EU readies response to Biden’s ‘Buy American’ pitch

Just as Joe Biden is insisting the U.S. government should “Buy American,” Europe is on the verge of rolling out a countermeasure that will heap pressure on EU member countries to “Buy European.”

In the recovery from the coronavirus pandemic, both Brussels and Washington are stressing the importance of home-grown industries and the creation of jobs on the home front.

In an address to Congress only last week, the U.S. president said core technologies should be built in the U.S. and added that his plan to create more jobs would be “guided by one principle: ‘Buy American.’ American tax dollars are going to be used to buy American products made in America that create American jobs. The way it should be.” 

The sentiment has similarly hit Europe. After dithering for almost a decade, the EU is now set to move forward in the coming weeks with a new legal tool that will enshrine the concept of “reciprocity” in big public contracts, bolstering the EU’s industrial champions. At its heart, the European law is meant to effectively shut out companies from countries where European businesses are barred from tenders, leveraging the EU’s giant €2 trillion procurement market in everything from highways and trains to public IT systems.

Originally, the law — known as the International Procurement Initiative — was intended as a way to respond to protectionism in Asian markets such as Japan and South Korea. But Biden’s increased emphasis on “Buy American” is helping break years of deadlock, as are fears that China could ultimately become a significant player in landmark tenders.

Berlin and the Nordics were originally reticent about the reciprocity law, fearing protectionism would rob Europe of the best technologies and the best prices. Three diplomats and several members of the European Parliament now say, however, that the northern blockade has collapsed. EU countries negotiating in a Council of the European Union working party are now close to a deal on a legal text, which EU trade ministers will discuss at a meeting on May 20. The Portuguese Council presidency expects to secure the sign-off to start negotiations with the European Parliament before the end of June.

“It’s a good sign that the Council is finally approaching a conclusion,” said Daniel Caspary, a German center-right lawmaker and the Parliament’s point man on the forthcoming law.

East and West

While the timing of this new law is a clear warning shot for the U.S., the law has a much broader scope and would apply to any country that does not reciprocally open its procurement market to EU firms. Indeed, in practice it could be deployed against Asian countries, whose trainmakers are increasingly gaining a foothold in the EU.

“‘Buy American’ in the United States has raised the awareness of European states, and also of EU companies, that we need to strengthen the tools of our strategic autonomy,” said Marie-Pierre Vedrenne, a French MEP and the centrist Renew Europe group’s point person on trade. “We have to make our partners understand that we are open and we want to remain open, but it has to be reciprocal and fair. We need to avoid being squeezed between China and the U.S. “

EU companies are increasingly feeling competition from China, not just abroad but also in their home markets. EU law already allows countries to exclude Chinese bidders from many tenders, because Beijing has not joined the World Trade Organization’s Government Procurement Agreement. Still, China could join in the future, and EU companies want to be ready.

“Ultimately it comes down to whether one can access the third market or not,” said Inès Van Lierde, head of the AEGIS Europe industry association. “It’s true that under Buy American policies, one has to be established there to a certain extent. But a lot of EU companies are already established in the U.S. and are able to access the market in a transparent way, while in other countries like China there is wide discrimination in procurement to favor domestic manufacturers.”

Washington has joined the WTO’s procurement agreement, but the EU’s trade chief, Valdis Dombrovskis, has suggested Biden’s push contravened U.S. commitments.

In an interview with POLITICO and other media outlets in February, Dombrovskis said the EU, the world’s biggest trade bloc, would closely monitor whether preferential treatment for U.S. contractors on public projects contravened international commitments.

Points and penalties

The new instrument would give Brussels more heft to force Washington to keep its market open. The law would task the European Commission with investigating whether certain sectors in countries outside the EU are closed to EU bids. If Brussels concludes that the market is closed, it would then start consultations with the country’s authorities, in an attempt to open that procurement market, said diplomats and officials briefed on the negotiations.

Should that fail, the Commission would then decide whether to propose a “score adjustment” — essentially making bids from the penalized country more costly through a points-based regime — or to completely exclude bids from companies based in that country.

While the Council’s text is not yet finalized, some target areas for conclusion are appearing, diplomats said. Under the Portuguese proposal, the decision to exclude bids would apply to tenders for goods and services over €5 million, and over €10 million for public works and concessions. 

There is also a landing zone to avoid circumvention with an additional obligation for EU providers not to source goods or services or to subcontract tenders for more than 50 percent of the total value of the bid.

To get Nordic countries on board, the Council may agree to a clause that would allow countries to bypass the Commission’s decision to exclude bidders. Under an exemption currently being discussed, contracting authorities would be able to ignore an order from Brussels if it led to “disproportionately” higher procurement prices.

The European Parliament and EU industry are opposed to such a broad exemption on price. “What is important for us in the Parliament is that we want a minimum of exemptions. If the Commission decides to close the public procurement market, it should be closed, and individual EU countries should not circumvent this,” said Caspary from the European People’s Party.

Van Lierde, from the AEGIS lobby group, said that the exception “goes against the very essence of the instrument.”

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