The European Commission has published its first evaluation of the application of its International Procurement Instrument (IPI), a trade defense tool designed to provide the European Union (EU) with leverage to open foreign procurement markets on a reciprocal basis. The July 30th report summarized the only IPI investigation undertaken to date of China’s government procurement of medical devices that led to the EU’s ban on China’s participation in the EU procurement market. In the report, the Commission also speculated on why EU industry has not made use of this three-year old tool given their informal complaints of restrictions in foreign procurement markets. This post examines the report, as well as China’s retaliation against the EU with its own procurement ban..
The IPI was implemented in 2022, after nearly a decade of debate, to provide an incentive for third countries to open their public procurement to EU suppliers or face restricted access to the vast EU procurement market. Following a complaint from interested parties or a member state, or on its own initiative, the Commission undertakes an investigation, and if it finds that the investigated country is excluding or discriminating against EU suppliers in its procurement, it can exclude or restrict its participation in EU procurement. The IPI also calls for consultations with the third country in order to seek an agreement to open its procurement market. The EU had hoped that invoking the IPI measure would provide the targeted country with an incentive to address EU concerns by opening its procurement market, rather than lose access to EU procurement.
That hope has not been realized in the IPI investigation of China’s medical device procurement system. The Commission initiated the investigation on its own initiative–not a complaint from industry. As outlined in the IPI report, the Commission encountered challenges in its nine-month investigation. One was the opaque nature of China’s public procurement market, where discriminatory measures extend beyond legal provisions to “a plethora of administrative measures, internal guidelines, and instructions issued at various levels of government.” The Commission was also hampered in its collection of a sufficiently large sample of Chinese procurement contracts to allow a meaningful assessment of the existence of restrictive measures affecting EU companies.
As a result of its investigation, the Commission found that government procurement practices in China against foreign-invested medical device firms, unfairly encouraged Chinese hospitals to choose products produced by domestic manufacturers, with 87% of the contracts that it examined containing “direct and indirect discrimination.” As a consequence, it barred procurement of Chinese medical devices for five years from EU medical device contracts with an estimated value equal to or above €5 million. While that is the most comprehensive measure allowed under the IPI, the Commission pointed out its scope is narrower than China’s discriminatory measures and practices, which apply broadly to all public procurement contracts, regardless of the value. Moreover, the IPI measure allows successful bidders to source up to 50% of the medical devices used in fulfilling contracts from China. This means Chinese-origin medical devices can still have a substantial presence in the EU procurement markets, despite the procurement ban. These restrictions are embedded in the IPI regulation.
The Commission admitted that despite its efforts, including numerous exchanges with the Chinese government, the IPI process has not resulted in China’s removal of the measures and practices that led to the procurement ban. It also acknowledged that on July 6, the Chinese government adopted retaliatory measures regarding EU companies, goods, and services.
China’s Ministry of Finance announced that, as of July 6, China was restricting government purchases of medical devices from the EU that exceed 45 million yuan ($6.3 million) in value, in retaliation to the EU’s ban on its medical devices. China’s ban does not apply to medical devices made by European-invested enterprises in China. However, the restrictions do apply to imports of medical devices from other countries that contain EU-made components worth more than 50% of the contract value.
In the IPI evaluation, the Commission also addressed the absence of any formal complaints under the IPI from interested parties. To facilitate the filing of such complaints, the Commission has provided an online complaint tool. It noted that even though no complaints have been submitted via this tool, it has received numerous informal complaints about public procurement barriers in third countries through other channels. The Commission has also gathered information on restrictive measures and practices in third country procurement that range from exclusions of EU firms, goods, or services to localization requirements and domestic preferences. Yet, they had not led to any formal IPI complaints.
The Commission suggested factors that could explain their absence. One was that bidders are dependent on relations with the public procurement entity and fear targeted retaliation and adverse treatment from the third country if they were to file a formal complaint. Another factor is that EU companies active in third countries procurement markets may have limited interest in closing the EU market to obtain leverage with the country concerned.
The IPI may over time meet the expectations of its proponents. However, to date, as Borderlexhas observed: “The regulation is not proving very potent.”
The European Commission has published its first evaluation of the application of its International Procurement Instrument (IPI), a trade defense tool designed to provide the European Union (EU) with leverage to open foreign procurement markets on a reciprocal basis. The July 30th report summarized the only IPI investigation undertaken to date of China’s government procurement of medical devices that led to the EU's ban on China’s participation in the EU procurement market. In the report, the Commission also speculated on why EU industry has not made use of this three-year old tool given their informal complaints of restrictions in foreign procurement markets. This post examines the report, as well as China’s retaliation against the EU with its own procurement ban..
The IPI was implemented in 2022, after nearly a decade of debate, to provide an incentive for third countries to open their public procurement to EU suppliers or face restricted access to the vast EU procurement market. Following a complaint from interested parties or a member state, or on its own initiative, the Commission undertakes an investigation, and if it finds that the investigated country is excluding or discriminating against EU suppliers in its procurement, it can exclude or restrict its participation in EU procurement. The IPI also calls for consultations with the third country in order to seek an agreement to open its procurement market. The EU had hoped that invoking the IPI measure would provide the targeted country with an incentive to address EU concerns by opening its procurement market, rather than lose access to EU procurement.
That hope has not been realized in the IPI investigation of China’s medical device procurement system. The Commission initiated the investigation on its own initiative--not a complaint from industry. As outlined in the IPI report, the Commission encountered challenges in its nine-month investigation. One was the opaque nature of China's public procurement market, where discriminatory measures extend beyond legal provisions to “a plethora of administrative measures, internal guidelines, and instructions issued at various levels of government.” The Commission was also hampered in its collection of a sufficiently large sample of Chinese procurement contracts to allow a meaningful assessment of the existence of restrictive measures affecting EU companies.
As a result of its investigation, the Commission found that government procurement practices in China against foreign-invested medical device firms, unfairly encouraged Chinese hospitals to choose products produced by domestic manufacturers, with 87% of the contracts that it examined containing “direct and indirect discrimination.” As a consequence, it barred procurement of Chinese medical devices for five years from EU medical device contracts with an estimated value equal to or above €5 million. While that is the most comprehensive measure allowed under the IPI, the Commission pointed out its scope is narrower than China’s discriminatory measures and practices, which apply broadly to all public procurement contracts, regardless of the value. Moreover, the IPI measure allows successful bidders to source up to 50% of the medical devices used in fulfilling contracts from China. This means Chinese-origin medical devices can still have a substantial presence in the EU procurement markets, despite the procurement ban. These restrictions are embedded in the IPI regulation.
The Commission admitted that despite its efforts, including numerous exchanges with the Chinese government, the IPI process has not resulted in China’s removal of the measures and practices that led to the procurement ban. It also acknowledged that on July 6, the Chinese government adopted retaliatory measures regarding EU companies, goods, and services.
China’s Ministry of Finance announced that, as of July 6, China was restricting government purchases of medical devices from the EU that exceed 45 million yuan ($6.3 million) in value, in retaliation to the EU’s ban on its medical devices. China's ban does not apply to medical devices made by European-invested enterprises in China. However, the restrictions do apply to imports of medical devices from other countries that contain EU-made components worth more than 50% of the contract value.
In the IPI evaluation, the Commission also addressed the absence of any formal complaints under the IPI from interested parties. To facilitate the filing of such complaints, the Commission has provided an online complaint tool. It noted that even though no complaints have been submitted via this tool, it has received numerous informal complaints about public procurement barriers in third countries through other channels. The Commission has also gathered information on restrictive measures and practices in third country procurement that range from exclusions of EU firms, goods, or services to localization requirements and domestic preferences. Yet, they had not led to any formal IPI complaints.
The Commission suggested factors that could explain their absence. One was that bidders are dependent on relations with the public procurement entity and fear targeted retaliation and adverse treatment from the third country if they were to file a formal complaint. Another factor is that EU companies active in third countries procurement markets may have limited interest in closing the EU market to obtain leverage with the country concerned.
The IPI may over time meet the expectations of its proponents. However, to date, as Borderlexhas observed: “The regulation is not proving very potent.”
