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Origin of products for bidding for Government contracts in Europe

Applicable EU rules prevent a non-European company from directly bidding for any Government contract or Public Procurement tender project in Europe. An exception applies to companies from those States (like Japan and Korea) which have ratified the “GPA-Government Procurement Agreement”, which is part of the “GATS-General Agreement on Trade and Services”.

The GATS states in Article XIII.1 that Government procurement is exempt from the main market access provisions of the GATS. Such article in fact recites: “1. Articles II, XVI and XVII shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of services purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of services for commercial sale.”

Pursuant to such Article XIII, the “Most Favored Nation” treatment provided for under Article II GATS and the specific market access and national treatment obligations do not apply to the procurement of services for governmental purposes.

Hence, in order to benefit from the access to the European Public Procurement market, a non-EU State must become a full signatory member of the GPA and negotiate certain concessions with the other members.

The GPA is a plurilateral agreement, potentially open to all WTO members but binding only the States which have executed and ratified the GPA. Each applicant's terms of participation are negotiated with the other GPA parties and set out in its respective schedule, which contains several annexes defining the party’s commitments with respect to:

a) the procuring entities whose procurement processes will be open to foreign bidders;

b) the goods, services and construction services open to foreign competition;

c) the threshold values above which procurement activities will be open to foreign competition;

d) exceptions to the coverage.

China has not yet obtained free and full access to the European market of Government Contracts, though on 23 October 2019, China introduced to the GPA parties a revised market access offer in the context of its negotiations to join the GPA. Such offer is currently being evaluated by the other GPA members, which however are still requesting from China further amendments.

China has identified the following improvements, among other things: the revised offer covers additional Government entities and their subordinated entities, both at the central and provincial levels. It also covers additional state-owned enterprises operating in the areas of railways, highways, ports, airports, urban transportation, water supply, etc. China has further included additional services sectors and all construction services are now covered by its offer.

China, which applied for accession to the GPA in 2007, has also proposed that after a transition period, it would apply standard GPA threshold values for the proposed goods and services covered. China reiterated its commitment to joining the GPA as soon as possible and its support for the multilateral trading system.

The European Union executed and ratified the GPA by means of the EU Council’s Decision no. 94/800/CE of 22 December 1994, and it has implemented the GPA into European Law by means of the EU Directive no. 2004/17/CE and no. 2004/18/CE regulating public tenders in the EU territory.

An alternative for a Chinese company to be entitled to bid for Government contracts in EU, would be to buy a manufacturing plant within Europe, produce and propose the supply of its products from there.

However, even if a non-European company acquires full control of a manufacturing plant in Europe, the EU “Rule of Origin” applicable to public tender projects, requires that more than 50% of the whole value of the products to be supplied to the European Tendering entity be manufactured inside Europe, i.e., only less than 50% can be imported into Europe from outside. This would require a Chinese company to produce more than 50% of its products in Europe, for a Public Contract to be eventually awarded thereto.

The strict application of the Rule of Origin can be made exempt if the Public Buyer of a Public Tender project does not reject a supply exceeding the allowed percentage of foreign origin, explaining the reasons for such missing rejection to the Authority supervising the application of the public tender rules. In such case, the exceeding percentage of non-EU production can be still allowed to make part of such supply.

Such rule allowing an exemption from strict application of the Rule of Origin is for example provided for under Italian Law, pursuant to Legislative decree no. 50 of 18 April 2016, which has implemented into Italian Law the relevant EU Directives no. 23, 24 and 25 or 2015 on Public Procurement Tender projects.

Prof. Avv. Salvatore Vitale

This article is not a legal advice, but it has an informative function only. For personalized legal advice, contact us by e-mail or by phone +39 06 916505710. © Dong & Partners International Law Firm, All rights reserved

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