International public procurements: interested?

June 15th, 2018

By Didier Culat, legal counsel

Businesses seeking new markets for their products have every interest in turning to the possibilities offered by European public procurements. The Comprehensive Economic and Trade Agreement between Canada and the European Union (CETA) establishes new rules and access for Canadian businesses to a public procurement market having an annual value of CA$ 2.7 trillion. However, these rules and access apply only to those public procurement markets that are greater than the thresholds established with the World Trade Organization (WTO).

Observing WTO conditions

Canadian businesses can already participate in public tenders called by Member States of the WTO according to rules providing for open, transparent and non-discriminatory procurement, as established in the GATT Agreements resulting from the 1979 Tokyo Round of negotiations. Since then, the rules have been modified several times and the last modification came into force in April 2014.

As such, all public procurement in Canada for goods or services (with the exception of construction) greater than 130,000 special drawing rights (SDR) must comply with the rules of the WTO. For the construction industry, the obligation of the WTO commences as of 5,000,000 SDRs.

An SDR is a virtual currency developed in 1969 by the International Monetary Fund in order to create an international exchange rate often used by countries concluding agreements amongst themselves. This establishes an exchange rate that has the advantage of being more stable than the fluctuations seen in domestic currencies. As of the date of writing, 1 SDR equals CA$ 1.8425. As a result, Canada’s obligations toward the WTO start at CA$ 239,525 for goods and services and at CA$ 9,212,500 for the construction industry. Click here for Canada’s obligations to the WTO in SDRs and in Canadian dollars.

Extending the WTO agreements to bilateral agreements

The WTO agreements also allow Member States to conclude bilateral agreements that extend the principles established in the WTO agreements, such as those concerning public procurement established in the Tokyo Round. In this context, Canada, the United States and Mexico established new public procurement rules under the North American Free Trade Agreement (NAFTA) when it was implemented in 1994. By virtue of NAFTA, all purchases by the Canadian federal government for goods greater than CA$ 25,200, for services greater than CA$ 80,400 and for construction services greater than CA$ 10,400,000 are subject to the rules provided in NAFTA. Keep in mind that, due to the renegotiation of NAFTA, these clauses may change once the final agreement is published.

So, the CETA perhaps missed a good opportunity to grant better access to public procurement markets by omitting to improve the applicable thresholds, as Canada had previously accomplished with the United States and Mexico under NAFTA.

It is, however, significant to note that CETA increases the number of government entities that are subject to the public procurement rules, including the European Commission, the European Parliament, the European Council, the 28 governments of the Member States of the European Union, thousands of regional and local public administrations such as hospitals, schools, universities, social service providers and a vast number of government businesses in the provision of public services. Click here for a list of entities of the European Union subject to this agreement.

Keeping watch for opportunities with the help of a single electronic Gateway

In addition, Canada and the European Union undertook to put in place an electronic gateway within five years following the implementation of CETA in order to publish notices of procurement. As such, any business interested in participating in public procurement markets should stay tuned to the electronic gateway in order to seize the new opportunities to which this agreement gives access.

CETA provides several exceptions which should be reviewed in order to avoid litigious or disappointing situations.

CETA was signed on October 30, 2016, and came into force provisionally on September 21, 2017, whereby almost all the provisions were immediately applicable and required the approval of the Member States of the European Union prior to full implementation.

Our specialists at BCF will be pleased to advise you concerning the opportunities offered by the public procurement markets with the implementation of the CETA.