Untitled (Entry) (c.1917) - Amadeo Souza Cardoso (1887-1918).
It is pleasure to host the views of Prof Roberto Caranta on the controversial Kolin case. Over the years, I have learned a lot and developed my thinking thanks to debates with Roberto. When we agree, his views always have interesting nuance and, when we disagree, his views offer strong intellectual challenge for me. This is a case where we have quite different views on the big picture, but also converging views on the challenges ahead. I hope reading Roberto’s thoughts and contrasting them with mine (here) will help push the debate more generally. Roberto’s views were first published as an Op-Ed for EU Law Live on 7 Nov 2024.
Adapting to a Changing World,
not without Difficulties: Kolin (C-652/22)
Trade has been an essential component in the international economic and legal order built following the fall of the Berlin Wall, but it cannot be taken for granted anymore. As recently indicated by D.L. Sloss, the ‘rules-based international order confronts significant challenges, but it is not unravelling—at least, not yet’. A few days ago, the Centre for International Governance Innovation indicated that ‘The global order is under strain, propelled by the complex interplay of numerous trends and impacts. Converging factors are redefining the contours of the international system, necessitating significant adaptation by states.’ (Scenarios of Evolving Global Order).
This Op-Ed is based on the assumption that public procurement law is not and cannot be insulated from these changes – veritable seismic shifts – and from recent policy and normative actions taken by EU institutions. What was ‘historically’ the position of those same institutions may indeed be passé.
The Court of Justice judgment in Kolin Inşaat Turizm Sanayi ve Ticaret (C-652/22) (‘Kolin’), which addresses for the first time the legal position of third country economic operators wishing to bid for a procurement contract in one of the Member States, must in my view be read in this changing context.
This assumption leads me to diverge on some points from the assessment of the Kolin judgment by Albert Sanchez-Graells.
Is the Court of Justice running wild?
Before going into the merits of the judgment, a few words are warranted in relation to Albert Sanchez-Graells’ assertion that the Court of Justice went out of its way to ‘answer a question it had not been asked’. In my view, the Court of Justice did not answer a different question but, following the Opinion of Advocate General Collins, declared the question inadmissible. With reference to this specific procedural aspect – as is the case with other aspects – EU law follows the French approach, considering questions of admissibility as moyens d’ordre public. As a consequence, as indicated by Lasok in his European Court Practice and Procedure, ‘The Court’s lack of jurisdiction is something which the Court must raise of its own motion’.
The Advocate General having raised an issue of inadmissibility, in my opinion, the Court of Justice had no choice but to address it. Not that the Court of Justice has never been accused – in a more or less veiled way – of running wild. In the past, however, the indictment targeted the Court of Justice for its assumed power grabbing to the detriment of the Member States. Just think of Hjalte Rasmussen On Law and Policy in the European Court of Justice. The competence of the EU with reference to international trade law is not so much disputed in this case, even if some of the Member States engaged in arguments claiming some residual powers that were so disparate as to point only to much legal uncertainty.
This uncertainty is further compounded by a shift in policy preferences at EU level that was made manifest with the adoption of both the International Procurement Instrument (IPI) and the Foreign Subsidies Regulation (FSR). Needless to recall that this shift in policy was called for by the Council – i.e. the Member States. In 2019, it was indeed the Council deciding that ‘the EU must also safeguard its interests in the light of unfair practices of third countries, making full use of trade defence instruments and our public procurement rules, as well as ensuring effective reciprocity for public procurement with third countries’. The Council also called ‘for resuming discussions on the EU’s international procurement instrument’ (see here). ‘Reciprocity’ is the key word in the present EU approach to the international dimension of public procurement markets.
Of course, one might question the wisdom of this policy shift. But a power grab must be excluded here, and having a judgment on the matter cannot, in and of itself, be a bad thing. Of course, the problem may be the quality of the judgment, which may be measured by the number and gravity of issues that a judicial decision leaves open – or opens and leaves unanswered.
No EU rights for economic operators from third countries which are not party to a trade agreement with the EU
To assess whether economic operators from third countries not benefiting from reciprocal trade agreements may participate in public procurement procedures in EU Member States, the reasoning of the Court of Justice first analyses the relevant legal provisions in Directive 2014/25/EU, and then the competence concerning international trade (commerce in EU parlance rooted in a time when English was not dominant).
According to the Court of Justice, Article 43 of Directive 2014/25/EU ‘reflects’ the EU’s international commitments to give equal participation rights to economic operators hailing from third countries benefiting from international commitments signed by the EU (paragraph 43, referring to Recital 27 of the Directive). The Court’s reference is first and foremost to the GPA. This understanding is in line with the existing literature (Annamaria La Chimia) and, as pointed out by Albert Sanchez-Graells, does not add anything to the already pre-existing international obligations. However, the Court of Justice reads more into Directive 2014/25/EU. According to the Court, in the absence of exclusion measures adopted by the EU, although the Directive does not preclude third country economic operators not benefiting from market access rights
from being allowed to participate in a public procurement procedure governed by Directive 2014/25, it does, however, preclude those economic operators from being able, in the context of their participation in such a procedure, to rely on that directive and thus to require that their tender be treated equally to those submitted by tenderers from Member States and by the tenderers from third countries referred to in Article 43 of that directive (para. 45).
Reasoning otherwise would indeed mean that the same benefits reflected in Article 43 would be accorded to economic operators from all third countries, regardless of whether they are covered by an international agreement (paras. 46 and 47). The reasoning is further supported by reference to the IPI Regulation, which confirms that economic operators not benefiting from international commitment may be excluded for public procurement procedures in the EU (para. 49). This conclusion is hardly disputable. There would be no incentive for third countries to negotiate agreements to gain reciprocal access if participation was already allowed (Annamaria La Chimia).
To rebut the argument advanced from some of the Member States to the effect that Directive 2014/25/EU does not stand in the way of national law according access to economic operators from all third countries, even those not bound by international agreements, the Court of Justice widened the reasoning to include the EU exclusive competence in matters of international trade. The Court held that only the EU is competent to decide which economic operators have access to the European procurement markets. These decisions take place through the negotiation and conclusion of international agreements. This exclusive competence of the EU is grounded on Article 3 TFEU, wherein Article 3(1)(e) lists ‘common commercial policy’ among the areas of EU exclusive competence. Article 3(2) further indicates that ‘The Union shall also have exclusive competence for the conclusion of an international agreement when its conclusion is provided for in a legislative act of the Union or is necessary to enable the Union to exercise its internal competence, or in so far as its conclusion may affect common rules or alter their scope’. This policy is further articulated in Articles 206 and 207 TFEU. According to the Court of Justice,
Any act of general application specifically intended to determine the arrangements under which economic operators from a third country may participate in public procurement procedures in the European Union is such as to have direct and immediate effects on trade in goods and services between that third country and the European Union, with the result that it falls within the exclusive competence of the European Union (…) (para. 57).
The Court again refers to the IPI Regulation to strengthen its conclusion about the exclusive competence of the EU in relation to the adoption of ‘measures of general application that may be taken with regard to economic operators of a third country which has not concluded an international agreement with the European Union’ (para. 59).
Here again the lack of competence of the Member States to legislate on the matter can hardly be disputed, as the IPI gives the Commission, and the Commission alone, the power to take measures to exclude participation of economic operators from specific third countries in order to force their hand in negotiating reciprocal access to the respective procurement markets.
An unavoidable limitation
Some critics argue that there is incoherence in the reasoning of the Court of Justice where it stops short of simply declaring that economic operators of a third country which has not concluded an international agreement with the EU cannot participate in public procurement procedures in the Member States.
Indeed, the Court of Justice restricts the competence of the EU – and the correlative lack of competence of the Member States – to the adoption of ‘acts of general application’ concerning participation in public procurement procedures in at least three paragraphs of the judgment (paras. 57, 59 and 61). Instead, the Court of Justice concedes that individual contracting authorities and entities may well allow the participation of third country economic operators not benefiting from market access agreements in individual procurement procedures (e.g. paras. 45, 47 and 63 ff).
Here again it is in my view doubtful whether the Court could have gone further than it went. The possible participation in public procurement procedures of such economic operators is implied in both in Article 86 of Directive 2014/25/EU and in the IPI Regulation (paras. 58 and 59). The latter would be made moot if no participation at all was possible. It would make no sense to exclude them if they had no possibility to participate in the first place.
Additionally, under Article 2(1) TFEU, ‘When the Treaties confer on the Union exclusive competence in a specific area, only the Union may legislate and adopt legally binding acts, the Member States being able to do so themselves only if so empowered by the Union or for the implementation of Union acts’. This clearly applies to ‘acts of general application’. The decision to allow participation in individual procurement procedures is not such an act and arguably does not even amount to a ‘legally binding decision’. There is some similarity here with the distinction between ‘regulation’ and ‘buying decision’ (or between ‘market regulator’ and ‘market participant’) that defines and limits the application of the US Commerce Clause in the area of public procurement as discussed by Jason Czarnezki in his comparison of EU and US procurement law.
A total exclusion might be problematic in case no EU or other economic operator benefiting from the right to market access is available. Unavoidably, contracting authorities or entities are left to
assess whether economic operators of a third country which has not concluded an international agreement with the European Union guaranteeing equal and reciprocal access to public procurement should be admitted to a public procurement procedure and, if it decides to admit them, whether provision should be made for an adjustment of the result arising from a comparison between the tenders submitted by those operators and those submitted by other operators (para. 63).
A patently insufficiently defined regime
Where I cannot but side with Albert Sanchez-Graells is in lamenting the gravely insufficient guidance given by the Court of Justice concerning the rules applicable to those individual cases of participation in public procurement of economic operators from third countries not benefiting from market access.
The Court of Justice places on individual contracting authorities and entities the heavy burden of designating the regime applicable to that participation. The indication is in any case to treat those economic operators differently. They may be excluded and if not, provisions might be made ‘for an adjustment of the result’ of the award procedure (paragraph 63). The choice between outright exclusion and ‘adjustment’ is consistent with Article 6(6) of the IPI Regulation, indicating that the Commission may decide to ‘restrict the access of economic operators, goods or services from a third country to public procurement procedures by requiring contracting authorities or contracting entities to:
(a) impose a score adjustment on tenders submitted by economic operators originating in that third country; or
(b) exclude tenders submitted by economic operators originating in that third country’.
It is, however, uncertain how delegating this power to individual contracting authorities and entities might be coordinated with the competence the IPI Regulation vests in the Commission. The risk of dissonance and confusion is big, and contracting authorities and entities will have to closely watch IPI measures taken to make sure that they make the necessary adjustments or exclude the relevant economic operators as the case might be.
Furthermore, the contracting authorities and entities are empowered to reflect, in the procurement documents, ‘the objective difference between the legal situation of those operators, on the one hand, and that of economic operators of the European Union and of third countries which have concluded such an agreement with the European Union’ (para. 64). So much so that ‘national provisions transposing Directive 2014/25’ cannot be applied to those economic operators (para. 65). The same is obviously true of national provisions implementing the other public procurement and concessions directives. In the end, ‘While it is conceivable that the arrangements for treatment of such operators should comply with certain requirements, such as transparency or proportionality, an action by one of those operators seeking to complain that the contracting entity has infringed such requirements can be examined only in the light of national law and not of EU law’ (para. 66).
The problem here is that in most Member States there are no public procurement provisions different from those implementing EU law. Contracting authorities and entities are thus left in a normative vacuum. It is true that in many Member States somewhat different purely domestic provisions apply to contracts below the threshold and not having a cross-border interest as well as to other excluded contracts. However, these rules tend to set alternative and lighter procedures. It is mostly impossible to manage an award procedure following two discrete sets of rules depending on who is the tenderer. The option again is between some form of preference, along with its drawbacks, or a discrete regime concerning qualification, e.g. by limiting acceptable references for previous experience to contracts awarded in the EU.
Another potential difference might be on remedies. Some data – admittedly old data – indicates that in some Member States remedies do not apply to contracts below the thresholds or excluded contracts (see here). One possible option might be to extend this lack of remedies to economic operators from third countries which have not concluded an agreement with the EU, but as was shown by Albert Sanchez Graells, this is just one of four options, and possibly not the one most used so far. Moreover, it is doubtful how this could be squared with the right to a fair trial and an effective remedy flowing from Article 6 and 13 of the ECHR. As argued by Pedro Telles, the applicable regime of remedies is thus left unclear.
Looking forward to the reform of the 2014 directives
In my view, the case could have hardly been decided differently. That said, contracting authorities and entities are left in a legal limbo. The Court of Justice clearly leaves the door open to future EU legislation on the matter. Contracting authorities and entities may allow such participation only ‘In the absence of acts adopted by the European Union’ (para. 63).
Article 43 of Directive 2014/25/EU – and its corresponding provisions in other texts such as Article 25 of Directive 2014/24/EU – needs being reformed to clearly reflect the fact that EU public procurement markets not only must be opened in some cases, but that they might be closed as well.
One option is complete closure. This, however, might leave us without sellers in some cases and would severely curtail the margin of manoeuvre the Commission currently enjoys under the IPI Regulation. This leaves us with a provision that better defines the power of ‘adjustment’ of contracting authorities and entities. The changes that lead to the adoption of the Net Zero Industry Act (NZIA) provide a cautionary tale. Article 19(2)(d) of the Commission Proposal provided for adjustments linked to ‘the tender’s contribution to resilience, taking into account the proportion of the products originating from a single source of supply’. This approach did not survive the trilogue. The use of contract clauses for the outright limitation of supplies from third countries has instead been preferred in what has become Article 25 NZIA.
On the occasion of the reform, to avoid economic operators not benefiting from a market access regime dodging the bullet by simply opening a shop in one EU country, extending the provision of Article 85(5) Directive 2014/25/EU across all the directives could also be considered.
In the meantime, a revision of the Guidance on the participation of third-country bidders and goods in the EU procurement market would be welcome to help struggling contracting authorities and entities.