Article 74 - Origin

Article 74 appears to be a simple one at first glance, as it simply points towards different pieces of legislation where to identify the origin of economic operators, subcontractors and goods. For services and works it mostly follows the rules for economic operators/subcontractors and goods. Marko's entry on this article is available here.

Economic operators and subcontractors (74(1))

For economic operators (and subcontractors), their origin is to be determined in accordance with Article 3(1) of Regulation (EU) 2022/1031, also known as the International Procurement Instrument (IPI). This is not really an easy test to deploy and it will require public buyers to undertake a significant amount of checking to conclude if an economic operator is covered or not covered for the purposes of this Chapter.

For legal persons the IPI offers two options to define the origin. The first is where the legal person is incorporated ("constituted or otherwise organised") and where it is "engaged in substantive business operations." In those situations where the substantive business operations occur outside the country of incorporation, then the origin is determined by the origin/citizenship of the persons exercising a dominant influence via ownership, financial participation or other rules.

The dominant influence is determined by applying a test composed of three alternatives to establish dominant control: either the person holds the majority of capital, controls the majority of votes or can appoint more than half of the administrative, management or supervisory body of the 'controlled' person.

Article 74(1) however only makes reference to this first paragraph and not the remaining paragraphs of the IPI Article 3, so logic dictates that the referral is not extended to its paragraphs (2) and (3). If this is correct, then the consequences for a single participant in a consortium from (2) are not applicable as they would cut across Article 73(1)(a). The same can be argued about paragraph (3) which provides for the possibility of public buyers requesting this information at any time during the procedure.

Goods (74(2))

For goods, Article 74(2) refers us to Title II, Chapter 2, Section 1 of Regulation (EU) No 952/2013, that is the Union Customs Code. This includes the Articles 59-63 on the non-preferential origin of goods. The most important articles of this section are 60 (acquisition of origin) and 61 (proof of origin).

For goods wholly obtained in a single territory/country they are considered to have said territory/country as their origin, offering no particular difficulty in practical application. The second paragraph of Article 60 on goods that have contact with multiple territories or countries, however, is where the problems start. In this case, the origin is determined to be that where "here they underwent their last, substantial, economically-justified processing or working, in an undertaking equipped for that purpose, resulting in the manufacture of a new product or representing an important stage of manufacture." This is not new, and simply how origin of goods are considered for all purposes when they enter the EU. What is new is the delegation of the obligation of doing such a check to the public buyer after they crossed the border, effectively making them into customs agents.

Article 61 then provides information on how the origin is to be checked. This is first and foremost based on the customs declaration and then if doubts arise from further evidence that can be required by the customs authorities public buyers to ensure the indication of origin matches the rules of Article 60. I must confess my lack of knowledge and understanding about the implications of the final paragraph on Article 61 for public procurement. It reads:

"where the exigencies of trade so require, a document proving origin may be issued in the Union in accordance with the rules of origin in force in the country or territory of destination or any other method identifying the country where the goods were wholly obtained or underwent their last substantial transformation."

I am at a loss about who and when would provide such document from inside the EU for the context of public procurement.

Further to these practical implications, Marko raises the point that once goods have been release for circulation inside the Union (ie, crossed the border and paid any dues required) Article 28(2) of the TFEU requires them to be treated as being in free circulation...and as Union goods for all intents and purposes. Article 28 clearly cuts across the common commercial policy of Article 207 TFEU and we have a collision of rules at Treaty level that is bound to generate conflict and disputes.

Beyond the risks of challenges above, there are significant practical implications to be taken into account from the implementation of this provision. First, tenders will become more complex since economic operators will have to provide the information on the goods they are including in the tender. The more complex the bid with more goods, the more work. This additional work then filters down to the public buyer who will have to check the information for compliance, once again creating busywork on their day to day operations for no added benefit for itself. As such, the incentives are once again stacked against the use of European preferences.

Services (74(3))

The same rules applied to the economic operators and subcontractors from 74(1) are to be used for tenders composed of services. Therefore, in situations whereby a public buyer has decided to use the options of Article 73(1) on economic operators in addition to (2) on goods/services/works, this is a redundant provision, since the first check will be enough to classify the services as covered. Therefore, this provision is only relevant for those situations whereby a public buyer is not using 73(1) and only (2) instead.

Works (74(4))

A similar thing can be said on the provision about works. Since there are not specific rules on works, the origin of these is to be subsumed to that of the economic operator or subcontractor performing them. Thus meaning that even if the public buyer decides not to use the faculty of 73(1), if it does use 73(2) on a works contract then it will have to check the origin of the economic operators and sub-contractors as well.

This paragraph also gives public buyers the option to implement the European preference for goods that are incorporated into a works contract (ie, not a mixed contract) and the origin of those is to follow that of goods from Article 74(2).