The evolving global political landscape — marked by escalating trade tensions between the United States and the European Union — is driving a significant policy shift within the EU. In response, the EU and its member states are increasingly prioritizing strategic autonomy by reducing reliance on traditional external partners and reinforcing the resilience of their national supply chains and industrial ecosystems. This policy direction is materializing through the introduction of "European sovereignty" requirements across both public procurement and public funding frameworks and is backed by the European Court of Justice's (ECJ) recent case law considerably limiting the rights of non-EU bidders in public procurement procedures.
This shift is especially pronounced in sectors deemed critical to national and regional security — namely, defense and security, information technology, and healthcare. In these areas, the EU has recently introduced impactful policy instruments designed to promote the development and procurement of domestically produced technologies and capabilities. These measures underscore the EU's deepening commitment to technological sovereignty and the long-term competitiveness of its industrial base. In parallel, developments in member states — for example, the new German draft bill regarding defense procurement — indicate that the "European sovereignty" requirements are poised to be introduced into national laws as well.
This development has an immediate and tangible impact on future business opportunities within the EU public sector. Entities that fail to meet the newly established "European" criteria may find themselves excluded from participation — be it as prime contractor, subcontractor or supplier — in key procurement processes and funding programs.
Looking ahead, entities — particularly those based or headquartered in jurisdictions outside the EU — should anticipate increasing regulatory and operational hurdles when seeking to access EU public sector markets. The trajectory of EU policy suggests a continued tightening of eligibility requirements, making early strategic alignment with European sovereignty objectives essential for maintaining market access and competitiveness. In this context, anyone doing business in Europe may want to consider whether expanding their European footprint — both in terms of corporate presence and supply chain localization — could offer a strategic advantage in meeting evolving compliance expectations and securing future opportunities within the EU.
In this client alert, we give you an overview of the recent case of the ECJ restricting the rights of bidders from non-EU countries, the recently introduced policy instruments in the healthcare and defense sectors, as well as their ramifications for future business opportunities in the EU public sector.
EU restricts Chinese participation in medical device procurement
On 20 June 2025, the EU Commission for the first time issued an Implementing Regulation (2025/1197) imposing an International Procurement Instrument (IPI) measure. As a response to China effectively excluding EU-made medical devices from Chinese government contracts, the IPI measure in question now restricts economic operators originating in the People's Republic of China from access to the EU member states' public procurement markets for medical devices. Therefore, contracting authorities/entities must now exclude Chinese companies in all public procurement of medical devices in the EU with a total contract value of over EUR 5 million.
Furthermore, successful bidders must ensure that no more than 50% of their inputs under the public contract or framework agreement are sourced from China.
By implementing this measure, the EU seeks to encourage China to eliminate its discriminatory practices against EU firms and products in the medical devices sector. It is a direct response to China's long-standing exclusion of EU-made medical devices from its government contracts. Despite the Commission's repeated efforts to negotiate a solution, China has not provided specific commitments to resolve these issues. The EU's action underscores its commitment to protecting the interests of its businesses.
The exclusion of Chinese companies from EU government contracts for medical devices is based on Commission Implementing Regulation (EU) 2025/1197 of 19 June 2025, which came into effect on 30 June 2025. It is the first time the European Commission has concluded an investigation under the IPI and has taken measures to restrict the access of third-country economic operators to the EU public procurement market.
New case law of ECJ restricts access of economic operators of Non-Associated Non-EU Countries to the EU public procurement market
In its Kolin (C-562/22) and Qingdao (C-266/22) judgments, the ECJ has introduced for the first time the following restrictions for market access to the public sector business in the EU:
- Both judgments establish that economic operators from third countries (i.e., Non-EU Countries) that have not concluded international agreements with the EU guaranteeing reciprocal and equal access to public procurement cannot invoke EU procurement law principles, including the fundamental principle of equal treatment, and that those bidders are not entitled to legal protection based on EU procurement law.
- The ECJ clarified that only companies from countries that are signatories to international treaties, such as the World Trade Organization's Government Procurement Agreement or similar bilateral free trade agreements with the EU, are entitled to "no less favorable treatment" under the relevant EU public procurement directives.
- This means that all public contracting authorities of all EU member states are free to decide whether or not they want to admit participants from Non-Associated Third Countries to their public tender procedures. This freedom also includes the option of admitting such bidders but affording them less favorable treatment than EU bidders in the tender procedure (e.g., by downgrading evaluation results).
- Member states are not allowed to enact any national laws that would predetermine this decision of the contracting authority.
For international businesses interested in participating in public procurement opportunities in the EU, it is now more important than ever to (i) make a realistic assessment of their existing EU footprint and (ii) determine which reorganizational or other appropriate measures, including in the supply chain, can increase their EU footprint.
New EU funding and investment programs implement European preference requirements
The Security Action for Europe (SAFE) instrument, which was adopted on 27 May 2025 by the Council, is a new EU financial instrument, backed by funding of up to EUR 150 billion, that will support member states that wish to invest in defense industrial production through common procurement, focusing on priority capabilities. SAFE provides for specific "European" sovereignty requirements that participants need to meet to be eligible — as a contractor or a subcontractor — for a contract funded via SAFE. Participants must meet the following conditions:
- They must be established in the EU, an EEA EFTA state or Ukraine.
- They must have their executive management structures in the EU, an EEA EFTA state or Ukraine.
- They must not be subject to control by another third-country entity that is not established in the EU, an EEA EFTA state or Ukraine. If a potential participant is subject to non-EU control, they can provide guarantees, verified by the member state of establishment, that provide assurances that security and defense interests are not at risk.
- They must only use infrastructure, facilities, assets and resources located in the territory of a member state, an EEA EFTA state or Ukraine.
Failure to comply with these requirements renders the respective company ineligible for participating in the respective procurement project, i.e., it would be excluded from the procedure.
Similar requirements are provided for in the European Defence Fund Regulation (EU) 2021/697, the European Defence Industry Programme (EDIP) proposal COM(2024) 150, the Horizon Programme Regulation (EU) 2021/695, and in the Regulation for General EU Budget Regulation 2024/2509 (EU).
For non-EU companies or EU-based companies that are part of an international group headquartered outside of the EU, EEA EFTA states or Ukraine seeking business opportunities in the defense and security sector in Europe, it is essential to assess whether they meet the European eligibility requirements and explore options to align their European footprint — both in terms of corporate presence and supply chain localization — with them.
Defense Readiness Omnibus fosters European innovation and competitiveness
On 17 June 2025, the EU Commission introduced the Defense Readiness Omnibus (DRO). The DRO is a comprehensive initiative by the EU Commission consisting of a Commission communication as well as legislative and non-legislative proposals to reestablish the EU's defense readiness and deterrence by 2030.
The key legislative changes proposed with regard to defense procurement include increased thresholds for applying the EU Defence Directive 2009/81/EG (now: EUR 900,000 for supply and service contracts), simplified rules for direct procurement of innovative products from research projects and procurement of identical readily available equipment, extension of the maximum term for framework agreements up to 10 years with existing framework agreements to be opened to other member states, as well as encouragement to review and simplify national procurement rules to eliminate unnecessary burdens ("gold-plating").
These measures serve to create a truly functioning EU-wide market for defense equipment, with a focus on innovation and competitiveness. That way, access to all EU suppliers shall be facilitated and dependence on third-country suppliers shall be reduced, which is considered a significant advantage in today's geopolitical landscape and ensures the long-term viability of the EU's strategic independence.
New German draft bill on defense procurement introduces "Buy European"
The recent draft bill issued by the new German government on 25 June 2025 for an "Act on Accelerated Planning and Procurement for the German Armed Forces" (Bundeswehr-Planungs- und -Beschaffungsbeschleunigungsgesetz – BwPBBG) also provides specific provisions on the access of bidders from third countries to procurement procedures of the armed forces. Contracting authorities may do the following:
- Restrict participation to bidders domiciled in the EU.
- Stipulate that a certain proportion by value of the goods or services supplied or otherwise used in the performance of the contract must originate from the EU.
- Require bidders not to include any subcontractors in their bid who are based in a state outside the EU.
In the reasoning, explicit reference is made to the Kolin and Qingdao judgments, which shall be implemented with the new law. The draft's reasoning also specifically references the SAFE Regulation. While this is still in draft form, it indicates that the "Buy European" requirements are poised to be introduced into the general defense procurement rules in Germany. It is expected to be adopted this summer.