Article 72 - Restrictions on covered economic operators, goods, services or works

This article provides the Commission with wide ranging powers to introduce amendments to Article 70 via delegated acts, effectively excluding economic operators, goods, services or works from certain third-countries from being considered covered. As such, if the Commission were to exercise this power, for example, it could bar American economic operators from participating in EU public procurement. To do so, the Commission is given three grounds to proceed with the restriction of access to the EU public procurement market, in line with the provisions in the original proposal of the Industrial Accelerator Act.

Marko's entry for this article is here and this is one of those situations where our views are not fully aligned.

Market access analysis

The first grounds for restrictions arises from the Commission analysing and establishing that a third country is violating its reciprocity commitments for providing national treatment to EU's economic operators, goods, services or works. In effect, this article provides a wide ranging tool for the Commission to retaliate directly against an offending third country. However, it does not establish any constraints on such retaliation ie, does it have to be like for like in the same sector as the offending behaviour? Does it have to kept at the same level as the offense or can it be harsher than the original offense? The Commission appears to be reserving itself a significant amount of discretion here, but it is important to note any delegated legislation would be subject to the regular EU principles like proportionality would apply here. Absent those usual legal constraints we're left to guess what limits the Commission would have to abide for.

It is important to notice that a retaliation exercised under this provision would be done in breach of at least some EU international commitments. That is surely the context of the GPA which has its own dispute resolution mechanism which Article 72 would circumvent if applied in practice. As it is, the existence of Article 72 can be interpreted as a recognition that in particular the GPA dispute resolution mechanism is broken and 'better safe than sorry' by having this provision than being left without a pre-existing means of redress in the books if push comes to shove. It seems as well a recognition that 'we are where we are' and that unfortunately the international rules based order is fraying at the seams. In short, the Commission is recognising here that our existing agreements may not be worth the paper they're written on absent some bark and bite on enforcing them. But at the same time one should underline the implications arising from the existence of this provision.

Security of supply

The second provision of Article 72 appears as well as an evolution of what can be found on Article 8(2)(b) of original proposal of the Industrial Accelerator Act (IAA). Here, the Commission is entitled to impose restrictions in case "such exclusion is justified to avoid dependencies or any other developments that may threaten the security of supply of the relevant goods or services." The choice of "exclusion" here is puzzling and possibly an oversight since the consequence for those affected by such a delegated act would not be an exclusion but instead to be treated as non-covered. Exclusion is on Article 8(2)(b) of the IAA proposal and there it makes sense since there the Commission is to adopt delegated acts "to exclude in whole or in part."

There is a legitimate question to be asked what is the extent of this paragraph 1(b), as in, does it cover only goods and services or also economic operators and works as epigraphed in the Article itself? Bearing in mind this is an exception to the rule that economic operators and works coming from specific third countries are covered, then the correct interpretation is that neither economic operators nor works can be used to active paragraph 1(b).

This second provision suffers from the same legal risk as the first one, since it provides the Union with an unilateral right to withdraw market access to goods and services that would otherwise be entitled to enter the EU. This unilateral right is not enshrined in the existing agreement as otherwise there would be no need for it. Nonetheless, from the perspective of a public buyer it will have to prima facie comply with the delegated acts since these are likely to be decisions or delegated regulations. Either way, they will have to be complied due to public buyers being the target of the decision or the delegated regulations having direct applicability. What does not have direct applicability, however, are international agreements (and I don't think they have direct effect either). I would assume this is being done here since it provides the Commission with an immediate and direct tool to exercise leverage on.

As for what it is to be used for, the Commission is entitled via this sub-paragraph to adopt delegated acts "to avoid dependencies or any other developments that may threaten the security of supply in the Union". This is a very broad definition that leaves ample discretion to the Commission to use this tool as it deems appropriate if and when the time comes. I cannot really think immediately in a world of already interconnected supply chains where such dependencies can be avoided to take place. Maybe new technologies/sectors, ie those yet to be invented? Because for all others the ship has pretty much sailed by now. Existing supply chains seem to be covered however via the second condition of the paragraph (ie, developments affecting the security of supply) since that appears to target a possible threat over existing supplies.

Article 72(c) does not offer significant interpretative trouble. Here, the Commission is reserving the right to proceed with restrictions on the rights afforded under Article 70 in the terms allowed for under the applicable agreement. It simply restates whatever rights have been conferred to the Union in the context of an existing agreement.

The final paragraph of Article 72 provides for both member States and "interested parties" to communicate to the Commission the existence of any situations that may trigger the application of the non-coverage provisions from paragraph (1). I do wonder how this will work in practice and if the Commission is realising it may be op