EU and Japan reach agreement in principle on EPA: What to expect for government procurement?

After 4 years of negotiations, EU and Japan have reached an agreement in principle on the main elements of an EU-Japan Economic Partnership agreement on July 6th. The agreement was likely accelerated by the G20 meeting the next day, in a move by both economic giants to show that the age of trade liberalization has not ended with the United States’ withdrawal from TTP in January. 

Although still quite a bit of work will be needed to iron out tricky details, the agreement will hail a new era in EU-Japan relations. Government or public procurement (PP) has been one of the sticky issues in the negotiations until the last days of negotiations, and even called a deal-breaker by some.

What both parties have agreed upon with regard to PP was eagerly awaited. The final text of the agreement, including the chapter on public procurement has not yet been made publicly available, so we have try to piece together from various sources what has been settled upon. First indications are that there will be many questions about what the agreement will mean in practice for EU SMEs. 

The European Commission in its factsheet on public procurement in the agreement states the following main results:

  • Greater access to railway equipment and infrastructure market in Japan above 400K SDR, with the removal of the Operational Safety Clause, which barred foreign suppliers from bidding for contracts to supply trains and other railway equipment.
  • In the Japanese press this is explained that Japan will open procurement by the non-private JR companies in Hokkaido and Shikoku and JR Freight, plus Tokyo Metro to EU suppliers. The other, much more profitable, JR companies on the mainland of Honshu were already completely privatized and are therefore not covered by any government procurement arrangement.
  • Giving access to additional services for central and sub-central entities such as telecommunication related services, insurance and pension fund services, leasing and rental services, wide range of consulting services, motion picture processing services, etc.
  • Japan has agreed to open up tenders to EU bidders for additional
    • Hospitals and academic institutions (87 entities)
    • Electricity distribution (29 entities) at the central government level
    • 6 other national entities such as agencies (the latter under lower thresholds than the GPA)
  • Non-discriminatory access for EU suppliers to the PP markets at 48 “core cities” (cities with populations between 200,000 and 300,000). According to the European Commission these would represent 15% of the population. In the factsheet, published by the Japanese Foreign Ministry, however this part of the agreement is slightly more qualified:
    • It will concern tenders above a certain threshold;
    • Construction services are not to be included and
    • Local governments will still be able to set conditions about local offices as conditions for participation.
    • One aspect not officially mentioned by both sides, but in Japanese media is that the core cities do not need to publish their notices in English, as is customary under the WTO regime, as this would increase the administrative burden of the municipalities.
  • Access to one additional ‘Designated City’ (population > 500,000. This is likely to be Kumamoto-city in Kyushu, which was also already offered in the TPP agreement of 2016, but is currently not covered by the WTO GPA. The regulations governing this aspect of the agreement will need to be laid down and will be separate from the current WTO GPA regime.
  • Additional rules regarding electronic publication of notices through a single point of access and fair treatment of EU construction business under the Japanese construction business evaluation system (keishin), recognition of test reports, and possibility of using environment standards as selection criteria, and additional standards for domestic review procedures by setting new standards for the remedies available to bidding companies if they think they have been treated unfairly. 

It is still too early to judge whether the EPA will give real opportunities to European SMEs in the Japanese public procurement market. European SMEs (and probably Japanese SMEs as well) would be helped with the following:

  • less cumbersome paperwork and easier digital access to online procurement platforms;
  • more transparancy in procedures and
  • greater focus on the outcomes of products and services provided instead of overdetailled specifications, that only one specific supplier can meet.