The European Union targeted China’s procurement of medical devices in its first investigation under the International Procurement Instrument (IPI), implemented in 2022. The European Commission launched the investigation on April 24 in response to China’s unfair discrimination against European companies and products in its procurement market for medical devices. It contends that China is gradually closing its procurement market for medical devices to European and foreign firms and EU products by unfairly differentiating between local and foreign companies, and between locally produced and imported medical devices. While its firms face restricted access in China, Chinese firms have broad access to the bloc’s procurement market as few member states restrict participation to countries that have rights under international agreements to EU procurement. China does not have rights under any agreement to participate in EU procurement. This post examines the IPI investigation.
The IPI was adopted to provide the EU with authority to remove foreign barriers and obtain a level playing field in third country procurement markets for EU businesses. Its objective is to provide an incentive for countries to negotiate an opening of their procurement to the EU or face penalties.
The European Commission commenced the investigation of China’s medical devices procurement on its own initiative-not an industry complaint, even though industries on both sides of the Atlantic have complained about China’s discriminatory practices affecting medical devices.
The purpose of the EU investigation is to determine whether China’s measures and practices “result in a serious and recurrent impairment of access” of EU economic operators, goods and services to China’s public procurement market for medical devices. In its formal notice initiating the investigation, published in the Official Journal, the Commission outlined discriminatory measures that are implemented by China’s central and local governments and that apply to all entities procuring medical devices, including state-owned enterprises such as public hospitals.
The Chinese measures subject to the investigation fall into three categories: (i) favoring domestic medical devices and services; (ii) restricting the procurement of imported products, including medical devices, by imposing more stringent rules on them than on their domestic counterparts, such as using offsets and granting priority to imported products if their suppliers transfer technology to Chinese enterprises; and (iii) imposing conditions on the centralized procurement of medical devices, leading to the submission of abnormally low bids that cannot be sustained by profit-oriented companies. The EU cited the example of coronary stents and artificial knee joints where the centralized procurement led to an average price reduction of 93% and 82% respectively.
The EU described the measures that favor domestic products as including:
— the Government Procurement Law’s implementation of a ‘Buy China’ policy that obligates government entities to procure domestic goods, services, and works, except when they are not available within China or under reasonable commercial terms or are intended for use outside China,
— the requirement in the ‘Made in China 2025’ Strategy that hospitals’ procurement of domestically produced mid- and high-end medical devices reach 50% by 2020 and 70% by 2025,
— the requirement in a 2021 notice relating to procurement of imported products that local authorities increase the domestic procurement rate of 178 medical devices, and
— a 2015 notice on reform of the medical and health system that directs public hospitals to give priority to domestic medical devices and encourages the centralized purchase of domestic high-value medical devices.
An indicative list of the categories of medical devices affected by the measures and practices in the investigation are set out in an annex to the official notice.
The Commission has nine months to complete its investigation and can extend it by five months. It will invite China to submit its views and engage in consultations with the aim of reaching an agreement on the elimination of its discriminatory measures. Interested parties may submit relevant information within 30 days of initiation of the investigation.
If the Commission concludes that the discriminatory measures exist and China does not offer a satisfactory solution, it may adopt IPI measures that would restrict China’s access to the bloc’s procurement market. Such measures could result in China’s full exclusion from EU tenders or reduction in the overall scores of Chinese bidders participating in EU procurement, thus lowering their chances of winning the bid.
In response to the EU investigation, the U.S. Trade Representative (USTR) commented it would follow the investigation “with interest” and noted that the United States and the EU had worked extensively under the U.S.-EU Trade and Technology Council to identify and explore ways to address China’s non-market policies and practices that unfairly advantage domestic products and companies and displace foreign products in a range of sectors, including medical devices. It compared the potential of the IPI to help address China’s unfair procurement policies and practices with the U.S. Trade Agreements Act of 1979, which prohibits federal procurement from countries that are not parties to an international agreement that opens their procumbent on a reciprocal basis.
The European Commission’s opening of the IPI investigation follows closely its three investigations initiated under another new trade defense measure, the Foreign Subsidies Regulation (FSR). All four investigations are aimed at what are perceived as unfair actions by China. The FSR cases involve subsidies given by the Chinese government to firms participating in EU procurements, which the Commission believes are giving unfair advantages to the China-related participants in EU procurement. Both the IPI and the FSR are evidence of the EU’s more muscular approach to protection of its interests.
The European Union targeted China’s procurement of medical devices in its first investigation under the International Procurement Instrument (IPI), implemented in 2022. The European Commission launched the investigation on April 24 in response to China’s unfair discrimination against European companies and products in its procurement market for medical devices. It contends that China is gradually closing its procurement market for medical devices to European and foreign firms and EU products by unfairly differentiating between local and foreign companies, and between locally produced and imported medical devices. While its firms face restricted access in China, Chinese firms have broad access to the bloc’s procurement market as few member states restrict participation to countries that have rights under international agreements to EU procurement. China does not have rights under any agreement to participate in EU procurement. This post examines the IPI investigation.
The IPI was adopted to provide the EU with authority to remove foreign barriers and obtain a level playing field in third country procurement markets for EU businesses. Its objective is to provide an incentive for countries to negotiate an opening of their procurement to the EU or face penalties.
The European Commission commenced the investigation of China’s medical devices procurement on its own initiative-not an industry complaint, even though industries on both sides of the Atlantic have complained about China’s discriminatory practices affecting medical devices.
The purpose of the EU investigation is to determine whether China’s measures and practices “result in a serious and recurrent impairment of access” of EU economic operators, goods and services to China’s public procurement market for medical devices. In its formal notice initiating the investigation, published in the Official Journal, the Commission outlined discriminatory measures that are implemented by China’s central and local governments and that apply to all entities procuring medical devices, including state-owned enterprises such as public hospitals.
The Chinese measures subject to the investigation fall into three categories: (i) favoring domestic medical devices and services; (ii) restricting the procurement of imported products, including medical devices, by imposing more stringent rules on them than on their domestic counterparts, such as using offsets and granting priority to imported products if their suppliers transfer technology to Chinese enterprises; and (iii) imposing conditions on the centralized procurement of medical devices, leading to the submission of abnormally low bids that cannot be sustained by profit-oriented companies. The EU cited the example of coronary stents and artificial knee joints where the centralized procurement led to an average price reduction of 93% and 82% respectively.
The EU described the measures that favor domestic products as including:
-- the Government Procurement Law’s implementation of a ‘Buy China’ policy that obligates government entities to procure domestic goods, services, and works, except when they are not available within China or under reasonable commercial terms or are intended for use outside China,
-- the requirement in the ‘Made in China 2025’ Strategy that hospitals’ procurement of domestically produced mid- and high-end medical devices reach 50% by 2020 and 70% by 2025,
-- the requirement in a 2021 notice relating to procurement of imported products that local authorities increase the domestic procurement rate of 178 medical devices, and
-- a 2015 notice on reform of the medical and health system that directs public hospitals to give priority to domestic medical devices and encourages the centralized purchase of domestic high-value medical devices.
An indicative list of the categories of medical devices affected by the measures and practices in the investigation are set out in an annex to the official notice.
The Commission has nine months to complete its investigation and can extend it by five months. It will invite China to submit its views and engage in consultations with the aim of reaching an agreement on the elimination of its discriminatory measures. Interested parties may submit relevant information within 30 days of initiation of the investigation.
If the Commission concludes that the discriminatory measures exist and China does not offer a satisfactory solution, it may adopt IPI measures that would restrict China’s access to the bloc's procurement market. Such measures could result in China’s full exclusion from EU tenders or reduction in the overall scores of Chinese bidders participating in EU procurement, thus lowering their chances of winning the bid.
In response to the EU investigation, the U.S. Trade Representative (USTR) commented it would follow the investigation “with interest” and noted that the United States and the EU had worked extensively under the U.S.-EU Trade and Technology Council to identify and explore ways to address China’s non-market policies and practices that unfairly advantage domestic products and companies and displace foreign products in a range of sectors, including medical devices. It compared the potential of the IPI to help address China’s unfair procurement policies and practices with the U.S. Trade Agreements Act of 1979, which prohibits federal procurement from countries that are not parties to an international agreement that opens their procumbent on a reciprocal basis.
The European Commission’s opening of the IPI investigation follows closely its three investigations initiated under another new trade defense measure, the Foreign Subsidies Regulation (FSR). All four investigations are aimed at what are perceived as unfair actions by China. The FSR cases involve subsidies given by the Chinese government to firms participating in EU procurements, which the Commission believes are giving unfair advantages to the China-related participants in EU procurement. Both the IPI and the FSR are evidence of the EU’s more muscular approach to protection of its interests.
