The European Union has taken the unusual step of publicly criticising new Australian Government purchasing rules that require consideration of national economic benefit.
The EU's Canberra delegation made a submission to the joint select committee on government procurement, calling for the rules to be re-examined.
The submission says a provision requiring Commonwealth officials to consider the national economic benefit of contracts above $4 million appears to breach Australia's international treaty obligations.
It says government procurement is a "core area" of Australia-EU trade, vital to the future bilateral relationship.
The EU is Australia's second largest trading partner and largest source of foreign investment.
In 2015 two-way merchandise trade was valued at $59.5 billion and two-way services trade $29.9 billion. Australia exported $23.5 billion worth of goods and services to the EU.
Committee chairman Nick Xenophon said the revised Commonwealth rules aim to increase the competitiveness of Australian businesses when they bid for federal contracts, particularly against international counterparts.
"The new rules require Commonwealth officials to consider how a procurement can benefit the Australian economy," he said.
"This levels competition between domestic and international businesses when it comes to supplying the goods and services Australia needs.
"It's crucial that the new rules are implemented effectively. It is essential that benefits to the Australian economy can be assessed efficiently and quickly without increasing red tape for businesses or government agencies."
The European delegation says it's concerned the economic benefit test "could be applied in a discriminatory manner towards EU suppliers".
"It appears that the requirement for economic benefit to the Australian economy is in breach of the [World Trade Organization] government procurement agreement [GPA], which contains a general requirement for non-discrimination," the submission says.
Failure to heed the EU's concerns could harm Australia's bid to join the GPA group of nations, which Russia and China are also seeking to join.
According to the Department of Foreign Affairs and Trade, an open government procurement market in China would give access to business worth an estimated $1.5 trillion.
"While Australian firms are currently not automatically disqualified from participation in GPA members' markets, there are no legal barriers to stop some GPA members from excluding Australian firms," the department says.
The Australian Chamber of Commerce and Industry cautioned the government to ensure that implementation of the economic benefit test is non-discriminatory.
"The government and departments should not be making decisions that are inconsistent with Australia's international obligations," the chamber submission says.
"The Australian Chamber interprets these changes to mean that departmental officials will consider the impact on the economy broadly, such as spending taxpayer funds wisely to achieve the most beneficial outcomes for society, as well as jobs for Australians, that is consistent with Australia's international obligations."
The EU has argued the procurement rules require "specific interpretative guidance ...to align them with Australia's international obligations and principals of the GPA".
The joint select committee is due to report by May 31.
It's considering how the new provisions can most effectively be implemented and any potential conflict with trade agreements.