Short comments on the proposed regulation on foreign subsidies distorting the internal market, as it relates to procurement

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.

The new Directive on Concessions is basically unnecessary, but creates red tape, duplication & legal uncertainty (Dir 2014/23)

I have been working on the preparation of a commentary to the first part of the new Directive 2014/23 on the award of concession contracts [OJ L 94, 28/03/2014, p. 1–64] and have realised that, unfortunately, it has indeed become a basically unnecessary piece of EU legislation that creates significant red tape and muddles an already complicated area of EU Economic Law.

Unfortunately, as I anticipated [What Need and Logic for a New Directive on Concessions, Particularly Regarding the Issue of Their Economic Balance? (2012) European Procurement & Public Private Partnership Law Review 2/2012: pp. 94-104], most of the general provisions of Directive 2014/23 are a copy (or a 'Frankenstein copy') of provisions already available in other procurement Directives and, mainly, in Directive 2014/24 on public sector procurement. Such a duplication makes me think that the EU legislator would indeed have been better off by just including a limited set of specific provisions dealing with concession contracts within Directive 2014/24. By not doing so, it has created unnecessary duplication and complication.

As clear evidence of the basic unnecessity of Directive 2014/23, suffice it to stress that only 10 of its first 29 articles include specific rules for concession contracts (and, only 5 articles of those 10 are exclusively relevant for concession contracts, while the other 5 are slight modifications of general rules). All other articles are simply a repetition of provisions of other Directives. The table below clarifies this assessment. Hopefully Member States will take this significant duplication into account and will adopt a sensible (unified) approach in the transposition of Directives 2014/23, 2014/24 and 2014/25 to their domestic legal systems before April 2016, avoiding unnecessary repetitions.

 

 

Beyond reasonable doubt?: Proposal for #simplification of the #acceptance of #publicdocuments in the #EU and #publicprocurement

The European Commission has recently launched a Proposal for a Regulation on promoting the free movement of citizens and businesses by simplifying the acceptance of certain public documents in the EU [COM(2013) 228 final], which advances: 1) the abolition of the formalities of 'legalisation' and 'Apostille' for intra-EU public documents and 2) the creation of standard multilingual forms for certain (limited) public documents. In the area of business activity, this proposal affects documents such as proof of  the legal status and representation of a company or other undertaking.

Remarkably, the Proposal  (art 4) exempts these documents from all forms of legalisation and similar formality (in particular, the use of the famous 'Apostille'). It is clear, though, that the simplification merely concerns the 'acceptance' of such intra-EU public documents (either in original form, or their certified copies, art 5). And, even in the limited context of acceptance of intra-EU public documents, the proposal includes a system whereby contracting authorities can request additional information (to the central authorities of other Member States within the Internal Market Information System, under Regulation 1024/2012) when they have reasonable doubts as to the authenticity of such public documents (art 7)--which simply shows that the system is not really based on mutual acceptance of documents and that security / anti-forgery devices are still not there.

Furthermore, beyond mandatory acceptance (with all its caveats), the proposal crucially does not cover the 'recognition of the content' of the intra-EU public documents (art 2)--which may significantly diminish the effectiveness of the Proposal, since it falls short from ensuring full operability of the use of (non-translated) public documents in countries other than that of origin (or one sharing the language). 

In that regard, the Proposal is well-intended but not necessarily definitive in the treatment of non-certified translations (art 6), since it establishes that "Authorities shall accept non-certified translations of public documents issued by the authorities of other Member States [BUT] where an authority has reasonable doubt as to the correctness or quality of the translation of a public document presented to it in an individual case, it may require a certified translation of that public document. In such a case, the authority shall accept certified translations established in other Member States". 

'Reasonable doubt' may (again) be a faulty standard here, since it can either leave this safeguard void of content, or give it excessive amplitude. Generally, contracting authorities will have a hard time justifying that they have grounds to (reasonably) suspect the improper translation from languages that are arcane to the public servants involved--and, hence, a strict interpretation of the standard of 'reasonable doubt' may result in an absolute requirement of acceptance (particularly if it is couple with an increasingly demanding duty of good administration as a matter of EU law).

Reversely, and probably adopting a pragmatic approach, review courts may be too lenient and determine that 'reasonable doubt' covers almost any case in which a (well-intended) public servant is distrustful of the non-certified translation provided by the EU citizen / business--in which case, the virtuality of the system envisaged in the Proposal of the Commission can be doubted. One way or the other, the standard of 'reasonable doubt' seems faulty and will lead to either improper and excessive recognition of documents badly translated, or the improper and excessive rejection of well-translated documents (or both). Surely, the situation seems far from ideal.

Trying to avoid these obstacles, the Proposal also establishes Union multilingual standard forms that are aimed to completely harmonise and provide 'automatic / implicit' translations of the affected documents (Annex V details the multilingual standard form concerning the legal status and representation of a company or other undertaking).

So far, the list of multilingual standard forms is very short and, to no one's surprise, it is hard to see how it can be satisfactorily extended to more complicated legal (public) documents without actually creating more problems than it would solve.

All these proposals are reminiscent of the 'European Procurement Passport' that the European Commission proposed creating in December 2011 and that the Council was quick to scrap from the current agenda for the revision of public procurement rules concerned with business formalities. One may wonder if the newest Proposal by the Commission will not meet the same faith, at least as business / commercial documents are concerned.

In general, it seems that the issue of cross-border use of public documents will remain intractable until we realise the massive elephant in the room: language disparity. It seems impossible to attain an effective unified (or, at least, a smooth functioning) public administration if English is not finally adopted as the single language across the EU for all official matters with a cross-border dimension. However, this debate seems beyond political will, beyond potential agreement, and beyond tractability.