The EU's New International Procurement Instrument and Its Impact on China

The EU's new International Procurement Instrument (IPI) was signed on June 23, 2022 and published on June 30, 2022. It enters into force on August 29, 2022.

In general terms, the IPI "introduces measures limiting non-EU companies’ access to the open EU public procurement market if their governments do not offer similar access to public tenders to EU companies seeking business." By "fostering reciprocity," the IPI "aims to open up these protected markets and to end the discrimination against EU companies in third countries."

Trade lawyer Jean Heilman Grier offered some analysis of the IPI in a recent blog post, stating that the IPI "will enable the EU to penalize or block tenders from countries that restrict EU participation in their home procurement markets." In terms of the possible measures to be applied, she explained that: "The Commission can adopt two types of IPI measures to restrict access of a targeted country to EU procurement. It may apply a penalty to the score of tenders submitted by suppliers from the targeted third country or exclude such tenders entirely from the procurement."

CTM reached out to Niclas Poitiers of Bruegel to talk about the origins of the IPI and its possible impact on China:

CTM: The EU’s International Procurement Instrument has been in the works for many years now. Can you give us a bit of background on its origins and its long path to completion? Who were the main players in its creation, and what were some of the policy concerns it was designed to address?

Poitiers: The first proposal by the European Commission for the International Procurement Instrument dates back to 2012. In June 2022, after a decade of negotiations and discussions, it finally passed the EU’s legislative process and was adopted by the EU. It was born out of the sentiment that while the EU’s procurement markets are open to foreign companies, there is no reciprocity in important markets. France was among the champions of the instrument, but it had been blocked by more liberal ‘Nordic’ countries and the UK in particular. Brexit and a general shift in sentiment on trade matters have recently cleared the way for the IPI.

CTM: With regard to China specifically, to what extent did the internal EU debate focus on China? What specific Chinese practices were of concern? Was the lack of progress in China’s accession to the WTO’s Government Procurement Agreement a factor?

Poitiers: China was a key factor in the development of the IPI. China has won many large procurement tenders in the EU, however Chinese procurement markets stayed closed to European companies. China hasn’t acceded to the WTO’s Government Procurement Agreement, and procurement has been closed to foreign companies. While the Chinese Foreign Investment Law which entered into force in 2020 promises equal treatment between Chinese and foreign funded companies in government procurement, it is yet to be seen to what extent it will reduce discrimination in the Chinese procurement markets. The hope is that the IPI will create the incentives for China to open its markets to EU companies.

CTM: How do you see the IPI working in practice? Could you walk us through an example of how it might be used? Do you anticipate that action against China will be a top priority under the IPI?

Poitiers: The IPI will allow the European Commission to investigate restrictions in foreign procurement markets against European companies. If the European Commission finds such restrictions and there is no remedy after consultations, score and price adjustments of up to 50% and 100%, respectively, can be applied in public tenders, and even exclusions are possible. Smaller tenders are excluded from this mechanism to limit the administrative burden. China, as the largest economy not part of the GPA, will certainly become subject to such an investigation.