0,5 || 0,5 || 0,5 || 0,5 || 1 || 0,5 || 1 || 1 || 1 || 1 || 1 || 0,5

Financial services || 0,5 || 0,5 || 0,5 || 0,5 || 1 || 0,5 || 1 || 1 || 1 || 1 || 1 || 0,5

Oil, Gas & Mining equipmt || 0 || 0 || 0 || 0 || 0 || 2 || 2 || 1 || 2 || 2 || 1,5 || 0

Fixed telecom eq. || 0 || 2 || 0 || 0 || 0 || 2 || 2 || 2 || 2 || 2 || 2 || 0

Computer & IT serv || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1

Street lighting || 2 || 2 || 2 || 2 || 2 || 1,5 || 2 || 2 || 2 || 1,5 || 2 || 1,5

Broadcasting equip || 0 || 0,5 || 0,5 || 0,5 || 0,5 || 0 || 1,5 || 0 || 0 || 0 || 0,5 || 0,5

Port equipment || 1,5 || 2 || 2 || 2 || 2 || 2 || 2 || 1,5 || 2 || 2 || 1,5 || 1

Average sectors || 1,09 || 1,18 || 1,25 || 1,16 || 1,30 || 1,43 || 1,57 || 1,52 || 1,52 || 1,36 || 1,45 || 1,02

Table 1b - Degree of dependency in main trading partners[5]

International commitments of public procurement markets in the EU and abroad

Public procurement and concessions have been excluded from the scope of GATT and GATS and only 14 industrialised economies (among them, the EU, US, Switzerland, Japan, Canada and Korea) have taken the decision to partially open up de jure their public procurement in the Government Procurement Agreement (GPA).  China is currently negotiating its accession to the GPA. Some countries have opened their public procurement markets through bilateral agreements with several countries (e.g. Mexico has opened its market to the US and Canada through the NAFTA and to the EU and Japan through FTAs).

In the EU

The EU has committed internationally to GPA Parties some 85% of its public procurement market (this percentage may raise to 95% further to the recent conclusion of GPA negotiations)- explicitly excluding defence procurement, the so-called "IIB services" and the purchases of fuel by utilities  (we will call this "uncovered procurement"), but not mentioning concessions, railway operators, gas entities (which are implicitly not covered) (concessions and railways have been committed in the recent conclusion of GPA negotiations). At the same time, because of disparities in commitments, the EU has negotiated targeted restrictions, the so-called "general notes or specific derogations" (cf. table 2b, e.g. US has not been granted access to public works and services contracts of local contracting authorities, Japan has not been granted access to urban transport entities procurement).  The principle of "most favoured nation" does not appear to apply in the GPA[6].

As indicated earlier, the EU has not opened committed internationally its public procurement market to Brazil, China, India, Russia, Turkey and Australia (cf. table 2c).

Table 2b - Public procurement markets that the EU has committed internationally vis-à-vis 14 selected countries (and their relative dependency to public procurement)

|| International commitments vis-à-vis 13 selected countries

|| UE || US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || UA || AU

Defence || 2 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Aerospace || 1,5 || 0 || 1 || 0 || 0 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1

Post & Apt sorting || 2 || -1 || 0 || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Firefight & Sea Rescue || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Construction Dredging || 1 || 0 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Constr. Equipment || 1 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Railway equipment || 2 || -1 || -1 || -1 || -1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Urban buses || 2 || -1 || -1 || -1 || -1 || -1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Power generation || 1,5 || 1 || -1 || -1 || 0 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Water & Sewage || 2 || -1 || 1 || -1 || 1 || 1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Waste mgmt & env || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Pharmaceuticals || 1 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Medical equipment || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Specialised textiles || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Business services || 0,5 || 0 || 0 || 0 || 0 ||   || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Financial services || 0,5 || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Oil, Gas & Min equipmt || 0 || || || || || || || || || || || || ||

Fixed telecom eq. || 0 || || || || || || || || || || || || ||

Computer & IT serv || 1 || 0 || 0 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Street lighting || 2 || 1 || 1 || 1 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Broadcasting equip || 1 || 1 || 1 || 1 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Port equipment || 2 || 1 || 1 || -1 || 1 || 1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Main world economies

Further to the GPA, the EU, in particular, has partially secured additional opening of public procurement markets in its FTAs with Mexico and Chile, and a gradual opening in its Stabilisation and Association Agreements (SAAs) in the Balkans. FTAs with existing GPA Parties (Korea) have allowed to further securing additional de jure market openings. 

However, opening of public procurement committed internationally has so far fallen short of its expectations. Commission services estimate that 75% of US and Japanese public procurement markets are de jure NOT opened internationally to other GPA Parties and, as shown in Table 3 only some 25% of worldwide above-threshold procurement or 5% of world government consumption is accessible through the GPA[7] - i.e. internationally committed. None of the emerging economies of the G20 (except Mexico) has taken up market access commitments opening internationally de jure its public procurement market, to the EU or to any other Party to the GPA.  Turkey declined to include public procurement in its customs agreements with the EU and Russia just became a member a WTO member in 2011 .

Table 3 - Estimation of the main procurement markets

|| TRADING PARTNER || EU27

|| Contestable PP Market (Contracts with value above the GPA thresholds) || Internationally committed || EU commitments vis a vis TRADING PARTNERS(country specific derogations included)

European Union || 370 || 95% ( maximum coverage offered) ||

United States || 559 || 32% || 46%

Japan || 96 || 28% || 70%

Canada || 59 || 16% || 10%

Korea || 25 || 65% || 82%

Mexico || 20 || 75% || n/a

Israel || 2,1 || 75% || n/a

China || 83 || 0% || 0%

Russia || 18 || 0% || 0%

India || 19 || 0% || 0%

Brazil || 42 || 0% || 0%

Turkey || 23,7 || 0% || 0%

Australia || 20 || 0% || 0%

TOTAL || 967 || 25% || 18%

           

Sources: WTO, MARKT own estimations

Methodological box 3

Taking stock of openness of public procurement in international agreements

Statistics in the area of public procurement are rare as, differently for instance from trade in goods or national accounts, there is no common worldwide international reporting system. GPA Parties have put in place a system of data reporting for public procurement, yet many methodological challenges have not yet been addressed. For instance, the US includes so far values of contract options in its statistics, as opposed to actual expenditures, which results in international comparability problems. US and Japan do not manage to capture statistics for all their covered procurement. Finally, there are no full-fledged statistics for any of the main economies of the world, including China.

In this context, an in-depth review of the international commitments was made for the US, Japan, Canada, Korea (cf. Annex 2).  An in-depth estimation was made for each of the derogations maintained by each of the 4 analysed GPA Parties. DG MARKT also conducted an in-depth review of these figures with the US authorities (US Trade Representative and Office of Management Budget), which provided the necessary clarifications to adjust them. Commission services then based themselves on preliminary estimations made by WTO to estimate the overall contestable procurement markets of countries that are not Parties to the GPA.[8] 

To complete the analysis based on public procurement statistics, each of the 22 selected markets was reviewed in light of international commitments.  The market was deemed "not committed internationally" if a restriction existed at international level either on the good or service relevant to the market or the main purchaser. The previous analysis on dependency allowed discarding "B2B markets" not relevant for this exercise. A mark of 1 was given if the sector is "open" and -1 if it is "not committed internationally". In several cases, international restrictions were found not to fully open or close the market in question: in this case a neutral mark of 0 was provided.

The final result is in Table 4 and all the details can be consulted in Annex 8.

The international opening of public procurement has not managed to fully open trade in any of the sectors that depend (in varying degrees) from public procurement. As indicated previously, none of the emerging economies has taken commitments in the GPA or in FTAs. As shown in the sector analysis of Table 4, the situation is acute for infrastructure construction and for most of the high-dependency sectors (defence, railways, fire fighting) even in countries that are Parties to the GPA or with whom the EU has signed FTAs. In this context, it is worth underlining that only 18% of the public procurement of the 50 largest cities in the world is covered, the metro networks covered by GPA or FTA represented only 5% of all the transported passengers and up to two-third of all main public infrastructure projects reported in May 2011 in the Infra-deals database were not open under any international commitments[9].

Table 4 - Markets committed internationally by main trading partners

|| US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || UA || AU

Defence || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Aerospace || 0 || 0 || 0 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Post & Apt sorting || -1 || 1 || 0 || 0 || 1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Firefight & Sea Rescue || -1 || 0 || -1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Construction & Dredging || 0 || 0 || -1 || 0 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Constr. Equipment || -1 || 0 || 0 || 1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Railway equipment || -1 || -1 || -1 || -1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Urban buses || -1 || -1 || -1 || 0 || -1 || -1 || -1 || -1 || -1 || || -1 || -1 || -1

Power generation || 0 || || -1 || -1 || -1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Water & Sewage || -1 || 0 || -1 || 0 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Waste mgmt & env || -1 || 0 || -1 || 0 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Pharmaceuticals || 1 || 0 || -1 || 0 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Medical equipment || 1 || 0 || -1 || 0 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Specialised textiles || 0 || 0 || 0 || 0 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Business services || 0 || 0 || 0 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Financial services || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Oil, Gas & Mining equipmt || || || || || 1 || -1 || -1 || -1 || -1 || -1 || || -1

Fixed telecom eq. || || 1 || || || || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Computer & IT serv || 0 || 0 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Street lighting || -1 || 1 || -1 || 1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Broadcasting equip || || 1 || 1 || -1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1

Port equipment || 0 || 1 || -1 || 1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

De facto closure of public procurement markets in the world

This leaves almost 75% of the above threshold procurement market either subject to a de facto closure through national measures (national or local price preference mechanisms, discriminatory set asides, national or local establishment or content requirements – See methodological box) or potentially subject to those measures - as some markets remain currently open (no domestic protectionist measures) and/or national protectionist measures are not applied systematically (but that could change)[10].

If the national measures actually prevent foreign goods or service from access in public procurement market that has not been committed internationally, the market is deemed CLOSED de facto. However, if the measures are weak or if the national government decides not to take measures, the procurement market is considered as OPEN de facto (cf. methodological box 4).

The applicable national procurement legislation has been reviewed for the 22 selected markets in the 13 analysed countries. This analysis is detailed at length in Annex 8 and is summarised in Table 5 and methodological box 5). Discriminatory measures have been examined on the basis of their real impact - discrimination on the basis of equally valued bids was not considered as really discriminatory.

Table 5-Procurement markets of main trading partners: analysis DE FACTO

|| US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || UA || AU

Defence || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Aerospace || 0 || 0 || 0 || -1 || -1 || 0 || -1 || -1 || 0 || -1 || -1 || -1 || 1

Post & Apt sorting || -1 || 1 || 1 || 0 || -1 || 1 || -1 || -1 || 0 || -1 || -1 || 0,5 || 1

Firefight & Sea Rescue || -1 || 0 || -1 || 0,5 || -1 || -1 || -1 || -1 || 0 || -1 || -1 || 0,5 || 0

Construction & Dredging || 0 || -1 || -1 || 0 || -1 || 1 || -1 || 1 || 0 || 0 || -1 || -1 || 0

Constr. Equipment || -1 || -1 || 0 || 1 || -1 || 1 || -1 || 1 || 0 || -1 || -1 || 0,5 || 0

Railway equipment || -1 || -1 || 0 || 0,5 || -1 || -1 || -1 || -1 || 0 || -1 || -1 || -1 || 0

Urban buses || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || 0 || || -1 || -1 || -1

Power generation || 0 || || 0 || -1 || -1 || 1 || -1 || -1 || 0 || -1 || -1 || 0,5 ||

Water & Sewage || -1 || 0 || -1 || 1 || -1 || 1 || -1 || 1 || 0 || 0 || -1 || 1 || -1

Waste mgmt & env || -1 || 0 || -1 || 0 || -1 || 1 || -1 || 1 || 0 || 0 || -1 || 0,5 || -1

Pharmaceuticals || 1 || 0 || -1 || 0 || -1 || 1 || -1 || -1 || 0 || -1 || -1 || 0,5 || 0

Medical equipment || 1 || 0 || -1 || 0 || -1 || 1 || -1 || -1 || 0 || -1 || -1 || 0,5 || 0

Specialised textiles || 0 || 0 || 0 || 0 || -1 || 0 || -1 || -1 || 0 || -1 || -1 || 0,5 || 0

Business services || 0 || 0 || 0 || 0 || -1 || 1 || -1 || 1 || 0 || -1 || -1 || 0,5 || 0

Financial services || -1 || -1 || 0 || 0 || -1 || 1 || -1 || 1 || 0 || -1 || -1 || 0,5 || 0

Oil, Gas & Min equipmt || || || || || || 1 || -1 || -1 || 0 || -1 || -1 || ||

Fixed telecom eq. || || 1 || || || || 1 || -1 || -1 || 0 || -1 || -1 || 0,5 ||

Computer & IT serv || 0 || 0 || 0 || 1 || -1 || 1 || -1 || 1 || 0 || -1 || -1 || 0,5 || 0

Street lighting || -1 || 1 || -1 || 1 || 0 || 0 || -1 || -1 || 0 || -1 || -1 || -1 || 0

Broadcasting equip || || 1 || 1 || -1 || 1 || || -1 || -1 || 0 || -1 || -1 || -1 || -1

Port equipment || 0 || 1 || -1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

In terms of domestic legislation, the public procurement markets of US (not committed internationally), China are fully closed de facto, whereas those of Brazil and Russia are also substantially closed (except for concessions). The US closed de facto in its national legislation the procurement NOT covered by international agreements under the 1933 Buy American Act and the 1982 Buy America Provisions and secured a full closure of the procurement foreseen in the ARRA stimulus plans launched in the aftermath of the financial crisis of 2008. At the same time, China launched its “indigenous innovation” initiative, Russia set up its preferential margin and Brazil prepared a legal instrument giving itself the right to set up preferential margins up to 25%. Turkey's legislation contains a reference to reciprocity and applies a preferential margin of 15%.

It is worth underlining that, many countries with federal or similar structures like US, Australia or Canada (and probably Japan and India) have been able to open their central public procurement but maintain a vast array of local preferences taken by regional and local authorities that have the effect of closing de facto the access to several public procurement markets.

The areas open de facto in spite of no international commitments are confined to Australia, India, and Ukraine and in a limited fashion to Russia and Brazil. The Australian federal government does not maintain discriminatory measures, whereas countries like India, which have so far taken no international commitments in the area of public procurement, maintain national measures that are neither explicitly discriminatory vis-à-vis foreign bidders nor explicitly non-discriminatory.  The procurement regimes for concessions in Brazil and Russia contain "softly discriminatory clauses that are however hardly practicable in daily- practice and probably serve rather as a political message.[11] - - This is not surprising in the domain of concessions as these countries have huge infrastructure needs.

Finally, there is the unfortunate case of countries like Japan or Israel that have applied nationally discriminatory measures on public procurement that they have theoretically opened internationally. Japan closes all the procurements of railway equipment on the basis of the "operational safety clause" and Israel applies a systematic policy of offsets. Weak remedies regimes create additional problems of enforcement of non-discriminatory rights (Japan).

Methodological box 4 - Assessment model for de facto openness

There are varying degrees in openness, which are presented hereunder:

Markets that have been opened in the GPA or in FTAs are deemed internationally committed; they are considered as OPEN De Jure and De Facto, unless a country deliberately violates its international obligations or has been given under the GPA rights to apply measures that affect de facto EU goods and service providers (e.g. Israeli offsets)

Markets that have NOT been opened in international agreements (NOT OPEN De Jure) are either explicitly CLOSED (i.e. the GPA/FTA contains a specific derogation) or UNKNOWN (i.e. the GPA/FTA is silent on the coverage of the sector in question).  In these two cases, it is necessary to analyse the situation from the angle of national legislation to identify measures that concretely (or not) prevent EU exports of goods and services.

If a country does not apply protectionist measures ("NO protectionist measures") in the public procurement markets that are NOT OPEN de Jure, the public procurement market is considered as de facto "open domestically".

If a country applies protectionist measures that are optional, then the public procurement market is considered as "open domestically". This is also the case for "softly discriminatory measures" like discrimination of equally valued bids.

If a country applies protectionist measures like national or local price preference mechanisms, discriminatory set asides, national or local establishment or content requirements and/or offsets, then the public procurement market is considered as CLOSED De Facto. This also includes those cases where a country deliberately violates its international obligations or has been given under the GPA rights to apply measures that affect de facto EU goods and service providers (e.g. Israeli offset regime).

The analyses of remedies and corruption have been deliberately excluded from the scope of the analysis as they go beyond the needs of this impact assessment and are therefore outside its scope.

- Efficient remedies systems are instrumental for contracting authorities to provide contracts in fair and non-discriminatory manner. Still, this analysis would require judging the speed and efficiency of judicial systems in the reviewed countries (moreover, so far, problems have been only reported for Japan).

- Analyses of corruption are highly subjective and  this issue would have to be equally covered in the impact assessment also for  the EU, if we were to provide for a fair comparison.

Methodological box 5 - Assessment of discriminatory measures

Discriminatory measures vary in impact and scope.

Preference regimes applied only on tenders equally marked or priced have de facto a negligible impact as this situation hardly happens in practice (see the case of the concessions in Brazil and Russia).. However a generally imposed 25% price preference in favour of the national bidder renders the given procurement market effectively closed. regimes fall above the average added value of the EU industry, making any sale unprofitable.

Set asides are de facto a deterrent when they are discriminatory (US SBA), but much less so if they are based on voluntary targets.

The real impact of local establishment requirements depends on the number of days and the initial capital required to set up a business, and the size of the economy of the area where the preference applies (cf. small State, city).  Yet, local establishment requirements are discriminatory for SMEs[12] who can typically not afford to set up subsidiaries.

Finally, national content requirements and to a certain extent the offsets necessarily imply the relocation of economic activity outside the EU, and are de facto a market closure.

Measures taken by main world economies - cf. Annex 8

US, Canada's, Australia's and Japan's state and local procurement does not fall in the scope GPA or even under a single national regime. As a result, their local authorities apply a vast array of local (and not national) establishment requirements.  The Australian government, albeit not part of GPA, claims to apply a non-discriminatory system.

Moreover, the US applies price preference regimes (25%) and national content and establishment requirements for the public procurement of railways, highway and airport construction. Discriminatory set-asides for SMEs and minorities further close de facto the US pubic procurement market overall.

China public procurement market is largely de facto closed, as it applies a national content requirement and, with its “indigenous innovation” initiative requires Chinese intellectual property rights on goods and services sold to the Chinese governments, including the release of “sensitive information”.

Russia and Turkey apply price preference margins (15%) - Russia only on goods -, whereas Brazil has given itself the legal instrument to do so– in addition to its current national establishment requirement. Interestingly, none of the de facto closing measures of Brazil and Russia actually affect concessions, which are de facto open – which is unsurprising given these countries huge infrastructure needs.

India legislation is silent on foreign access.  For products and services that cannot be found in India, the Indian legislation actually requests Indian ministries to advertise tenders at international level.

The main areas of the public procurement in Mexico have been opened through the FTA (federal public procurement, state enterprises). However, for procurements not covered by the FTA, the Mexican federal government and the main States (Mexico, DF, Jalisco, Nuevo Leon) maintain local content requirements

Economic implications of de facto closure of non-EU PP markets

One could extrapolate that at least 53% of the foreign worldwide[13] above-threshold public procurement market is probably closed de facto, whereas up to 22% of it would be open de facto in spite of the lack of international commitments (cf. methodological box 6).

Table 6 - Exporting through public procurement - what is open and closed? (Outside the EU/EEFTA)

In this context, by applying the share of EU exports to the public demand of these 13 countries, the following figures can be derived:

· Some 5 billion EUR, thus only some 0,5% of all EU exports of goods and services are exported by the EU thanks to the GPA/FTAs

· Some 5 billion EUR of goods and services are exported by the EU in the context of public procurement procedures not covered by GPA/FTAs in the 12 selected countries

· Some 12 billion EUR of goods and services could have been exported by the EU ceteris paribus in the context of public procurement procedures in the 12 selected countries, but weren't because of the de facto market closure - it's the "EU export loss" because of de facto closed procurement.  In reality, the "export loss" should be diminished by the export of highly differentiated products that still manage to bypass existing restrictions (cf. pharmaceuticals).

To bypass protectionist measures, the two following scenarios are the most likely choice:

· Establish a subsidiary, but that's far from easy: the easiness to do business varies from country to country. It may still be possible to open up a branch in a timely fashion and for a fair price only in the US, Canada or Australia (cf. methodological box 7), if the GATS Mode 3 does not foresee additional requirements; in China, it may be necessary to have a Chinese shareholder for 23% of capital; nevertheless, this establishment outside the EU is made at the expense of EU jobs and it may well be beyond the reach of SMEs.

· Pursue a corporate strategy of differentiation or specialisation to become a competitive monopolist, in particular by selling products protected through patents. As analysed in annex 5, this may well the case of pharmaceutical products (but not for generic products) and special-purpose machinery like airport and postal sorting equipment, provided of course IP rights are properly protected and enforced. However, this is far more difficult in low-tech or medium-tech sectors like construction, urban buses, street lighting, port equipment

Methodological box 6 - Estimating the de facto openness of public procurement in the world

To circumvent the statistical difficulties of measuring public procurement opened de facto but closed de jure internationally, an alternative measurement is proposed on the basis of the information collected in Table 5. The scores of de facto "openness" were established for each sector (cf. explanations of Table 4 and Table 5) and were multiplied by the dependency score (Table 1). The final score was then brought to a scale of openness between 0% (China, with a score of -35; the negative score is highly negative because of the high degree of dependency on public procurement in China) and 100% (score of 20 - i.e. 20 sectors with a mark of 1, the score is modestly positive because countries that are more open like Mexico have a greater presence of the private sector).

Based on the analysis of sectors performed in Annex 5, we have also systematically considered that the pharmaceutical and airport-postal sorting machineries were open de facto. Also, we have assumed that a 100% closed market like China, had a 10% starting degree of openness (in case restrictions were not applied). All the details are provided in Annex 3 (methodological notes).

It is important to underline that this methodology is an attempt to re-correct a vision derived strictly from de jure openness. Still, it treats all sectors equally, while some of them like infrastructure weigh considerably more. As construction is generally closed in all the selected countries, it is a pessimistic estimator. No other way has been found to proceed to this measurement.

Data is provided in Tables 7. Compared to the de jure estimation, the situation obviously worsens in Israel (offsets), but improves in Japan and Canada. Among GPA/FTA countries, India's ambiguity and Australia federal procurement openness are rewarded with a 70% score, Russia's openness to concessions and service obtains a 56% - Brazil who has only opened its concessions obtains an 38% score. China's full closure leads to a 0%

Table 7-Reviewed estimation of openness (after GPA negotiations of 2011)

|| De facto || De jure

US || 47% || 32%

JP || 72% || 28%

CA || 40% || 16%

KR || 80% || 65%

IL || 75% || 75%

MX || 92% || 75%*

CN || 24% || 0%

RU || 56% || 0%

IN || 70% || 0%

BR || 38% || 0%

TR || 25% || 0%

AU || 63% || 0%

Methodological box 7 - Bypassing restrictions by establishing of a subsidiary

To measure the feasibility of the setting up of a subsidiary to bypass local establishment requirements in the area of services, the time to set up a company and its cost was compared to the time limits of GPA procedures (40 days for the open procedure and 25 days for the restricted procedure) and the threshold values. The World Bank provides data on time and cost to set up a company.  The comparison is provided in Tables 8a and 8b.

This analysis suggests that the US, Canadian and Australian procurement markets are relatively open. However, the creation of subsidiaries is difficult for many small and medium enterprises.

Table 8a - Time to set up a company and procurement procedures

|| Days to set up a subsidiary || Remaining days (open) || Remaining days (selective)

USA || 6 || 34 || 19

Japan || 23 || 17 || 2

Canada || 5 || 35 || 20

Korea || 17 || 23 || 8

Mexico || 28 || 12 || -3

Israel || 34 || 6 || -9

Taiwan || 42 || -2 || -17

China || 40 || 0 || -15

Russia || 30 || 10 || -5

India || 30 || 10 || -5

Brazil || 152 || -112 || -127

Ukraine || 27 || 13 || -2

Turkey || 6 || 34 || 19

Australia || 2 || 38 || 23

Table 8b - Cost to set up a company and thresholds

|| Start up cost || % threshold services & supplies central || %threshold works

USA ||  22 071   || 17% || 0,4%

Japan ||  196 224   || 151% || 3,9%

Canada ||  15 330   || 12% || 0,3%

Korea ||  4 072 430   || 3128% || 81,5%

Mexico ||  163 541   || 126% || 3,3%

Israel ||  82 762   || 64% || 1,7%

Taiwan ||  2 105 153   || 1617% || 42,1%

China ||  370 378   || 284% || 7,4%

Russia ||  44 262   || 34% || 0,9%

India ||  214 755   || 165% || 4,3%

Brazil ||  45 797   || 35% || 0,9%

Ukraine ||  476 755   || 366% || 9,5%

Turkey ||  174 457   || 134% || 3,5%

Australia ||  25 780   || 20% || 0,5%

Interestingly, 86% of the selected public procurement markets where trade partners have national champions or offensive interests (table 9a) are fully or partially CLOSED de facto (Table 9b). The analysis of offensive interests is provided in Annex 9 ("Industrial analysis").

Table 9a - Identified national champions and offensive interests

|| US || JP || CA || KR || IL || MX || TW || CN || RU || IN || BR || TR || UA || AU

Defence || O || || || || || || || || O || || || || O ||

Aerospace || O || O || || O || || || || O || O || O || || || O ||

Post & Apt sorting || || || || || || || || || || || || || ||

Firefight & Sea Rescue || || || O || || || || || || O || || || || ||

Construction & Dredging || || O || || O || || || || O || || || O || O || ||

Constr. Equipment || || O || || O || || O || || O || || || || || ||

Railway equipment || || O || || O || || || || O || || || || || ||

Urban buses || || || || || || || || || || || O || || ||

Power generation || O || O || || O || || || || O || || O || || || ||

Water & Sewage || || || || || || || || || || || || || ||

Waste mgmt & env || || || || || || || || || || || || || ||

Pharmaceuticals || O || || || || O || || || || || O || || || ||

Medical equipment || O || O || || || O || || || || || || || || ||

Specialised textiles || || || || || || || || || || || || || ||

Business services || O || || || || || || || || || O || || || ||

Financial services || O || O || O || || || || || || || || || || ||

Oil, Gas & Mining equipmt || || || || || || || || || || || || || ||

Fixed telecom eq. || || O || || || || || || O || || || || || ||

Computer & IT serv || O || || || || || || || O || || O || || || ||

Street lighting || || || || || || || || || || || || || ||

Broadcasting equip || || || || || || || || || || || || || ||

Port equipment || || O || || O || || || || O || O || || || || ||

Table 9b - Are national champions protected?

How far is there a coincidence between public procurement markets closed de facto and national champions?

|| US || JP || CA || KR || IL || MX || TW || CN || RU || IN || BR || TR || UA || AU

Defence || PI || || || || || || || || PI || || || || PI ||

Aerospace || PI || PI || || PI || || || || PI || PI || PI || || || PI ||

Post & Apt sorting || || || || || || || || || || || || || ||

Firefight & Sea Rescue || || || PI || || || || || || PI || || || || ||

Construction & Dredging || || PI || || PI || || || || PI || || || PI || PI || ||

Constr. Equipment || || PI || || || || || || PI || || || || || ||

Railway equipment || || PI || || PI || || || || PI || || || || || ||

Urban buses || || || || || || || || || || || PI || || ||

Power generation || PI || PI || || PI || || || || PI || || PI || || || ||

Water & Sewage || || || || || || || || || || || || || ||

Waste mgmt & env || || || || || || || || || || || || || ||

Pharmaceuticals || || || || || PI || || || || || PI || || || ||

Medical equipment || || PI || || || PI || || || || || || || || ||

Specialised textiles || || || || || || || || || || || || || ||

Business services || PI || || || || || || || || || PI || || || ||

Financial services || PI || PI || PI || || || || || || || || || || ||

Oil, Gas & Mining equipmt || || || || || || || || || || || || || ||

Fixed telecom eq. || || || || || || || || PI || || || || || ||

Computer & IT serv || PI || || || || || || || PI || || PI || || || ||

Street lighting || || || || || || || || || || || || || ||

Broadcasting equip || || || || || || || || || || || || || ||

Port equipment || || || || || || || || PI || PI || || || || ||

Problems affecting EU industries

(a) Industries fully dependent on public procurement

Defence - EU companies have been able to export to US, India, Brazil and Japan, in spite of restrictions, yet exports to countries like China are restricted by the EU itself and overall access is most likely conditioned by military geostrategic considerations.  On the other hand, a UK defence company obtained 7 billion USD of contracts from the US DoD, EADS has participated in the USAF tankers procurement, but at the same time, Turkey took measures specifically against French defence material exports.

Aerospace - As far as space is concerned Companies from 3rd countries (US, Russia, China, Japan, Ukraine) appear to benefit from state aid in their home market to put abnormally low tenders in this very tight market (the number of launchings is very small). American and Russian companies have submitted tenders for Galileo and it would seem that the Russian bid was abnormally low On the other hand, the aerospace industry which benefits from high skills and high quality products could be candidate to bypass existing barriers. However, this industry is entangled with security matters and local content requirements in the defence, so that it needs to set up manufactures outside the EU (cf. Annex 5)

Railways - The UNIFE reports that its members represent 50% of world sales of rolling stock materials. Yet, because of the several procurement restrictions applying, international trade only represents 10% of the whole sector sales (and 43% of all worldwide railways equipment exports are from the EU).  As a result, public procurement restrictions have educed the EU railway industry to open factories outside the EU. The EU (and Asian) railway industry has to off shore to the US because of the local content requirements in the Buy America. On the other hand, Japanese and Korean companies have started to participate in the EU public procurement market (UK intercity Express and Athens metro).

Postal and airport machinery - This market is made of high-skilled suppliers and high-quality products. The Italian and German companies active in this sector can bypass existing barriers. For instance, an Italian firm delivered the sorting system of the Russian post.

(b) Industries highly dependent on public procurement

Construction - EU top construction companies have been able to set up subsidiaries in the US to circumvent US infrastructure procurement restrictions and participate in the Latin American and Russian concessions markets , but they have not been able to enter Japanese, Chinese and Korean infrastructure procurements markets.  Still, existing restrictions are a deterrent for SMEs, that represent more than 90% of all firms in this sector.

Urban buses - this is also a medium-tech industry where it is difficult to bypass protectionist barriers. Interestingly, Turkey and Brazil are important players in this sector.

(c) Industries partially dependent on public procurement

Pharmaceutical products and medical equipment  This sector has clearly no problems to bypass existing barriers (except maybe in the generic sector). It is facing a growing league of competitors in particular in Israel and India (generic drugs). The EU remains in any case, the largest exporter of pharmaceutical products.

Fixed telecom EU fixed telecom industry is dependent on public procurement in Japan and in emerging economies.  Restrictive measures have been implemented in India and in Brazil (a Swedish telecom equipment company has been discriminated vis-à-vis a Brazilian company). It appears nevertheless that measures in these countries were aimed as much against EU as Chinese companies.

Oil extraction:  EU oil infrastructure equipment industry is mostly affected in oil-rich national monopolies. In Brazil, Petrobras has a 65% local content requirement. Gazprom and Pemex as much as the main state-owned oil companies of emerging economies maintain such programmes.

Power generation- National programmes to foster “green technologies” have hit the EU power generation industry. The Chinese "indigenous innovation" initiative targets in particular the green economy and aims at technology transfers. In Canada, solar panels need local content requirements (Ontario). Korea and Taiwan maintain restrictions on specific supplies. At the same time, Indian and Chinese companies have been supplying EU utilities.  

Public procurement in the EU is (almost) de facto open

The EU public procurement directives do not contain mandatory restrictions against non-EU goods/services/companies, but provide for the right to deny access to goods from third countries to the utilities in case of lack of reciprocity. The use of the so-called Article 58 is optional and appears to be rare (cf. methodological box 8).

Nine Member States have taken measures to regulate the access of their public procurement market. Except for Spain, none of the Member States appears to have applied a systematic policy of discrimination. Still, at any moment, EU Member States could take measures to systematically discriminate on the basis of reciprocity.

Methodological box 8 - De facto openness of EU public procurement market

Article 58 of Directive 2004/17/EC:

The EU public procurement directives do not oblige contracting entities to apply restrictions against non-EU goods/services/companies.  The only optional de jure restriction is Article 58 of Directive 2004/17, which applies to goods from third countries purchased by utilities (which we estimate to represent some 3 billion EUR or 12% of their 25 billion EUR of procured goods).

Article 58 gives a right to discriminate against third country goods that do not provide for a "reciprocal market access". Yet, article 58 doesn't provide any further clarification of the meaning of "reciprocal market access". In Germany, for instance, the legislation foresees that the list of countries with such a lack of reciprocal access would be published in the Tagesanzeiger - yet, there has never been such a publication. Article 58 has been transposed in all Member States, but Belgium, Estonia and Portugal.

The use of Article 58 appears to have been limited to some Member States. Cyprus and Italy have reported use of Article 58, but only Cyprus appears to systematically apply Article 58..  

National provisions:

In addition to Article 58 a number of Member States have adopted provisions that regulate the access of of third country companies to their public procurement market. In Italy, Spain, Belgium[14] and Cyprus these restrictions are mandatory, whereas they are optional in Austria, Estonia, Hungary and the UK. It is noted that in the UK remedies are de jure only accessible in front of the national courts if the economic operator is from a GPA country and for a contract covered by GPA.

There is limited information available on the exact use of these provisions in the relevant Member States. Reciprocity provisions appear to have been used in at least four Member States.

In Austria, equal treatment is only conferred on the basis of international agreements and contracting authorities have posed questions to the Bundeskanzleramt to ask about the eligibility of Turkish, Indian, Chinese, Ukrainian, and Byelorussian firms, which may have discriminated against them.

In Italy, it appears that courts have ruled against the participation of Chinese and Australian firms until an international agreement would exist between the EU and China/Australia in the area of public procurement.

In Spain, Commission services have noted the requested of certificates of reciprocity in at least one instance.

Cases of remedies denial exists in the UK vis-à-vis bidders from third countries with no procurement agreement with the EU. Yet, remedies are seldom used in the UK anyway (cf. impact assessment remedies) and the UK is one of the Member States where the share of contracts awarded to non-EU firms in uncovered procurement is highest (28% - while EU average is 10%), making it an unlikely de facto restrictive Member State.

Table 10a - Public procurement markets in Member States that only apply Art. 58*

|| US || JP || CA || KR || IL || MX || TW || CN || RU || IN || BR || TR || UA || AU ||

Defence || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Aerospace || 0 || 1 || 0 || 0 || 1 || || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Post & Apt sorting || -1 || 0 || -1 || -1 || 0 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Firefight & Sea Rescue || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Construction & Dredg || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Constr. Equipment || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Railway equipment || -1 || -1 || -1 || -1 || 0 || -1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Urban buses || -1 || -1 || -1 || -1 || -1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Power generation || 1 || -1 || -1 || 0 || 0 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Water & Sewage || -1 || 1 || -1 || 1 || 1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Waste mgmt & env || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Pharmaceuticals || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Medical equipment || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Specialised textiles || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Business services || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Financial services || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Oil, Gas Min equipmt || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Fixed telecom eq. || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Computer & IT serv || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Street lighting || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Broadcasting equip || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 || 1 ||

Port equipment || 1 || 1 || -1 || 1 || 1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Table 10b - Public procurement markets in Member States that apply Art. 58* and national measures based on reciprocity through international agreements

|| US || JP || CA || KR || IL || MX || TW || CN || RU || IN || BR || TR || UA || AU ||

Defence || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Aerospace || 0 || 1 || 0 || 0 || 1 || || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Post & Apt sorting || -1 || 0 || -1 || -1 || 0 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Firefight & Sea Rescue || 1 || 1 || 0 || 1 || 1 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Construction Dredging || 0 || 1 || 0 || 1 || 1 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Constr. Equipment || 1 || 1 || 0 || 1 || 1 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Railway equipment || -1 || -1 || -1 || -1 || 0 || -1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Urban buses || -1 || -1 || -1 || -1 || -1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Power generation || 1 || -1 || -1 || 0 || 0 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Water & Sewage || -1 || 1 || -1 || 1 || 1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Waste mgmt & env || 1 || 1 || 0 || 1 || 1 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Pharmaceuticals || 1 || 1 || 0 || 1 || 1 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Medical equipment || 1 || 1 || 0 || 1 || 1 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Specialised textiles || 1 || 1 || 0 || 1 || 1 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Business services || 0 || 0 || 0 || 0 ||   || -1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Financial services || -1 || -1 || 0 || 0 || -1 || -1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Oil, Gas Min equipmt || || || || || || || || || || || || || || ||

Fixed telecom eq. || || || || || || || || || || || || || || ||

Computer & IT serv || 0 || 0 || 0 || 1 || 1 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Street lighting || 1 || 1 || 1 || 1 || 1 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Broadcasting equip || 1 || 1 || 1 || 1 || 1 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Port equipment || 1 || 1 || -1 || 1 || 1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Overall, beyond the de facto openness of the EU public procurement regime in 22 Member States[15], representing 90% of the EU public procurement market, contracting authorities have been also de facto awarding uncovered contracts to firms from third countries.

More contracts were actually awarded to firms established outside the EU in uncovered procurement (direct cross-border). Out of the 10,7 billion EUR of contracts awarded to non-EU/EEFTA firms (including their subsidiaries) in EU27, one-third (3,5 billion EUR) was in uncovered procurement (Chinese and Indian companies were awarded 400 million EUR of contracts in 2007).  It is interesting also to note that the conditions of competition did not differ between contracts awarded to EU firms and to non-EU firms in terms of bidders - therefore EU contracting authorities are not buying specific goods or services which they would not find anyway in the EU.

The legal problems

Breaching the Treaty

The absence of a EU regulatory framework relating to the access of third countries to the EU public procurement markets going beyond the optional restriction of article 58 implies that Member States cannot act individually to restrict the access of companies from third countries to actually create this "equal level playing field", necessary to potentially defend the competitiveness of those industries which depend on public procurement for their exports.  Those that actually legislate are in breach of the Treaty since this is an exclusive competence of the EU ("common commercial policy"). This applies both for areas covered by the GPA or FTA or in uncovered procurement.

The problems of 'strict reciprocity

Hopefully so far Article 58 and/or the national reciprocity measures have not been applied on a systematic basis, as they could potentially lead to infringement of the EU’s international obligations if no additional clarifications are provided to EU contracting authorities.

There are two diverging interpretations of reciprocity that could lead to problems in specific public procurement markets:  an interpretation based on strict reciprocity and one based on international commitments; the former could clearly lead the EU to infringe on its international commitments.

This results from a simple problem: results of international negotiations are not necessarily symmetrical.

For instance, an electricity operator may decide to reject offers with US goods on the basis of Article 58 because the US public procurement market of electricity operators does not grant a similar level of access. Such an operator could expose the EU to a panel in the WTO as the EU has committed vis-à-vis the USA the public procurement of its electricity operators (cf. table 11).

A broader problem of the kind may appear on the basis of horizontal reciprocity measures taken by countries like Belgium, Spain and Italy, which appear to have opted for strict reciprocity (UK, Austria and Hungary have opted for reciprocity implemented through international agreements). Table 12 illustrates the problems of this approach.

Table 11 - Diverging scopes of Article 58

Open de jure (EU level) - general notes & art.58 || || || || || || || || ||

|| US || JP || CA || KR || IL || MX || TW || CN || RU || IN || BR || TR || UA || AU ||

Post & Apt sorting || -1 || 0 || -1 || -1 || 0 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Railway equipment || -1 || -1 || -1 || -1 || 0 || -1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Urban buses || -1 || -1 || -1 || -1 || -1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Power generation || 1 || -1 || -1 || 0 || 0 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Water & Sewage || -1 || 1 || -1 || 1 || 1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Port equipment || 1 || 1 || -1 || 1 || 1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

|| || || || || || || || || || || || || || ||

Open de jure (EU level) - strict reciprocity & art.58 || || || || || || || || ||

|| US || JP || CA || KR || IL || MX || TW || CN || RU || IN || BR || TR || UA || AU ||

Post & Apt sorting || -1 || 1 || 0 || 0 || 1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Railway equipment || -1 || -1 || -1 || -1 || 0 || -1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Urban buses || -1 || -1 || -1 || 0 || -1 || -1 || || -1 || -1 || -1 || || -1 || -1 || -1 || Art 58

Power generation || 0 || || -1 || -1 || -1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || || Art 58

Water & Sewage || -1 || 0 || -1 || 0 || 0 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Table 12 - Potential areas of problems for national measures based on strict reciprocity

|| US || JP || CA || KR || IL || MX || TW || CN || RU || IN || BR || TR || UA || AU ||

Defence || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK ||

Aerospace || OK || PB || OK || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK ||

Post & Apt sorting || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK ||

Firefight & Sea Rescue || PB || PB || PB || PB || PB || PB || || OK || OK || OK || OK || OK || OK || OK ||

Construction Dredging || OK || PB || PB || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK ||

Constr. Equipment || PB || PB || OK || OK || PB || OK || || OK || OK || OK || OK || OK || OK || OK ||

Railway equipment || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK ||

Urban buses || OK || OK || OK || OK || OK || PB || || OK || OK || OK || OK || OK || OK || OK ||

Power generation || PB || OK || OK || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK ||

Water & Sewage || OK || PB || OK || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK ||

Waste mgmt & env || PB || PB || PB || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK ||

Pharmaceuticals || OK || PB || PB || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK ||

Medical equipment || OK || PB || PB || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK ||

Specialised textiles || PB || PB || OK || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK ||

Business services || OK || OK || OK || OK || PB || OK || || OK || OK || OK || OK || OK || OK || OK ||

Financial services || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK ||

Oil, Gas Min equipmt || || || || || || || || || || || || || || ||

Fixed telecom eq. || || || || || || || || || || || || || || ||

Computer & IT serv || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK ||

Street lighting || PB || OK || PB || OK || PB || OK || || OK || OK || OK || OK || OK || OK || OK ||

Broadcasting equip || PB || OK || OK || PB || OK || OK || || OK || OK || OK || OK || OK || OK || OK ||

Port equipment || PB || OK || OK || OK || OK || PB || || OK || OK || OK || OK || OK || OK || OK ||

Furthermore, there is evidence that, given the complexity of international commitments, there is a high risk of inconsistent application of international agreements. The analysis of contract award notices (CANs) in TED reveals that contracting authorities either make mistakes on the coverage of GPA (28% of CANs contain erroneous assessments), either don't even bother responding (16% of cases). Contracting authorities have difficulties to identify the category of entity to which they belong and often consider themselves as "other" (some 30% - cf. evaluation of EU public procurement directives). Several contracting authorities that participated to the consultation consider that the GPA applies to all the purchases covered by the directives and 95% indicated that they never used rules of origin.

Yet, this does not translate in outright discrimination. For instance, the rates of error were above average among the contracts awarded to foreign firms[16]. In our survey, only 3,8% of contracting authorities actually disregarded a bid because of its origin. Trading partners have never complained of systemic problems in the EU public procurement market. Japanese companies have had problems with delayed payments and standardisation issues. US companies have not been able to contact purchasing officers in Germany and France[17] and Mexico, in spite of its success with cement, has been poised to radically improve access to the EU public procurement market for its SMEs.

Internal Market fragmentation

Member States could, for example, decide to target third countries’ goods and services themselves, while others may prefer to restrict access to firms based in a third country, if not the subsidiary of a firm headquartered in a third country or even a company who lacks experience in the EU. Member States could also contemplate to include franchises or to apply restrictions only in those sectors that matter for them (e.g. if dredging is important for Belgium, it may only apply restrictions in that field). Moreover, some Member States could opt for mandatory restrictions and others for case-by-case restrictions left to the discretion of the contracting authority itself (who knows best its needs as the purchaser).

Consequences

In this context, GPA Parties have no incentives to further open up de jure their procurement markets for many reasons. Firms, goods, service providers experience in general the public procurement market of 22 Member States as being de facto open, leading to few complaints on market access. 

As shown in table 13, based on the analysis of the imports of goods in the EU public procurement market (cf. methodological box 8), it is possible to see that most of the exports of the US, Japan, Canada and Korea ("EU imports") affected by public procurement procedures taking place in areas covered by the GPA. However, for the EU, most of the exports (or potential exports) take place in areas not covered by GPA. Up to 80% of US and Japanese goods and services purchased by EU contracting authorities pass through existing commitments[18]

Emerging economies similarly have no incentives to open up de jure[19] their procurement markets. Computers, which probably represent 53% of all purchases of Chinese products by EU procuring entities, are sold through local intermediaries.  India’s IT service sales to the EU procuring entities are in broadly in line with the demand from the private sector. Furthermore, for Russia and Brazil, trade interests are in energy and agriculture, which are respectively outside of the scope or of little relevance for of procurement disciplines.

This situation is worsened by the de facto openness of the EU and the de facto closure of most of other countries procurement markets. Canada, Japan and Korea have been able to meet the interests of their railway equipment industries in spite of GPA restrictions.

This situation has led to concerns of "level playing field" from industries that depend on the openness of public procurement markets to exports. In particular, the railways equipment and construction industries have been very vocal in their demands to level the playing field when important contracts were awarded to non-EU companies (a Japanese rolling stock producer has been awarded a 5 billion EUR contracts for high-speed trains in the UK and a Chinese construction company has been selected to built an important Polish motorway). The legal problem

The absence of a EU regulatory framework relating to the access of third countries to the EU public procurement markets going beyond the optional restriction of article 58 implies that Member States cannot act individually to restrict the access of companies from third countries to actually create this "equal level playing field", necessary to potentially defend the competitiveness of those industries which depend on public procurement for their exports.  Those that actually legislate are in breach of the Treaty since this is an exclusive competence of the EU ("common commercial policy"). This applies both for areas covered by the GPA or FTA or in uncovered procurement.

This situation has several unintended consequences: 

First and foremost, where Member States have taken measures against third countries, companies are being illegally discriminated under EU law. If Member States establish different criteria to determine the nature of a "third country" company, a "EU company" may be ultimately discriminated in those countries where restrictive measures are being implemented. Moreover, it is to be clarified whether restrictions can be designed vis-à-vis companies or vis-à-vis services/goods.

Secondly, divergent national rules could lead to market fragmentation.

The EU continues to suffer from a lack of leverage in international negotiations.

Consequences for innovation, competitiveness and employment in the EU

This situation is resulting in status quo of de jure opening of public procurement in the world, which is detrimental for the internationalisation of EU SMEs, as well as for jobs, competitiveness and innovation in the EU. It is also fragmenting the internal market.

SMEs have major difficulties to overcome local establishment and national content requirement barriers. They have de facto mostly never access to the procurement of procurement that has not been opened de jure. As proximity and a common language plays an important role in cross-border procurement participation, the large closure of US and Canadian markets denies UK[20], French, Irish and Belgian SMEs precious opportunities. Similarly, the closure of the Brazilian, Turkish and Russian procurement markets is detrimental to Portuguese, Greek, Bulgarian, Polish and Baltic SMEs. As a result, public procurement is not playing its role in the internationalisation of EU SMEs.

The mix of local establishment and national content requirements in US, Brazil and China has pushed industries to artificially relocate jobs overseas without intrinsic economic rationale – depriving the EU job market to benefit from the high growth of these countries.   The EU railway industry has indeed been able to sell trains in those countries without necessarily creating the same jobs in EU. The EU exports of trains to the US have amounted to 0,4 billion EUR, hence 1% of the US railway equipment market (UNIFE report), although the EU railway industry has been the main seller of trains in the US.  In China, the EU railway industry has had to set up joint ventures.

The competition distortions created by discriminatory practices in procurement throughout the world affect the competitiveness of specific sectors, like railway and utilities equipment and infrastructure construction, where the traditional leadership of the EU firms is being contested by companies who rely on de facto protection in their home market. The EU construction industry share of worldwide infrastructure construction remained stable at 8%, whereas the share of the Chinese construction industry tripled to 6%. As a result, the Chinese construction industry controls today a similar share of all construction exports as the EU construction industry (around 20%, whereas in 2003 the EU construction industry controlled 26% of all exports). This jump is largely attributable to the privileged access of the Chinese construction industry to infrastructure works in China.

In varying degrees, by their very nature, each of the discriminatory practices are de facto implicitly a form of government support to national or local businesses, creating similar distortions as those of subsidies or state aid (access to lower cost of capital for beneficiaries than under market conditions).

Finally, there are also repercussions for innovation. Measures such as “indigenous innovation” aim to ensure to transfer intellectual property rights of EU firms in the area of innovation, in sectors ranging from railway equipment to the domain of “green energy”. Foreign companies are given the possibility to participate to the EU standardisation works whereas EU companies cannot influence the standardisation work elsewhere.

[1] Own estimates based on ENR  250 Top contractors  data (Mc Graw-Hill)

[2] The shares are currently being calculated for the partial "sectors"

[3] ATC equipment and airport sorting mchainery.

[4] COFOG is a UN classification that aims at listing all public services in the world; yet, as typologies vary across the world, it is necessary to verify their public nature  - i.e. whether these are not delivered by private operators or by a mix of private and public operators

[5] Indicative average - no account has been taken of the economic weight of each trading partner

[6] MFN is "altered" in the GPA allowing for specific derogation.

[7] If one assumes that 20% of world government consumption is public procurement above the thresholds, then the GPA only covers 25% of he world’s above-threshold public procurement, although GPA Parties represent some 60% of the world’s GDP.

[8] The WTO has used an estimation of 2,5% GDP to determine the contestable market in public procurement.

[9] MARKT estimates.

[10] As it will be seen at a later stage, these measures can be bypassed through local subsidiaries (for services) or for highly specialised products (pharmaceutical products).

[11] In Russia and Brazil, a foreign bidder can be excluded from a concession awarding procedure only if national bidder has submitted a equally-priced tender - the probability of this happening is very small. It is therefore not surprising that Brazilian motorways have been mostly awarded to Spanish and Portuguese firms 

[12] An SME and a multinational will not react similarly if faced with a 100-day procedure to set up a subsidiary or with the obligation to open up piles of companies in several locations to comply with local preference regimes.

[13] The situation in the selected13 main trading partners is extrapolated as representing the world - the main non-covered economy are Taiwan and Indonesia - the latter has the same GDP as Sweden or Belgium

[14] In Belgium the relevant provision has not entered into force yet.

[15] UK has been included in the group of de facto open Member States.

[16] 19% contract award notices did not indicate whether the contract fell under the GPA or not and 36% indicated that their contract was not covered by GPA while it actually fell in the scope of the GPA

[17] US Int'l Trade Commission (2010): Small and Medium-sized enterprises: U.S. and EU Export Activities, and Barriers and Opportunities Experienced by U.S. Firms and EU http://www.usitc.gov/publications/332/pub4169.pdf

[18] For instance, the US, which is an important exporter of pharmaceuticals and medical equipment, has secured access to ministries of health and public hospitals (which are mostly bodies governed by public law).

[19] And consequently, de facto.

[20] Interestingly, UK firms obtained 60% of all contracts awarded to EU firms in the US federal procurement

            DRIVERS                                                                           CONSEQUENCES                                                     PROBLEMS            

                                                         

ANNEX 9

INDUSTRIAL ANALYSIS:

BYPASS, LEVEL PLAYING FIELD, EMPLOYMENT & OFFENSIVE INTERESTS

Analysis grid:

Capacity to bypass - only for the sectors with both high RQE and high skills, provided there is no national champion in the country whose procurement restrictions have to be bypassed

Level playing field: Number of sectors ('markets') where offensive interests of 3rd countries and EU are either simultaneously OPEN or CLOSED de jure

Review of trade measures affecting the EU industry: list of the national measures provided by stakeholders as affecting their sector

Information sources for all segments:

- European business, fact and figures EUROSTAT SBS Survey

- Sector Growth Drivers and Competitiveness in the EU, A. Peneder - A survey for DG ENTR, taxonomy pp. 194-196

- Sector growth taxonomy in 1995-2008 NACE Rev. 1  in EU industrial structure 2009, III.3.3 Growth intensity, p.69

- If possible, comments extracted from consultations (from firms or trade associations)

Employment: the employment figures of each of the NACE sectors relevant for the impact assessment are reviewed hereunder - unless specified data on jobs comes from the EUROSTAT SBS survey.

Main conclusions

NACE sectors that can bypass domestic closures:  the pharmaceutical sector (NACE 244), the special purpose machinery (NACE 295), high performance computing (HPC) and air- and space craft (NACE 353) can bypass national measures. However, because the aerospace and the high-performance computing industry fall (often) under "national security" local content requirements, firms have no other solution but establishing themselves outside the EU.

Markets that remain open in spite of national domestic closures: As a result, the pharmaceutical market and the airport & postal sorting systems are considered systematically as "open".  We have considered the construction equipment market as "closable" (i.e. restrictions cannot be bypassed) as it is a mix of NACE 295 and very low-quality goods.

Level playing field  - The offensive interests of the 14 trading partners have been mapped and compared to the existing restrictions and/or lack of international commitments. We have found that restrictions matched with 43 out of the 50 identified cases of "offensive interests".

Trade measures that affect market access:

Participants in the consultation highlighted the following trade problems

-US: aerospace, railway equipment, textile, supercomputers

-Japan: railway equipment, construction

-Canada: Rail, power and textile

-China: Rail and construction

-India: textiles

Korea: Rail, construction and power

Details of the analysis

1. Defence

NACE/CPC industries active in this market

· NACE 296 Weapons and ammunition

Capacity to bypass domestic restrictions via exports:

· RQE: low

· Skills: high

· Growth 95-2008: medium-high (2,1%)

· Verdict: NO

Capacity to bypass domestic restrictions via local establishment:

· ok, but the sector is highly reliant on geostrategic considerations and diplomatic negotiations.

· Export ban on China

Export statistics:

· Market: ?

· Turnover in EU: 14 billion EUR

Level playing field:

· Companies from 3rd countries: US, Israel, Trade with Russia and China is limited.

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected: UK, FR, IT, DE, CZ, SK

Consultation of stakeholders - relevant comments: none

Innovation elements

Employment: 97.000 persons (WALG= 127,3%, 37800 EUR/year)

Sources:

· Defence competitiveness study

2. Aerospace

NACE/CPC industries active in this market:

NACE 353 Air- & Spacecraft

NACE 332 Instruments for inter alia navigating

Capacity to bypass domestic restrictions via exports:

· RQE: high (both sectors)

· Skills: high (spacecraft), medium-high (navigation instruments)

· Growth 95-08: medium-high (navigation instruments at 2,9% and spacecraft at 2,6%):

· Verdict: NO. spacecraft should be able to bypass, however the fact this industry is highly subsidised and heavily influenced by security matters, does not make bypass credible

Capacity to bypass domestic restrictions via local establishment:

· The industry generally has to use local establishment, in particular because of the link with defence

Export statistics:

· Market:  ?

· EU firms turnover: 3.8 billion (radars), 3 billion (navigation systems)

· In US, because of ITAR legislation, satellites fall under security-related procurement

· In Russia, EU company obtained contract for satellite launching, but the latter was cancelled to benefit the Russian launcher.

Level playing field:

· Companies from 3rd countries: US, Russia, China, Japan, Ukraine - they benefit from state aid at home to put abnormally low tenders

· How far are companies from 3rd countries protected in their own market (if EU is open)? FULL

· EU MS affected: FR-IT, UK, DE, ES

Consultation of stakeholders - relevant comments

· Companies from 3rd countries: US, Russia, China, Japan, Ukraine - they benefit from state aid at home to put abnormally low tenders

· Aerospace industry is entangled with security matters in other countries and therefore access is very difficult

· The number of launchings is very small (some 24 per year); therefore each lost contract is a huge loss of market share.

· US and Russian companies have submitted tenders for Galileo; Russian bid was abnormally low

Innovation elements:

· Galileo project

Employment: 80.919 jobs (DG ENTR indicates 29.000 jobs for the space industry overall and 73..900 for the aerospace industry, bringing to a an estimated total of 102.900 jobs to which one applies the public sector dependency rate of 79%).

Sources:

· Aerospace study - DG ENTR (FWC Sector Competitiveness Studies: Competitiveness of the EU Aerospace Industry with focus on Aeronautics Industry), ECORYS

3. Postal and airport sorting equipment

NACE/CPC industries active in this market

NACE 295 - Other special purpose machinery

(software)

Capacity to bypass domestic restrictions via exports:

· RQE: high

· Skills: high

· Growth 95-08: medium-high (2,6%)

· Verdict: YES

Capacity to bypass domestic restrictions via local establishment: ok

Export statistics:

· Statistics are difficult to find because no specific tariff line

· Market: ?

Level playing field:

· Companies from 3rd countries

· How far are companies from 3rd countries protected in their own market (if EU is open)? unknown, cf. sector analysis

· EU MS affected: the 3 main EU players are in DE and IT

Consultation of stakeholders - relevant comments: NONE

Innovation elements: NONE

Employment: n/a (minimal estimation: some 9.000 jobs, as we shall assume a minimal estimation of 10.000 jobs and given that the public procurement dependency sector weighted by each of the 12 main trading partners amounts to 90%)

Sources:

4. Firefighting and Sea rescue equipment

NACE/CPC industries active in this market

· NACE 351 Boats (coast guard boats)

· NACE 353 Aircraft (fire-fighting aircraft, helicopters)

· NACE 341 Motor vehicles (fire-fighting vehicles)

Capacity to bypass domestic restrictions via exports:

NACE 351 Boats

· RQE:  Medium

· Skills: Medium

· Growth 95-08: Low (-0,8%)

NACE 353 Aircraft

· RQE:  High

· Skills: High

· Growth 95-08:  Medium-high (2,6%)

NACE 341 Motor vehicles

· RQE:  High

· Skills: Low

· Growth 95-08: High (3%)

Verdict: Fire-fighting aircraft and sea rescue helicopters bypass barriers (except where there are national champions, i.e. Russia and Canada)

Capacity to bypass domestic restrictions via local establishment:

Export statistics:

· Market(helicopters for civil purposes): 3 billion EUR

Level playing field:

· Companies from 3rd countries: Canadair (Canada), Beriev (Russia), Bell, Sikorski, MDHI (US)

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected: FR, UK, DE, IT, ES

Consultation of stakeholders - relevant comments: NONE

Innovation elements:

· Helicopters - EU firms more innovative than their US counterparts (cf. ECORYS p.171)

Employment:

· Estimated: some 27.500 jobs (estimations of 10.000 persons for fire-fighting, 10.000 for helicopters and 7.500 for rescue vessels)

Sources:

· Aerospace study - DG ENTR (FWC Sector Competitiveness Studies: Competitiveness of the EU Aerospace Industry with focus on Aeronautics Industry), ECORYS

5. Construction and dredging

NACE/CPC industries active in this market

CPC 51 Works, includes dredging and engineering consulting

Capacity to bypass domestic restrictions via exports:

This is a service - mode 3, but 2 important markets are completely closed: China and Japan.

Capacity to bypass domestic restrictions via local establishment:

cf. GATS restrictions

Export statistics:

· Market: 464 billion EUR (PP-related works) and 329 billion EUR (partly PP-related works)

· EU construction firms activities' abroad:  93 billion EUR out of 165 billion EUR

· Based on own calculations made on the sales of the top 225 largest international contractors, EU firms have 8% of all world infrastructure works and 20% of all foreign-located constriction works’

· Based on own calculations made on the sales of the top 225 largest international contractors, Chinese firms have 6% of all world infrastructure works and 18% of all foreign-located constriction works’

· EU construction market share in China decreased from 6% to 1% after China's accession to WTO (cf. contribution FIEC)

· Verdict: China, Korea and Japan cannot be bypassed; elsewhere it depends on implementation of GATS commitments - we shall therefore consider that national measures cannot be bypassed.

Level playing field:

· Companies from 3rd countries: Camargo Correia, Odebrecht, Andrade Gutierrez (Brazil),  Larsen & Toubro, Punjlloyd and Ceigall (India), Kajima, Nishimatsu, Chiyoda, Obayashi, Shimizu, Taisei, takenaka, JGC, Toda,... (Japan), Bechtel, Halliburton (USA), Tefken, Gama, Ant Japi (Turkey)

Table 1 - Chinese companies among the 250 largest construction firms in the world

CHINA RAILWAY CONSTRUCTION CORP. LTD., BEIJING, CHINA

CHINA RAILWAY GROUP LTD., BEIJING, CHINA

CHINA COMMUNICATIONS CONSTRUCTION GRP. (LTD.), BEIJING, CHINA

CHINA STATE CONSTRUCTION ENG’G CORP., BEIJING, CHINA

CHINA METALLURGICAL GROUP CORP., BEIJING, CHINA

SINOHYDRO CORP., BEIJING, CHINA

SHANGHAI CONSTRUCTION (GROUP) GENERAL CO., SHANGHAI, CHINA

DONGFANG ELECTRIC CORP., CHENGDU, SICHUAN, CHINA

ZHEJIANG CONSTR. INVEST. GRP. CO. LTD., HANGZHOU, ZHEJIANG, CHINA

CHINA NATIONAL MACHINERY INDUSTRY CORP., BEIJING, CHINA

CHINA NATIONAL CHEMICAL ENG’G GROUP CORP., BEIJING, CHINA

CHINA GEZHOUBA GROUP CO. LTD., WUHAN, HUBEI, CHINA

BEIJING CONSTRUCTION ENG’G GROUP CO. LTD., BEIJING, CHINA

CHINA PETROLEUM ENG’G & CONSTR. (GROUP) CORP., BEIJING, CHINA

SHANGHAI URBAN CONSTRUCTION (GROUP) CORP., SHANGHAI, CHINA

CITIC CONSTRUCTION, BEIJING, CHINA

CHINA PETROLEUM PIPELINE BUREAU, LANGFANG CITY, HEBEI, CHINA

CHINA YUNNAN CONSTR. ENG’G GRP. CO. LTD., KUNMING, YUNNAN, CHINA

SHANDONG ELECTRIC POWER CONSTRUCTION CORP., JINAN CITY, CHINA

QINGJIAN GROUP CO. LTD., QINGDAO CITY, SHANDONG PROV., CHINA

JIANGSU NANTONG NO. 3 CONSTR. GRP. CO. LTD., HAIMEN, CHINA

ZHONGYUAN PETROLEUM EXPLORATION BUR., PUYANG CITY, HENAN, CHINA 2,160.0

SINOPEC ENGINEERING INC., BEIJING, CHINA

DAQING OILFIELD CONSTR. GRP. CO. LTD., DAQING CITY, CHINA

ANHUI CONSTR. ENGINEERING GROUP CO. LTD., HEFEI, ANHUI, CHINA

CHINA HUANQIU CONTRACTING & ENGINEERING CORP., BEIJING, CHINA

SHANGHAI TUNNEL ENGINEERING CO. LTD., SHANGHAI, CHINA

SHANGHAI ELECTRIC GROUP CO. LTD., SHANGHAI, CHINA

SEPCOIII ELECTRIC POWER CONSTR. CORP., WEIFANG, SHANDONG, CHINA

JIANGSU NANTONG LIUJIAN CONSTR. GRP. CO. LTD., RUGAO, CHINA

CHINA CIVIL ENGINEERING CONSTR. CORP., BEIJING, CHINA

NANTONG CONSTR. GRP. JOINT-STOCK CO. LTD., NANTONG, JIANGSU, CHINA 1,051.4

CHINA POWER ENGINEERING CONSLTG. GROUP CO., BEIJING, CHINA

XINJIANG BEIXIN CONSTR. & ENG’G (GROUP) CO. LTD., URUMQI, CHINA

CHINA GEO-ENGINEERING CORP., BEIJING, CHINA

CHINA JIANGSU INT’L ECON-TECH. COOP. CORP., NANJING, CHINA

 

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected: ES, FR, IT, DE, SE, AT

Consultation of stakeholders - relevant comments

· EU construction market share in China decreased from 6% to 1% after China's accession to WTO (cf. contribution Hauptverband der Deutschen Bauindustrie e.V.)

· In China, construction companies are SoE

· In China, construction companies have to do joint ventures

· Problem of state-owned competitors that enjoy a closed market to outbid rivals elsewhere.

Innovation elements: n/a

Employment:

· 691000 persons are involved in infrastructure construction in the EU (SBS) - as the weighted public sector dependency rate amounts to 52%, we estimate the real jobs impacted amount to 357.886 jobs

Sources:

· ENR, Engineering News Record, The Top 225 International Contractors, 2003

· ENR, Engineering News Record, The Top 225 International Contractors, 2010

· Le Moniteur, le Classeement des 10000 premières entreprises du BTP

· FWC Sector Competitiveness, Studies B1/ENTR/06/054, Sustainable Competitiveness of the Construction Sector

6. Construction equipment

NACE/CPC industries active in this market

· NACE 26 Non-metallic mineral products

· NACE 271 Basic iron and steel

· NACE 272 Tubes

· NACE 295 Other special purpose machinery

Capacity to bypass domestic restrictions via exports:

NACE 26/271/272

· RQE: Low (for tiles and ceramic, it is "medium")

· Skills: Low

· Growth: Low (0,8%) for NACE 26; Medium-Low for NACE 271/272 (1,3%)

· Verdict: NO

NACE 295 - Other special purpose machinery

Capacity to bypass domestic restrictions via exports:

· RQE: high

· Skills: high

· Growth 95-08: medium-high (2,6%)

· Verdict: YES

Capacity to bypass domestic restrictions via local establishment

Export statistics:

· Market: -

Level playing field:

· Companies from 3rd countries: Doosan, Hyundai (Korea), Komatsu, Takeuchi, Hitachi, Kubota (Japan), Caterpillar, Kobelco, Bobcat (USA), Bharat Earth Movers (India), CEMEX (Mexico)

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected: DE, IT, SE, UK (NACE 295)

Consultation of stakeholders - relevant comments:

· Companies in protected markets can make abnormally low bids

Innovation elements: n/a

Employment & turnover:

· 1,6 million Persons (NACE 26) + 211 billion EUR

· 551.000 persons (NACE 271/272) + 166 billion EUR

· According to EUROFER, 27% of the demand of steel is for construction equipment

· The weighted public sector dependency rate is 52%

· As a result: 904.736 job and 341 billion EUR of total turnover

Sources:

· FWC Sector Competitiveness, Studies B1/ENTR/06/054, Sustainable Competitiveness of the Construction Sector

7. Railway equipment

NACE/CPC industries active in this market: NACE 352 "Railway locomotives and rolling stock"

Capacity to bypass domestic restrictions via exports: FRAGILE in the 14 selected trading partners - verdict: NO

- Medium-low-skills

- High RQE

- Growth 95-08: Low (0,7%)

Capacity to bypass domestic restrictions via local establishment: YES (examples: factories in US, joint ventures in Brazil, India and China)

Export statistics:

· Railway trade only represents 10% of world market of railway

Level playing field:

· Companies from 3rd countries: Japan, China, Korea

· How far are companies from 3rd countries protected in their own market (if EU is open)? Japan (operational safety clause), China (technological transfer and joint ventures)

· EU MS affected: FR, DE, ES, IT, UK, BE, CZ, AT

Consultation of stakeholders - relevant comments: 5 stakeholders have responded

· Problems of access in the US market because of local content requirements

· Problems in Japan - operational safety clauses closes the markets and consequently Japanese companies can bid aggressively in EU market

· Canada - local content requirements

· South Korea - mandatory technological transfers

· China - mandatory technological transfers

Innovation elements:

· Urban clean bus initiative

Employment & turnover: 164.800 persons + 22 billion EUR (weighted dependency rate: 84%)

Additional sources:

· UNIFE railway sector study

· COMEXT statistics

8. Urban buses

NACE/CPC industries active in this market

341 Motor vehicles

Capacity to bypass domestic restrictions via exports: verdict: NO

- Medium-low-skills

- High RQE

-Growth 95-08: High (3%)

Capacity to bypass domestic restrictions via local establishment: OK, but because of medium-low skills encourage off shoring outside EU

Export statistics:

· Global market estimated at some 53 billion EUR, EU market represents some 5 billion EUR

· Exports between 0,7 and 1 billion EUR

· In 2008, some 0,9 billion EUR were imported, mostly from Turkey

· Surplus in 2009 of 0,9 billion EUR

· EU market share: 8,3% (SCI Verkehr study)

· India market: 63% market share for Tata Motor

· US/Canada - the market is very much restricted in terms of imports/exports to NAFTA

· Largest foreign supplier to EU market: Turkish company (TEMSA)

Level playing field:

· Companies from 3rd countries: in the top 30 there are 10 EU companies, 4 from China, 4 from USA, 2 from India, 2 from Korea, 1 from Russia, 1 from Australia, 2 from Japan, 1 from Ukraine, 1 from Turkey, 1 from Brazil and 1 from Switzerland.

· How far are companies from 3rd countries protected in their own market (if EU is open)? cf. sector analysis

· EU MS affected: UK, DE, FR, BE, NL, SE

Consultation of stakeholders - relevant comments: NONE

Innovation elements:

· Urban clean bus initiative

Employment and turnover:

· Employment in bus manufacturing: 125.000 jobs; the bus and truck manufacturing industry employ 250.000 jobs. We assume 50% jobs are dedicated to bus manufacturing (neutral percentage)

· We apply a weighted public procurement dependency rate of 70%

· Turnover:  some 5,5 billion EUR: in fact, the bus market in the EU amounts to 4 billion EUR, the EU exports some 1 billion EUR of buses, but imports some 0,5 billion EUR of buses and we assume 1 billion EUR of profit margin.

Sources:

· Study SCI multiclient studien Verkehr, Busses, Global market trends: Markets-Competition-Companies-Key figures

· Annual Report, Daimler, 2010

· Eurostat

9. Power generation

NACE/CPC industries active in this market

· NACE 291 Power machinery

· NACE 311 Electrical motors, generators and transformers

· NACE 312 Electricity distribution and control apparatus

· NACE 313 Insulated wire

· NACE 316 Electrical equipment n.e.c.

Capacity to bypass domestic restrictions via exports:

· RQE: high (NACE 312), medium (NACE 291, 316), low (NACE 311, 313)

· Skills: medium (all)

· Growth 95-08:  medium-high (NACE 291, 311, 312), low (NACE 313, NACE 316)

· Verdict: NO

Capacity to bypass domestic restrictions via local establishment: ok

Export statistics:

· Market:

Level playing field:

· Companies from 3rd countries: Power turbines: KC Cotrell (Korea), I.-Insigma (China), Bharat Heavy (India); Solar panels: Suntech (China), Sharp (Japan); Wind energy: GE Energy (US), Sinovel (China), Goldwin (China), Suzlon (India), Dongfan (China), Mitsubishi (Japan)

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected: Power turbines: FR, DE; Solar panels: DE; Wind energy: DK, ES, DE

Consultation of stakeholders - relevant comments:

· Green Ontario Act - 60% of local content in solar panels

· South Korea: requires local-type testing for industrial products

Innovation elements:

· Smart grids

· Green technologies

Employment and turnover:

· 720.000 jobs & 112 billion EUR (NACE 295)

·  976.000 jobs & 160 billion EUR (NACE 311, 312, 313)

· 540.000 jobs & 109 billion EUR (NACE 316)

· Total of 1,6 million jobs (cf. weighted dependency of public procurement of 72%)

Sources:

· Study in the Competitiveness of the EU eco-industry (ENTR/06/54)- ECORYS

10. Water management & sewage

NACE/CPC industries active in this market - SERVICE, relies on implementation of GATS restrictions by trading partners

Capacity to bypass domestic restrictions via exports:

· RQE: -

· Skills -

Capacity to bypass domestic restrictions via local establishment: ok idem

Export statistics:

· Market:?

Level playing field:

· Companies from 3rd countries: none

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected: NL, FR

Consultation of stakeholders - relevant comments: none

Innovation elements: -

Employment and turnover:

- 480.700 jobs and 56 billion EUR

- Weighted public sector dependency rate: 80%

-Result: estimated impacted jobs: 384.000 jobs

Sources: - SBS, it is necessary to highlight that contracting authorities in EU are often themselves the "exporters" in this sector

11. Waste management & environmental services

NACE/CPC industries active in this market:

CPC 94 Environmental services

· Air Pollution Control

· Recycled materials

· Environmental technologies

· Eco-construction

Capacity to bypass domestic restrictions via exports:

· RQE: -

· Skills: -

Capacity to bypass domestic restrictions via local establishment

Export statistics:

· Market: -

Level playing field:

· Companies from 3rd countries: -

· How far are companies from 3rd countries protected in their own market (if EU is open)? -

· EU MS affected:

Consultation of stakeholders - relevant comments

Innovation elements:

· Green technologies

Employment and turnover:

· 150.000 jobs and 43 billion EUR

· Weighted public procurement dependency rate: 67%

· Estimated impacted jobs: some 100.000 jobs

Sources:

· Study on the Competitiveness of the EU eco-industry

12. Specialised textiles

NACE/CPC industries active in this market:

NACE 171-194 overall, but in particular NACE 174 Made-up textiles

Capacity to bypass domestic restrictions via exports:

· RQE: High

· Skills: Low

· Growth 95-08: -1,6%

· Verdict: NO

Capacity to bypass domestic restrictions via local establishment: ok

Export statistics:

· Market: -

Level playing field:

· Companies from 3rd countries: China, India, Bangladesh

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected: BE, IT, PT

Consultation of stakeholders - relevant comments:

· Child labour in India and Bangladesh.

· Berry Amendment in US

· Japan - problems of discrimination

· Canada - local preferences

· India - frequent changes in specifications

Innovation elements

Employment & turnover:

· 200.000 jobs and 10 billion EUR

· Public procurement weighted dependency rate: 51%

· Estimated impacted jobs: 100.000 jobs

Sources:

· Communication on Lead Markets Initiative

13. Pharmaceuticals

NACE/CPC industries active in this market

NACE 244 Pharmaceuticals

Capacity to bypass domestic restrictions via exports:

· RQE: High

· Skills: High

· Growth 95-08: 5,6%

· Verdict: YES

Capacity to bypass domestic restrictions via local establishment: ok, no need. problems in countries that don't respect IPR (India)

Export statistics:

· Market: 808 billion USD (589 billion EUR)

· EU firms have 250 billion USD of the pharma market

· Exports of EU to the world: EU is exporting leader in many countries: Australia/USA/Russia/Canada/.(67%) .. except India (31%)

Level playing field:

· Companies from 3rd countries: US (...), Teva (Israel), Rambaxy (India), Takeda (Japan)...

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected: UK, DE, FR, SE, BE, IT, DK

Consultation of stakeholders - relevant comments: none

Innovation elements: intrinsic

Employment:

· 610.000 jobs & 196 billion EUR

· Public procurement weighted dependency rate:  42%

· Estimated impacted jobs: 256.000 jobs

Sources:

· Analysis of TAO tariff lines

· COMEXT

· The Global Pharmaceutical Market 2009, IMS Health

14. Medical equipment

NACE/CPC industries active in this market

Capacity to bypass domestic restrictions via exports:

· RQE: High

· Skills: Medium

Capacity to bypass domestic restrictions via local establishment: Mostly yes, BUT...

Export statistics:

· 10 Billion EUR of exports

· 10 billion EUR of imports (mostly from US)

Level playing field:

· Companies from 3rd countries: US, Israel, Japan

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected:

Consultation of stakeholders - relevant comments: NONE

Innovation elements: intrinsic

Employment & turnover:

· 455000 jobs and 55 billion EUR

· Weighted public procurement dependency rate:  42%

· Estimated impacted jobs: 187.000 jobs

Sources:

· COMEXT

15. Business services

NACE/CPC industries active in this market

Capacity to bypass domestic restrictions via exports:

· RQE: -

· Skills: -

Capacity to bypass domestic restrictions via local establishment: GATS

Export statistics:

· Market: -

Level playing field:

· Companies from 3rd countries:-

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected:

Consultation of stakeholders - relevant comments

Innovation elements

Employment and turnover:

- 14 million jobs and 901 billion EUR

- Weighted public procurement dependency rate:  32%

- Estimated impacted jobs: 4,5 million jobs

Sources:-

16. Financial services

NACE/CPC industries active in this market

Capacity to bypass domestic restrictions via exports:

· RQE: -

· Skills: -

Capacity to bypass domestic restrictions via local establishment: GATS

Export statistics:

· Market: -

Level playing field:

· Companies from 3rd countries:-

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected:

Consultation of stakeholders - relevant comments

Innovation elements

Employment: - some 6 million jobs; if we take a weighted PP dependency rate of 32%, this could make some 2 million jobs

Sources:-

17. Oil, gas and mining equipment

NACE/CPC industries active in this market:

NACE 291 - Machinery for production, usage of mechanical power

Capacity to bypass domestic restrictions via exports: verdict: NO

- High-skills

- Medium RQE

Capacity to bypass domestic restrictions via local establishment - OK

Export statistics

Level playing field:

· Companies from 3rd countries: unknown

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected: DE, IT, FR

Consultation of stakeholders - relevant comments: None

Innovation elements

Employment and turnover:

· 191.000 jobs and 39 billion EUR of turnover

· Weighted PP dependency rate: 24%

· 46.350 jobs (estimated impacted jobs)

Sources: None

18. Telecom equipment

NACE/CPC industries active in this market:

NACE 322 - TV and radio transmitters, app. for line telephony

Capacity to bypass domestic restrictions via exports:

· High RQE

· Medium-high skills

Capacity to bypass domestic restrictions via local establishment: ok, but can be challenged by lack of enforcement of IPR

Export statistics

Level playing field:

· Companies from 3rd countries: China (ZTE, Huawei)

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected: FI, DE, SE, FR

Consultation of stakeholders - relevant comments

· Competitors from closed countries benefit from state aid to submit abnormally low tenders and do not respect IPR

Innovation elements

Employment:

· 221 billion EUR and 770.000 jobs

· Weighted PP dependency rate: 35%

· Impacted jobs (est.): 270.000

Sources:

19. Computers & IT services

NACE/CPC industries active in this market:

NACE 300 - Computers

Supercomputers - High performance Computing (cf. communication)

Capacity to bypass domestic restrictions via exports: verdict: NO

· High skills:

· Medium RQE (HPC is probably High RQE)

· Growth (HPC: 3% annual growth - verdict: High Growth)

Capacity to bypass domestic restrictions via local establishment: no, because of security issues

Export statistics: none

Market: 18 billion EUR (HPC storage, middleware, applications....) out of which 6 billion EUR in the EU -although EU suppliers only hold a market share of 4,3% - the high-end market of HPC in the EU= 0,6 billion EUR

Level playing field:

· Companies from 3rd countries: US companies have a 95% share in supercomputers in the EU; other countries in the game: Japan, India and China have declared HPC as a zone of strategic priority

· How far are companies from 3rd countries protected in their own market (if EU is open)? US (Buy America and national security issues)

· EU MS affected: FR (GENCI), DE (Gauss-Allianz)

Consultation of stakeholders - relevant comments: NO, because of national security issues)

Innovation elements:

· All the innovation financed by the FP7 in this field is benefitting US firms

· HPC used for locating and extracting oil, life-saving new drugs, weather forecast and medical treatment (forecast of caesarean births)

· EU MS and stakeholders have set up the PRACE (Partnership for Advanced Computing in Europe); Council invited MS and Commission to "pool their investments in high performance computing".

Employment:

· 420 billion EUR of turnover

· 3 million jobs

Sources:

· Draft Communication on High Performance Computing quoting IDC study "A strategic agenda for European Leadership in Supercomputing: HPC 2020" and "Financing a Software Infrastructure for Highly Parallelised Codes".

20. Street lighting

NACE/CPC industries active in this market:

NACE 315 Lighting equipment and electric lamps

Capacity to bypass domestic restrictions via exports: verdict: NO

· Skills: medium-high

· RQE: medium

· Growth

Capacity to bypass domestic restrictions via local establishment

Export statistics:

· Market: 6 billion EUR (McKinsey study)

Level playing field:

· Companies from 3rd countries

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected:

Consultation of stakeholders - relevant comments: NONE

Innovation elements:

· Lighting initiatives SSL

Employment:

Sources:

· McKinsey Report - Lighting the way: Perspectives on the global lighting market

21. Broadcasting equipment

NACE/CPC industries active in this market:

NACE 323 TV, Radio and recording apparatus

Capacity to bypass domestic restrictions via exports: verdict: NO

· RQE: Low

· Skills: Medium

Capacity to bypass domestic restrictions via local establishment: ok

Export statistics:

· Market: ?

Level playing field:

· Companies from 3rd countries:?

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected: ?

Consultation of stakeholders - relevant comments: None

Innovation elements

Employment:

Sources: -

22. Port equipment

NACE/CPC industries active in this market

NACE 291 - Machinery for production, use of mech. power

Capacity to bypass domestic restrictions via exports:

· RQE: medium

· Skills: high

· Growth 1995-2008: 2,8% (medium-high growth)

Capacity to bypass domestic restrictions via local establishment: ok

Export statistics:

· Market: ?

Level playing field:

· Companies from 3rd countries: Hyundai (Korea), OAO Balktran (Russia), Taylor (USA), ZPMC (China)

· How far are companies from 3rd countries protected in their own market (if EU is open)?

· EU MS affected: FI, IT, DE

Consultation of stakeholders - relevant comments

Innovation elements

Employment:

Sources: SCI Multiclient studies, Port infrastructure markets in Europe

ANNEX 4

ANALYSIS OF IMPACTS

1. Methodological crosscutting issues[1]

IMPORTANT: Methodological issues regarding calculations of impacts on leverage, EU trade and jobs are clarified in Annex 7

1.1 - Procurement rules of origin for services procurement contracts[2]

Rules of origin to be developed for a legislative instrument would have a significant impact on the reach of potential restrictive measures.

- If rules of origin would adopt a broad definition of EU services suppliers, based on the justification of a registered office within the EU for instance, and exclude only companies established in jurisdictions other than the territory of the EU MS, without any branch in the EU, restrictive measures would impact only direct cross-border procurement operations.  In 2007, such procurement flows represented 200 million EUR of contracts, hence 0,05% of the whole public procurement market.

- Conversely, definition of EU service suppliers cumulating criteria based on establishment and ownership or control would impact a wide range of procurement within the EU, since branches of  foreign companies established in the EU would be assimilated to non EU companies despite the fact that these branches have de facto a substantial link with the EU economy. As a consequence, it would certainly disturb foreign direct investment flows, especially when they are designed to have access to EU procurement markets and related jobs. (e.g. if a Chinese company takes over a French company, the latter would lose the right to participate in a tendering procedure) 

- Finally, identification of EU service providers based on a substantial link to the EU economy without requirements in terms of ownership or control would produce a medium effect on procurement flows. Indeed, restrictive measures would certainly target "letter box" companies – companies in a position to justify a registered office in the EU but with the only purpose to ease provision of services abroad - but would not impact subsidiaries of non EU companies in one or several MS.

In addition, the definition of rules of origin for service providers raises the issue of the regime applicable to consortium or other bidding partnerships made of EU companies and foreign business as well as the treatment of franchises. The definition to be chosen has to comply with EU international obligations under the GATS, GPA and FTAs (non discrimination between single bidders and consortium). These rules would in any case impact the access for the biggest procurement contracts, especially in the field of construction services. In these sectors, most public private partnerships are awarded to international consortiums, possibly including non EU companies.

1.2 - Assumptions of the impact assessment analysis - market behaviour

Public procurement is a market where contracting authorities buy from businesses. As in all markets, each of the players have specific incentives.

In this context, based on the analysis made for the evaluation of public procurement procedures[3], the main incentives of contracting authorities (based on the evaluation of directives - PwC study) are:

· Lowest possible risk of litigation  (as it delays the procedure).

· Efficient purchase (good quality/price ratio).

· Time.

Purchasing decisions are decentralised and contracting authorities can be considered to be single units that, unless instructed, do not necessarily wish to take industrial policy into consideration.

There are however some caveats:

· Central government authorities can be assumed to follow prescriptions of industrial policy.

· Local governments may want to protect local jobs.

Finally, businesses are assumed to be always interested to participate in public procurement (cf. methodological box 1 in impact analysis).

1.3 - Assumptions of the impact assessment analysis  -Responses by trading partners

1.3.1 - Incentives to negotiate - the so-called "negotiations leverage"

Third countries shall be considered keen to re-negotiate with the EU insofar the markets matching their offensive interests are closed domestically (i.e. through EU legislation reflecting EU's international commitments).

In this context, the mere existence of a 'threat' of closure through restrictions that can be applied optionally (options 2, 3A, 3B1, 3C and 4) or selectively (option 3B2) by EU contracting authorities will lead third countries to consider that there is a risk that at any moment the instrument can be applied systematically.

For instance, a country like Japan would still wish to obtain access to the EU railway procurement market - which is not covered - even if the instrument would not systematically close that market.

Incentives to negotiate - or the so-called "negotiations leverage"- will depend on the size of untapped exports by each negotiations partner. It is therefore measured through the leverage index (cf. Annex 5).

Protectionist hysteresis

If, due to internal pressures by domestic industries willing to benefit from a rent effect, a country is not likely to offer market access commitments on markets closed based on a internal legislation, its capacity to obtain equivalent opening in foreign markets is deeply affected. Therefore, the analysis of leverage should take into account the dynamics of domestic protectionist pressures. Such an assessment is based on the economic framework for "protectionist hysteresis".

The analysis of leverage also has to reflect how potential restrictive measures impose to renegotiate the access to markets priori de facto open before the intervention of restrictions and countermeasures.

This phenomenon is proportionate to the degree of closure resulting from each option.

1.3.2 - Assumptions on scope and scale of retaliation

Predicting reactions by trading partners is a difficult and subjective prospective exercise.  If the proposed instrument hits trading partners’ offensive interests, then they mightl be inclined to negotiate. But, they can also be tempted to opt for retaliatory measures.

The dynamics of retaliation is rather complex.

First, resorting to retaliatory measures is a difficult decision to take. .  All trading partners benefit from open trade and, more importantly, they also depend on the supply of specific products from Europe.  It is therefore unclear whether affected trading partners will decide to retaliate against the EU.

Secondly, retaliatory measures can take various forms:

(a) Retaliatory measures specifically targeting the EU, or alternatively, all trading partners alike.   (b) Retaliatory measures in the area of procurement and/or in other trade areas:

- Restrictive countermeasures could be imposed or reinforced[4] on procurement not committed internationally so far left open on the basis of a domestic legislation not limiting the opening of these sectors.

- Imposing tariff and non-tariff countermeasures in response to restrictive measures applicable only to procurement.  Most of the emerging economies have kept flexibility on tariff rising (with the notable exception of China)[5], but objective constraints might however limit the use of tariff-based retaliations[6]. As a result, it cannot be excluded that some trading partners could eventually resort to non-tariff barriers such as administrative requirements, technical barriers or SPS regulatory obstacles for instance

In this context, 3 scenarios have been envisaged in terms of retaliation by trading partners:

(a) No retaliation - none of the trading partners takes measures restricting exports of EU goods and services to their procurement market.

(b) Simple retaliation or retaliation at the same scale[7]- the trading partners that have not enacted crosscutting retaliatory measures like India and Australia introduce such measures and Turkey reinforces its existing measures. 

(c) Boycott - trading partners close completely their public procurement open domestically but not committed internationally, to "boycott" EU goods and services.

The most likely of all retaliation scenarios is the "simple retaliation". Not considering any retaliation would be too a optimistic approach (and wouldn't make this impact assessment sufficiently precautious), whereas a "boycott" scenario is by far too pessimistic (trading partners also need open trade, trading partners that maintain protectionist measures lack arguments to retaliate, trading partners may find less costly to negotiate than to retaliate and trading partners may be bound within pre-existing agreements).

Still, the scenarios "no retaliation" and "boycott" will be used as boundaries to measure costs and benefits of each of the envisaged options.

1.4 - Scope of administrative burden

All options foresee two flows of information obligations:

· Notifications by contracting authorities to the Commission

· Determination of the procurements rules of origin (PROs)

Notification

Two scenarios are possible:

· The notification is an official document sent to the Commission

· The notification is made through existing information obligations such as prior information notices, contract notices and/or contract award notices.

The administrative burden is minimised in our view through the use of existing information obligation.

Determination of PRO

Determining the PRO is a complex exercise because rules of origin are per se complex.

Two scenarios are then possible:

· The task falls on the contracting authority, which might be short of internal resources to proceed and might consequently revert to external assistance in the public sphere ( MS national custom authorities) or on the private market (custom brokers, consultants, lawyers...)

· The task falls on the bidder itself, who is required to produce a certificate to define/prove its PRO (certificate of origin or equivalent document)

The risk of errors will be minimised if the task falls on the bidder, who has all incentives to participate in the bid, rather than in the contracting authorities that are risk adverse to litigation and lack the whole expertise in terms of rules of origin. This is especially important under 3 A where procuring entities have incentives to apply restrictions and, therefore, would be faced with litigation risks if they commit a misinterpretation of PROs.

In addition, the review by the Commission implies the following burden:

Proceeding the review and preparing the decision of the Commission for Commission services Cost of opportunity for procuring entities that would have to delay the launch of the tendering procedure or would face interference between the review procedure and the tendering procedure (depending on notification and review modalities).

1.5 - Overall impact on innovation

In general, measures imposing limitation on the competition pressure in the EU public procurement markets will reduce incentive for bidders to innovate. The relationship between market contestability and incentive to innovate (or adopt innovation) is well developed in economic theory.

However, given the pre-existing level of competition within the EU internal procurement market (5 bids for each tendering procedure), the negative impact of restrictive measures on innovation might be of a reduced scale, except for goods and services’ markets where there is almost an oligopolistic situation (3 bids or less eg pharmaceutical products, medical equipment, maintenance services, tyres, energy). As a result, the impact on innovation has to be assessed in the light of sectors subject to restriction under each option.

1.6 - Overall impact on SMEs

The Opinion of the Economic and Social Committee (2010) on the internationalisation of SMEs, the OECD Athens Action Plan for SME and the publication of the Observatory of EU SMEs identify the following main obstacles to the internationalisation of SMEs:

- Lack of support or advice from national administrations, or even to identify existing support mechanisms.

- Export difficulties caused by foreign legislations

- Problems to identify potential clients

- Problem to set up a subsidiary abroad

- Lack of financing (to invest in market access)

-Anti-competitive practices of local authorities and businesses

They also propose the following recommendations:

- Open up foreign markets through negotiations

- Limit the use of trade defence instruments by third countries

- Promote the respect of EU norms and quality requirements

- Improve trade defence instruments in favour of SMEs

- Ease the administrative support to SMEs

In this context, the main potential impacts of this instrument will be to open markets and offer the possibility to use trade defence mechanisms. At the same time, it will be important to protect SMEs against retaliatory measures.

Gains on access to foreign procurement markets are likely to benefit EU SME at the scale of their share in EU exports (taking into account both direct award of procurement contracts and participation in the performance of procurement contracts via subcontracting).

Given establishment barriers met by SME on foreign markets compared with large-scale companies, they should even take a bigger advantage of the increase of direct cross-border procurement. As language and distance play a great role in direct cross-border procurement, any gain in market access is likely to be positive for :

 

· UK and Irish SMEs in US, Canada, India and Australia.

· Portuguese and Spanish SMEs in Latin America.

· French and Belgian SMEs in Canada.

· Bulgarian, Greek SMEs in Turkey.

· Bulgarian, Estonian, Latvian and Lithuanian SMEs in Russia.

· Polish SMEs in Ukraine and Russia.

The benefit will be therefore proportionate to the value of these procurement markets for each MS companies.

1.7 - Impact on employment

The impact on employment is derived from the additional exports and reduced imports (through retaliation).  Annex 7 provides more detail on how to link impacts on exports and imports, on the one hand, and impacts on jobs in the EU.

1.8 - Overall environmental impact

Measures imposing barriers to foreign goods and services ' access to EU markets may indeed undermine the incentive of foreign firms to adopt stricter environmental standards used by EU firms. Given the large size of the EU procurement market, this can eventually slow down the shift of foreign firms towards the adoption of less polluting techniques and the production of environmentally friendly goods and services.

2. Baseline scenario and option 2B (reinforcement of trade negotiations)

The baseline scenario shows how the problems described in the problem definition will most likely evolve without any further action by the EU. Under this scenario:

      EU public procurement legal framework

· The present legal framework remains in place (Article 58 of Directive 2004/17)

· The proposed Public Procurement directives are adopted with provisions on production processes and on life-cycle cost in selection/awarding criteria

· The proposed Public Procurement directives extend the scope of public procurement that can be committed internationally to all services (except social services) and to service concessions

On-going negotiations and non-EU legislations

· The EU continues to negotiate bilaterally with the US and Japan (railways)

· The EU continues to negotiate the accession of China to the GPA

· The FTA with Ukraine enters into force

· The EU continues to negotiate the FTAs with India, ASEAN, Canada, Mercosur,...

TRADE : see comments on the relevant chapter

In terms of improvement of the access to third countries procurement markets through existing negotiations, a pessimistic scenario and an optimistic scenario shall be analysed. In both scenarios, the results achieved so far with in GPA (opening of Korean railways market, opening of Japanese public private partnerships  and  progressive lifting of offsets in Israel) and full opening of Canadian procurement market can be reached. It is nevertheless very difficult to predict under which conditions China or Russia shall accede to GPA, how the US will conduct its bilateral procurement negotiations and whether the EU will start procurement negotiations with Turkey, Australia, South Africa and ASEAN nations (but Singapore and Malaysia).

Under a pessimistic scenario, it cannot be excluded that (1) bilateral trade negotiations with India or Mercosur are never concluded (eventually for other reasons than procurement) and (2) bilateral trade negotiations with Japan are never started.

Under an optimistic scenario, it can be expected that: (1) India and Brazil (Mercosur) commit their central government procurement (including railways in India and power generation in Brazil) and (2) Japan engages a effective market opening in the railways sector (as prepared by the GPA side agreements and to undertake further market access commitments on local procurement in the context of a possible FTA

The implementation problems will not significantly change - and actually could worsen -as additional Member States will be tempted to take domestic measures, in disregard of the EU's exclusive competence of common commercial policy. As indicated earlier, this could lead the EU to face panels and ultimately undermine the credibility of the EU in international procurement negotiations. Alternatively, the Commission may have to take member States to the ECJ for infringing on the exclusive competence of the EU for the common commercial policy, but this would increase the perception of openness of the EU precisely at a moment when the EU is lacking leverage.

2.1 - Impact on trade flows

Effects of national policies conducted by Member States

Due to the lack of clarity of the rules of origin for services applicable and goods in procurement (hereby referred to as "procurement rules of origin"-PROs), Member States already act and may continue to act in an inconsistent manner affecting trade flows with foreign countries.

Some Member States could, for example, decide to target third countries’ goods and service themselves, while others might prefer to restrict access to firms based in a third country, if not the subsidiary of a firm headquartered in a third country or even a company which lacks experience in the EU. Member States could also contemplate to include franchises or apply restrictions only in those sectors that matter for them (e.g. if dredging is important for Belgium, it may only apply restrictions in that field).

On this basis of existing practices, Member States, which are specialised in sectors, which depend on public procurement, could also be tempted to take national measures to regulate access of third countries firms, goods and services in their own public procurement market, in spite of the fact that this would be in breach of the Treaty.

Autonomous protectionist tendencies by trading partners:

As regards the existing de facto market access, the aftermath of the financial crisis in 2008 and its aftershocks do not suggest that the major economies in the world are tempted to lift their existing restrictive measures in national law, quite on the contrary. In this context, the remaining 11% of public procurement markets that are not committed internationally but are not open de facto may shrink over time.

Moreover, it cannot be excluded that financial resources by States and state-owned companies will be devoted to foster industrial policy mainly based on the development of national champions. 

Retaliatory actions by trading partners

It is difficult to predict the retaliatory actions from trading partners. As a result, we shall analyse 3 types of retaliation scenarios:

- 'No retaliation' scenario: trading partners don't retaliate

-'Simple Retaliation' scenario where only those countries that have not enacted protectionist measures (India and Australia) or that do not apply them systematically (Turkey) actually take measures to block the access from EU suppliers and service providers in the same proportion as the EU; GPA Parties would not take any measures, since they have already agreed with the EU which parts of their procurement can be closed.

-  'Boycott' scenario: trading partners close completely their procurement markets (i.e. the closure of the so-called 'domestic opening' including products that manage to bypass those measures)

The 3 scenarios are possible. Yet, in our view, the scenario 'Simple Retaliation' is the most likely than 'Boycott scenario' or the 'No retaliation scenario'.  Trading partners also benefit in an open trade environment and need specialised products from Europe. Finally, the Buy America policy in 2008 did not lead to anti-American boycotts, it led rather to Buy National measures affecting all foreign products of services, independently from their origin.

Impact on negotiating power and the level of openness of the international procurement markets:

Inconsistent policies by Member States could, furthermore, undermine the EU's credibility in trade negotiations. Third countries, aware of gaps between the specified level of access to EU procurement markets and the actual access conditions, may also remain reluctant to undertake market access commitments. This would especially be the case if trading partners have the possibility, without taking any legal commitments, of obtaining major contracts in Member States that maintain a significant degree of market opening, despite major restrictions taken in some other Member States.

Conversely, the imposition of disproportionate restrictions by certain Member States without coordination on the EU level may trigger disproportionate retaliation by trading partners against all EU companies, going beyond the current market access barriers met by them. The absence of a consistent EU framework may therefore jeopardize the EU efforts to convince third countries to open up their public procurement markets.

2.2 -Impact on competitiveness

Additionally, protectionist measures by trading partners like the Chinese indigenous innovation policy will lead to artificial technology transfers that may reduce the competitive edge of EU firms that manage to bypass the existing national restriction thanks to their highly-specialised products for which they are often the sole producers in the world (e.g. pharmaceuticals[8]). As a result, the current ability of high-tech sectors to not be targeted by existing measures may diminish over time.

Multinationals from emerging economies (BRICs, Turkey) active in sectors depending on public procurement will certainly increase their worldwide market share in the coming years. They are likely to be attracted by the EU public procurement market, which is de facto open, further widening the existing disequilibria.

2.3 -Impact on compliance

The possible inconsistent or even conflicting measures taken by Member States or their procuring entities may put into question the EU's fulfilment of its procurement international commitments. National legislation on PRO can affect the compliance with the EU obligations in terms of national treatment or MFN under the GPA or FTAs.

In addition, they would undermine the unity of the common trade policy in contraction with the uniformity imposed by Article 207 of the TFEU.

Similarly, these diverging regulations and practices may interfere with the free circulation of goods and provision of services within the internal market, in breach of the treaty.

2.4 - Option 2B - reinforcement of trade negotiations

As indicated by the business trade associations during the Liaison Forum, to further open up public procurements across the globe, the EU could negotiate more forcefully.

Under this option, the EU would (1) systematically encourage trading partners to join GPA, TRADE comments : this is actually the baseline scenario since the strategy highlighted in the communication " global Europe" has been implemented(2) seek the development or the expansion of market access commitments on government procurement in existing FTAs  (Chile, Mexico) or (3) try to convince trading partners to include market access in the discussions of the trade provisions of ongoing PCA negotiations ( such as EU-Australia PCA)

In fact, except for Australia and Turkey, the EU is already negotiating forcefully along the aforementioned lines: it has recently concluded successfully the GPA negotiations with new markets (Canada, Korea, dismantling of Israeli offsets) or commitments to further negotiations (US, Japan) public procurement is an important part of the pre-conditions to launch the EU-Japan FTA, the EU has linked the conclusion of the EU-India FTA negotiations to a substantial procurement chapter, the EU-Mercosur negotiations were only re-launched on the condition of the inclusion of a public procurement chapter...as a result, India has submitted a new bill on procurement and Mercosur countries are negotiating the opening of procurement to each other.

The EU has still an ambitious set of negotiations programmed in the medium-term: Russia has taken commitments to join GPA, China's accession to GPA, bilateral negotiations with Japan and US, FTAs... ., and possibly with a number of ASEAN countries beyond those with which negotiations are already on-going. .

Consequently, this option would basically amount to a continuation of existing policy and would fail to address one of the core issues, namely the lack of proper leverage to pry open third country PP markets.[9].

3. Option 2A - legal clarification and enhanced use of existing mechanisms

Contracting entities could apply Article 58 on a more sound legal ground, and especially without encoring the risk of infringing international commitments short of understanding their scope (no 'strict' reciprocity as the scope of international commitments in utilities' procurement is known).

3.1 -Impact on public procurement market players and effectiveness

In the current situation, individual procuring entities have no incentive to use article 58 (2) for the following reasons:

- The mechanism is optional and therefore there is no requirement to comply with a legal obligation.

- The mechanism imposes the identification of foreign bids on the basis for PRO that makes up for an administrative burden.

- There is some legal uncertainty on the scope of international commitments and the determination of PRO.

The guidance provided by the Commission on international commitments and PRO would eliminate or at least significantly reduce the legal uncertainty (and actually improve the proper application of EU international commitments) and alleviate the administrative burden. However, the burden will remain as well as the absence of a mandatory character.

It can be expected that in some Member States, the improvement of legal certainty will be invoked by central government to advise a more frequent use of article 58 (2). However, utilities, which happen to be in partially liberalised sectors, may not be inclined to follow these recommendations. The case of instruction imposing the implementation of article 58(2) should be regarded as infringing the directive and, for some of them, their autonomy vis-à-vis central government in national legislations.

Based on all these assumptions, the use of Article 58 is therefore expected to increase, but not necessarily significantly. The effect of this device under Article 58 may de facto continue to be confined.  For the purposes of the calculations of impacts, we shall estimate a neutral usage of 50% (tossing coin probability), as we predict that contracting authorities have no incentives to use it and therefore the percentage cannot be 100%.

3.2 - Impact on trade flows

Table III.1 - Scope of Article 58 and EU international commitments

|| US || JP || CA || KR || IL || MX || TW || CN || RU || IN || BR || TR || UA || AU ||

Defence || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Aerospace || 0 || 1 || 0 || 0 || 1 || || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Post & Apt sorting || -1 || 0 || -1 || -1 || 0 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Firefight & Sea Rescue || 1 || 1 || 0 || 1 || 1 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Construction Dredging || 0 || 1 || 0 || 1 || 1 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Constr. Equipment || 1 || 1 || 0 || 1 || 1 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Railway equipment || -1 || -1 || -1 || -1 || 0 || -1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Urban buses || -1 || -1 || -1 || -1 || -1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Power generation || 1 || -1 || -1 || 0 || 0 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Water & Sewage || -1 || 1 || -1 || 1 || 1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

Waste mgmt & env || 1 || 1 || 0 || 1 || 1 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Pharmaceuticals || 1 || 1 || 0 || 1 || 1 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Medical equipment || 1 || 1 || 0 || 1 || 1 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Specialised textiles || 1 || 1 || 0 || 1 || 1 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Business services || 0 || 0 || 0 || 0 ||   || -1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Financial services || -1 || -1 || 0 || 0 || -1 || -1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Oil, Gas Min equipmt || || || || || || || || || || || || || || ||

Fixed telecom eq. || || || || || || || || || || || || || || ||

Computer & IT serv || 0 || 0 || 0 || 1 || 1 || 0 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Street lighting || 1 || 1 || 1 || 1 || 1 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Broadcasting equip || 1 || 1 || 1 || 1 || 1 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 ||

Port equipment || 1 || 1 || -1 || 1 || 1 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1 || Art 58

|| || || || || || || || || || || || || || ||

As shown in Table 1, Option 2 would only affect 7 of the 22 markets selected (aerospace, sorting machinery for posts and airports, railway equipment, urban buses, power generation, water & sewerage and port equipment). It has no impact on construction, as this is a service. Port equipment is the market, which is the least affected, whereas the railway equipment sector is most covered.

Table III.2 - Impact of Article 58 (2) on market access

|| Loss on PP market

United States || -11,3%

Japan || -10,1%

Canada || -16,4%

Korea || -11,9%

Mexico || -14,4%

Israel || -2,6%

China || -16,4%

Russia || -16,4%

India || -16,4%

Brazil || -16,4%

Turkey || -16,4%

Ukraine || -16,4%

Australia || -16,4%

Table III.3 - Impact of Article 58 on import of goods in the EU

IMPACT || Impact (Bn EUR)

Total Imports of goods in EU PP  (including EEA/EFTA) || 23,9

Impact of Article 58 on main GPA countries* || -0,75

Impact of Article 58 on main other countries* || -1,43

Total impact of Article 58* || -2,18

Imports of goods if Article 58 (2) applied systematically (including EEA/EFTA) || 21,7

Source: SBS DG ENTR, EU GPA report and own calculations

*None of the EEA/EFTA countries has been considered as "impacted"

The procurement falling under Article 58 covered 2 billion EUR of goods imports in 2007 from the 12 main trading partners, out of which 1,5 billion EUR come from non-GPA economies[10] (cf. table 3).

Impact for trade flows of the 3 % price preference when bids obtain an equal scoring

Even if conditions were met for a systematic use of this mechanism, its effect would remain quite limited. Indeed, the mandatory mechanism applies only when bids from a third country obtain exactly the same scoring as an EU or GPA/FTA covered bid from third countries. In addition, the price preference is too low to seriously restrain the access to the EU utilities markets (cf problem analysis)

3.3 - Impact on exports - Retaliation

a) No retaliation scenario - no effect

b) Simple retaliation scenario - If trade partners apply a proportional retaliation, then the total impact on exports will be 0,4 billion EUR (reactions from Turkey, India and Australia).

c) Boycott scenario - In spite of the fact that Article 58 exists already since 1990, we could extrapolate that the systematic use of Article 58 provisions could in extremis lead to 1 billion EUR of retaliations. In this context, we will assume that any clarification of Article 58 will lead to a retaliation of trading partners of the same market proportion (i.e. if EU closes its market to China by 20%, then China will cut the existing access by 20%. we could extrapolate that the systematic use of Article 58 provisions could in a worst case scenario lead to 1 billion EUR of retaliations.

3.4 - Impact on innovation –

The immediate impact in innovation is likely to be very small, as Article 58 (2) does not apply to the access in research and development services nor on service concessions (cf. infra).

On this limited scope, it gives the possibility to limit the benefit of key purchases like renewable power equipment, smart grids, air traffic equipment or high-speed trains to EU firms or firms that have a "substantial link to the EU economy" (both energy and transport are part of the 7th research programme).

However, based on the assumption presented in the introduction, restrictive measures would limit in parallel the incentive for innovation. This could be the case of some utilities like railways, postal services and electricity where there is an average number of three bids per tendering procedure.

3.5 - Impact on trade position of the EU - leverage and retaliation

Leverage - A reinforcement of Article 58 will only affect 16 of 50 offensive interest markets of third countries. It reduces the domestic opening gap between the EU and the 13 selected trading partners (except in Israel) as follows:

Table III.4– Estimated impact of full use of Article 58 (2) on domestic markets free of trade barriers ("domestic opening" of EU and main trading partners) 

 

|| TRADING PARTNER || EU27

|| Above-threshold market || DOMESTIC OPENING || DOMESTIC OPENING Vis-à-vis trading partner

European Union || 370 || - ||

United States || 559 || 32% || 89%

Japan || 96 || 28% || 90%

Canada || 59 || 10% || 84%

Korea || 25 || 83% || 88%

Mexico || 20 || 75% || 86%

Israel || 2,1 || 75% || 97%

China || 83 || 0% || 84%

Russia || 18 || 36% || 84%

India || 19 || 55% || 84%

Brazil || 42 || 18% || 84%

Turkey || 23,7 || 0% || 84%

Ukraine || || 60% || 84%

Australia || 20 || 50% || 84%

TOTAL || 967 || 40% || 84%

The incentive to negotiate measured through the leverage index (ratio of country X and EU exports going through procurement NOT committed internationally) improves dramatically for the EU vis-à-vis Korea, Brazil, Turkey and, to a lesser extent, vis-à-vis Japan, Canada. However, interestingly, Option 2 does not fundamentally increase the leverage of the EU vis-à-vis the USA.

Table III.4 Leverage index of Option 2

|| Option 2

|| Leverage index

USA || 1%

Japan || 27%

Canada || 21%

Korea || 56%

Mexico || 0%

Israel || 0%

China || 11%

Russia || 17%

India || 10%

Brazil || 35%

Turkey || 25%

Australia || 0%

3.7 - Impact on public finances

This option would entail no costs for public administrations, as utilities are not part of the ESA95.

Unless regulated by Member States, the use of Article 58 it is optional and at the discretion of the utility itself, which will the weight and benefits of using it.

If all utilities were to use Article 58 and as a result relinquish one offer (the average number of offers for utilities is 3), then the potential impact would fall in the range of 26 to 50 million EUR (expected 'savings loss' from moving from 3 to 2 bids), therefore reducing by 0,25 % the current estimated savings resulting from the application of the PP directives.

This cost would be transferred to final users via fees of utilities services. Yet the amount is negligible in relation to the total expenditure of utilities in the EU.

Impact on GDP

Based on the CG simulation model and taking into account that it would be limited to the utilities sector, this mechanism would have no significant impact on EU GDP.

3.8 - Impact on administrative burden

If all utilities would decide to apply Article 58 and thus request systematically a certificate of origin, whose cost has been estimated to be 5 EUR, then the maximum total administrative burden will amount to 115.000 EUR. This will increase the total administrative burden of public procurement by 0,05 % (cf opinion of the High Level Group on administrative burden) and would not affect the total cost of public procurement procedures ( cf PWC study that estimates the cost of PP procedures to 5 billion EUR).

Due to low incentives for applying article 58 (2) despite the improvement of legal certainty, the effective administrative burden would be less important.

3.9- Impact for the environment

Enhanced application of article 58 (2) could negatively impact the diffusion of EU standard for the utilities sector. For instance, targets for reducing CO2 and other polluted gas emissions imposed by the directive on clean vehicle would be limited to the EU car industry.

At the same time, the obligation for EU utilities to source mostly EU goods may positively affect C02 emission from reduced import. However, this impact is likely to be marginal if not negligible.

3.10-Impact on international commitments and legal certainty

Table III.5 - Remaining areas with potential implementation problems ("PB")

|| US || JP || CA || KR || IL || MX || TW || CN || RU || IN || BR || TR || UA || AU

Defence || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK

Aerospace || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK

Post & Apt sorting || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK

Firefight & Sea Rescue || PB || PB || PB || PB || PB || PB || || OK || OK || OK || OK || OK || OK || OK

Construction/Dredging || OK || PB || PB || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK

Constr. Equipment || PB || PB || OK || OK || PB || OK || || OK || OK || OK || OK || OK || OK || OK

Railway equipment || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK

Urban buses || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK

Power generation || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK

Water & Sewage || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK

Waste mgmt & env || PB || PB || PB || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK

Pharmaceuticals || OK || PB || PB || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK

Medical equipment || OK || PB || PB || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK

Specialised textiles || PB || PB || OK || PB || PB || OK || || OK || OK || OK || OK || OK || OK || OK

Business services || OK || OK || OK || OK || PB || OK || || OK || OK || OK || OK || OK || OK || OK

Financial services || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK

Oil, Gas Minequipmt || || || || || || || || || || || || || ||

Fixed telecom eq. || || || || || || || || || || || || || ||

Computer & IT serv || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK

Street lighting || PB || OK || PB || OK || PB || OK || || OK || OK || OK || OK || OK || OK || OK

Broadcasting equip || PB || OK || OK || PB || OK || OK || || OK || OK || OK || OK || OK || OK || OK

Port equipment || OK || OK || OK || OK || OK || OK || || OK || OK || OK || OK || OK || OK || OK

With a detailed guidance on the scope of non covered procurement for utilities sectors in goods, procuring entities should better understand in which case they can impose restrictions based on article 58 (2).

This would certainly avoid at least two types of wrongful implementations of article 58 (2):

(1)  Use of restrictions on procurement sectors other than goods for utilities

(2) Restrictions based on erroneous “ strict reciprocity clause”

Such improvement would not concern procurement sectors out of the scope of article 58(2) and therefore not improve legal certainty for these sectors

3.11 - Article 59:

Effectiveness and behaviour of players

The implementation of article 59 is based on decisions by the Council upon proposal by the Commission.

In the past, the Council has adopted restrictive measures against the US on the basis of a stand -alone regulation.

If the Commission were to impulse a more proactive policy by tabling a concrete proposal, there is no possibility to predict what would be the position of the Council. No assumption can be done on the likelihood of the use of the mechanism for the future.

The analysis of market player's behaviour under this option[11] indicates that contracting authorities have all incentives to apply the restrictions, since they would be willing to avoid litigation risks (legal actions by EU bidders or infringement procedures by the Commission

Impact on GDP

Based on the CG simulation model and taking into account that impacts would be limited to the utilities sector, this mechanism would have no significant impact on EU GDP.

Impact on the environment

Enhanced application of article 59 could negatively impact the diffusion of EU standards for the utilities sector (green services such as water and waste treatment, noise abatement)

3.12- WTO dispute settlement mechanism

Effectiveness and behaviour of market players

Building up cases for the WTO/FTAs dispute settlement mechanism implies a close cooperation between the Commission and the Industry, especially when collecting concrete evidences of abusive practices.

Entering such a collaborative work with the industry raises specific difficulties in the areas of government procurement.

In many instances, trade barriers opposed by procuring entities in third countries are based on indirect discriminations such as distorted use of qualification requirements or award criteria. It is therefore uneasy for individual companies to bring forward real evidences of unfair treatments. Even worst, individual businesses fear, that, in case of investigation based on specific procurement contracts, they could be identified by the trading partners as being the source for a WTO case and would be subject to retaliatory measures in the next tendering procedures.

Impact on negotiating power and level of opening of trading partners

By definition, the use of WTO/FTAs dispute settlement mechanism is limited to procurement covered by GPA or FTAs. It may enhance the level of enforcement of existing commitments but cannot bring additional leverage for negotiation with non-GPA/FTA countries or with GPA/FTAs partners on not covered procurement, unless the threat of a panel might add some pressure on the course of negotiations.

3.13- Infringement procedures by the Commission

Effectiveness and behaviour of players

Infringement procedures by the Commission could be based either on wrong implementation of article 58.2 (abusive rejection of third countries' bidders) or of article 58.3 (failure to reject bids falling into the scope of these provisions). It could also imply to conduct infringement procedures when the Council has decided the imposition of restrictive measures under article 59 and where procuring entities do not comply with these measures.

These two first scenarios pose a clear monitoring issue. Under the current directive and its implementing measures, there is no concrete possibility to track down the rejection of foreign bids, short of mandatory publication.

The Commission's awareness on possible infringements would rely mostly on complaints by stakeholders, third countries' suppliers or individual citizens.

As regard the implementation of article 58 (2) and (3), two adverse processes might occur. In case procuring entities would apply systematically these provisions, there is no doubt that third countries' suppliers would tend to complain on a regular basis. In the other hand, more developed guidance on international commitments should improve the level of compliance and therefore, concrete infringement cases should be reduced. 

Likeliness of a better monitoring of article 59 based decisions will not be tested here since there is no evidence that these provisions would be much more implemented in the near future. Similarly, there is no point in measuring up the impacts of such a monitoring process.

Impact on trade flows:

As the systematic use of article 58 (2) would be still uncertain (given the absence of incentive for individual procuring entities), there is no evidence that a reinforced monitoring process by the Commission would have any quantifiable impact on trade flows.

In case the Commission would be in a position to substantiate cases for failure to implement article 58 (3), it can be assumed that individual procuring entities would tend to enforce on a systematic basis these provisions, based on their aversion to risk of litigations. However, as mentioned above, the scope of article 58 (3) is too narrow to expect that such a systematic use will trigger a quantifiable impact.

Impact on negotiating power or level of opening of trading partners

As far as article 58(2) is concerned, an increased monitoring by the Commission will not directly increase the negotiating power or the level of opening of trading partners. Since the monitoring process would focus on the compliance with international commitments, it would rather secure procurement markets for foreign bids rather than opening third countries' markets.

However, from a systemic point of view, such a monitoring process may increase the level of confidence of EU trading partners when negotiating with the EU and therefore accept more easily to undertake market access commitments.

Conversely, a better monitoring of the implementation of article 58 (3) may have a direct impact on the EU negotiating position, even very limited. Since infringement procedures against MS would trigger a more systematic enforcement of these provisions, trading partners could perceive it as a signal and could be poised to react upon such a signal. However, the limited scope of article 58 (3) may restrict the significance of such a signal.

Impact on administrative burden:

The guidance should increase the level of compliance as described above. In parallel, a complaint driven infringement monitoring should result in the opening of some cases. Although it is difficult to assess the volume of cases the Commission would have to launch, we could estimate the additional administrative cost to be roughly 2 million EUR (i.e. one additional FTI)

4. Common elements to all legislative options

Core elements

Under all approaches the legislative initiative would:

1. Reflect in EU law the international market access commitments taken by the EU in the area of public procurement;

2. Define the treatment of "foreign" goods and "foreign" service providers in procurement not covered by these international commitments throughout the EU;

3. Grant goods and services originating in least developed countries (as defined by the UN) the same treatment as EU goods and services;

4. Determine rules of origin applicable to identify non EU goods and non EU service providers.

The scope of the legislative initiative would mirror the scope of the public procurement Directives 2004/17/EC and 2004/18/EC (i.e. same thresholds, etc) with the possible inclusion of service concessions at a later stage. The choice of this scope is based on the consideration that procurement contracts within the scope of these Directives present the most important business opportunities for cross-border trade within and outside the EU. The initiative would also exclude defence procurement, which is subject specifically to EU Directive 2009/81/EC[12].

The initiative would provide a definition of public procurement covered and not covered by the EU's international commitments[13].

For the purposes of determining whether a procurement falls within the category of covered or non covered procurement, the initiative would establish  "procurement rules of origin" (PROs) to identify the origin of goods and services included in tenders:

· The PROs for goods will be those in the Community Customs Code

· The origin of services will be established on the basis of the origin of the service supplier. On the basis of GATS definitions, this would mean that if the supplier is established outside the EU or in the EU, but owned or effectively controlled by foreign companies, the service would be considered to be foreign.

5. Options 3A

Contracting authorities and businesses are assumed to know the scope of potential restrictions in advance, based on guidance by the Commission that would come with the legislative option.

      Under this approach EU contracting entities would be required, in principle, to exclude third country goods, services and companies not covered by the international commitments of the EU.  The EU public procurement market is therefore a priori closed.

Still, under option 3A contracting authorities would be able to use "waivers" to depart from this closure, which would not exist under option 3C (cf. infra).

5.1.- Impact on public procurement market players

The analysis of market player's behaviour under this option[14] indicates that contracting authorities have all incentives to apply the restrictions:

- They would be willing to void litigation risks (legal actions by EU bidders or infringement procedures by the Commission

- They would face no additional administrative burden since the notification of rejection is done via existing advertising obligations (contract notice and contract award notice)

- The Commission's guidance also clarifies the scope of the waivers based on sourcing constraints", "cases of emergency", "overriding reasons of general interest" and/or "disproportionate costs".

Option 3A

Contracting authorities know the CPV codes of the restrictions that apply to them; they also know the criteria during which they can invoke the "exceptions" to the restrictions. However, until receiving bids, a contracting authority may not be fully able to judge whether there are "sourcing constraints" or "disproportionate costs", or whether the restriction will be lifted for pharmaceutical products and medical equipment. Central governments are assumed to inform contracting authorities about "overriding reasons of general interest".

Businesses know the CPV codes where they could be discriminated (for GPA/FTA countries) or know that they are systematically discriminated (rest of the world). The latter will not even bother looking at TED anymore (except eventually for pharmaceutical products and medical equipment).

At the time of the bidding, businesses might face asymmetries of information if they cannot judge whether the contracting authority considers that there are  "sourcing constraints", "cases of emergency", "overriding reasons of general interest" and/or "disproportionate costs". Such an asymmetry and its impacts on the decision to bid are avoided if the contract notice indicates whether the contracting authority intends to waive the restrictions on the aforementioned grounds.

.

5.2 - Impact on trade flows of goods and services

Table V.1 - Scope of international commitments and markets closed in option 3A

|| International commitments vis-à-vis 13 selected countries || ||

|| UE || US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || UA || AU

Defence || 2 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Aerospace || 1,5 || 0 || 1 || 0 || 0 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1

Post & Apt sorting || 2 || -1 || 0 || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Firefight & Sea Rescue || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Construction Dredging || 1 || 0 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Constr. Equipment || 1 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Railway equipment || 2 || -1 || -1 || -1 || -1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Urban buses || 2 || -1 || -1 || -1 || -1 || -1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Power generation || 1,5 || 1 || -1 || -1 || 0 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Water & Sewage || 2 || -1 || 1 || -1 || 1 || 1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Waste mgmt & env || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Pharmaceuticals || 1 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Medical equipment || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Specialised textiles || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Business services || 0,5 || 0 || 0 || 0 || 0 ||   || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Financial services || 0,5 || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Oil, Gas &Min equipmt || 0 || || || || || || || || || || || || ||

Fixed telecom eq. || 0 || || || || || || || || || || || || ||

Computer & IT serv || 1 || 0 || 0 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Street lighting || 2 || 1 || 1 || 1 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Broadcasting equip || 1 || 1 || 1 || 1 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Port equipment || 2 || 1 || 1 || -1 || 1 || 1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Option 3A would affect all sectors as shown in Table 7,. Among GPA Parties,  most of the markets affected are utilities-related (aerospace, sorting machinery for posts and airports, railway equipment, urban buses, power generation, water & sewerage and port equipment) as well as financial services. Overall, option 3A would fully close 70% of all markets presented in Table 7. Option 3A has an impact on construction in particular vis-à-vis US (local governments) and non-GPA Parties.

Table V.2 - Market access reflects EU international commitments

|| TRADING PARTNER || EU27

|| Above-threshold market (billion EUR) || Internationally committed || EU commitments vis a vis TRADING PARTNERS(country specific derogations included)

European Union || 370 || 95% ( maximum coverage offered) ||

United States || 559 || 32% || 46%

Japan || 96 || 23% || 70%

Canada || 59 || 4% || 10%

Korea || 25 || 77% || 83%

Mexico || 20 || 75% || -

Israel || 2,1 || 75% || -

China || 83 || 0% || 0%

Russia || 18 || 0% || 0%

India || 19 || 0% || 0%

Brazil || 42 || 0% || 0%

Turkey || 23,7 || 0% || 0%

Australia || 20 || 0% || 0%

TOTAL || 967 || 25% || 18%

Under Option 3A, the EU closes its non-covered public procurements and, as a result, market access to third countries is limited to international commitments. The impact on GPA countries is limited for the US and Japan, but is strong vis-à-vis Canada. Of course, countries without agreement in the area of public procurement lose access to the EU public procurement market.

If all restrictions had been applied under Annex 3A in 2007 (simulation) to public procurement covered under the directives, some 7,5 billion EUR of goods would have been impacted (0,7 % of all EU imports of goods in 2007) and foreign companies could have lost between 1,5 and 2 billion EUR of service contracts[15].  If service restrictions are applied on firms bidding for public service contracts from outside the EU, then the amount is less than 0,2 billion EUR.

Table V.3 - Impact of restrictions on real imports of goods (2007)

IMPACT (billion EUR) ||

Imports of goods in EU PP || 23,9

Impact on main GPA countries || -1,0

Impact on main other countries || -6,4

Total impact || -7,4

Imports of goods after restr || 16,5

Table V.4 - Service contracts awarded to non-EU firms established in the EU (2007)

|| Total value

 Not committed ||  2 346 589 625  

 Committed ||  3 194 808 489  

* PP awarded to a company  despite the absence of international commitmets

** PP awarded to foreign company   in the scope of  international commitments

Source: EU Official Journal, TED database

Table V.5 - Impact of restrictions on real imports of services (2007)

IMPACT (billion EUR) ||

Imports of services in EU PP || 3,9

Impact on main GPA countries || -0,83

Impact on main other countries || -0,55

Total impact || -1,38

Imports of services after restr || 2,52

In addition, if Option 3A is applied systematically it can lead to the following sourcing constraints, and probably disproportionate consequences, in specific markets where:

· Products are to a very large extent imported such as computers, medical equipment and fuel. Imported computers represent 70% of all computers sold in the EU and the EU public procurement market absorbs 8% of the whole demand of computers. Moreover, the EU is largely dependent on fuel from third countries (Russia and Middle East), for which there are no EU competitors.

· The number of bids is generally low. This is the notably the case for pharmaceutical products, medical equipment, maintenance services, tires, energy (fuel, gas, electricity) services from network industries (air transport, electricity distribution, helicopters, postal services...) - all these products and services were found to have less than 3 bids. 

The existence of the waivers should however reduce the impact of sourcing constraints, especially if procuring entities can rely on exemption in case overriding reasons of general interest" for the maintenance of order and safety, public health and public morals. This may relax the shortage risk on purchases of pharmaceuticals, medical equipment, and eventually fuel.

Table V.6 - Impact of restrictions on real imports of goods (2007) if fuel, pharmaceuticals and medical equipment are "waived" from Option 3A

IMPACT (billion EUR) ||

Imports of goods in EU PP || 23,9

Impact on main GPA countries || -0,85

Impact on main other countries || -5,15

Total impact || -6

Imports of goods after restr || 17,9

Table V.7- Impact of restrictions on real imports of goods (2007) if computers are ALSO included in the goods that can be "waived" from Option 3A

IMPACT (billion EUR) ||

Imports of goods in EU PP || 23,9

Impact on main GPA countries || -0,74

Impact on main other countries || -2,46

Total impact || -3,2

Imports of goods after restr || 20,7

In terms of imports, if computers are to be waived, the impact for non-GPA countries is halved (China), as only some 2,5 billion EUR fall in the scope of the instrument. If the waivers are limited to pharmaceuticals and medical equipment, then the impact on option 3A will be very limited (mostly because the imports from the US fall in the current scope of the GPA).

Service concessions - Service concessions are a major exemption from the Classic and Utilities Directives. Although apart from individual anecdotal evidence for particular cases there seem to be no easily available statistical sources for the value of this expenditure. An impact assessment has been carried out in view of a possible legislative framework on service concessions. It seems that, during the period 2000-2006, public private partnerships have amounted to 230 billion EUR out of which 60 % appear to be services concessions

Finally, it is also important to take stock of the following unintended effects:

· Retailers and wholesalers: The restrictions will require retailers and wholesalers to modify their portfolio of products. In some cases, this may also broaden the actual impact of the instrument as retailers and wholesalers may fully exclude foreign goods altogether to avoid the costs of managing one inventory for public customers and one inventory for private customers. 

· Transit Infrastructure: Ports and airports may see a slight reduction of their business as Option 3A hits 0,7% of imports that will not transit anymore by EU infrastructure.

· Supply chains and processing trade in China: Based on literature and Chinese statistics[16], the potential processing trade affected by Option 3A would amount to 3,8 billion EUR, with two-thirds taking place in computers and the remaining in medical equipment (12%) and telecom (10%).  As Chinese state-owned firms represent 20% of all Chinese exports[17], option 3A could hit some 260 million of these firms’ turnovers.  We can safely consider that EU firms re-exports to the EU from China that could be affected by Option 3A amount to maximum 0,4 billion EUR[18]. If Option 3A is not applied for computers, pharmaceuticals and medical equipment, then the impact could be lowered to 0,1 billion EUR.

· Supply chains and processing trade in the USA:  Based on data from the Transatlantic Council[19], as 30% of EU imports from US are related party trade, the potential processing trade for EU firms affected by Option 3A would amount to 0,5 billion EUR.

· Overall, by extrapolation, supply chains could be affected up to 6 billion EUR.

"Unintended "trade reallocation

Some of procurement contracts that would be closed to goods and services originating in specific countries short of international commitments (unscheduled procurement) or on the basis of country-specific derogations  (excluded procurement) could be certainly awarded to bidders from other GPA/FTAs partners whose access to the EU procurement markets is secured on the basis of these agreements.

The disjunction between the "nationality" of bidders and the origin of goods as well these reallocation processes would trigger reorganisation in the supply chain for our trading partners and also for the EU companies.

As the IT sector is concerned, normally it should not be affected, because computers are likely to fall under the waiver system because of 'sourcing constraints'. However, if that were not the case, option 3A restrictions affecting Chinese computers will be affecting Korean and Taiwanese manufacturer's supply chains. The 2,4 billion EUR sales of computers to EU contracting authorities hit by Option 3A are mostly produced by Korean and Taiwanese companies (to a lesser extent Japanese companies). These companies from GPA countries could relocate their supply chains elsewhere to bypass the restrictions (the EU public procurement market absorbs 8% of all the demand for computers in the EU). Japanese and US computer producers may relocate their activities to their home countries (or to Romania, Bulgaria).  If medical equipment is excluded, the other remaining sector is telecom equipment. The main EU telecom equipment manufacturers have important industrial activities in China.

This also means that this policy option could hurt the competitiveness of our firms who would be forced to change their production structure to bypass a protection measure that was imposed by the EU itself

5.3 -Economic impacts

Under Option 3A, foreign companies selling goods and services to EU contracting authorities may have to either relocate their activities to the EU or countries with whom the EU has agreements (via these unintended relocation phenomenon) or abandon the B2G market. For instance, further to the Buy America, a EU lighting company had to relocate its production for the US government to the US. 

First and foremost, as explained, computers will be far the most impacted good.

There may be relatively large impacts on some specific sectors, in particular those with higher dependency on public procurement  (defence, railways, urban buses, fire-fighting). Relocation in the EU could lead to higher cost of production, but not necessarily.

Additionally, option 3A might encourage foreign direct investment by firms from BRIC countries, which are at the eve of their internationalisation. For instance, the thriving Brazilian bus industry - which has not yet placed its foot in the EU market – might set up need to set up manufacturing activities in the EU to sell in the EU market, with positive consequences for EU jobs. (Low-cost activities could be off shored to countries like Romania and Bulgaria).

The pattern of new activities in the EU would depend on the structure of supply chains. Companies relocating activities from countries like China and India will tend to bring back to the EU low-added value activities, whereas companies relocating from US or Japan may tend to bring back high-added value activities. However, in sensitive industries like defence or R&D-intensive, this may be more limited as companies may fear the diffusion of technological knowledge.

However, the processes described above for trade flows are likely to limit the extent of relocation of production sites and FDI within the EU. As investment decisions take into account a broad set of criteria including pre-existing competitiveness (based on prices, tax and legal framework, innovation capacities), it can be anticipated that EU GPA/FTAs partners would benefit from this flows– especially emerging countries with which the EU has concluded or will conclude preferential trade agreements with market access commitments.

In parallel, it should be also assumed that the entry of new firms in the EU market could displace some of the other firms in the market.

Dynamic of these FDI result partially from the phenomenon of ‘tariff jumping’. Companies bypass trade barriers by creating industrial activities the countries protected by those trade barriers.

The closure of certain EU markets will lead some industries to relocate in the EU in order to supply EU contracting authorities, in particular in those sectors that are mostly dependent from public procurement.

However, as soon as trading partners will open their own procurement markets, the ‘tariff jumping FDI’ in the EU will lose its raison d’être and companies may leave their presence in the EU inasmuch as the EU will be able to re-attract activity in those sectors where it has comparative advantages.

5.4 - Impact on international commitments and legal certainty

Thanks to explanatory documents, contracting authorities will understand goods of which countries can be discriminated. In these conditions, the EU international commitments will be respected and the consistency of EU trade policy will be ensured.

Legal certainty will be reliant on the clarity of the applicable rules of origin. Since the latter are the same throughout the EU, the treatment of foreign goods by contracting authorities will not vary, ensuring therefore the consistency of the EU public procurement policy.

5.5 - Impact on trade position of the EU - leverage and retaliation

Retaliation

a) No retaliation - no effect

b) Simple retaliation -  The effects of measures taken in Turkey, India and Australia could impact EU exports by 1,1 billion EUR.

c) Boycott

As explained, in the introduction, different types of retaliatory measures are to be considered, especially in the case of an overall closing of the EU GP markets not committed internationally.

If the immediate retaliatory measures are focused on the access to markets not committed internationally, the EU may be exposed potentially to 4,6 billion EUR of retaliation if the EU takes option 3A.

Leverage

Under the assumption that trading partners do not take any measures, the incentive to negotiate measured through the leverage index (ratio of country X and EU exports going through procurement NOT committed internationally) improves dramatically for the EU vis-à-vis the US, Japan, Korea, Canada but also in particular vis-à-vis the BRICs. The leverage vis-à-vis the USA improves dramatically vis-à-vis Option 3 and even more so if the instrument covers defence (same for Israel).

Should trading partners retaliate, and then the leverage index diminishes vis-à-vis Japan and remains stable vis-à-vis Korea and Canada (compared to the baseline scenario). Option 3A may in some cases slightly increase leverage vis-à-vis the US and BRIC countries even if one considers the risk of retaliation.

In terms of international stance, the EU will however lose certain credibility when requesting the market opening of other trading partner. , it would weaken the EU voice within the G20 when calling for trade liberalisation and containment of protectionist tendencies..

Table V.8- Leverage index of Option 3A

|| Option 3A

|| Leverage index

USA || 23%

Japan || 53%

Canada || 41%

Korea || 111%

Mexico || 0%

Israel || 0%

China || 38%

Russia || 102%

India || 83%

Brazil || 181%

Turkey || 37%

Australia || 80%

5.6 -Impact on public finances

Table V.9- Financial impact of losing one bid for contracting authorities

|| Imports || Bids (t=0)   -Mean- || Bids (t=1) -Mean - || Saving (t=0) || Saving (t=1) || Impact (billion EUR)

Services || 1,22 || 4 || 3 || -9,0% || -7,2% || -0,023

Goods || 7,4 || 5 || 4 || -10,5% || -9,0% || -0,108

Construction || 0,15 || 4 || 3 || -9,0% || -7,2% || -0,003

|| || || || || Total || -0,133

If contracting authorities, which purchased non-EU goods, lost one bid out because of the restrictions of Option 3A, their saving loss would have been 133 million EUR. If they lost 2 bids, the total saving loss would be 300 million EUR.

5.7- Impact on administrative burden

Notification process - Option 3A foresees that the contracting authority indicates in the contract notice, if it intends to waive the public procurement on the grounds of "disproportionate costs", "sourcing constraints" and "overriding reasons of general interest" and to inform it ex-post in the contract award notice.

As the standard forms are mandatory for the publication of a call for tender and is a current obligation, there is no additional administrative burden.

If contracting authorities have to send a full notification to the European Commission to issue waivers for instance for computers, fuel, medical equipment and pharmaceuticals, then the total administrative burden will amount to 1.989.000 EUR.

Certificates of origin - Under option 3A, businesses will have to systematically provide certificates to prove the origin their goods and or a document to prove that they are either an EU company or a company originating in a GPA/FTA partner for covered procurement. As the cost of the certificate of origin has been estimated to be 5 EUR, then the total administrative burden will amount to 3.450.000 EUR[20].

This maximal cost of 5.439.000 EUR may be lowered if:

· There is for the time being no certificate designed specifically to identify the origin of a company. However, it is assumed here that service providers use existing documents to justify the location of their registered office as well as their capital via information relating to their financial capacity (e.g. financial accounts). This might not be always sufficient to prove a substantial link to the EU economy.

· Certificates are asked only for the winning bid.

6. Option  3B

6.1 -Impact on public procurement market players  

1) Rejection by individual procuring entities under the supervision of the Commission (3B1)

This approach has much communality with the existing mechanism of article 58 (2) except for two major elements:

- A much broader scope (both directives and potentially service concessions).

- A prior notification system imposing  that the rejection of foreign bids can be effectively implemented only after the Commission has issued a decision.

These 2 parameters might influence in different ways the behaviour of market players in comparison with article 58(2).

A broader scope implies that all types of procuring entities, including central government entities, can consider rejection measures. These entities might be much more prone to use this mechanism despite the disincentive effects listed under the analysis of article 58 (2), since they are more likely to fulfil national trade policy objectives. As regard local procuring entities, some of them might be tempted to use the mechanism to favour some local competitors.

The notification process can play both ways on the behaviour of procuring entities. An additional procedural requirement produces an obvious disincentive effect in terms of administrative burden. The period for the review by the Commission is a cost of opportunity on the contracting authority. The procedure period increases substantially (figures for 30 days): 58% for open procedures (in classical sector and utilities), 38% for restricted procedures (in classical sector) and 100% for contracting authorities choosing to shorten their deadlines through PINs and electronic procedures.

However, the perception of this additional burden will partially depend on the functioning of the notification process (see below sub-options on notification).

Conversely, the supervision by the Commission might be regarded as a legal guarantee. It cannot be excluded that some procuring entities would more feel comfortable in considering a rejection if they anticipated a legal check by the Commission when dealing with the notification.

As a result of all these parameters, Approach 3 B1 would certainly be mainly used on markets where a Member State has an offensive interest and/or a local authority may wish to protect a local economic activity.

Notification procedure

Contracting authorities announce in the contract notice that they are likely to reject foreign bids for not covered procurement. If they receive foreign bids within the time period for the submission of tenders, they notify their intention to reject them to the Commission.

For "foreign" service providers and for businesses with foreign goods, this mechanism triggers uncertainty. It can be assumed that the mere fact that the contracting authority will put forward its intention to reject foreign bids in the contract notice is a deterrent to participate. However, there is a risk that the Commission objects the rejection and some of them might take the risk to submit a bid.

For the procuring entity, the review would interfere with the conduct of the tendering procedure and can increase the legal uncertainty as well.

The period of decision by the Commission would last 6-8 weeks.

Also, it cannot be excluded that objections by the Commission would create risks of litigation. MS courts or even the ECJ, based on principles of procurement law, might deem, if the Commission recognizes that bids originated in a specific country should be admitted, that this recognition should benefit to all suppliers selling products or services from this country. As an outcome, they should be given a chance to participate in the tendering procedure on an equal footing. This might imply at least to make public the Commission's decisions and to extend the time period for submitting bids.

2) Commission can take measures against closed procurement markets (3B2)

The Commission driven instrument would work on the basis of complaints of EU businesses in third countries of public procurement procedures and ex officio, on the initiative of the Commission.

Opening of a case

Individual companies 'decisions to complain with a view to triggering a MASP procedure would depend on their respective market access situation in third countries and their legitimate expectations towards the outcome of restrictive measures.

It can be assumed that important companies that manage to be awarded contracts on the basis of competitive advantages  or that have obtained a certain market share through joint ventures might reluctant to complain, anticipating risks of retaliation.

By contrast, in procurement markets that are totally closed for EU bidders (construction market in China), individual companies might take the risk of lodging a complain.

It is therefore difficult to predict the level of complaints. It is therefore necessary to make a minimalistic scenario (no complaints) and a maximalist scenario (complaints for all EU's offensive interests).

Imposition of restrictive measures under the Commission driven instrument

Since the restrictive measures imposed under the Commission driven instrument would be mandatory for procuring entities with the exemption provided by waivers, EU procuring entities would certainly react as the would do under the approach 3 A.

They have all incentives to apply the restrictions:

- They would be willing to avoid litigation risks (legal actions by EU bidders or infringement procedures by the Commission.

- They would face no additional administrative burden since the  rejection is  indicated via existing advertising obligations (contract notice).

- The Commission's guidance also clarifies the scope of the waivers based on sourcing constraints", "cases of emergency", "overriding reasons of general interest" and/or "disproportionate costs".

Same behaviour might also be expected from foreign suppliers. The publication of the scope of rejection in the contract notice would prevent them from submitting bids. The only asymmetry of information likely to occur would consist on a lack of clarity on the exemption the entity intends to apply. This would be avoided if the instrument imposes entities to indicate in the contract notice the exemption applicable.

3) Cumulating 3 B1 and 3B2

3B1 and 3B2 are complementary as they combine the needs of contracting entities and businesses. Contracting entities are the drivers of the mechanism foreseen under option 3B1, whereas businesses are the drivers of the mechanism foreseen in option 3B2.

6.2 -Impact on trade flows

1) 3 B 1

During the very first years of implementation, third countries cannot predict the behaviour of contracting authorities in the EU as well as the policy of the Commission in terms of objections. They will over time gain information on the real level of rejection by procuring entities, and on the orientations of the Commission, based on objection decisions.

As a result, If third countries might first consider that access to the EU public procurement market is only guaranteed to those areas that have been committed internationally (the assessment as under 3 A), their perception might rapidly equal the perception they might have for the implementation of article 58(2) under option 2 given the expected impact on procuring entities. Somehow, the "case law" resulting from the Commission' decisions might produce more predictability  than under article 58 (2)  .  

Table  VI.1 - Scope of int'l commitments and markets "closable" in option 3B

|| International commitments vis-à-vis 13 selected countries || ||

|| UE || US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || UA || AU

Defence || 2 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Aerospace || 1,5 || 0 || 1 || 0 || 0 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1

Post & Apt sorting || 2 || -1 || 0 || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Firefight & Sea Rescue || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Construction Dredging || 1 || 0 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Constr. Equipment || 1 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Railway equipment || 2 || -1 || -1 || -1 || -1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Urban buses || 2 || -1 || -1 || -1 || -1 || -1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Power generation || 1,5 || 1 || -1 || -1 || 0 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Water & Sewage || 2 || -1 || 1 || -1 || 1 || 1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Waste mgmt & env || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Pharmaceuticals || 1 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Medical equipment || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Specialised textiles || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Business services || 0,5 || 0 || 0 || 0 || 0 ||   || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Financial services || 0,5 || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Oil, Gas &Min equipmt || 0 || || || || || || || || || || || || ||

Fixed telecom eq. || 0 || || || || || || || || || || || || ||

Computer & IT serv || 1 || 0 || 0 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Street lighting || 2 || 1 || 1 || 1 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Broadcasting equip || 1 || 1 || 1 || 1 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Port equipment || 2 || 1 || 1 || -1 || 1 || 1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

As shown in Table VI.1 Option 3B 1 could affect all sectors. Among GPA Parties,  most of the markets affected are utilities-related (aerospace, sorting machinery for posts and airports, railway equipment, urban buses, power generation, water & sewerage and port equipment) as well as financial services.

Under Option 3B 1   EU procuring entities can "close" their non-covered public procurements and, as a result, constant and fully predictable market access to third countries is limited to international commitments. The impact on GPA countries is limited for the US and Japan, but is strong vis-à-vis Canada. Of course, countries without agreement in the area of public procurement lose access to the EU public procurement market.

Of course, if EU contracting authorities would decide to systematically apply international commitments, the effect of Option 3B1 would be the same as for Option 3A.  Therefore, the maximum maximorum impact in terms of goods would be 7,5 billion EUR of goods would have been impacted (0,7 % of all EU imports of goods in 2007) and foreign companies could have lost between 1,5 and 2 billion EUR of service contracts[21].

It can be assumed that contracting authorities will never apply the restrictions when buying computers, medical equipment, pharmaceuticals and fuel.  To compare option 3B with other options, a relative rate f usage of restrictions of 25% shall be considered (since 50% is a neutral rate of use.

Table VI.2 - Impact of restrictions on real imports of goods (2007)

IMPACT (billion EUR) || 2007

Imports of goods in EU PP || 23,9

Impact on main GPA countries || -0,74

Impact on main other countries || -0,59

Total impact || -1,33

Imports of goods after restr || 22,6

Table VI.3 - Impact of restrictions on real imports of services (2007)

IMPACT (billion EUR) || 2007

Imports of services in EU PP || 3,9

Impact on main GPA countries || 0,83

Impact on main other countries || 0,26

Total impact || 1,09

Imports of services after restr || 2,81

Under a rate of usage of 25%, option 3B will lead to a maximum estimated restrictions worth 1,1 billion EUR

The impact on trade flows will depend on the assessment by the Commission of the market access situation on third countries. Such assessment will rely on the existence of market access reservation as laid down under the GPA/FTAs but also on the effective market access granted or denied to the EU suppliers, goods and services.

2) Commission driven instrument (3 B2 )

The impact of 3B2 on trade flows would be the result   of the mandatory closing of certain segments of procurement markets for bids originating in specific third countries.

As for the maximum reach of the Commission instrument, estimate done for the analysis of 3 A and 3 B1 are largely applicable.  In theory, the Instrument could be deployed on the entire scope of not committed procurement. (7,5 billion EUR of goods and 1,5 and 2 billion EUR of service contracts[22] or foreign bidders have been concerned).

The difference is that, based on the range of restrictive measures available under 3 B2 (rejection or price preference), the amount of contracts potentially lost for foreign companies should be less important. Indeed, a price preference would have a less discriminatory impact than a rejection until a certain rate.

 As regards the effective impact on trade flows, several parameters have to be taken into account.

3 B2 implies first the existence of market access problem in third countries. Where market access problem are not reported, restrictive measures will not be considered.

In addition, this mechanism includes an initial phase where the Commission would first seek negotiation before imposing restrictive measures.  As a result, certain trading partners' companies will be sheltered from the restrictive measures during the time negotiations are conducted.

Even more importantly, restrictive measures will be adopted on a selective approach. Before taking any restriction, the Commission will try to target sectors where our trading partners have an offensive interest in the EU and where the negative impact for the EU should limited (public finances, etc). 

3) Cumulating 3 B1 and 3 B2:

Approach 3 B implies to have both mechanisms coexisting and therefore to combine the impacts, especially the impact on trade flows.

The maximum impact has been analysed above, since for each mechanism it has been assumed that, for the need of the impact assessment, restrictive measures could be in theory applied to all not committed procurement. These figures ((7,5 billion EUR of goods and 1,5 and 2 billion EUR of service contracts[23] or foreign bidders have been concerned) stand for the maximum cumulative effect of 3B as a whole.

As regards the effective impact on trade flows, the features of each mechanism impose a great deal of communality.

Especially for unscheduled procurement, the Commission should object when there is no "substantial reciprocity", implying a satisfactory level of de facto market access. Similarly, 3 B2 restrictive measures will not be used against foreign bids from a specific third country where no market access problem has been reported.

Finally, overlaps should be also expected for sectors impacted by the exemption under 3 B 2 (identical for 3 A). Based on their own assessment of their sourcing constraints, individual procuring entities will on their initiative refrain from rejecting bids in these areas (see above impact on trade flows for 3 B1).

As impacted trade flows are concerned, overlaps are unlikely.

Under 3 B, individual procuring entities would not be allowed to take restrictive measures impacting a specific sector in a third country when the Commission has already adopted measures.

As the motivation of the Commission and procuring entities may vary, there is also the possibility that certain central government authorities or local entities would impose restrictions that the Commission would not adopt.

6.3 - Economic impacts

Impact on international commitments and legal certainty

1) 3 B 1

Thanks to explanatory documents, contracting authorities will understand goods of which countries can be discriminated. In these conditions, the EU international commitments will be respected and the consistency of EU trade policy will be ensured.

As the Commission will be consulted for each derogation request, there is a additional guarantee of legal certainty and clarity over the application of the existing restrictions compared to article 58 (2) .

2) 3 B2

3B2 should provide the same level of legal certainty and compliance as 3 A.  With the support of the Commission guidance, procuring entities have incentive to implement restrictive measures and to make use of the exemption laid down in the instrument

6.4 - Impact on trade position of the EU - leverage and retaliation

Retaliation

a) No retaliation - no effect

b) Simple retaliation - if India and Australia introduce protectionist measures and Turkey reinforces them at the same level as the EU (25% of the market affected), then impact of retaliation could add up to 0,5 billion EUR.

c) Boycott - if all trading partners apply a proportional closure to their domestic markets then the total impact of retaliation could add up to 1 billion EUR.

Impact on negotiations and leverage

Impetus for negotiations

Due to the absence of a initial massive closing of the EU procurement markets, the EU credibility as a negotiating partner should be preserved.

1) 3 B 1

The unpredictability of restrictive measures may fuel a need for legal protection and the, to secure market access via reciprocal commitments.

The fact that the Commission is conducting a prior review based on effective market access situation conveys the message that rejections are not driven by protectionist concerns and may therefore comfort willingness to negotiate.

2) 3B 2

As the procedure is based on a prior attempt for negotiation before imposing measures, the instrument clearly gives an incentive for starting market access discussions. Conversely, the credibility of the instrument may impose that the Commission starts with some first strong case and imposes restrictions in order to make the threat effective

Leverage

3B maximises the leverage of the EU, for two reasons:

- Public procurement markets not covered by the EU's international commitments can be closed at any moment by contracting authorities under option 3B1

- The EU can fine-tune restrictions in option 3B2 by selecting on purpose public procurement markets, where third countries have offensive interests.

As trading partners know that the EU is in a capacity to close the whole public procurement not committed internationally, the real leverage under Option 3B is the one of international commitments (including for the trading partners, as it can also close its domestic procurement to retaliate).

6.5 - Impact on public finances

If contracting authorities, which purchased non-EU goods, lost one bid out because of the restrictions of Option 3A, their saving loss would have been 42 million EUR. If they lost 2 bids, the total saving loss would be 100 million EUR.

Table VI.3 - Financial impact of losing one bid for contracting authorities

|| Imports || Bids (t=0) || Bids (t=1) || Saving (t=0) || Saving (t=1) || Impact (billion EUR)

Services || 1,09 || 4 || 3 || -9,0% || -7,2% || -0,020

Goods || 1,33 || 5 || 4 || -10,5% || -9,0% || -0,019

Construction || 0,14 || 4 || 3 || -9,0% || -7,2% || -0,003

|| || || || || Total || -0,042

6.6 - Impact on administrative burden

1) 3 B 1

Notification process - Option 3B foresees that the contracting authority indicates in the contract notice, if it intends to use the possibility to discriminate.

Contracting authorities use the contract award notice to notify the Commission, then there is no additional administrative burden as the standard forms are mandatory for the publication of a call for tender.

If contracting authorities have to send a full notification to the European Commission, then they will do it when a foreign good has been received. While it could be considered this process is time saving for the contracting entities, however there is no predictability on the date for the submission of foreign bids. If they are submitted at the end of the time period for presenting bids, which is often the case, then the review will trigger an extension of the tendering procedure by 6-8 weeks.

In this context the notification system will cost 97.859 EUR for contracting authorities for the notification itself (554 notifications - cf. infra-  dealt for 4 hours - this period is derived the questionnaires to contracting authorities). 

Contracting authorities will have to wait for 6 to 8 weeks for a decision from the Commission. If the value of all the concerned contracts had been put in a bank for that period at an interest rate of 3%, it would have generated 38 million EUR.

Certificates of origin - Under option 3B, businesses will have to provide certificates to prove the origin their goods and or a document to prove that they have a substantial link with the EU economy.

As the cost of the certificate of origin has been estimated to be 5 EUR, then the total administrative burden will amount to 3.450.000 EUR[24].

This maximal cost of 3.547.000 EUR may be lowered if:

· Service providers use their certificate of financial capacity (e.g. financial accounts) to prove that they are established in the EU - although this does not solve the problem of definition of the "substantial link with the EU economy".

· Certificates are asked only for the winning bid.

Commission resources

Option 3B1- If we consider the volume of contracts (1,1 billion EUR) by the average values of contracts in the EU, we obtain a total of 554 notifications per year in option 3B1. If 3 officials are hired to handle the 554 notifications, each of them will have to deal with 180 notifications a year or almost one per day - we estimate that the verification of 'substantial reciprocity' will last at the very maximum one day. There are economies of scale associated with these tasks, in particular when they focus systematically on the same sectors and the same countries. Annex 8 provides already a preliminary assessment of the substantial reciprocity tests. The 3 officials will come at a cost of 187.000 EUR (with 25% overhead).

Option 3B2 - This option should be handled by an additional official (as EU procurement exports amount only to 1% of all EU exports, if the anti-dumping service of DG TRADE has 154 officials, proportionally the Commission only needs an additional official).

7. Option 3C

Contracting authorities and businesses are assumed to know the scope of potential restrictions in advance, based on guidance by the Commission that would come with the legislative option.

Options 3A and 3C

      Under the first approach EU contracting entities would be required, in principle, to exclude third country goods, services and companies not covered by the international commitments of the EU.  The EU public procurement market is therefore a priori closed.

7.1.- Impact on public procurement market players

The analysis of market player's behaviour under this option[25] indicates that contracting authorities have all incentives to apply the restrictions:

- They would be willing to void litigation risks (legal actions by EU bidders or infringement procedures by the Commission

- They would face no additional administrative burden since the notification of rejection is done via existing advertising obligations (award notice)

Option 3C

Contracting authorities know the CPV codes of the restrictions that apply to them; they also know the criteria during which they can invoke the "exceptions" to the restrictions. However, until receiving bids, a contracting authority may not be fully able to judge whether there are "sourcing constraints" or "disproportionate costs", or whether the restriction will be lifted for pharmaceutical products and medical equipment. Central governments are assumed to inform contracting authorities about "overriding reasons of general interest".

Businesses know the CPV codes where they could be discriminated (for GPA/FTA countries) or know that they are systematically discriminated (rest of the world). The latter will not even bother looking at TED anymore (except eventually for pharmaceutical products and medical equipment).

At the time of the bidding, businesses might face asymmetries of information if they cannot judge whether the contracting authority considers that there are  "sourcing constraints", "cases of emergency", "overriding reasons of general interest" and/or "disproportionate costs". Such an asymmetry and its impacts on the decision to bid are avoided if the contract notice indicates whether the contracting authority intends to waive the restrictions on the aforementioned grounds.

7.2 - Impact on trade flows of goods and services

Table VII.1 - Scope of international commitments and markets closed in option 3A

|| International commitments vis-à-vis 13 selected countries || ||

|| UE || US || JP || CA || KR || IL || MX || CN || RU || IN || BR || TR || UA || AU

Defence || 2 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Aerospace || 1,5 || 0 || 1 || 0 || 0 || 1 || || -1 || -1 || -1 || -1 || -1 || -1 || -1

Post & Apt sorting || 2 || -1 || 0 || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Firefight & Sea Rescue || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Construction Dredging || 1 || 0 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Constr. Equipment || 1 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Railway equipment || 2 || -1 || -1 || -1 || -1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Urban buses || 2 || -1 || -1 || -1 || -1 || -1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Power generation || 1,5 || 1 || -1 || -1 || 0 || 0 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Water & Sewage || 2 || -1 || 1 || -1 || 1 || 1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Waste mgmt & env || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Pharmaceuticals || 1 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Medical equipment || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Specialised textiles || 2 || 1 || 1 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Business services || 0,5 || 0 || 0 || 0 || 0 ||   || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Financial services || 0,5 || -1 || -1 || 0 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Oil, Gas &Min equipmt || 0 || || || || || || || || || || || || ||

Fixed telecom eq. || 0 || || || || || || || || || || || || ||

Computer & IT serv || 1 || 0 || 0 || 0 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Street lighting || 2 || 1 || 1 || 1 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Broadcasting equip || 1 || 1 || 1 || 1 || 1 || 1 || 0 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Port equipment || 2 || 1 || 1 || -1 || 1 || 1 || 1 || -1 || -1 || -1 || -1 || -1 || -1 || -1

Option 3C would affect all sectors as shown in Table 7,. Among GPA Parties, most of the markets affected are utilities-related (aerospace, sorting machinery for posts and airports, railway equipment, urban buses, power generation, water & sewerage and port equipment) as well as financial services. Overall, option 3C would fully close 70% of all markets presented in Table 7. Option 3C has an impact on construction in particular vis-à-vis US (local governments) and non-GPA Parties.

Table VII.2 - Market access reflects EU international commitments

|| TRADING PARTNER || EU27

|| Above-threshold market (billion EUR) || Internationally committed || EU commitments vis a vis TRADING PARTNERS(country specific derogations included)

European Union || 370 || 95% ( maximum coverage offered) ||

United States || 559 || 32% || 46%

Japan || 96 || 23% || 70%

Canada || 59 || 4% || 10%

Korea || 25 || 77% || 83%

Mexico || 20 || 75% || -

Israel || 2,1 || 75% || -

China || 83 || 0% || 0%

Russia || 18 || 0% || 0%

India || 19 || 0% || 0%

Brazil || 42 || 0% || 0%

Turkey || 23,7 || 0% || 0%

Australia || 20 || 0% || 0%

TOTAL || 967 || 25% || 18%

Under Option 3C, the EU closes its non-covered public procurements and, as a result, market access to third countries is limited to international commitments. The impact on GPA countries is limited for the US and Japan, but is strong vis-à-vis Canada. Of course, countries without agreement in the area of public procurement lose access to the EU public procurement market.

Still, under option 3C, contracting authorities will still request the Commission to accept foreign offers, when these are unavoidable or because these have a substantial edge in terms of quality or price. There are good reasons to assume that these unavoidable offers will be found in the same sectors as those already identified in option 3A (pharmaceuticals, medical equipment, fuel and computers). Since the EU pharmaceutical sector does not appear to face any problems of access (except in India) (cf. industrial analysis), nor most of medical equipment - except for very basic medical supplies -, because of its revealed quality elasticity and high-skills, "substantial reciprocity tests" will not lead the Commission to block access. For computers or fuel, the situation is likely to be different. But, on the other hand, the Commission may need to be pragmatic given the relative dependence of the EU on these imports.

Finally, under option 3C, Commission decisions to accept foreign products and services will be based on "substantial reciprocity tests", that is mostly on the analysis of domestic opening. In these circumstances, since 10% of the procurement market of the 12 main trading partners is opened domestically, rejections will be as systematic as in option 3A. We shall assume that the option 3C will lead to a 75% usage (by symmetry with the 50% neutral usage of option 2, the 100% usage of option 3A and the 25% usage of option 3B).

All in all, taking into consideration the systematic usage of requests to accept foreign goods for fuel, pharmaceuticals, medical equipment and computers and the 25% of usage for other goods and services (i.e. 75% of usage if restrictions), then the impact of option 3C on import of goods is some 3 billion EUR (which corresponds to some 75% of the 4 billion EUR of option 3C).

7.3-Economic impacts

Impact on international commitments and legal certainty

Thanks to explanatory documents, contracting authorities will understand goods of which countries can be discriminated. In these conditions, the EU international commitments will be respected and the consistency of EU trade policy will be ensured.

Legal certainty will be reliant on the clarity of the applicable rules of origin. Since the latter are the same throughout the EU, the treatment of foreign goods by contracting authorities will not vary, ensuring therefore the consistency of the EU public procurement policy.

Impact on trade position of the EU - leverage and retaliation

Retaliation

a) No retaliation - no effect

b) Simple retaliation - the proportional retaliation by India, Turkey and Australia could lead to some 1,1 billion EUR of retaliation (half of which would come from Turkey)

c) Boycott

As explained, in the introduction, different types of retaliatory measures are to be considered, especially in the case of an overall closing of the EU GP markets not committed internationally.

If the immediate retaliatory measures are focused on the access to markets not committed internationally, the EU may be exposed potentially to 4,6 billion EUR of retaliation if the EU takes option 3C.

Leverage

Table VII.3- Leverage index of Option 3C

|| Option 3C

|| Leverage index

USA || 17%

Japan || 40%

Canada || 31%

Korea || 83%

Mexico || 0%

Israel || 0%

China || 28%

Russia || 77%

India || 50%

Brazil || 136%

Turkey || 31%

Australia || 56%

Impact on public finances

Table VII.4 - Financial impact of losing one bid for contracting authorities

|| Imports || Bids (t=0)   -Mean- || Bids (t=1) -Mean - || Saving (t=0) || Saving (t=1) || Impact (billion EUR)

Services || 1,22 || 4 || 3 || -9,0% || -7,2% || -0,023

Goods || 7,4 || 5 || 4 || -10,5% || -9,0% || -0,108

Construction || 0,15 || 4 || 3 || -9,0% || -7,2% || -0,003

|| || || || || Total || -0,133

If contracting authorities, which purchased non-EU goods, lost one bid out because of the restrictions of Option 3C, their saving loss would have been 133 million EUR. If they lost 2 bids, the total saving loss would be 300 million EUR.

7.4 - Impact on administrative burden

Notification process - Under option 3C contracting authorities have to send a full notification to the European Commission to issue requests to accept:

- Foreign computers, fuel, medical equipment and pharmaceuticals (this will result in 1952 notifications)

- An estimated 25% of remaining goods and services (this will result in 1476 notifications)

In this context the notification system will cost 606.171 EUR for contracting authorities for the notification itself (3429 notifications - cf. infra- dealt for 4 hours - this period is derived the questionnaires to contracting authorities). 

Contracting authorities will have to wait for 6 to 8 weeks for a decision from the Commission. If the value of all the concerned contracts (some 7 billion EUR) had been put in a bank for that period at an interest rate of 3%, it would have generated 216 million EUR.

Certificates of origin - Under option 3C, businesses will have to systematically provide certificates to prove the origin their goods and or a document to prove that they are either an EU company or a company originating in a GPA/FTA partner for covered procurement. As the cost of the certificate of origin has been estimated to be 5 EUR, then the total administrative burden will amount to 3.450.000 EUR[26].

This maximal cost may be lowered if:

· There is for the time being no certificate designed specifically to identify the origin of a company. However, it is assumed here that service providers use existing documents to justify the location of their registered office as well as their capital via information relating to their financial capacity (e.g. financial accounts). This might not be always sufficient to prove a substantial link to the EU economy.

· Certificates are asked only for the winning bid.

Commission resources

· Option 3C- If we consider the volume of contracts (7,1 billion EUR) by the average values of contracts in the EU, we obtain a total of 3429 notifications per year in option 3B1. If each official has to deal with 180 notifications a year or almost one per day - we estimate that the verification of 'substantial reciprocity' will last at the very maximum one day - then up to 20 officials will have to be hired. There are economies of scale associated with these tasks, in particular when they focus systematically on the same sectors and the same countries. Annex 8 provides already a preliminary assessment of the substantial reciprocity tests. The 20 officials will come at a cost of 2,5 million EUR (with 25% overhead).

The total administrative burden of option 3C will be some 222 million EUR, hence as much as the current whole burden of public procurement.

8. Option 4: Legislative Approach without supervision by European Commission ('Article 58')

The effects of option 4 will be similar to those of a weaker option 3A, except for the administrative burden. Article 58 will never be used for medical equipment, fuel, pharmaceuticals and computers. For other goods, as in option 2, we can assume a rate of use of 50%.

8.1-Rules clarification: Under option 4, the guidance on the EU international commitments as well as on PRO would improve legal certainty and avoid the problems caused by the erroneous use of symmetric reciprocity clauses. Yet, final decisions on access would be taken by contracting authorities themselves. This would improve the consistency of internal market and trade policy, but would not fully ensure it.

8.2. Competitiveness (equal level playing field): (cf. option 3A)

8.3. Impacts on incoming trade flows:

-Imports:  The potential impact on trade flows would be important as option 3A could affect up to 9.1billion EUR of imports of goods and services. However, as contracting authorities are very likely to waive the restrictions for fuel, computers, medical equipment and pharmaceuticals, probably the real impact will amount to only to 2 billion EUR will be impacted (because the assumed rejection rate is 50%). Also, non-GPA/FTA countries will be severely impacted by the restrictions, and imports may be shifted from them to GPA/FTA countries (e.g. computers from China would be replaced by Taiwanese computers).

-Supply chains:  We estimate the impact on supply chains to be between 0.3-0.4 billion EUR with China and US (cf. Annex 4, pp.25)

-Potential retaliations by third countries could impact up to some 1 billion EUR of EU exports of goods and services (some 150,000 jobs).

8.4. Leverage: Leverage increases for all countries, in particular with Brazil, but less so vis-à-vis the US because of the large trade in pharmaceuticals. 

Table VIII.1 - Leverage

|| Option 4 || Baseline

|| Leverage index || Leverage index

USA || 11% || 0%

Japan || 27% || 0%

Canada || 21% || 0%

Korea || 56% || 0%

Mexico || 0% || 0%

Israel || 0% || 0%

China || 19% || 0%

Russia || 51% || 0%

India || 28% || 0%

Brazil || 91% || 0%

Turkey || 26% || 0%

Australia || 27% || 0%

Sources: WTO, DG MARKT, Eurostat, own calculations

8.5. Public finances The overall impact on public finances is negligible (less than in option 3A).

8.6. Administrative burden: The administrative burden is expected to amount 3,5 million EUR, (production of certificate of origin for businesses) increasing therefore the total administrative burden of public procurement by 1,7 % and would not affect the total cost of public procurement procedures[27].

8.7 Impact on competition and innovation: Effects on competition depend on the type of good and service (overall there are 5 bids per tender in the EU). Still, those areas where competition is weakest (pharmaceuticals), contracting authorities will be able to not use notifications. Similar effects to those of option 2 can be expected in railways and energy.

8.8 Impact on consumers  - minimal

8.9 Environmental impact - cf. option 3A

9. Option 5: 'Buy Europe'

To level the playing field with main partners like US and China, the EU could create a system of price preferences with a 25% margin to mirror the Buy American and Buy China for non-covered procurement. This system would require a strict monitoring by the Commission to avoid breaches of international commitments.

However, by doing so, the EU would give precisely credibility to the price preference mechanisms across the world against which it is fighting. US or China would have then no incentives to remove these barriers that lead to inefficient business decisions (artificial competitiveness and jobs). In the long-term, this initiative could actually weaken certain EU industries. As a result, this option will uselessly create administrative burdens while stimulating protectionism within the EU. This option should be discarded from the outset and shall not be analysed.

10. Option 6: correcting unfair 'abnormally low tenders' (complementary option)

The options outlined before could also be complemented by an option that would aim aimed remedying the problem of certain third countries' suppliers that can offer (very) low prices since they receive subsidies or benefit of other unfair competition practices through the existing rules on abnormally low bids as provided for in the public procurement directives could be strengthened to improve the level playing field.

The current rules on abnormally low tenders (Articles 57 of Directive 2004/17/EC and Article 58 of Directive 2004/18/EC) give contracting entities the option to exclude tenders, amongst others if this operator has illegally received state-aid, after a enquiring in writings about the elements likely to explain the price gap.

This procedure presents some certain weaknesses. The decision on what is an abnormally low tender is left to the discretion of contracting entities[28]. In addition, the investigation on the elements justifying the price gap is mandatory only when the entity intends to reject the abnormally tenders. Finally other tenderers are not informed that the entity has accepted abnormally tenders.

A more stringent set of rules could encourage the use of this mechanism, with a view to ensure fair competition and avoiding problems with the execution of contracts based on unrealistic low bids.

Entities would preserve discretion to admit abnormally low bids. However, the following improvements could be introduced:

· The rules would apply to tenders made up for more than 50% of non-covered goods and/or services

· The contracting entity has to ask the tenderer the details of the constituent elements of the tender (including the existence of state-aid, the application of social and environmental standards) in case the price or costs are at least 20% lower than the second lowest tender;

· If the contracting entity intends, after verification of the constituent elements of the tender and taking into account the evidence supplied, to accept the tender it shall inform the other tenderers of this in writing, including the reasons for the low character of the price/costs.

Analysis of impacts:

The number of procedures involving abnormally low tenders has not yet been measured, but there is no evidence of widespread practices.  As a result, the probability of associating an abnormally low tender with a tender foreign goods and services is not very high.

On the other hand, the awarding of abnormally low contract to a Chinese construction company in the field of construction has caused much debate on the concept of reciprocity.

If the average saving in procurement procedures amounts to 5%, the threshold for abnormally low tender further to the aforementioned reference to 20%, will ultimately be 25%.

[1] Due to methodology considerations, this analysis focuses on the statistic effects (and not on the dynamic effects) of the assessed impacts. The focus of the analysis is also on the effects on direct procurement related trade.

[2] For more details, please check methodological note D in annex to this impact assessment

[3] Public Procurement in Europe: cost and effectiveness, PwC-Ecorys-London Economics (2011), study performed in the context of the evaluation of public procurement directives.

[4] China already did so in 2007-2008 to accompany its stimulus package: a set of circulars recall central and local governmental entities their obligation to strictly apply the Buy Chinese requirements under the Government Procurement law

[5] Brazil, Russia and India dispose of a room of manoeuvre to raise applied tariffs to the level of bound tariff. China is however an important counterexample since its WTO accession protocol includes a commitment to match bound and applied tariffs

[6] Since the MFN requirements under GATT and GATS impose a rule not to target a specific WTO member and to extend any tariff rising to all parties, EU trading partners would have no choice to make a protectionist shift exceeding from far the initial restriction on procurement markets limited to the EU jurisdiction.

[7] The effective extent of retaliation will depend in the end on their own perception of the reach of EU restrictions

[8] Similarly, in the pharmaceutical industry, the development of generic drugs will naturally reduce the competitive edge of EU suppliers towards some of their competitors in third countries.

[9] Pessimistic/Minimalistic and Optimistic/Maximalist outcomes of negotiations are described in the baseline scenario

[10] The value of 2 billion EUR has re-corrected the influence of aircraft in imports from US. Aircraft are seldom purchased by EU contracting authorities, yet they weight a lot in EU-US trade (Boeing).

[11] For more details, please refer to methodological note C

[12] Under this directive, Member States have retained the power to decide whether or not their contracting authority/entity may allow economic operators from third countries to participate in contract award procedures.

[13] The definition of not covered procurement would include "unscheduled procurement" (procurement not explicitly offered in GPA/FTAs - e.g. railways and concessions in GPA - or not committed vis-à-vis countries that have no public procurement agreement with the EU) and "excluded procurement" (procurement explicitly excluded in GPA through country-specific derogations and reciprocity clauses. Country specific derogations regulating access to remedies would not be implemented as they could infer with rights that are constitutionally guaranteed in some Member States.

[14] For more details, please refer to methodological note C

[15] We have assumed that all companies identified as foreign did not have any substantial link to the EU, in reality, the rea impact is much lower.

[16] Vanassche (2009), Branstetter-Foley (2007), the China's Ministry of Commerce lists of 200 largest  exporters from China

[17] Zhi Wang, Shang-Jin Wei, The Chinese export bundle in Emerging Giants: China and India in the world economy (Eichengreen-Gupta-Kuma), p.171

[18] Vanassche (2009) EU, US, Japanese companies only represent 11% of the exports of the 200 largest Chinese exporters.  Thus if we assume that all the processing trade to the EU is conducted by EU firms, we assume EU firms to be responsible for this 11% in EU-China trade.

[19] The Transatlantic economy, Annual Survey of Jobs, Trade and Investment between the US and Europe, Center for Transatlantic relations John Hopkins University, paul H. Nitze School of Advanced International Studies

[20] The procurement procedures of computers, fuel, medical equipment and pharmaceuticals represent 15% of all procedures.

[21] We have assumed that all companies identified as foreign did not have any substantial link to the EU; in reality, the real impact is much lower.

[22] We have assumed that all companies identified as foreign did not have any substantial link to the EU, in reality, the real impact is much lower.

[23] We have assumed that all companies identified as foreign did not have any substantial link to the EU, in reality, the rea impact is much lower.

[24] The procurement procedures of computers, fuel, medical equipment and pharmaceuticals represent 15% of all procedures.

[25] For more details, please refer to methodological note C

[26] The procurement procedures of computers, fuel, medical equipment and pharmaceuticals represent 15% of all procedures.

[27] cf PWC study that estimates the cost of PP procedures to 5 billion euros.

[28] Except for Portugal, none of the Member States provides for a clarification of the range of what is an abnormally low tender.

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