EU ambassadors agree on International Procurement Instrument (IPI)

On Wednesday, EU ambassadors agreed on a mandate for negotiations with the European Parliament on the draft Regulation establishing an International Procurement Instrument (IPI). It took over nine years for Member States to agree on that instrument after the Commission tabled its initial proposal back in 2012. The main objective of the initiative is to tackle uneven competition in world public procurement markets.

The IPI is designed as a trade offensive tool that will provide the EU with the necessary negotiating leverage to open up third countries’ procurement markets. It also aims to ensure reciprocity, as the EU has opened up its public procurement markets to third countries to a large degree, while many of these countries have not granted the EU comparable access.

According to the Commission, in 2018, the EU opened up €352 billion of its €2 trillion public procurement market to bidders from third state countries. Yet, in return, EU companies continue to faces serious challenges when it comes toaccessing public procurement projects abroad. This is often the result of a severe lack of transparency, an obligation for EU bidders to engage in joint ventures (China) or the exclusion of foreign bidders for significant government procurement projects (USA, China). 

Portuguese Minister of State and Foreign Affairs Augusto Santos Silva, whose country is currently holding the rotating presidency of the Council of the EU, stated that “the EU will be now better equipped to defend European businessesagainst discriminatory and restrictive practices applied by some of its major partners. For example, if the procurement market of a third country is closed to EU companies, the EU could close segments of its own procurement market in response.” He also added that an open procurement market would boost competition and transparency, reduce the cost of public goods and services for taxpayers while minimising the risk of corruption. 

With the IPI, the EU would have the capacity to limit or exclude, on a case-by-case basis, access to its public procurement markets by economic operators from third countries that apply restrictive or discriminatory measures towards EU businesses. Furthermore, the IPI also intends to reduce the administrative and budgetary burden for contracting authorities from Member States and take into account the characteristics of less developed countries and European SMEs. 

According to the Commission, the IPI would, however, not have any repercussions on its international commitments with third countries under the WTO Government Procurement Agreement, nor would it affect bilateral trade agreements. 

Following the initial proposal of the IPI Regulation by the Commission in 2012, discussions in the Council remained inconclusive for years as several Member States could not be convinced of its added value. A Commission proposal in 2016 also failed to reach a consensus. 

Finally, the situation unblocked in 2019, as more and more Member States, including the formerly sceptic Nordics, recognized the IPI as a necessary instrument to strengthen the EU’s position vis-à-vis its major trade partners, particularly China. 

Eventually, in April of this year, the Portuguese presidency presented a compromise proposal that all Member States could accept. It included most notably: shorter and more flexible deadlines for investigations and consultations; a simplified procedure for the determination of origin of the bidders, adjustment and exclusion measures against the bidders, additional contractual obligations to avoid the risk of circumvention of IPI measures; and the possibility of applying exceptions to the IPI measures under very strict conditions. 

Following the Council’s internal agreement this week, MEPs are set to scrutinise the text in detail before adopting the European Parliament’s position over the coming weeks. Negotiations between the two co-legislators on a final text are expected to begin in late summer.