Procurement Covered by the Agreement

As a general rule, the agreement applies to contracts for goods and services awarded by certain public entities of each party, provided that the value of the contract exceeds the thresholds set out in the annexes to the agreement.

Contracting Authorities

The agreement clearly identifies the central government entities whose procurement activities fall within its scope. It therefore includes detailed lists of the relevant public entities for each EU Member State and each Mercosur country.

For Mercosur countries, the treaty also distinguishes between central government entities and sub-central authorities. This distinction is particularly important in the case of Brazil, as it brings within the scope of the agreement public entities belonging to the country’s federated states.

Contract Value Thresholds

The agreement distinguishes between two categories of procurement:

• goods and services other than construction services; and
• construction services and works concessions.

The applicable thresholds are expressed in Special Drawing Rights (SDRs).

Different thresholds apply depending on whether the contracting authority belongs to the European Union or to a Mercosur country, and also depending on the type of entity involved (central or sub-central government authority).

For EU contracting authorities, the thresholds are set at:

• 130,000 SDRs for goods and services other than construction services;
• 5,000,000 SDRs for construction services and works concessions.

For Mercosur countries, the agreement generally provides for a gradual reduction of the minimum thresholds over time, according to a schedule linked to the number of years following the entry into force of the agreement.

Exclusions

The agreement expressly excludes several categories of procurement from its scope. This includes, in particular, contracts relating to the acquisition or lease of real estate, as well as procurement carried out for the purpose of providing international assistance.

In addition, both the EU and Mercosur parties have excluded certain goods and services from the scope of the agreement. Determining whether a particular contract falls within the treaty therefore requires a careful review of the annexes, which contain numerous sectoral and national exceptions.

The agreement also preserves the parties’ right to adopt measures necessary to protect their essential security interests. This applies notably to procurement involving arms, ammunition, defense products, or military equipment. More broadly, such measures may also concern procurement considered essential to national security, national defense, or the protection of intellectual property rights.

Principle of Non-Discrimination

For procurement covered by the agreement, each party undertakes to grant goods, services, and suppliers from the other party treatment no less favorable than that granted to its own domestic operators. This principle applies both at state level and at the level of individual contracting authorities, with the aim of ensuring reciprocal, immediate, and unconditional access to covered procurement markets.

The agreement also prohibits discrimination based on the foreign origin of capital, goods, or services. As a result, a locally established supplier cannot be treated less favorably simply because it is controlled by, or includes participation from, operators of the other party. Similarly, contracting authorities may not discriminate against products or services on the basis that they originate from the other contracting party.

These provisions represent one of the agreement’s most significant developments. Several Mercosur countries currently maintain rules favoring domestic suppliers and products, which place foreign operators at a clear disadvantage. The new framework therefore creates major opportunities for European businesses, particularly considering that Brazilian federal public procurement alone represents a market worth approximately €8 billion.

Prohibition of “Offsets”

In public procurement, offsets typically take the form of obligations to subcontract part of a contract to local companies or to source a certain percentage of goods from domestic suppliers.

The agreement generally prohibits the parties from imposing such requirements. However, important exceptions remain. Argentina, for example, may require offsets of up to 50% of the contract value, while Brazil retains the ability to impose offsets without specific limitation.

Common Procedural Rules

The agreement also introduces a degree of harmonization in procurement procedures.

First, it establishes common principles regarding participation requirements. In particular, any conditions imposed by a contracting authority must be limited to what is strictly necessary to ensure that a supplier has the legal, financial, commercial, and technical capacity to perform the contract in question.

With regard to tendering procedures, the agreement sets out the circumstances in which limited tendering may be used. It also specifies the information that must be included in tender documents and the conditions under which contracting authorities must communicate amendments to those documents.

Finally, the agreement contains transparency obligations relating to procurement information. Once a contract has been awarded, the contracting authority must promptly inform participating suppliers of the outcome and, upon request, provide the reasons for rejection together with details of the successful tender. It must also publish a contract award notice containing key information such as the subject matter of the contract, the successful bidder, the contract value, the date of award, and the procurement procedure used.

Conclusion

By progressively opening public procurement markets on both sides to reciprocal competition, the EU–Mercosur agreement creates significant opportunities for European companies. At the same time, however, it introduces a complex legal framework requiring careful analysis. Businesses will therefore need to examine closely whether a given procurement procedure falls within the scope of the agreement and assess the practical implications that follow.

Philippe de Richoufftz, Partner

Charles Umbach-Bascone, Associate

As discussed in a previous article, the interim agreement between the European Union and Mercosur includes an entire chapter on the terms governing the opening of public procurement markets between the two blocs. However, the provisions vary considerably for each Mercosur State. For European companies wishing to participate in tenders in Argentina, the key issue is therefore to determine, on a contract-by-contract basis, whether they can benefit from the rules provided for by the Agreement.

Public Procurement Covered by the Agreement

To determine which contracts are covered by the Agreement, the text establishes minimum contract value thresholds above which the Agreement applies. The treaty then precisely identifies the procuring entities concerned. Finally, the Agreement allows certain types of goods and services to be excluded from the scope of the provisions relating to public procurement.

Procuring Entities

Argentina is a federal State, but for the time being only procurement awarded by central government entities are covered. The text therefore sets out a precise list of the ministries, decentralized entities and social security bodies covered by the Agreement.

As regards provincial entities, Argentina must conduct consultations with each provincial government in order to include them in the Agreement. Argentina must conduct these consultations within two years from the entry into force of the Agreement.

If Argentina reaches an agreement with provincial governments generating at least 65% of the country’s GDP, the coverage will be deemed satisfactory and should lead to an expansion of the European Union procuring entities covered by the treaty.

Contract Value

The Agreement applies only to contracts whose value is equal to or greater than a certain threshold calculated in Special Drawing Rights, or SDRs. For Argentina, the thresholds provided for by the Agreement are higher than those applicable to entities in European Union countries, but they are due to decrease gradually until they reach a similar threshold.

Thus, for goods and services procurement contracts awarded by Argentine entities, the thresholds are set as follows:

• SDR 800,000 from the date of entry into force of the Agreement until the end of the fifth year following that date;
• SDR 500,000 from the sixth year until the end of the tenth year following the date of entry into force;
• SDR 300,000 from the eleventh year until the end of the fifteenth year following the date of entry into force;
• SDR 130,000 from the sixteenth year following the date of entry into force.

For construction services contracts, the thresholds are set as follows:

• SDR 8,000,000 from the date of entry into force of the Agreement until the end of the fifth year following that date;
• SDR 5,000,000 from the sixth year following the date of entry into force of the Agreement.

Exclusions

Argentina benefits not only from the general exclusions provided for by the Agreement, such as the acquisition or rental of immovable property or contracts awarded for the purpose of providing international assistance, but also from exclusions specific to Argentina.

Indeed, a reading of the annexes to the Agreement shows that Argentina has expressly excluded the supply of certain goods from its scope. This is the case, for example, for certain books, paper and paperboard products. With regard to services contracts, Argentina sets out a precise list of services covered by the Agreement, including IT services, communication services and certain environmental services.

An even more significant exclusion appears in Annex 12-B-7, which provides that Chapter 12 of the Agreement on public procurement “does not apply to concessions of services”. As a result, European companies will not be able to rely on the benefit of the Agreement’s provisions, and in particular the equal treatment provided for by the text, in relation to service concession contracts.

Non-Discrimination

Like the other signatories, Argentina is bound by a principle of non-discrimination. Accordingly, for contracts covered by the Agreement, Argentina undertakes to grant goods, services and suppliers from EU countries treatment no less favourable than that granted to its own economic operators.

The Agreement also prohibits any discrimination against a locally established supplier based on the foreign origin of its capital or of the goods and services offered. However, Argentina and the European Union have extended this rule beyond what had initially been provided for during the negotiations.

Locally Established Suppliers

Indeed, a footnote in the treaty text extends this rule to all contracts, including those not covered by the Agreement. Thus, an EU company established in Argentina must be able to participate on equal terms in all Argentine public procurement procedures, regardless of the value of the contract and regardless of the procuring entity awarding the contract.

Although this extension should allow EU suppliers established in Argentina broad access to Argentine public procurement markets, it remains to be determined under what conditions a supplier is considered to be locally established.

The footnote refers to “legal persons established in Argentina”. Under Argentine law, Articles 118 to 124 of Law No. 19,550, the General Companies Law (Ley General de Sociedades), govern the establishment of foreign companies in Argentina. In practice, a case-by-case analysis will be necessary to determine whether the local structure of a European operator meets the establishment requirements laid down by Argentine law and by the Agreement.

Rules on Offsets

In the context of public procurement, offsets often take the form of an obligation to subcontract part of the contract to local companies, or to purchase a certain percentage of goods from local operators.

The EU-Mercosur Agreement generally prohibits signatories from imposing such offsets, but the Mercosur States negotiated significant exceptions. This is the case for Argentina, which will be able to impose offsets of up to 50% of the contract value. This percentage must decrease at certain deadlines set by the Agreement, eventually reaching 20% from the sixteenth year following its date of entry into force.

Conclusion

In practice, the Agreement gradually opens Argentine public procurement markets to European operators, but this opening remains subject to high thresholds, initial institutional coverage limited to the federal level, and several substantial exclusions. European Union companies wishing to position themselves in these markets should therefore verify, before each procedure, whether the contract concerned actually falls within the scope of the Agreement.