‘European preference’ through the lens of rule of law and economic uncertainty
Commenting on the ‘European preference’ chapter of the EU Public Procurement Act proposal is done, and it has been a very useful exercise. This post should serve as a recap of my thoughts on the entire chapter, which I found good in some parts, but lacking in most.
I fully support the change of legislative instrument from multiple Directives to a single Regulation – and I sincerely hope the Commission succeeds in pushing this through the trilogue. But I’m also very much conflicted about how does the level of public buyer discretion when deciding whether and how to apply European preference requirements fits with a Regulation – an instrument that is meant to limit variations in approach in what should be the common ‘external dimension’ of EU public procurement law.
This level of discretion is even broader than the one established by the CJEU in the Kolin and Qingdao judgements, which have been, to my disappointment, promulgated to almost ‘principle’ status across the ‘European preference’ chapter and the accompanying recitals. This does not bode well for remedies and their (un)availability to non-covered economic operators that have been admitted to participate in an EU public procurement procedure.
But here I’d like to take a birds-eye view of the chapter and address the two of the most important issues I see with the way ‘European preference’ was drafted: rule of law concerns and economic uncertainty.
Rule of law
Articles 25 of Directive 2014/24/EU and 43 of Directive 2014/25/EU are underdeveloped and only hint and the possibility of treating non-covered economic operators, goods, services and works differently. The Commission further elaborated on this differential treatment in its 2019 Guidance – telling public buyers that non-covered economic operators may be – excluded. While somewhat of a drastic measure – it is not problematic from a rule of law perspective (as long as the decision is transparently stated and made at the beginning of the procedures) – as access to the EU public procurement market without an FTA is certainly not guaranteed.
We can notice rule of law concerns in this space with Kolin and Qingdao, and (more intensively) with the subsequent Commission 2025 non-paper on the judgements:
- no EU law, nor national law transposing EU law, protection for admitted non-covered economic operators
- standard national public procurement remedies are not available
- it is even possible to afford non-covered economic operators allowed to participate – no remedies
- exclusions may happen mid-procedure, even without a transparent announcement at the beginning of the procedure
I have written in many occasions that these elements of the current legal framework affect not only non-covered economic operators, but the public procurement procedures as a whole and all their participants.
This has not been resolved by the ‘European preference’ chapter; the rule of law problem has even been widened.
As I already mentioned above, Kolin and Qingdao are the foundations of this chapter and therefore applicable moving forward – meaning all these problems are here to stay. With regard to remedies this is the only conclusion that can be drawn – since the PPA proposal is silent there. This is such a big issue that it demanded a combined overhaul of the 2014 Directives AND the Remedies directive, or a separate provision in the PPA affording the same remedies to every economic operator participating in an EU public procurement procedure. But there was no will to overhaul the Remedies directive at this time, and I’m afraid there was even less will to address the constitutionally deficient treatment of admitted non-covered economic operators.
Rule of law concerns are further expanded with this chapter. Public buyers still may exclude non-covered economic operators at any time during the procedure – but now they can even decide which one to exclude – and allow the others to remain. This allows public buyers to further discriminate on origin (Turks are okay but Indians are not) or even discriminate within the same origin (this Turk is okay but the other one is not).
The most serious example of this is reserved for the Commission itself. The Commission can – via delegated acts – decide to revoke covered status from economic operators, goods, services and works that originate in countries that have standing FTAs with the EU – but which the Commission believes are not fulfilling their obligations under said FTAs. Here the Commission has the authority to sidestep internal FTA dispute resolution mechanisms – making these measures legally suspect. Also the Commission may even revoke covered status if the trade partner country is fulfilling its trade obligations completely – but the Commission does not like the level of dependence on goods or services from that country the EU has developed.
When taken together – this does not paint a great picture. Therefore – any discussion of the ‘European preference’ chapter while this legislative process lasts needs to start here. We are all familiar with the geoeconomic realities, and the crumbling of confidence in FTAs and the international legal order that has been painstakingly built in previous decades. But this does not mean that we should accept such a departure from the values that (should) underpin every action we take as a Union.
Suggestions:
- non-covered exclusions may happen only at the beginning of a procedure and must be transparently announced
- non-covered economic operators admitted to an EU public procurement procedure must have access to the same remedies as covered ones
- Commission’s Article 72 rights must be revoked.
Economic uncertainty
Economies thrive on predictability. This was most evident in the recent trans-Atlantic tariff war – when even the constant threat of new tariffs and the uncertainty this created cooled economic activity. Unfortunately, the ‘European preference’ chapter brings more uncertainty into public procurement.
This uncertainty affects all parties involved:
- public buyers – so much choice and discretion can lead to choice paralysis, uncertain legal outcomes of procedures if they decide to use ‘European preference’ measures
- non-covered economic operators – no way to know in advance which procedures they may participate in – which makes it very difficult to prepare their economic and tender activities, they may be excluded even a week before the award decision is rendered, possibly no remedies available
- covered economic operators – no way to gauge the level of competition in a given procedure, ineffective external dimension of EU public procurement (due to weak ‘European preference’ chapter) makes it impossible to know how they will be treated in third country markets
This uncertainty is compounded with tools available to public buyers to not apply even the mandatory European preference provisions (if adopted e.g. via delegated acts), or those non-covered economic operators may use – such as establishing subsidiaries with significant business operations in a Member State (under Article 74 of the PPA proposal).
Going forward, we need to recognize that the burden placed on public buyers here is not fair. They need simpler European preference rules. These rules need to be more predictable for everyone involved. And – we need to have a frank discussion about the goals that we want to achieve with European preference – and rewrite the rules accordingly. Achieving reciprocity and fairness in international trade may require somewhat different tools than those needed to promote domestic industry.
Suggestions:
- limit public buyer discretion
- allow public buyers to exclude non-covered economic operators, goods, services and works but with rule of law concerns mentioned above resolved
- rewrite the participation rules around mandatory score adjustments within a legislated range – to prevent symbolic score adjustments
Further reading:
Book – Third-Country Economic Operators in EU Public Procurement Law
