Legal Archaeology: Timing of Brexit, CJEU case law & substantive public procurement rules

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At the extremely thought-provoking conference "Trade Relations after Brexit: Impetus for the Negotiation Process", I had the chance to present some thoughts on the regulatory challenges that Brexit poses for EU public procurement regulation, and to explore potential solutions that could/should be designed in the context of an agreement regulating future EU-UK relationships. I already posted my general views here. However, the discussions at the conference made me think in more detail about the specific challenge of fostering substantive coordination post-Brexit--which is an unavoidable challenge if the UK is to have any sort of meaningful access to the EU internal market, and all the more in the context of an ambitious FTA.

Of course, this challenge is not all that peculiar to the area of public procurement, and the general problems that section 6(2) of the European Union (Withdrawal) Bill (EUWB) creates concerning the non-bindingness of the future case law of the Court of Justice have been extensively discussed by others. Indeed, by establishing that 'A court or tribunal need not have regard to anything done on or after exit day by the European Court, another EU entity or the EU but may do so if it considers it appropriate to do so', if unchanged, the EU (Withdrawal) Act would create a level of legal uncertainty that nobody desires--first and foremost, prominent UK Judges such as Lord Neuberger.

However, it seems to me that, should Brexit day come some time in 2019 or 2020, the effects of the EUWB could be rather undesirable--unless, of course, UK courts decided to systematically (and voluntarily) keep a close eye on the CJEU future case interpreting the 2014 Public Procurement Package. Why is that?

The UK transposed the 2014 Public Procurement Package by copying it out, primarily into the Public Contracts Regulations 2015 [A Sanchez-Graells, 'The Implementation of Directive 2014/24/EU in the UK', in S Treumer & M Comba (eds), Implementation of Directive 2014/24, vol. 8 European Procurement Law Series (Edward Elgar, forthcoming). ]. Thus, barring any intervening 'fine-tuning' of the transposition, on Brexit Day (and until such time as the PCR2015 are reformed, or EU procurement law subject to further revision), the domestic UK rules will be perfectly aligned with EU public procurement law. However, and rather counterintuitively, this cannot by itself ensure substantive coordination in the foreseeable future. How come?

As things stand, and unless I have missed something, the CJEU is yet to issue any judgment interpreting the three Directives included in the 2014 Public Procurement Package (Dirs 23, 24 and 25/2014/EU). On occasion, the Court has indirectly taken into consideration some of the reforms the 2014 Package brought about, but most of the rules where there is a sharp distinction between the pre-2014 and the post-2014 rules (which sometimes involve a 'flexible recast' or implicit reform of case law that got incorporated to the new Directives) remain untouched. Enter the EUWB.

According to section 6(3) EUWB, "Any question as to the validity, meaning or effect of any retained EU law is to be decided, so far as that law is unmodified on or after exit day and so far as they are relevant to it—(a) in accordance with any retained case law and any retained general principles of EU law, ...". So, when confronted with the need to interpret the PCR2015 (identical to the 2014 Package), the UK Courts will only be able to rely on 'old' CJEU case law, which may or may not be a good proxy of the interpretation the CJEU would (will) make of the revised rules, in particular where there is a clash between such 'old' case law and the new rules [for extended discussion, see GS Ølykke & A Sanchez-Graells (eds), Reformation or Deformation of the EU Public Procurement Rules (Edward Elgar, 2016)].

Moreover, given the different techniques of statutory interpretation applicable in the UK and those the CJEU tends to follow, even the most willing UK court may find itself carrying out complex exercises in 'legal archeology' to ascertain the extent to which the 'old' case law buried under the new rules is of any use in the construction of the latter. Oddly enough, should the UK courts--willingly, due to convenience, or inadvertently--give more weight to the 'old' case law than the CJEU itself (which could decide to go by the literal tenor of the new rules, even if they deactivate previous jurisprudential positions, to show deference to the EU legislators) the UK could end up with 'purer' EU public procurement rules than the EU itself. Surely not what the drafters of section 6(2) and (3) EUWB had in mind.

Of course, this hypothetical scenario is bound to lose relevance as time goes by and the CJEU has the chance to engage in the direct interpretation of the 2014 Package--and a long transition period may do away with the peculiarity derived from the current 'estimated' timing of Brexit and the recent reform of EU public procurement law. More generally, all in all, this is probably highly theoretical or even absurd, but I think it militates in favour of a flexible mechanism for UK courts to (voluntarily, sure) send references on interpretation to the CJEU post-Brexit, if there is to be substantive coordination--not solely on procurement, but in all areas of 'regulatory allignment' of a flavour or other, in the context of the agreement for future EU-UK relationships. Will the next wave of negotiations raise to this challenge?

New Paper on Extraterritoriality of EU Procurement Rules

I am presenting a paper on the extraterritoriality of EU public procurement rules at the research workshop "Extraterritoriality of EU Law & Human Rights after Lisbon: Scope and Boundaries", held at the Sussex European Institute on 13 & 14 July 2017.

The paper is entitled "An Ever-Changing Scope? The Expansive Boundaries of EU Public Procurement Rules, Extraterritoriality and the Court of Justice", and is available at SSRN: https://ssrn.com/abstract=3000256.

As the abstract indicates:

This paper looks at how the EU public procurement rules have shown a tendency to permanently expand their scope of application, both within and outside the EU. Inside the EU, the expansion has primarily resulted from blurred coverage boundaries and a creeping application outside their explicit scope. Outside the EU, the extraterritoriality has concerned scenarios such as the applicability of EU financial rules to procurement carried out as part of the EU’s external action in other areas (such as common foreign and security policy), or the regulatory transfer (or ‘export’) of EU procurement rules as part of trade deals—notably, the EU-Canada CETA, but also the EU-Ukraine DCFTA.

Concentrating solely on the ‘external’ dimension of the expansive scope of EU public procurement rules, in trying to explore some of the impacts of the extraterritorial effects of EU public procurement law on the legal and regulatory systems of third countries, this paper focuses on the implications that this expansion and extraterritoriality can have in terms of jurisdiction of the Court of Justice, as well as in terms of difficulties for the coordination of remedies systems in the area of public procurement. The paper concludes that the extraterritorial expansiveness of the EU’s public procurement rules is creating areas of potential legal uncertainty that deserve further analysis. Given the highly speculative nature of those scenarios at this stage, however, the paper does not attempt to provide any specific answers or tentative solutions to the issues it raises.

I intend to review the paper after the workshop and will appreciate any additional feedback that helps me improve it so, if you have the time and inclination to read the paper, please email me any comments to a.sanchez-graells@bristol.ac.uk, or feel free to post them in the comments section. Thank you in advance for any input.

Interesting paper on International Trade and Regulatory Cooperation in Public Procurement (Hoekman, 2015)

I have just read the recent paper by Prof B Hoekman, 'International Cooperation on Public Procurement Regulation' (November 1, 2015). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2015/88. I found his insights into how to move the development of trade policies through public procurement very suggestive. As his abstract explains,

 

Most governments have yet to agree to binding disciplines on government procurement regulation, whether in the WTO or a preferential trade agreement. Empirical research suggests that reciprocally-negotiated market access commitments have not been effective in inducing governments to buy more from foreign suppliers. Foreign sourcing by governments has been rising for most countries, however, independent of whether States have made international commitments to this effect – although there is some evidence that this trend was reversed post-2008 in several countries that had the freedom to do so. The stylized facts suggest a reconsideration of the design of international cooperation on procurement regulation, with less emphasis on specific market access reciprocity and greater focus on good procurement practice and principles, efforts to boost transparency, and pursuit of pro-competitive policies more generally (emphasis added).

Hoekman's discussion of the reasons why the current focus on bilateral market access reciprocity 'is unlikely to have much of an effect' is particularly interesting:

One reason why market access reciprocity arguably has limited returns is that many contracts that are issued by procuring entities concern products that are difficult to supply on a cross-border basis. Construction and services of many kinds will generally have to be supplied locally and there may be good reasons for procuring locally even if a good is tradable. If the products procured are intangible (services) or there are problems in monitoring and enforcing contract compliance, discrimination can increase the likelihood of performance by suppliers. The best (economic) case for discrimination revolves around situations where there is asymmetric information, e.g., difficulties in monitoring the performance of a contractor if buyer and provider are located far from each other, or there is a need to offer a firm quasi-rents in order to increase the probability of contract compliance through the threat of losing repeat business (Evenett and Hoekman, 2013). Moreover, geographic proximity may be a precondition for effectively contesting procurement markets—making some products, in particular services, in essence non-tradable. Problems of asymmetric information and contract compliance may imply that entities can economize on monitoring costs by choosing suppliers that are located within their jurisdictions. In turn, this will make it more difficult for foreign firms to successfully bid for contracts, even if the goods or services involved are tradable and in the absence of formal discrimination. Such rationales have been explored extensively by Laffont and Tirole (1993); many of the underlying technical arguments are summarized and synthesized in Breton and Salmon (1995). The policy issue that arises in such situations is whether there are barriers against establishment (FDI) by foreign suppliers, as this is a precondition for them to bid for/supply contracts (Evenett and Hoekman, 2005) (pp. 16-17, emphasis added, for complete references, see bibliography in his paper).

This passage is particularly relevant in the context of EU public procurement, not least because it spells out in very clear economic terms the reasons why an 'obsession' with cross-border trade as a metric of good procurement is highly unlikely to actually result in better (economic) procurement results [for discussion of the current policy, see here, A Sanchez-Graells, 'Are the Procurement Rules a Barrier for Cross-Border Trade within the European Market? — A View on Proposals to Lower that Barrier and Spur Growth', in C Tvarnø, GS Ølykke & C Risvig Hansen, EU Public Procurement: Modernisation, Growth and Innovation (Copenhagen, DJØF, 2012) 107-133.; and ibid, 'Collaborative Cross-Border Procurement in the EU: Future or Utopia?' (2016) Upphandlingsrättslig Tidskrift (Procurement Law Journal),  forthcoming].

I also found very interesting that Hoekman presents in very straightforward terms the economic view that, put simply, procurement is not a 'magic wand' with which to implement all sort of secondary policies. In his clear exposition:

The pursuit of non-economic objectives by governments can have very different implications for economic efficiency. In principle, policy should target directly the source of problem at hand: lack of economic opportunities for minority groups; regional economic wealth differentials; market failures, and so forth. For example, take the case where a government awards a tender to an SME instead of a large company that submitted a lower cost bid because of an SME preference policy. It may be more effective and efficient if instead the government were to address the factors that impede the ability of SMEs to compete with larger firms. This can of course be due to different factors, ranging from financial market imperfections to excessively burdensome administrative requirements that are too costly for SMEs to meet. Dealing with these constraints directly as opposed to using a SME preference policy will be more efficient (Evenett and Hoekman, 2013) (p. 17, emphasis added, full references in his paper).

In the end, Hoekman recommends that the best way of ensuring good procurement outcomes is to 'promote a pro-competitive environment' (p. 21). I could not agree more and, once again, turning to the situation in the EU, this is what I have suggested is the best way forward in order to achieve the Europe2020 goals [see A 'Truly competitive public procurement as a Europe 2020 lever: what role for the principle of competition in moderating horizontal policies?' (2016) 22(2) European Public Law Journal, forthcoming]. I hope policy makers will start taking economic insight into account, particularly when it is presented in such clear and persuasive terms as Prof Hoekman does.

Excellent @E15Initiative Think Piece on Competition, Corruption and Trade dimensions of Public Procurement Regulation (Anderson, Kovacic and Müller: 2016)

The E15Initiative jointly implemented by the International Centre for Trade and Sustainable Development (ICTSD) and the World Economic Forum aims to generate strategic analysis and recommendations for government, business, and civil society geared towards strengthening the global trade and investment system for sustainable development. One of their great initiatives is to publish 'think pieces' to stimulate a more informed debate about how trade policy and institutions can best be adapted to the highly interconnected global economy of the 21st century.

One of these first think pieces is Anderson, Kovacic and Müller, Promoting Competition and Deterring Corruption in Public Procurement Markets: Synergies with Trade Liberalisation (Feb 2016). In this well-thought and persuasive piece, the authors expand on their previous thoughts in this area [“Ensuring integrity and competition in public procurement markets: a dual challenge for good governance,” in Arrowsmith & Anderson (eds), The WTO Regime on Government Procurement: Challenge and Reform (Cambridge University Press, 2011) 681-718] and make a compelling case for the careful integration and balancing of competition, corruption and trade considerations in public procurement regulation. Their abstract is as follows:
Efficient and effective government procurement markets are critical to economic growth, development, and the welfare of citizens. Yet, two very serious challenges bear on the performance of these markets: (i) ensuring integrity in the procurement process (preventing corruption on the part of public officials); and (ii) promoting effective competition among suppliers. Typically, these challenges are viewed as separate and distinct: the former (corruption) is treated primarily as a principal-agent problem in which the official (the “agent”) enriches himself/herself at the expense of the government or the public (the “principal”); while the latter (promoting competition) involves preventing collusive practices among potential suppliers and removing barriers that impede participation in relevant markets. This think-piece demonstrates that these two problems often overlap, for example where public officials are paid to turn a blind eye to collusive tendering schemes or to release information that facilitates collusion. As well, while transparency requirements are often central to efforts to eradicate corruption, such measures can, if not properly tailored, facilitate collusion and thereby undermine efforts to strengthen competition. Thus, careful coordination of measures to deter corruption and to foster competition is needed. Further, the think-piece argues that participation in the WTO Agreement on Government Procurement (GPA), or in similar regional arrangements, can play an important role both in promoting competition and in deterring corruption. The GPA enhances possibilities for healthy competition in relevant markets through participation by foreign-based or affiliated contractors. It helps to prevent corruption by requiring adherence to appropriate (tailored) transparency measures, and by exposing procurement activities to checks and balances including domestic review (“bid protest” or “remedy”) systems and international scrutiny.
Focusing on my pet topic of transparency in public procurement regulation and how this can affect competition in markets where public procurement is an important demand component, I am thrilled to read that Anderson, Kovacic and Müller stress that:
... increasingly, some challenges in the design of appropriate levels of transparency at the different stages of the procurement process have been recognised in both the procurement and competition communities. The OECD (2007) points out that: 
Governments need to find an adequate balance between the objectives of ensuring transparency, providing equal opportunities for bidders, and other concerns, in particular efficiency. The drive for transparency must therefore be tempered by making transparent what sufficiently enables corruption control. 
Indeed ... certain kinds of transparency measures can clearly facilitate collusion and, consequently, are problematic from a competition policy point of view (Marshalland Marx 2012; Sanchez Graells 2015A). While, for example, there may be no way around the need for publication of award criteria and technical specifications in public procurement if responsive tenders are to be solicited, their usefulness as tools for facilitating inter-supplier agreement needs to be recognised. Similarly, the publication of procurement outcomes, while enabling monitoring by the public as the “principal,” can also serve cartel participants in policing anti-competitive agreements and thereby enhancing cartel stability. Sanchez Graells (2015B) discusses specific possible concerns regarding transparency measures that may be associated with centralised procurement registers. 
A further complication is that optimal transparency levels may differ from country to country. “Solutions” that are potentially workable in some contexts may be highly problematic in others. For example, in jurisdictions where outright corruption problems are believed to be minimal, some lessening of transparency measures might be considered, for the sake of preventing collusion. On the other hand, in economies where corruption is rampant, any lessening of transparency measures may be a recipe for disaster. This explains why the very high priority that is given to transparency in public procurement processes in some countries in Eastern Europe may, in fact, be appropriate notwithstanding possible collusion facilitation concerns, at least as an interim measure. In any case, as explained below, both competition law enforcement and competition advocacy are clearly part of the solution (pp.9-10).
Of course, I am really thankful that they picked up on some of my recent research and I hope that their think piece will help disseminate these insights, which I consider extremely important for the proper design of public procurement rules in a way that is socially advantageous [for further discussion, see A Sanchez-Graells, 'The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives' (November 2013)].

Some thoughts on the European Commission's revised proposal for regulation on third-country access to public procurement

The European Commission has recently published a revised version of the proposed regulation on the access of third-country goods and services to the Union’s internal market in public procurement and procedures supporting negotiations on access of Union goods and services to the public procurement markets of third countries [for discussion of the initial proposal and its implications, see K Dawar, 'The Proposed "Buy European" Procurement Regulation: An Analysis'].

As the Commission stresses, nothing in the revision of the instrument has altered the fact that
The new Instrument would allow the Commission to initiate public investigations in cases of alleged discrimination of EU companies in procurement markets. In case such an investigation would find discriminatory restrictions vis-à-vis EU goods, services and/or suppliers, the Commission will invite the country concerned to consult on the opening of its procurement market. Such consultations can also take place in the form of negotiations on an international agreement. As a last resort, the Commission could, after consultation with EU Member States, apply the new tool. This means that bids consisting of goods and services from the country concerned would, while compared to other bids, be considered as offering a higher price than the one they have put forward, thus providing European and non-targeted countries' goods and services a competitive advantage. To avoid the application of this tool, third countries have only to stop such discriminatory practices (see press release).
This is clearly an instrument of trade policy and, in my view, it is not much more than the stick the Commission is trying to get itself to be able to reinforce its push for international procurement agreements (notably, the GPA) in case some trading partners are not persuaded by the carrot of having enhanced access to the EU market. I am sceptical about the likely effectiveness of the instrument, or whether it actually adds anything in terms of the EU's external foreign (trade) policy, other than the possibility of imposing compliance with retaliatory trade measures internally, on Member States that may have different views, or simply want to benefit from cheaper or more competitive offers coming from blacklisted countries with which their 'own domestic' suppliers do not trade intensely. Oddly, the proposed regulation may have more teeth from this internal perspective than outwardly. 

What troubles me is the possibility that this trade instrument, if approved and implemented, triggers litigation from foreign non-GPA covered litigants in three fronts. First, regarding investment protection claims against the EU and its Member States by tenderers from countries that find themselves unable to continue tendering for contracts in the internal market due to the Commission's imposition of retaliatory measures under the proposed regulation. Second, regarding challenges in front of the Court of Justice of the European Union on the basis of Art 263(4)III TFEU and the negative impact that the European Commission's decision to blacklist countries create [in a similar fashion as recent cases such as Council v Manufacturing Support & Procurement Kala Naft, C-348/12 P, EU:C:2013:776], which will trigger disputes as to the locus standi of these companies. And third, regarding litigation in front of the national courts, both if the foreign companies are subjected to the price discrimination mechanisms or, counter-intuitively, even if they are not.

Overall, I am not sure that it is a good idea for the European Commission to be pushing for an instrument that is very likely to judicialize trade disputes. At the same time, if the instrument is as ineffective as I am inclined to think, maybe those risks are simply theoretical and not worth worrying after all. Which strengthens the doubts about the utility of the instrument even further...