China’s GPA Accession: U.S. Industry Identifies Deficiencies

The American Chamber of Commerce in China has pointed out deficiencies in China’s GPA offers that will need to be addressed to bring the procurement China will cover under the GPA to the level of other parties.

As noted in an earlier posting, China committed to table a new market access offer in 2014 in its negotiations to join the WTO Government Procurement Agreement (GPA). U.S. industry has identified deficiencies in the procurement that China has proposed to open to foreign suppliers in the five offers it has submitted since 2007. If China adequately addresses these deficiencies in its next offer, it could significantly narrow the gaps between its proposed coverage and the procurement covered by GPA parties.

U.S. industry interests were detailed in the American Chamber of Commerce in China’s (AmCham China) 2014 American Business in China White Paper, issued in May 2014. The White Paper, which reflects the collective view of over 1,000 AmCham China member companies, characterizes China’s government procurement market as “largely closed to foreign businesses.” As a consequence, U.S. firms have very limited opportunities to participate in China’s vast procurement market. According to AmCham China, this market reached US $230 billion (RMB 1.4 trillion) in 2012, not counting procurement by China’s state-owned enterprises (SOEs).

The deficiencies outlined by AmCham China should be considered in the context of China’s promise that its 2014 offer would be “on the whole commensurate with the coverage of GPA parties.” The areas in which improvement is needed are outlined below, and contrasted with the coverage that is standard for GPA parties.

  • China would limit coverage of its central government entities to those located in Beijing.
    • Standard GPA Coverage: No GPA party limits coverage of its central government entities to procurement conducted in its capital.
  • China omits its Ministry of Defense and defense-related entities, including the People’s Liberation Army.
    • Standard GPA Coverage: All GPA parties, except Israel, cover their defense entities.
  • China proposes to cover less than half of its more than 30 provinces and provincial-level regions.
    • Standard GPA Coverage: GPA parties provide extensive sub-central coverage; e.g., the European Union covers all of its sub-central government entities; Japan covers all of its prefectures and designated cities; Canada covers all of its provinces and territories; and the U.S. covers two-thirds (37) of its 50 states.
  • China omits coverage of its state-owned enterprises (SOEs) that procure for government purposes.
    • Standard GPA Coverage: GPA parties cover a wide range of SOEs, utilities and government enterprises; e.g., the EU covers a broad array of utilities, including in the electric, drinking water, transit, rail, port, and airport sectors; U.S. covers its federal enterprises engaged in the electricity sector and other enterprises.
  • China limits the services that it would cover under the GPA.
    • Standard GPA Coverage: U.S. bases its coverage on a negative list and covers all services except those in four categories; other GPA parties cover a broad array of services using positive lists.
  • China applies very high thresholds, especially for construction services.
    • Standard GPA Coverage: In contrast to the thresholds of GPA parties, China’s proposed construction services thresholds would be three times higher for central government procurement,12 times higher for sub-central entities at the beginning of a five year phase-in period and 16 times higher at the beginning of a five-year phase-in period.
  • China would reserve the right to deviate from the principle of national treatment when a specific procurement may “impair important national policy objectives”.
    • Standard GPA Coverage: Norway had maintained a similar note until the revision of the GPA; it removed it at the insistence of other GPA parties.
  • China would maintain the right to require domestic content, technology transfer and offsets. Noting that China is the world’s second largest economy, the AmCham takes issue with China’s assertion that it should be treated as a developing country in order to use transitional measures that may be allowed for such countries.
    • GPA Standard: GPA prohibits the use of domestic content and other offsets, except for developing countries, with the approval of the GPA parties. Israel is the only party that has been allowed to impose offsets.  However, in the recent revision of the GPA, it agreed to terminate its offsets.
  • China would delay its implementation of the GPA for three years after its accession.
    • GPA Standard: The GPA allows for delay of implementation of specific obligations for developing countries where approved by the GPA parties, but it makes no provision for a wholesale delay of implementation.

China’s treatment of SOEs is a significant unresolved issue. The AmCham encourages China to clarify its position with regard to SOEs. It recommends that China either include SOEs that procure for governmental purposes in its next offer or issue a directive that clarifies the status of SOE procurement. Such a directive would confirm that SOE purchases are not government procurement and would ensure “that all regulations and directives governing SOEs are consistent with China’s commitments regarding the commercial independence of SOEs and other relevant WTO obligations.” China’s WTO obligations included a commitment to ensure that all SOEs would make purchases and sales based solely on commercial considerations.

AmCham China urges China “to take meaningful steps towards concluding its GPA accession” by addressing the deficiencies set out in its White Paper when China submits its 6th offer in 2014. In addressing those deficiencies, it is essential that China bring its coverage to a level commensurate with that of the United States and other GPA parties.

Jean Heilman Grier

June 9, 2014

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