EU–China Strategic Outlook
Two of the world’s greatest powerhouses, the European Union and China, are linked by an enduring relationship with close trade and economic ties. Both are committed to a comprehensive strategic partnership, and both share commitments and interests in global sustainable development.
Edited excerpt from a communication from the Commission and joint communication to the European Parliament, the European Council and the Council
Putting geopolitical interests aside, in order to obtain a balance of economic interests set on a fair and mutually beneficial course, the EU as a whole shall adopt a flexible and pragmatic approach, needed to ensure unified and principled interests and values. The EU strategy for connecting Europe and Asia provides a clear framework which enables the EU to seek synergies with third countries, including China, in transport, energy and digital connectivity, on the basis of international norms and standards. The key principles of the EU’s engagement in connectivity are financial, environmental and social sustainability, transparency, open procurement, and a level playing field. Whereas China shall translate its publicly stated reform ambitions into commensurate actions. The Belt and Road initiative adopted by the Chinese government aims to boost multilateral cooperation with other countries in Asia, Europe, Africa, the Americas and the Middle East. Meanwhile, greater reciprocal measures in terms of the EU gaining access to the Chinese market are yet to be implemented.
EU competition policy instruments apply without discrimination to all economic operators, irrespective to their origin. Furthermore, EU merger control does not allow the Commission to intervene against the acquisition of a European company solely on the grounds that the buyer benefitted from foreign subsidies. However, the new regulation establishing a framework for screening foreign direct investment entered into force in April 2019 and will fully apply from November 2020. It will provide a powerful instrument to detect and raise awareness of foreign investment in critical assets, technologies and infrastructure.
Government contract market
The EU has the world’s largest open procurement market. It is now fully integrated into the European single market, ensures transparency and creates opportunity for companies across the EU and other countries. This is especially important considering that a substantial part of public investment in the EU economy is spent through public procurement (annually EUR 2 trillion, i.e. 14% of the EU GDP).
The EU has committed under several international agreements to grant access to its public procurement market for certain third-country works, supplies, services and economic operators. Accordingly, public procurement directives provide, for buyers in the EU, to accord to works, supplies, services and economic operators originating from the countries that signed those agreements a treatment that is no less favourable than that accorded to the works, supplies, services and economic operators in the EU, insofar as these are covered by those agreements. They are the following:
- Agreement on Government Procurement (GPA) signed by the EU, Armenia, Australia, Canada, China Taiwan, China Hong Kong, Iceland, Israel, Japan, Liechtenstein, Montenegro, Moldova, New Zealand, Norway, Singapore, South Korea, Switzerland, Ukraine, the United States, and the Netherlands (with respect to Aruba)
- Bilateral Free Trade Agreement, for example recent trade agreements concluded by the EU with Canada, Japan and Singapore.
Access to the EU public procurement market by third-country bidders and goods
In general, European rules on public procurement do not distinguish between EU and non-EU bidders. At the same time, bidders from third countries such as China do not have guaranteed access, which means they may be excluded.
In particular, public buyers operating in the water, energy, transport and postal services sectors may reject tenders for supply contracts if the proportion of products originating from a third country exceeds 50% of the total value of the products constituting the tender. If instead of rejecting such tender a public buyer allowed its participation in the procurement process, the public buyer would be required to give preference to equivalent tenders with 50% or more of local content.
Also, for purchases made under the Defence and Security Procurement Directive, it is up to each Member State to determine in its national rules whether or not their public buyers may allow economic operators from third countries to participate in the contract awarding procedure.
Such general restriction is to be included in the contract notice. If the general exclusion is not applied towards a third-country bidder, the third-country offer may be rejected individually in the award decision, provided that the public buyer reserved in the tender documents that it has the right to reject offers on defence and security grounds.
In specific cases and for concrete projects, Member States might plan to award contracts based on international agreements with third countries which have different procurement regimes from the European framework. Tender procedures under such agreements are exempted from the EU public procurement legislation as long as the specific procurement rules of the international agreement comply fully with the EU Treaty, especially with the principles of transparency, equal treatment and non-discrimination. Such agreements must be notified to the Commission. As a result, procurements organised pursuant to such international agreement must comply with the principles of the EU Treaty, including open publication, and no international agreement concluded between a Member State and one or more third countries can constitute a basis to award contracts directly to third countries or their economic operators.
There is European Commission guidance on the legal framework for participation of foreign bidders and goods in the EU market, account taken of the EU and international rules on procurement, also on abnormally low tenders, as well as respect for security, labour and environmental standards, including state aid rules. The role of the guidance is to allow the EU to seek a balanced and effective reciprocal environment with other countries, and to insure that all bidders inside and outside the EU shall be equipped with the highest quality standards, sustainability of projects and respect for security and social standards. More importantly, the role of the guidance is to put in place a level playing field between the EU and other countries so that EU services and products can compete with others from the same starting line.
EU companies often encounter difficulties in gaining access to procurement opportunities in foreign markets. For instance, the biggest problem in China is the opening of selective markets to protect local firms, licensing and other investment restrictions as well as heavy industrial subsidies and forced technology transfers.
The EU actively pursues the opening of procurement opportunity for European companies by advocating reciprocal opening of third-country procurement markets. The Commission proposed an international procurement instrument (IPI) to the European Parliament and the Council in January 2016. This regulation, which is to strengthen the EU leverage to negotiate reciprocity and market opening, and to create new opportunities for EU businesses, is to be adopted at the end of 2019.
Mirella Lechna, attorney-at-law, partner, Cyrus Yuen, Chinese desk, Wardyński & Partners