Modest Improvements in China’s 2013 GPA Offer, Obstacles Remain

Despite some improvements, China’s latest GPA offer has only slightly narrowed the gap with the coverage of current GPA Parties. 

 A recent posting outlined China’s slow progress over the past 12 years to meet its 2001 WTO commitment to join the Government Procurement Agreement (GPA).  That posting indicated that China had not fulfilled its July 2013 commitment in the U.S.-China Strategic and Economic Dialogue (S&ED) to submit a new revised offer by the end of 2013, with  “improvements in some key areas such as lowered thresholds and increased coverage of sub-central entities.”  In fact, China did submit an offer on the last day of 2013.  But like earlier offers, this offer made only modest improvements in China’s coverage.  Moreover, it retains troublesome provisions that will likely pose obstacles to China’s accession.

On December 31, 2013, China submitted a new revised offer – its fourth since it tabled its initial offer in 2007.  Similar to its earlier offers, this offer modestly expands the procurement that China will cover under the GPA.  But, it will not provide a basis for concluding its accession to the GPA.  Nor does that appear to be China’s intention.  Ten days before it provided its latest offer, China made a new commitment in the U.S.-China Joint Commission on Commerce and Trade —  to submit another revised offer in 2014 that would be “on the whole commensurate with the coverage of GPA parties.”  The December 31 offer is far from meeting that standard.

The new offer, which was circulated to the GPA Parties on January 6, 2014 on a confidential basis, was outlined by Inside U.S. Trade (Jan. 7, 2014).  This posting largely relies on that reporting of the content of China’s new offer.  The primary improvements in the new offer are the addition of six sub-central governments and four more services.

Sub-central Coverage:  The most significant improvements in the 2013 offer are the addition of five provinces and one municipality, bringing China’s sub-central government coverage to a total of 14.  With the addition of the municipality of Chongqing, China is now offering all four of its municipalities, whose status is equal to that of a province; they include Beijing, Shanghai and Tianjin.  China has doubled its coverage of provinces from the five offered earlier (Fujian, Guangdong, Jiangsu, Shandong and Zhejiang) to 10, with the addition of Liaoning, Hebei, Henan, Hubei and Hunan.  China is still offering less than half of its 22 provinces.  Also, it has not offered any of its autonomous regions, such as Tibet.  Moreover, for each covered province and municipality, China limits the coverage to a list of entities.  Since this list does not indicate the entities that are excluded, the Parties could ask China to use a negative list and cover all entities under each of its covered provinces and municipalities, with the exception of those that it lists.  That would ensure transparency and predictability in its coverage.

In the new offer, China has added a transitional measure for four provinces.  It proposes a three-year delay in implementation of the GPA by Hebei, Henan, Hubei and Hunan.  While the revised GPA provides for the phasing-in of specific entities as a transitional measure for developing countries, the Parties must agree to any such measure.

Offsets:  The transitional measures proposed by China include the use of offsets in the form of domestic content and technology transfer requirements.  Offsets are prohibited under the GPA and can be maintained only as a transitional measure.  The only GPA Party that has been permitted to impose offsets – Israel, agreed in the recent revision of the GPA to eliminate them.  The GPA Parties will need to decide whether to permit China to use any transitional measures.

Services:  With regard to its coverage of services, China has offered four new services: consultancy services related to the installation of computer hardware; on-line information and data base retrieval; sewage services; and maintenance and repair services of motor vehicles.  Except for sewage services, the other services are sub-sets of broader categories of services.  Unless those broader categories are also offered, such as the whole “Computer and Related Services” category, the newly added services will have limited significance.  Overall, China’s services coverage remains woefully inadequate.

Given the important role of the services sector in the United States, the United States could be expected to insist on broad services coverage by China.  The United States would likely assess China’s services offer against the U.S. coverage of services.  The United States bases its coverage of services in the GPA on a negative list, which means that it covers all services, except those that it explicitly excludes.  The U.S. excludes four categories of services: transportation services, public utilities (except enhanced telecommunications services), R&D services and services related to the management and operation of government facilities.  Since the other GPA Parties use a positive list, the United States arguably has the broadest services coverage under the GPA.

Thresholds:  While Inside U.S. Trade reported that China has proposed some reductions in its thresholds, they still appear to be unacceptably high, and are exacerbated by China’s proposed five-year phase-in of thresholds.  For example, China proposes a threshold of 500,000 SDRs (Special Drawing Rights) for purchases of goods and services by its central government entities during the first two years after it implements the GPA.  The GPA Parties are likely to insist that China apply thresholds in line with those applied by the current Parties.  That would mean that China’s central government entities would have to apply the same threshold for procurement of goods and services that is used by all the GPA Parties — 130,000 SDRs ($204,000).

For goods and services procured by sub-central entities, there is some variation in the thresholds of the GPA Parties, with the highest threshold of 355,000 SDRs ($558,000) applied by the United States and Canada.  With respect to other entities — the category that applies to state-owned enterprises (SOEs), the highest threshold applied by a number of Parties for procurement of goods and services is 400,000 SDRs.  For the procurement of construction services, all the Parties, except Japan and Korea, apply a 5,000,000 SDRs threshold ($7.86 million).  Japan and Korea apply a higher threshold (15,000,000 SDRs) for their sub-central entities and other entities.

Implementation of GPA:  While China has offered to reduce its delay of implementation of the GPA to three years (from five years), any delay would likely be an obstacle to concluding its accession.  It is difficult to contemplate how the GPA Parties could approve China’s accession until it is prepared to implement the GPA.  Even the transitional measures allowed under the GPA do not include a wholesale delay of implementation. Moreover, the United States, and likely other GPA parties, would not be able to open their procurement to China until China implements the GPA.  Under the U.S. Trade Agreements Act of 1979, the United States can only open U.S. federal procurement to China when it provides reciprocal competitive opportunities to U.S. goods, services and suppliers.

Other Deficiencies:  There are other deficiencies in China’s latest offer, which will need to be addressed before the accession negotiations can be concluded.  Those include the lack of coverage of any SOEs, which has been a prominent request of the United States, the European Union and other GPA Parties.  In addition, China has not offered to cover its Ministry of Defense or other defense entities.

Since China’s 2013 offer represents only another step forward in its accession, the question remains whether China is prepared to submit an offer in 2014 that will close the gaps between its prior offers and the requests of the GPA Parties.

Jean Heilman Grier

January 9, 2014

Reference

Inside U.S. Trade’s China Trade Extra, New China GPA Offer Adds Six Provinces, But Still Falls Short Of Demands (Jan. 7, 2014).

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