Beyond the issue of SEs acting as providers of government support, SEs may engage in other forms of non-market practices. In this respect, previous OECD work undertaken for the Trade Committee found that SEs receiving large amounts of subsidies, may when engaging in internationally competitive tenders submit abnormally low bids.1 In this respect, there is an increasing trend towards countering abnormally low prices through specific provisions in PTAs, following the provision on abnormally low tenders included in the WTO’s Agreement on Government Procurement.2 It is not uncommon for this provision to be replicated among PTAs, which include the right of the procuring entity to verify that the supplier can comply with the conditions of participation and can fulfil the terms of the contract in case an abnormally lower price is received. Approximately 60 PTAs include this type of provision, most notably PTAs concluded with the European Union, European Free Trade Association, Japan, Korea, Australia, New Zealand, and the United Kingdom. Some PTAs allow the procuring entity to reject the tender in case the bidder fails to demonstrate its ability to deliver the contract at the offered price.3
A subset of PTAs goes beyond the GPA provision and directly links abnormally low prices with the provision of subsidies. Those PTAs prompt the procuring entity, when receiving an abnormally low price, to verify with the supplier whether the price takes into account the grant of subsidies. The EU-Japan, United Kingdom-Japan, and EU- United Kingdom PTAs are cases in point. The EU-Singapore PTA goes a step further, allowing the procuring entity to reject the tender on the sole basis of establishing that the abnormally low price is attributable to incompatible subsidies to the supplier.4
While such provisions could go a long way in addressing abnormally low prices in public procurement, the fact remains that, albeit growing, PTAs regulating abnormally low prices remain a minority. Most importantly, they require two or more Parties to a PTA to negotiate and agree on the inclusion of such a provision. To counter this gap, the European Union has used an unilateral instrument, i.e. the Foreign Subsidies Regulation (FSR) to capture the issue posed by subsidies enabling an economic operator to submit a tender which is unduly advantageous.5 To determine whether a subsidy distorts public procurement, the improvement of the competitive position of the economic operator due to foreign subsidies and the actual or potential negative effect of the subsidies in the public procurement procedure are considered, along with an assessment of whether a foreign subsidy enables, actually or potentially, an economic operator to submit an unduly advantageous tender.6 If the terms of the tender (e.g. reduced price) cannot be explained by other factors, in the absence of the subsidy, the tender is considered unduly advantageous. Importantly, the recipient of the subsidy can be not only the bidder itself, but also entities belonging in the same corporate group, such as subsidiaries, holding companies, subcontractors and suppliers, which can engage in cross-subsidising that benefits the bidder.7