EU's newly-opened procurement market should increase business opportunities for U.S. exporters

Business America, June, 1995 by Bob Straetz

Exporters from both the United States and European Union (EU) should benefit from an expansion of business opportunities as the market-opening provisions of the U.S.-EU Procurement Agreement take hold starting January 1, 1996. U.S. companies exporting a wide spectrum of products such as computers, software, medical equipment, pharmaceuticals, petroleum, food products, and heavy electrical equipment should gain increased sales in the EU with the opening of the EU procurement market.

The U.S.-EU Procurement Agreement, signed on April 15, 1994 in Marrakech, Morocco, increases bidding opportunities for U.S. firms by $100 billion in the EU market for goods and services, including construction. EU central government, sub-central government, and government-owned entities such as utilities, ports, and terminals will be covered under the GATT Government Procurement Code. Contracts in those sectors exceeding a certain threshold must be openly advertised and subject to competitive bidding practices to companies on both sides of the Atlantic.

The U.S.-EU Procurement Agreement builds upon the U.S.-EU Memorandum of Understanding (MOU), signed in May 1993, which opened the utilities procurement market in both the EU and the United States. The MOU was due to expire on May 31, 1995, but will be extended until January 1, 1996, when the U.S.-EU Procurement Agreement takes effect.

The U.S.-EU Procurement Agreement calls for the United States to increase bidding opportunities to EU firms by $80 billion under the GATT Government Procurement Code. The EU gave the United States a $20 billion credit for the value of its private utilities market which had been open to competitive bidding. The United States agreed to open its procurement market for goods and services, including construction, for contracts surpassing a certain amount of money at the central government level, for 37 state governments, for the federally-owned utilities, and for three ports.

During the past year, the Commerce Department has been promoting market opportunities in the European Union utilities sector to capitalize on the MOU. The U.S. Embassy in London sponsored a two-day Electric Utilities Power Generation Conference in June 1994. Some 70 U.S. and British companies participated in the event. Assistant Secretary Charles F. Meissner was the keynote speaker. Commerce Under Secretary Jeffrey E. Garten made a trip to Germany in late April 1995 to advocate for U.S. companies in their effort to win contracts for major power plant projects underway in Germany, especially in eastern Germany. The Commerce Department is closely watching the development of the EU utilities procurement market to make sure that market is open in fact as well as in principle to U.S. firms.

THE MAIN FEATURES

The sections below discuss the main features of the newly-opened EU procurement market.

EU Utilities Directive

The European Union Utilities Directive (93/38/EEC) is designed to liberalize the EU market in procurement for goods and services for energy, telecommunications, transportation, and water entities. The directive was adopted in June 1993 and implemented in July 1994. The United States has strong interests in exporting heavy electrical equipment and telecommunications equipment to the European market, because both sectors involve significant growth.

The Utilities Directive applies to public and private utilities. Bids above a certain threshold must be advertised in the Official Journal of the European Union, Supplemental (S) Series in the home language of the contracting entity. Summaries of the advertisement must be made available in other major EU languages. These advertisements must contain complete information on the technical requirements for the contract and must list the deadlines for submitting the bid. All bids must be judged objectively, with the final decision based on economically competitive considerations. Contract awards must be published in the Official Journal S Series. Firms may at this time inquire why their bid was not selected, and if circumstances warrant, contest the awarding of the contract.

The threshold above which any project undertaken by a utility must be openly advertised in the Official Journal S Series are: $504,000 for supply and service contracts; $756,000 for telecommunications supply and services contracts; and $6,300,000 for works contracts.

The Utilities Directive contains a discriminatory provision (Article 36) stating that any tender made for the award of a supply contract where the proportion of the products originating in third countries exceeds 50 percent of the total value of the products constituting the tender may be rejected. In addition, where two tenders are equivalent in light of award criteria, the one with more than 50 percent EU content will get a 3 percent price preference over the bid from the third country.

After strong U.S. objections to this provision, the United States and the European Union negotiated an agreement covering heavy electrical equipment, but failed to reach an agreement covering telecommunications. As a result, the United States imposed sanctions under Title VII of the 1988 Trade Act on procurement opportunities worth from $20-25 billion against the EU. The EU reciprocated by imposing sanctions on EU procurement opportunities against the United States worth about the same. The, impact of these sanctions on exporters from both sides was not considered large. The discriminatory provisions of the Utilities Directive also affects procurement in the transportation equipment and water sectors.