Should FTAs open and close (or only open) international procurement markets?

I have recently had some interesting discussions on the role of Free Trade Agreements (FTAs) in liberalising procurement-related international trade. The standard analysis is that FTAs serve the purpose of reciprocally opening up procurement markets to the economic operators of the signatory parties, and that the parties negotiate them on the basis of reciprocal concessions so that the market access given by A to economic operators from B roughly equates that given by B to economic operators from A (or is offset by other concessions from B in other chapters of the FTA with an imbalance in A’s favour).

Implicitly, this analysis assumes that A’s and B’s markets are (relatively) closed to third party economic operators, and that they will remain as such. The more interesting question is, though, whether FTAs should also close procurement markets to non-signatory parties in order to (partially) protect the concessions mutually granted, as well as to put pressure for further procurement-related trade liberalisation.

Let’s imagine that A, a party with several existing FTAs with third countries covering procurement, manages to negotiate the first FTA signed by B liberalising the latter’s procurement markets. It could seem that economic operators from A would have preferential access to B’s markets over any other economic operators (other than B’s, of course).

However, it can well be that, in practice, once the protectionist boat has sailed, B decides to entertain tenders coming from economic operators from C, D … Z for, once B’s domestic industries are not protected, B’s public buyers may well want to browse through the entire catalogue offered by the world market—especially if A does not have the most advanced industry for a specific type of good, service or technology (and I have a hunch this may well be a future scenario concerning digital technologies and AI in particular).

A similar issue can well arise where B already has other FTAs covering procurement and this generates a situation where it is difficult or complex for B’s public buyers to assess whether an economic operator from X does or not have guaranteed market access under the existing FTAs, which can well result in B’s public buyers granting access to economic operators from any origin to avoid legal risks resulting from an incorrect analysis of the existing legal commitments (once open for some, de facto open for all).

I am sure there are more situations where the apparent preferential access given by B to A in the notional FTA can be quickly eroded despite assumptions on how international trade liberalisation operates under FTAs. This thus begs the question whether A should include in its FTAs a clause binding B (and itself!) to unequal treatment (ie exclusion) of economic operators not covered by FTAs (either existing or future) or multilateral agreements. In that way, the concessions given by B to A may be more meaningful and long-lasting, or at least put pressure on third countries to participate in bilateral (and multilateral — looking at the WTO GPA) procurement-related liberalisation efforts.

In the EU’s specific case, the adoption of such requirements in its FTAs covering procurement would be aligned with the policy underlying the 2019 guidelines on third country access to procurement markets, the International Procurement Instrument, and the Foreign Subsidies Regulation.

It may be counter-intuitive that instruments of trade liberalisation should seek to close (or rather keep closed) some markets, but I think this is an issue where FTAs could be used more effectively not only to bilaterally liberalise trade, but also to generate further dynamics of trade liberalisation—or at least to avoid the erosion of bilateral commitments in situations of regulatory complexity or market dynamics pushing for ‘off-the-books’ liberalisation through the practical acceptance of tenders coming from anywhere.

This is an issue I would like to explore further after my digital tech procurement book, so I would be more than interested in thoughts and comments!

UK tenderers' access to procurement by EU agencies: when the EU is also protectionist

One of the often overlooked implications of Brexit is that, despite the UK’s accession to the WTO GPA and the procurement chapter of the EU-UK TCA, UK companies are practically left out of the procurement procedures carried out by the decentralised and executive EU agencies—despite the obligation of National treatment of locally established suppliers (Art 288), which would only apply to UK suppliers ‘established in [the EU’s] territory through the constitution, acquisition or maintenance of a legal person’. This is a result of the UK tenderers being treated as third country operators for these purposes.

The current advice of the European Commission (DG BUDGET) to those agencies is that participation by UK tenderers in public procurement procedures governed by Regulation 2018/1046 to which the EU-UK Withdrawal Agreement does not apply is to be treated as exceptional, as follows:

So it is fair to stress that the EU is as protectionist of its public funds as the next trading partner …

CJEU stresses 'consumer interest' test under Art 34 TFEU and finds Spain guilty of "gold-plating" in transport services' regulation (C-428/12)

In its Judgment of 3 April 2014 in case C-428/12 Commission v Spain (new transport trucks) (only available in French and Spanish) the Court of Justice of the European Union (CJEU) has found Spain in breach of Art 34 and Art 36 TFEU due to the imposition of a disproportionate requirement in the system of authorisation of road transport services by companies not primarily engaged in road transport. In my view, the case is interesting because it deals once again with claims of justification based on road safety, in what seems to have become a topic in EU free movement of goods law [see C-110/05 Commission v Italy (mopeds) and, very recently, C-639/11 Commission v Poland (right steering wheel cars), discussed here and here].

 

In the case at hand, Spain had adopted regulations for the authorisation of companies providing ancillary road transport services that required that the age of the first heavy (ie above 3,500 kg) vehicle in the fleet of a (newly authorised) company did not exceed five months from its first registration. The Commission considered that this requirement infringed Art 34 TFEU and was not justified under Art 36 TFEU. One can wonder why the case was brought under this legal basis instead of the seemingly more appropriate of Art 49 TFEU (given that the system was concerned with a 'first' or new authorisation and, consequently, seemed to affect newly established transport companies particularly) or of Art 56 TFEU (on the provision of services, as the effect of the restriction surely would limit the offer of road transport services), although the (greater?) difficulty in justifying the existence of a cross-border impact and the exclusion of transport from the 2006 Services Directive may have played a role in the 'strategic' choice of legal basis by the Commission.

 

Taking the (uneasy?) approach of the restriction of the free movement of goods under Art 34 TFEU, the Commission considered that i) the Spanish rule constituted a measure having equivalent effect to a quantitative restriction on imports, ii) that such provision had the effect of restricting imports of heavy goods vehicles more than five months old from other Member States, and iii) that it violated the principle of mutual recognition and impeded access to the Spanish market, which had the effect of severely restricting the use of the vehicles concerned. The Commission also considered that neither road safety or environmental protection justifications could exempt the controverted rule. The CJEU rather keenly accepts the approach taken by the Commission and makes some interesting findings, not least consolidating the 'market access' test approach to the enforcement of Art 34 TFEU:

29 [...] it is clear from the case law that a measure, even if it does not have the purpose or effect of treating less favorably products from other Member States, is included in the concept of a measure equivalent to a quantitative restriction within the meaning of Article 34 TFEU if it hinders access to the market of a Member State of goods originating in other Member States (see, to that effect, Commission / Italy, C-110/05, EU: C: 2009:66, paragraph 37).

30 In this regard, the Court observes that the prohibition of use as the first vehicle in the fleet of vehicle with a maximum authorized mass exceeding 3.5 tonnes and more than five months old from the date of its first registration may have a considerable influence on the behavior of firms wishing to use a vehicle of this nature for complementary private transport, behavior which in turn can affect access of that product to the market of the Member State in question (C-428/12 at paras 29-30, own translation from Spanish).

The CJEU also consolidates the 'consumer interest' test in order to assess restrictions to market access:

31 [...] businesses, knowing that the use authorized [...] of a vehicle with a maximum authorized mass exceeding 3.5 tonnes and more than five months old from the date of first registration is restricted, will only have a limited interest in buying a truck like this for their complementary private transportation activities (see, to that effect, Commission / Italy EU: C: 2009:66, paragraph 57, and Mickelsson and Roos, EU: C: 2009:336, paragraph 27) (C-428/12 at para 31, emphasis added, own translation from Spanish).

The CJEU dismisses the claims for justification made by Spain, indicating that road safety could be protected by less intrusive measures (such as technical inspections, already in place) and also interestingly dismisses arguments based on the solvency of companies:

40 As regards [...] the other explanations given by the Kingdom of Spain [... such as] the proof of greater solvency of the company or even fostering better exploitation of vehicles for private complementary transport do not constitute reasons of public interest within the meaning of Article 36 TFEU or mandatory requirements within the meaning of the Court of Justice's case law (C-428/12 at para 40, own translation from Spanish).

In my opinion, the case is interesting because it consolidates the 'new' approach to the enforcement of Art 34 TFEU under a 'market access' test applied thorugh a 'consumer interest' (sub)test. It is also interesting because it continues to perpetuate the 'supremacy' of free movement of goods rules as the main analytical framework for the protection of the fundamental freedoms impinging the internal market.

CJEU 'consolidates' market access test in the enforcement of Art 34 TFEU (C-639/11 & C-61/12)

In its Judgments of 20 March 2014 in cases C-639/11 Commission v Poland and C-61/12 Commission v Lithuania, the Court of Justice of the European Union (CJEU) has found that both countries infringed their obligations under Art 34 TFEU by making registration in their territory of passenger vehicles having their steering equipment on the right-hand side, whether they are new or previously registered in other Member States, dependent on the repositioning of the steering wheel to the left-hand side. In my view, this case is interesting for at least two reasons.

 

Firstly, the CJEU has 'consolidated' the so-called 'market access test' in the enforcement of Art 34 TFEU by recasting the traditional 'Dassonville' formula and focussing the assessment on hindrances to market access. Indeed, in the 'new' (re)formulation of the test, the CJEU considers that

In view of the Court’s settled case-law, the contested legislation constitutes a measure having equivalent effect to quantitative restrictions on imports within the meaning of Article 34 TFEU, in so far as its effect is to hinder access to the Polish [sic, Lithuanian (oh, the joys of copy and paste!)] market for vehicles with steering equipment on the right, which are lawfully constructed and registered in Member States other than the Republic of Lithuania (see, concerning the origins of that case-law, Case 8/74 Dassonville [1974] ECR 837, paragraph 5; Case 120/78 Rewe Zentral, ‘Cassis de Dijon’ [1979] ECR 649, paragraph 14; and, more recently, Case C‑110/05 Commission v Italy [2009] ECR I‑519, paragraph 58) (C-61/12 at para 57 emphasis added and, equally, C-639/11 at para 52, correction needed in the English version of the C-61/12 Judgment but not in other linguistic versions].

This may be seen as a relatively welcome development, as it continues in the line of clarification already initiated in C-110/05 Commission v Italy (mopeds) and consolidates a more encompassing test that allows for the harmonious assessment of potential restrictions to free movement of goods under a single, unified (and probably more functional) test.

 

Secondly, the case is important in that the CJEU deviates significantly from C-110/95 in applying a much more stringent test of (strict) proportionality to the measures adopted by Poland and Lithuania (basically, requiring a repositioning of the steering wheel prior to registration of the motor vehicles) than it did to the measures adopted by Italy (an outright ban of a specific type of trailers to be towed by motorbikes and other vehicles) on the grounds of road safety [see C-61/12 paras 63-69 and C-639/11 paras 58-65].

 

In my view, the application of such a stringent proportionality test (with which the CJEU seems to revitalise the pro-integrationist agenda in the enforcement of Art 34 TFEU) will create frictions with Member States for two main reasons.

 

Firstly, the 'consolidation' of the new (re)formulation around hindrance of market access indicates an effective substitution of the underlying rationale in internal market rules (art 34 TFEU particularly) from a producers’ freedom (push market) to a consumers’ right (pull market). This will be problematic unless free movement rules further converge with (effective) consumer protection and safety and similar concerns receive a common treatment throughout the EU (ultimately, the goal of the CJEU, particularly when it uses the argument that in 22 of the 28 Member States registration would not have required changing the wheel location).

 

And, secondly, because the new (re)formulation of the case law creates a dangerous test leading to a (very, too broad) Dassonville-like formula limited only by (subjective) proportionality analysis carried out by the CJEU, which can result in an encroachment of domestic regulatory powers if the CJEU adopts a tough stance, as it has done against Poland and Lithuania (and differently from its previous, more timid approach in the case against Italy).

 

In the future, it will be interesting to see if the CJEU does not find itself under the same amount of criticism as when it first adopted the Dassonville fomula and, consequently, whether the next round of evolution of the law on free movement of goods does not initiate a new restriction of the rules under a new version of Cassis de Dijon. All in all, the development of the law in this area of the internal market seems to evolve in cycles.