The European Commission is currently consulting on its recent Proposal for a Regulation on foreign subsidies distorting the internal market (COM(2021) 223 final, 5 May 2021). The public consultation will be open until 15 July 2021. I have just submitted my views on chapter four of the proposal, which concerns the rules for the analysis of foreign subsidies distorting tenders for contracts with a value above €250 million. The feedback form only allows for 4,000-character submissions, so here are mine. As always, comments welcome: a.sanchez-graells@bristol.ac.uk.
The proposed Regulation on foreign subsidies distorting the internal market (RFSDIT) is both (1) undesirable and (2) problematic, in particular as it concerns the investigation of foreign subsidies linked to public procurement procedures. The following is limited to chapter 4.
1. Primarily, ch 4 RFSDIT is undesirable because it adds a layer of scrutiny and red tape that will affect high-value tenders submitted by tenderers from jurisdictions that have either signed up to the WTO Government Procurement Agreement, or that have a plurilateral or bilateral trade agreement covering procurement with the EU. Tenderers from other jurisdictions can already be excluded on the basis of the current rules (see Art 25 Dir 2014/24; Art 43 Dir 2014/25), as emphasised in the Commission's 2019 guidance on the participation of third-country bidders and goods in the EU procurement market. First, the (inadvertent) targeting of GPA- or FTA-originated tenders is in itself undesirable on trade policy terms and could erode third countries' bilateral relationships with the EU within the GPA framework, as well as under the relevant FTA (or the UK TCA) even if those already include subsidy-related provisions. Second, it is also undesirable due to the technical shortcomings of the proposal, as below, as there could be a basis for claims of unequal treatment concerning the non-scrutiny of EU-originated tenders that are tainted by illegal State aid. Finally, it is also undesirable because the ex ante nature of ch 4 screening can dissuade economic operators from participating in public tenders even if they think that subsidies they have received could overcome the tests in Arts 3-5 RFSDIT. Recipients of foreign subsidies may rather forgo their chances of being awarded a public contract than trigger an investigation they could avoid under the general motu proprio regime. Such loss of international competition is to the EU public buyers' detriment.
2. Ch 4 RFSDIT is also highly problematic because of its incompatibility with the mechanisms in the EU procurement Directives, as well as the inconsistency of approach with the rest of the chapters in the RFSDIT. First, the proposed rules are incompatible with the trigger for an investigation of the distortive effects of State aid granted to an EU-based tenderer, which derives from the prima facie abnormally low character of its tender (ALT) (see Art 69 Dir 2014/24). EU-generated non-ALT bids are not screened for receipt of (illegal) State aid, even if they can be 'winning tenders' in a given procedure. As above, this can trigger claims of discrimination against non-EU generated tenders. Second, procurement case law pre-empts tenderers from offering commitments related to the tender at hand to the Commission's satisfaction without materially altering their tenders. Such changes would be impermissible under EU procurement law. This is an inescapable limit, which is partly but insufficiently acknowledged in Art 30(1) RFSDIT. This means that any tender where the Commission found an unbalanced distortion of the internal market would lead to the inevitable exclusion of the tender. This is at odds with the appearance of 'correctability' created by Art 30 RFSDIT. This evidences the inadequacy of applying a merger or State aid control logic to the public procurement context. Third, the relative intensity of the foreign subsidy is much lower for procurement than for concentrations under the RFSDIT. Art 18(3) creates a safe harbour of up to 10% of the value of a concentration. Art 27(2) contains no parallel rule. Thus, Art 3(2) offers the only (soft) safe harbour for procurement, which means that subsidies of 2% or less of the tender value would be caught. The reason for this different treatment under RFSDIT opens it to challenge on proportionality grounds. Moreover, it is unclear how a 2% subsidy could create a situation comparable to that of an ALT, which further reinforces concerns of unequal treatment, as above.