Debunking the lack of discrimination argument on the Portuguese train tender

This Monday I was cited again on Portuguese media about the illegality of the train tender for the new 117 trains that are being procured at the moment. This time, with three Portuguese colleagues. Two broadly agreed with me but a third argued that the tender is legal since i) there is no discrimination of foreign tenderers as none would be excluded if they wanted to manufacture the trains abroad; ii) it is a viable solution for Portugal to bring back lost know how for train manufacturing since we had a train manufacturing industry up to the 80s. Neither argument is solid though.

On the non-non-discrimination

Moreira da Silva equates discrimination with exclusion even though these are two completely separate concepts. Discrimination does not require an exclusion to occur, simply to treat differently what should not be treated differently. Otherwise the scope of application of non-discrimination would be very small!

If a discrimination is illegal then the principle of non-discrimination kicks in and such requirement cannot be imposed on economic operators, which is precisely the case here since where the trains are assembled should be irrelevant from the perspective of the contracting authority. It is fair to say that not all discrimination is illegal of course. If a contracting authority must decide between a new river crossing being a bridge or a tunnel, that operative choice is in practice discriminatory since some potential economic operators will be at an advantage in case a bridge is built and vice-versa. But that is a fundamental choice about the object of the contract that remains within the sphere of discretion of the contracting authority. Mandating (via a 15% bonus) where trains should be assembled, does not.

He also misinterprets where the discrimination is occurring. It is not on the origin of the tenderer since that is not discriminated, but instead on the freedom for each economic operator to decide where and how those trainsets will be built. As such, the main issue is one for art 34 TFEU since the measure (ie, the criterion) has an equivalent effect to a quantitative restriction. And it is one of those cases where the proof is on the pudding since none of the three remaining economic operators decided to manufacture abroad despite the existence of capacity to do so.

On being a viable solution for kick-starting a local train manufacturing industry

Procurement is a means to an end - ie to buy something - and not a leverage to kickstart a new industry. Well, apart from the defense industry and the associated offsets of course, which we all know are a route to disaster. Plus, that's a topic for State Aid as I hope to cover in a few days as well.

In general procurement, it is self-evidently discriminatory to prioritise production in Portugal at the expense of other EU member States or third countries party to the GPA or with whom the EU has a FTA covering procurement. This means the work is not done where it can be more efficiently done. If doing it in Portugal was more efficient for economic operators, then obviously there would be no need for the criterion in the first place!

And as I said before: those Portuguese companies are only taking part in consortia because manufacturing is happening in Portugal, therefore if the criterion did not exist they would never have been included in the first place and as such are taking the place of others. Turns out that there is indeed an illegal discriminatory effect in the composition of consortia after all!