China’s latest offer moves toward coverage commensurate with the GPA parties.
China advanced its negotiations to join the Government Procurement Agreement (GPA) with the recent submission of its 6th offer. That offer, submitted in late December, was in response to its commitment in the U.S.-China Strategic and Economic Dialogue (S&ED) to submit a new revised offer in 2014 that would be “on the whole commensurate with the coverage of GPA parties.” Improvements in its new offer illustrate that China is serious with respect to its commitment to GPA accession. But, it still has some distance to go to complete its accession on terms commensurate with the coverage of the current parties.
Thresholds: In its new offer, China proposes thresholds — the monetary value at and above which procurement is open under the GPA — that are commensurate with the thresholds of at least some GPA parties, albeit after two-years of higher thresholds. Since thresholds are one of the key elements in defining covered procurement, the reductions from earlier offers constitute a significant development. China proposes the following thresholds:
- For central government entities:
- 130,000 Special Drawing Rights (SDRs) for goods and services, the threshold used by all GPA parties, except Japan and Aruba, which apply a lower threshold of 100,000 SDRs.
- 5 million SDRs for construction services, the threshold applied by most Parties. Only Israel currently applies a higher threshold (8.5 million SDRs), but will be reducing it to 5 million SDRs.
- For sub-central entities:
- 355,000 SDRs for goods and services, the threshold used by the United States and Canada; the EU and most other parties apply a threshold of 200,000 SDRs.
- 15 million SDRs for construction services, the threshold applied only by Japan and Korea; the U.S. and most other parties use a 5 million SDRs threshold.
- For other entities in Annex 3:
- 400,000 SDRs for goods and services, which is used by most parties, including the U.S. for sub-central entities; but the U.S. threshold for federal entities covered under Annex 3 is $250,000.
- 15 million SDRs for construction services, the threshold used only by Japan and Korea, in contrast to the 5 million SDRs threshold of most parties.
Central Government Entities: Another major improvement was China’s removal of a provision that would have limited the coverage of its central government entities to procurement in Beijing. That brings China’s central government coverage closer to the other parties. However, unlike other parties, China has not offered any defense entities.
Sub-central Entities: China also added five more provinces (Anhui, Hainan, Heilongjiang, Jiangxi and Shanxi) to its Group B in Annex 2. Under its proposal, Group B provinces would not have any GPA obligations until 3 years after the Agreement enters into force for China. China’s offer of 15 of its 22 provinces is not commensurate with the sub-central coverage of most parties, which generally cover all of their first-tier sub-central entities. The U.S., however, only covers 37 of its 50 states. China has qualified its sub-central coverage with a new exclusion that applies to the procurement of construction services “using special fund of the central government.” It is unclear the scope of this restriction. But, if it applies to most or all construction in the provinces, it would undermine sub-central coverage.
Other Entities: China added 14 other entities in Annex 3, bringing its total to 22. The newly added entities include the China Post Group, the Agricultural Development Bank of China, the China Central Depository and Clearing Co, national museums and its national library as well as several universities and hospitals. What is still missing is coverage of state-owned enterprises that conduct procurement for governmental purposes.
Services: China is offering five new service sectors: legal services; urban planning services (excluding overall planning services); software implementation services; building-cleaning services; and refuse disposal services (excluding radioactive waste disposal). Despite these additions, China’s service coverage is still not commensurate with the coverage of other Parties. In particular, it is much narrower than U.S. coverage. Moreover, China’s coverage is subject to the limitations and conditions in its commitments under the WTO General Agreement on Trade in Services (GATS). (The significance of its GPA services offer in light of its GATS commitments will be explored in a later post.)
Construction Services: China has added seven new subsectors of construction services: construction work for warehouse and industrial buildings, educational buildings and health and other buildings, as well as construction work for civil engineering, and special trade construction work for foundations and water well drilling. But, even with these additions, China’s construction services coverage is far from commensurate with GPA parties, which cover all construction services. The only exception to comprehensive coverage is the U.S. exclusion of dredging, which China has mirrored in its new offer.
Exclusions: Despite the improvements, China has retained provisions that will pose obstacles to completion of its accession, in particular its maintenance of offsets, which are prohibited under the GPA, and its proposal to delay its implementation of the GPA for three years after it accedes to the GPA.
Transitional Measures: Another issue is China’s proposed use of transitional measures, which include phased-in thresholds for all of its entities, phased-in coverage of 10 provinces and an open-ended use of offsets. The GPA parties will need to decide whether to permit China to use any transitional measures.
Despite the improvements in its latest offer, China still has not offered procurement that is fully commensurate with that of the GPA parties.
Jean Heilman Grier
January 12, 2015
Guida, Victoria, China tries again to join WTO procurement pact, Politico (Jan. 7, 2015).
Schewel, Matt, U.S. Sees Gains In New China GPA Offer, But Says Big Gaps Still Remain, Inside U.S. Trade Inside U.S. Trade (Jan. 9, 2015).