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^^ COMMISSION OF THE EUROPEAN COMMUNITIES 
C0M(94) 342 final 
Brussels, 07.09.1994 
REPORT FROM THF rOMMTS^QN 
concerning 
negotiations regarding 
access to third countries' markets 
in the fields covered by 
Directive 93/38/EEC 
(the Utilities Directive) 
Ë^jjgt^gg^^gfiife 
INTRODUCTION 
This report describes the progress made in multilateral or bilateral negotiations regarding 
access for Community undertakings to the third countries' markets in the fields covered 
by Directive 93/3 8/EEC of 14 June 1993, on the procurement procedures of entities 
operating in the water, energy, transport and telecommunications sectors ("the Utilities 
Directive")1. It is presented in accordance with Article 36 (6) of that Directive. 
On 3 March 1993, the Commission presented a first progress report2 on negotiations in 
the fields covered by Directive 90/531 /EEC of 17 September 19903. This Directive has in 
the meantime been replaced by Directive 93/3 8/EEC of 14 June 1993 covering supplies 
and works contracts as well as services contracts. 
This report describes the progress achieved since then. It first gives and, where necessary, 
up-dates the information on the agreements which the Community has already signed 
with third countries and which cover procurement in the fields covered by the Directive. 
It sets out the results of the GATT Government Procurement Agreement which was 
signed, subject to ratification, at Marrakech on 15 April 1994. It also provides 
information on other bilateral negotiations which the Commission is conducting with 
third countries in the same fields. 
1 O.J. L 199 of 9 August 1993, p. 84 
2 COM (93) 80 final of 3 March 1993 
3 O.J. L 297 of 29 October 1990, p. 1 
L NEGOTIATIONS ALREADY CONCLUDED 
Agreements between the Community and the EFTA countries and some eastern European 
counteies m Ihe fields covered fey the Directive have entered into force. An expanded 
OATT Government Procurement Agreement was signed in Marrakesh and is expected to 
enter into force on i January 1996. Formal procedures for Council approval have been 
1. EFT A countries 
He Apeement on the European Economic Area ("the ffiA Agreement") sijmed 
on 2 May 1992 fey the Cornmunity, its Member States and the EFTA Countries 
provides in its Article 65 and Annex XVI that the provisions of the Utilities 
Directive be applied in the EFTA Countries. Ihe EEA Agreement entered into 
force on 1 January 1994. Sweden, Finland, Iceland and Austria now provide 
access to contract award procedures to Community undertakings. As regards 
Norway, however, complete reciprocal opening will have been achieved by the 
end of Ihe é!eroga1aon period (31 December 1994) at the latest 
2. Eastern European Countries 
The Europe Agreements signed on 16 December 1991 by the Community, its 
Member States and Hungary and Poland entered into force on 1 February 1994. 
Undertakings of the respective countries enjoy full access to the contract award 
procedures in the Community under conditions not less favourable than those 
applied to Community companies. National treatment has also been granted to 
Community undertakings established under specific forms in the countries 
concerned. By the end of the transition periods (ten years), national treatment will 
be granted to any Community undertakings and full access to procurement will be 
established on a reciprocal basis. 
Relations between the Community and the Czech Republic, Bulgaria, Romania 
and Slovakia are still governed by the Interim Agreements with those countries, 
until such time as separate Europe Agreements containing identical provisions on 
government procurement are ratified and enter into force. Over the coming year, 
it is expected that negotiations will begin on Europe Agreements with Slovenia 
and the Baltic States. 
3. GATT Government Procurement Agreement 
Background 
In pursuance of Article IX:6(b) of the GATT Government Procurement 
Agreement (the GPA) negotiations have been undertaken with a view to 
broadening its coverage to entities at sub-central level and entities operating in 
utility sectors and extending it to cover works and other services contracts. The 
negotiations have been conducted in parallel with the Uruguay Round and were 
concluded on 15 December 1993 in Geneva. The new GPA was signed subject to 
ratification on 15 April 1994 at the Marrakesh Ministerial Conference by the 
Community and its Member States, the US, Japan, Canada, the EFTA countries, 
Korea and Israel. 
Bilateral Agreement with the US of May 1993 
A major impetus to the successful conclusion of the GATT GPA negotiations was 
given by the conclusion of a bilateral agreement in the form of a Memorandum of 
Understanding on government procurement between the EC and the US in May 
1993. Under the bilateral agreement, barriers to EC companies to bid for contracts 
awarded by US central government agencies were removed. In the electricity 
sector, "Buy America" restrictions applying to federally operated electrical 
utilities were waived for EC companies. Similarly, the Community extended the 
benefits of the Utilities Directive in the electrical sector to US suppliers. The US 
also made a commitment to start an internal process to get coverage of sub-federal 
entities, including utilities, and the elimination of "Buy America" provisions in 
the GATT GPA. The bilateral MoU will expire with the entry into force of the 
new GPA which incorporates its results. 
However, no agreement was reached in May 1993, nor at a later stage, concerning 
access to procurement in the telecommunications sector. This led the United 
States to impose sanctions on Community bidders participating in certain tenders, 
particularly those below-threshold, by the Federal Government, including sub­
threshold contracts awarded by the 6 federally-owned electrical utilities. The 
Community responded in a measured and controlled way by imposing counter-
sanctions against US bidders. 
The expanded GATT Government Procurement Agreement 
On 15 December 1993, Parties reached agreement on an expanded GPA which 
will enter into force on 1 January 1996. With regard to the United States, 
agreement on coverage of the sub-federal and public utilities was reached 
following extensive bilateral negotiations on 15 April at the Marrakesh 
Ministerial conference. Formal approval procedures (COM (94) 251) with regard 
to the agreement are under way. Details are set out below. 
The new GPA Agreement strengthens and improves the existing code and 
significantly expands coverage. Korea has now also joined the existing parties as 
a signatory to the new GPA. However, Hong Kong and Singapore, Parties to the 
1979 GPA, failed to sign the new GPA at Marrakesh. Hong Kong explained that 
its decision was related to objections of principle to the conditionality of the 
Agreement, whereby (because of important variations in coverage between 
parties) access to contracts is not granted on the basis of full MFN treatment. 
However, Hong Kong has stressed that it will continue to procure in an open and 
competitive way with regard to contracts in the fields covered by the Utilities 
Directive. 
The Community's objective with respect to utilities in the negotiations was to 
obtain guarantees of comparable and effective access to public procurement 
markets in GPA signatory countries in a manner compatible with the approach of 
the Directives. This negotiating objective has to a large extent been achieved. 
From the entry into force of the Agreement in 1996, most public contracts 
awarded by the Parties will be subject to the rules and procedures of the 
Agreement and thus open on a non-discriminatory basis to Community suppliers, 
contractors and service providers. In terms of the contracts covered, the new GPA 
has extended the scope of the existing rules by bringing within its ambit not only 
contracts for the supply of goods but also contracts for construction and for the 
provision of services. 
The GPA can be seen as consisting of two separate parts. The first part deals with 
procedural rules, while the second part is made up of annexes detailing coverage 
foreachof the Parties. 
The raies, of the GPA 
The procedural rules follow the pattern of the Community's procurement 
Directives very closely. They lay down requirements regarding publicity for 
entities' intended procurement, qualification schemes, calls for tender and contract 
awards; specification of goods, works and services in a manner intended to ensure 
mat the market is open to a wide range of bidders; transparent procedures for the 
selection of candidates and the evaluation of bids; objective criteria for the award 
of contracts, announced in advance; and challenge procedures to ensure that 
bidders who find that their rights are not being respected can obtain timely 
redress. 
The coverage of the GPA 
The second part of the Agreement consists of the specific annexes which list the 
central and local government and other public bodies and utilities which must 
carry out their procurement in line with the rules of the Agreement. There are 
detailed annexes from the USA, Canada, Japan, Switzerland, Austria, Finland, 
Sweden and Norway, as well as from the Community. Coverage at central 
government level was agreed between all Parties on a Most Favoured Nation 
treatment basis. At sub-central government level, agreement was reached on a 
reciprocal basis. 
Coverage in the utilities sectors was also agreed on a reciprocal basis, strictly in 
line with the provisions of Article 36. This means that third country bidders 
making bids containing a majority of non-Community origin products will only 
have guarantees of access to contracts awarded by entities in utilities sectors in the 
Community where their own country offers effective and comparable access to 
contracts in the same sector for EC suppliers. The Community's reciprocal 
approach is reflected in the derogations from the principle of Most Favoured 
Nation treatment which are contained in Annex III of its offer., A detailed 
analysis of the opportunities of access for EC suppliers to the markets of other 
Parties is given below. 
The Community's offer 
Apart from the EFTA Countries whose final offers corresponded to that of the 
EC, no other Party was able to meet the Community's requests for coverage in 
full. The Community therefore tailored its offer to match the degree of market 
opening offered by the other Parties. 
In its final offer, the Community included its entities operating in the electrical, 
water, urban transport, port and airport sectors. The telecommunications sector 
was not included in the GPA, and the EC withdrew its offer on 
telecommunications in the closing stages of the negotiations in the absence of any 
credible counter offer from other major Parties. As other Parties were not willing 
to cover privately-owned utilities, even if they were regulated and operating under 
special or exclusive rights, the Community also only included its publicly owned 
utilities for coverage in its final offer. However, in practice, there is no difference 
in the way that utilities must operate and award contracts in the EU under the 
Utilities Directive. 
The US offer 
The United States and the European Community held intensive negotiations on 
expansion of coverage between conclusion of the GPA on 15 December 1993 and 
its signature on 15 April 1994 in Marrakesh. In finding a balanced agreement, the 
negotiators used the results of a jointly commissioned study conducted by an 
independent consultant on the procurement opportunities arising under their 
respective offers. The US offer in the fields covered by the Directive which 
resulted from these negotiations covers three areas: 
1. The US will maintain open tendering in the electrical sector by the 
Tennessee Valley Authority and the five Power Marketing Administrations 
under the Department of Energy. Furthermore, New York Power Authority 
will be subject to GPA disciplines. The US also agreed to waive the 
application of "Buy America" provisions on contracts awarded by around 
1,000 electrical co-operatives which are financed by loans or loan guarantees 
from the Rural Electrification Administration (REA). At present, all 
materials and equipment bought using REA funds must be supplied 
domestically, although exceptions are made for certain items which are not 
manufactured in high enough quantity or quality in the US. The threshold 
operated by the electrical utilities for supplies and services under the GPA is 
the SDR equivalent of $ 250,000. The EU will operate a threshold of around 
ECU 400,000 for similar procurements, which is approximately $ 580.000. 
The EC is committed to continue its disapplication of Article 36 of the 
Utilities Directive for the electrical sector towards the US. 
2. The US also offered, partly in the GPA and partly bilaterally, to provide 
access to contracts relating to the procurement of supplies, works and 
services by its biggest ports. These include the New York/New Jersey Port 
Authority and the Baltimore and Massachusetts Port Authorities. 
3. In the airport sector, the offer includes the three major airports in New York 
(La Guardia, Newark and JFK) and Boston Logan Airport. It should be noted 
that, because of the structure of sub-federal government in the US, the 
opening of procurement in utilities sectors is also made possible through the 
coverage of certain entities in States or Cities. EU suppliers, for example will 
enjoy access to procurement by Chicago O'Hare airport and by other entities 
which are owned and operated by covered sub-federal authorities. In fact, 
following a process of obtaining voluntary commitments from its sub-federal 
authorities to accept coverage, the US offered 39 States (among which the 
five biggest: New York, California, Illinois, Florida and Texas) and a 
number of its major cities (among which Chicago, Detroit, Boston, Dallas) 
either inside or outside the GPA. The EC has made no commitments with 
regard to procurement by its airports, as certain obstacles remain in this 
sector. 
The Community also held bilateral negotiations on telecommunications 
procurement with the US with a view to obtaining appropriate guarantees of access 
for its suppliers. In these negotiations, it emphasised the importance of the 
application of certain disciplines with a view to ensuring transparent and open 
tendering, in particular, by privately-owned US telecommunications operators. The 
US was not able to make firm commitments in this regard. However, the US 
expressed its intent to try to reach an agreement with the EU in this area in the 
future. No substantive progress was made with regard to the elimination of 
discriminatory procurement requirements which are imposed along with the 
provision of federal funds to states and localities in sectors such as urban transport, 
airports (despite coverage of a number of major airports, see above) and water 
treatment. Consequently, the benefits of the Utilities Directive will not be extended 
to US suppliers in these sectors. 
The Canadian offer 
Canada has not yet made a concrete offer in the fields covered by the Directive. 
However, the Canadian side has made clear that the federal government is involved 
in a process of obtaining voluntary commitments for coverage from utilities which 
are either owned or influenced by provincial governments. This process should 
enable Canada to make a substantial offer within 18 months of signature of the 
GPA. The Community and several other Parties have requested the inclusion of 
electrical utilities, in particular Quebec and Ontario Hydro, urban transport, ports, 
airports and water facilities which are often operated at municipal level. However, 
Canada's position is strongly influenced by its assessment of the US opening in 
these sectors. Where Canada considers the US opening as insufficient, it remains to 
be seen whether or not Canada will extend the benefits of access to other Parties on 
a more selective basis. 
The Japanese offer 
The Japanese offer includes the water, port and airport sectors. Generally, the 
production, transport and distribution of drinking water is an activity which is 
carried out by major municipalities in Japan which have been offered. Ports and 
airports in Japan are administered by the Ministry of Transport or by prefectures. 
Their procurements are covered in accordance with the lower thresholds of the 
GPA applying to the central and sub-central government entities. 
The Japanese offer also includes a number of entities in the area of public transport. 
These include the 7 railway companies which were previously part of the Japanese 
Railways (JR) company. It also covers a government-owned public transport entity 
(Teito Rapid Transit Authority) and a number of public transport entities which are 
owned by the major municipalities. However, a footnote in Japan's offer states that 
procurements relating to "operational safety" are not covered. Japanese officials 
have explained that this exclusion covers procurements of, for example, rolling 
stock, track and signalling equipment, rails and engines. The Community strongly 
rejects Japan's wide-ranging interpretation of this reservation and demands 
application of the GPA to any such procurements. It has stressed that safety of 
equipment can be ensured by setting adequate standards and testing methods. With 
regard to telecommunications, the Japanese offer does not include the procurement 
of telecommunications equipment by NTT. Its procurement is subject to a 
US/Japan bilateral agreement which, according to the Japanese authorities, is 
available on an MFN basis to other Parties. The rules and procedures of this 
agreement are not fully in line with GPA procedures. Moreover, the results of their 
application have been generally disappointing for foreign suppliers. Japan was also 
unwilling to cover its electrical utilities for reasons relating to their ownership 
structure (95% of the sector is privately owned). However, electrical utilities are 
heavily regulated by the Japanese government and their procurement practices are 
far from transparent and open to foreign suppliers. Consequently, the Community 
will continue to apply Article 36 to bids containing Japanese products in the public 
transport (including railways), telecommunications and electricity sectors. 
The Korean offer 
The Korean offer covers procurement by its water utilities, which are covered by 
the major municipalities. Furthermore, ports are covered through the Ministry of 
Transport, whose procurement is undertaken by the Central Procurement Office 
(OSROK). The Korean Electric Power Corporation (KEPCO) is the country's 
monopoly power generation company. The bulk of its procurement will be covered 
under the new GPA. However, mere are a limited number of products which are 
exempted including electric transformers and insulated cables. 
The opening up of procurement in the water, ports and electricity sectors to 
European suppliers is a major step forward. To date, European suppliers have 
regularly faced serious problems in gaining access to Korean procurement markets 
because of discriminatory practices. They have often been forced to accept 
uneconomic conditions in public contracts, such as compulsory technology transfer, 
domestic content requirements and other forms of offset. 
The Korean offer contains gaps in the railway sector, the urban transport sector and 
the airport sector. With regard to railways, while the Korean National Railroad is 
covered, the offer makes no provision for the coverage of the entity which has been 
set up to manage the high-speed train system in Korea. Furthermore, while some 
urban transport and subway construction is covered, there are a number of entities 
in this field which have not been included. As regards the coverage of airports, 
those which fall under the Ministry of Transport are covered. However, the 
construction of new airports is procured by a separate body which is not covered. 
The Korean side has explained that the entities for which the Community is seeking 
coverage are not under the direct control of the government and can therefore not 
be offered. However, under the circumstances, the Community cannot accept that 
there is effective and comparable access for EC suppliers to markets in the public 
transport (including long-distance rail) and airport sectors in Korea, and will 
therefore maintain Article 36 towards Korea in those sectors, until such time as 
Korea is able to make satisfactory offers in those areas. 
Regarding public telecommunications equipment procurement, non-Korean firms 
need to be implanted in Korea in order to be able to bid for domestically financed 
procurements (this is the major part of the market) unless a bilateral agreement with 
a third country on access exists. As a result of bilateral negotiations between the US 
and Korea, US firms are allowed to bid for part of the contracts. This privileged 
treatment which entered into force on 1 January 1993 de facto discriminates against 
non-US foreign competitors, including European firms. This matter is being 
pursued with Korea. 
The Israeli offer 
The Israeli offer includes procurement by its ports, airports and railways. 
Furthermore, the provision of water by the 3 main municipalities is offered. In the 
electrical sector, Israel has offered procurement by its monopoly provider, Israel 
Electricity Company, with the exception of cables, electro-mechanic meters, 
transformers, disconnectors and switchers and electric motors. The Community has 
mirrored the Israeli exemptions in its own schedule. As regards the 
telecommunications sector, Israel offered its national communications company, 
Bezek, on a reciprocal basis, with the exception of the procurement of cables. As 
the Community has not included its telecommunications sector in the GPA, Israel 
has not accorded rights of access to Bezek's procurement to EC suppliers. However, 
it is expected that bilateral negotiations will be held between the Community and 
Israel on this sector as well as on other outstanding areas in the near future, Israel 
made no offer on urban transport. The subject of telecommunication and urban 
transport procurement are among those to be covered in a new bilateral agreement 
with Israel currently under negotiation. 
A table is attached setting out the situation regarding market access for 
procurements in the various utility sectors of the various Signatories to the GPA. 
II. FURTHER NEGOTIATIONS ON THE EXPANSION OF COVERAGE 
Inside the GPA 
The GPA provides for the possibility to negotiate, bilaterally or plurilaterally, 
further expansion of coverage. This will in particular be done through the 
elimination of certain derogations or through the termination of non-application of 
parts of the Agreement between Parties. In this regard, it is recalled that the 
Community and the US reached agreement on an expansion of coverage between 
them at the Marrakesh Conference which they would, for the most part, 
incorporate in the new Agreement following its approval. It will also be recalled 
that the Canadian schedule envisages further negotiations prior to the entry into 
force of the Agreement, in particular concerning the coverage of entities operating 
in the fields covered by the Utilities Directive. 
It should also be noted that several other Contracting Parties to the GATT have, at 
one time or another, expressed an interest in joining the Government Procurement 
Agreement. A concrete demand for accession has now been received from Aruba 
(including an offer covering all relevant utility sectors) while that of Liechtenstein 
has been announced. It is expected that others will follow. Furthermore, several 
candidates for accession to the GATT/WTO, for example mainland China and 
Taiwan have been requested to accede to the GPA subject to their GATT/WTO 
accession. In this respect, Taiwan has recently communicated to the GAIT its 
interest in acceding to the GPA and its willingness to enter into coverage 
negotiations with other Parties. 
Bilateral negotiations 
As stated above, the Commission will continue to seek an expansion of coverage 
with a view to achieving effective and comparable access for EU suppliers to 
sectors not offered by other Parties, either within the GPA or, as regards sectors 
which have not been covered in the GPA, on a bilateral basis. 
III. SUMMARY 
The EEA Agreement has extended the benefits of the Utilities Directive from 1 
January 1994 to the countries concerned, with extra deadlines for Norway and 
Liechtenstein. 
The Europe Agreements with Poland and Hungary has also led the Community to 
provide access from 1 February 1994 to undertakings from these countries to 
tenders in the fields of the Directive. As regards the Czech Republic, Slovakia, 
Bulgaria, Romania, Slovenia and the Baltic States, the Community will make the 
Directive available to their undertakings as and when the Europe Agreements with 
these states have been ratified. 
10 
The Community has extended the benefits of the Directive to suppliers from the 
United States to the electrical sector from 25 May 1993 as a result of the bilateral 
Memorandum of Understanding on government procurement. 
As a result of the GATT Government Procurement Agreement, the Community 
will extend on a reciprocal basis the benefits of the Directive for specific sectors to 
certain signatories. The benefits of the Directive concerning the water sector will be 
accorded to suppliers from Israel, Japan, Korea, and the EFTA countries; for the 
urban transport sector to suppliers from the EFTA countries; for the airport sector 
to suppliers from Israel, Japan and the EFTA countries; for the port sector to 
suppliers from Israel, Japan, Korea, the United States and the EFTA countries; for 
electrical utilities to suppliers from Israel, Korea, the United States and the EFTA 
countries. Access to contracts for EC suppliers in the same sectors is assured under 
the Agreement. 
11 
Annex I 
effective and comparable access for 
Community undertakings to contracts in 
utilities sectors covered by the GPA 
Water 
Electricity 
Public 
transport 
Airports 
Ports Canada 1 
0 
0 
0 
0 
0 
1 Israel 
t 
• 2 
1 
\ 
1 
! Japan 
f 
-
+ 
f Korea 
-» 
•f2 
-
+ United States 
-
4 
-
1 Efta 
+ 
+ 
+ 
+ 
* •— 
'Canada will make an offer no later than June 1995 
2E\ccpt for some specified products 
- M -
ISSN 0254-1475 
COM(94) 342 final 
DOCUMENTS 
EN 1108 
Catalogue number : CB-CO-94-213-EN-C 
ISBN 92-77-68962-5 
Office for Official Publications of the European Communities 
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