By falling just short of mandating a complete ban on access to EU procurement by third-country economic operators not covered by international agreements, in Kolin Inşaat Turizm Sanayi ve Ticaret (C-652/22) (‘Kolin’), the Court of Justice has suddenly crystallised a change in EU procurement-related trade policy. Kolin will have many, and potentially quite problematic, practical ramifications. In this Op-Ed, I reflect on the broader context in which the Court has reached its position. I also stress why I think this is an extraordinary case of judicial activism, as the Court of Justice has gone out of its way to answer a question it had not been asked. I show how the position taken by the Court goes well beyond the settled (expectations of) legal interpretation under the EU procurement rules, creates significant legal uncertainty, and brings into question the future of recently developed EU procurement-related trade law instruments. I had previously criticised the Opinion of AG Collins in this case, and that earlier comment contains additional problems in the position taken by the Court.
Some context
The EU historically kept its procurement markets open to international trade, not only through the inclusion of procurement commitments in free trade agreements (FTAs) and championing developments under the World Trade Organisation Government Procurement Agreement (GPA), but also by being one of the most open procurement markets in the world. The traditional policy approach was largely one of economic persuasion; by granting or tolerating access to its internal market for public contracts, the EU expected to obtain (legal or de facto) reciprocity. Traditionally, EU procurement law has thus not prevented access from third-country economic operators. While it has stressed the bindingness of commitments towards economic operators covered by the FTAs or GPA (‘agreement-covered economic operators’), it has also tolerated participation of other ‘third-country economic operators’.
This is clear in the 2014 public procurement package, and especially in the context of procurement in the water, energy, transport and postal services sectors, where the Utilities Directive (2014/25/EU) explicitly contains, on the one hand, a reminder of the obligation of ‘no less favourable treatment’ of agreement-covered economic operators (Art. 43) and, on the other, rules on the treatment of tenders including products originating in third countries (Art. 85), and on the broader procurement relations with those third countries (Art. 86). This reflects the traditional position of pragmatic tolerance of access by third-country economic operators in search for (legal or de facto) reciprocity.
This policy started to shift in parallel with the negotiations of the 2014 public procurement package, and eventually resulted in the adoption, in 2022, of the International Procurement Instrument (IPI) and the Foreign Subsidies Regulation (FSR). In simple terms, these instruments grant powers to the Commission to restrict or ban access to procurement markets by third-country economic operators and, in the case of the FSR, this includes agreement-covered operators. These instruments signal a significant ‘hardening’ of the EU’s stance towards trade-related procurement and, in my view and the view of others, a shift towards economic protectionism.
It is important to stress that the IPI and FSR are built on the premiss that EU procurement law does not mandate the absolute exclusion of third-country economic operators. This was already clear in the 2019 Guidance on the participation of third-country bidders and goods in the EU procurement market, which stressed that third-country economic operators ‘do not have secured access to procurement procedures in the EU and may be excluded’ (my emphasis). The IPI was precisely developed to create a process for such exclusion. The summary of the IPI stresses that it gives the Commission the power to ‘impose, as a last resort, IPI measures to restrict access to EU public procurement procedures for businesses, goods and services from the non-EU countries concerned’ (my emphasis). The non-EU countries concerned being only those with which the EU does not have a procurement agreement, as the IPI does not apply to agreement-covered economic operators (Art. 1(3)). Similarly, the FSR grants the Commission the power to prohibit the award of a contract to an economic operator that has benefitted from a foreign subsidy distorting the internal market, in this case without distinguishing between agreement-covered and other third-country economic operators (Art. 31(2) and recital 45).
It goes without saying, but seems to need spelling out, that if the EU procurement rules—and the Utilities Directive in particular—had already banned access from third-country economic operators, the IPI would be entirely redundant and the FSR would only be relevant in relation to agreement-covered economic operators. This does not seem to be the view of the Court, though, as we will see that the Judgment in Kolin markedly deviates from the—until now majoritarian, if not universal—view that EU procurement law tolerated participation by third-country economic operators.
Getting out of its way to answer a question that was not asked
Before getting into the substance of the Judgment, it is worth highlighting third-country economic operators’ access to EU procurement markets was by no means an issue the Court necessarily had to rule on in Kolin. Indeed, for me, one of the striking aspects of Kolin is that the Court has gone out of its way to answer a question it was not asked.
The case concerned a rather mundane set of circumstances where the contracting authority allowed its preferred tenderer to provide additional documentation demonstrating that it met the relevant technical and professional capacity requirements, after the original award decision had been quashed for shortcomings in the initial documentation. The preliminary reference thus concerned a set of questions seeking to ascertain the limits on the contracting authority’s discretion to request and consider such supplementary documentation at such late stage of the procedure, in particular in relation to a potential breach of the principles of equal treatment and non-discrimination—if necessary, interpreted in relation to the right to good administration under Art. 41 of the Charter (although this does not seem to have been raised in the case).
The focus of the dispute could thus squarely be placed on the behaviour of the contracting authority and its duties under the Utilities Directive. From the perspective of the adequate interpretation and application of EU (procurement) law, it is irrelevant how the case reaches the Court of Justice, as the core legal issue concerns the constraints of the behaviour of a contracting authority that has positive duties under the Utilities Directive. There is no question that the Utilities Directive applied to the conduct of the specific tender procedure. From this perspective, there is limited room to question the applicability of EU (procurement) law and the relevance of the questions posed by the referring court. The case could have been decided like others in a long-running saga of case law on clarifications of tenders.
However, the Court took a different approach and decided to focus on the fact that the complainant in the domestic dispute is a third-country economic operator (from Türkiye) (Kolin, para. 39). This shifted the focus from the duties constraining the contracting authority under the Utilities Directive to the rights of the complainant. In the end, the question that Kolin addresses is whether third-country operators can participate in tenders for public contracts covered by EU law and, if so, under which conditions. This question had not been asked by the referring court (Kolin, para. 40). This marked shift in approach not only opened a Pandora’s box of issues concerning the interpretation of the Utilities Directive and its fit with other instruments of procurement-related trade policy, but also provided the (self-generated) opportunity for the Court to decidedly jump on the protectionism bandwagon.
Given how purposefully the Court grabbed the opportunity to answer a question it had not been asked, the way in which it addressed the question becomes particularly problematic because, in falling short of explicitly and unqualifiedly mandating exclusion of third-country operators, the Court has created legal uncertainty with potentially significant practical and conceptual ramifications.
Participation without enforceable rights?
The Court of Justice has taken the view that, regarding third-country economic operators, ‘although EU law does not preclude those economic operators, in the absence of exclusion measures adopted by the European Union, 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’ (Kolin, para. 45, emphasis added). The justification given the Court is that allowing third-country operators to rely on the provisions of the Directive to make claims of equal treatment ‘would have the effect of conferring on them a right to no less favourable treatment, contrary to Article 43 of that directive, which limits the benefit of that right to economic operators from third countries which have concluded with the European Union an international agreement’ (Kolin, para. 46, emphasis added). The Court further states that
… To interpret that provision differently and thus to render unlimited the personal scope of that directive would be tantamount to guaranteeing economic operators of those third countries equal access to public procurement procedures in the European Union. For the reason set out in paragraph 46 of the present judgment and as is also stated, now, in recital 10 of the IPI Regulation, Directive 2014/25 must be understood as meaning that the access of economic operators of those third countries to public procurement procedures in the European Union is not guaranteed and that those operators may be excluded from them (Kolin, para. 47, emphasis added).
Ultimately, then, the Court established that ‘in a situation … involving the participation, as accepted by the contracting entity, of a Turkish economic operator in a public procurement procedure governed by Directive 2014/25, that operator cannot rely on … that directive in order to challenge the decision awarding the contract concerned’ (Kolin, para. 51).
The Court seems to be aiming for an impossible equilibrium between the traditional position of de facto tolerance and the preservation of the rights of agreement-covered economic operators. In my view, in falling short of mandating a ban on participation and opting instead for the position that EU procurement law foresees the possibility for third-country economic operators to participate with no enforceable rights, the Court creates two problems.
The first problem arises from the recognition by the Court that, ultimately, treating the tenders submitted by third-country economic operators equally to those submitted by tenderers from Member States and by the tenderers from agreement-covered economic operators limits the benefit of the rights of the latter. This raises the question whether, functionally, the mere tolerance of participation by third-country economic operators on an equal basis would also be an infringement of Art. 43 of the Utilities Directive because contracting authorities would not be preserving the benefits expected to the rights of agreement-covered economic operators (and tenderers from Member States?). Is the logical implication of the position stated by the Court that Art. 43 of the Utilities Directive requires ‘less favourable’ treatment to be granted to tenders from third-country economic operators?
The second, and related, problem is that the Court limits its judgment to the impossibility for third-country economic operators to rely on EU procurement law in order to challenge the decision awarding the contract concerned. But does this extend to challenges based on national law or other grounds?
The Court goes on to ‘fix’ those two problems. But, in my view, it does so in a manner that triggers more problems than it solves.
A problem actually pushed down to the domestic level, on a case-by-case basis
The issue of the treatment of third-country economic operators’ participation at the domestic level is also addressed by the Court of Justice in Kolin. After rehearsing the position under the Treaties and in case law, the Court reminds us that
…only the European Union has competence to adopt an act of general application concerning access, within the European Union, to public procurement procedures for 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, by establishing either a system of guaranteed access to those procedures for those economic operators or a system which excludes them or provides for an adjustment of the result arising from a comparison of their tenders with those submitted by other economic operators (Kolin, para. 61).
And that
… the European Union has not empowered the Member States to legislate or adopt legally binding acts concerning access to public procurement procedures for economic operators of a third country which has not concluded an international agreement with the European Union (Kolin, para. 62).
Logically, this should have extended the ban on relying on EU law to challenge procurement decisions to the national level, and the consistent position would have been that Member States cannot enable ‘no less favourable treatment’ claims under their domestic provisions.
However, in a surprising twist of argumentation identifying contracting authorities as something potentially separate from the Member State to which they belong, the Court stressed that
In the absence of acts adopted by the European Union, it is for the contracting entity 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 (Kolin, para. 63, emphasis added).
Weirdly, this comes to empower each and every single contracting authority to take its own decisions on whether to tolerate participation of third-country economic operators. It can be that this will become a red herring, though, given the Court’s framing of the obligation to generate some degree of ‘less favourable’ treatment in case contracting authorities do decide to tolerate participation.
DIY ‘less favourable treatment’
In its final passages, the Court addresses the issue of the functional prohibition of no less favourable treatment for third-country economic operators. The Court indicates that
… it is open to the contracting entity to set out, in the procurement documents, arrangements for treatment intended to reflect 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, within the meaning of Article 43 of that directive, on the other hand.
In any event, national authorities cannot interpret the national provisions transposing Directive 2014/25 as also applying to economic operators of third countries which have not concluded such an agreement with the European Union, which have been admitted, by a contracting entity, to participate in a procedure for the award of a public contract in the Member State concerned, as otherwise the exclusive nature of the European Union’s competence in that area would be disregarded.
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 (Kolin, paras 64-66, emphases added).
This is, in my view, the most problematic part of the Kolin Judgment because it will be almost impossible to implement in any way that does not completely exclude participation by third-country economic operators. Assessing all implications of this passages exceeds the possibilities of this Op-Ed, as they concern, among other issues, how ‘less favourable’ must the treatment be and how does that square with approaches under the IPI and FSR, the extent to which EU and agreement-covered economic operators can challenge such treatment and claim that it does not adequately ‘reflect the objective difference between the legal situation’ of the different competitors, the interaction between the ECHR (in particular in relation to due process rights) and domestic rules that, by virtue of being excluded from the scope of the EU procurement directives may be seen not to be covered by the Charter (although I have my doubts that the Court could say, without departing from its prior case law) that the mandated ‘less favourable treatment’ of third-country economic operators is not within the scope of EU law for the purposes of the application of the Charter, the impact on domestic public and administrative law doctrines, the impact on current procurement procedures and procurement challenges, etc.
Final thoughts
Overall, I think Kolin is a bad Judgment. I think it does not make sense from a policy perspective because it crystallises an absolutist position that was not being pursued by the European Commission or the EU legislators. More importantly, in its own terms, I think it is a bad Judgment because the Court does not quite finish the job by establishing an absolute ban on participation. The position that domestic legislation is pre-empted by the EU’s exclusive competence but case-by-case decisions by contracting authorities are allowed as long as they ensure a degree of objective less favourable treatment that adequately reflects the objective difference between the legal situation of the different competitors (what a test to apply…) has opened a Pandora’s box that will have long lasting negative consequences.
Looking further ahead, it could well be that Kolin results in an explicit prohibition of third-country participation in the new procurement directives that are just about being developed. In that case, the EU legislator would have to take the explicit step the Court has tried to avoid or conceal. However, it could also be that it triggers a very complex approach to seeking to consolidate the ‘participation without rights and in less favourable conditions’ approach followed by the Court. Given the context of judicial activism in which Kolin has emerged, I keep wondering why did the Court not simply state that preserving the benefits arising from Art. 43 and the EU’s international commitments requires exclusion of third-country economic operators. I would still have thought it was a bad case on policy or normative grounds, but it would at least have made more legal sense and avoided creating a tidal wave of legal uncertainty, especially if the Court restricted the effects of the interpretation to the future.
