Do Open Markets Decrease China’s Incentive to Join GPA?

December will mark the 10th year since China began negotiations to join the WTO Government Procurement Agreement (GPA). In the ensuing years, it has submitted six offers, with its latest offer tabled three years ago. While GPA parties continue to press it to complete its accession by addressing their outstanding concerns, most parties already provide China with access to their procurement markets. Only the United States blocks its access, with certain exceptions; the European Union is considering penalties to encourage its GPA accession. This post considers the incentives of China and other countries to join the GPA in light of the open procurement markets of most GPA parties.

When China became a WTO member in 2001, it promised to table an offer of the procurement it would cover under the GPA “as soon as possible”. It finally did so at the end of 2007. Since then it has tabled five revised offers, one each year from 2010 through 2014. While the offers progressively expanded the procurement that it would open under the trade pact, they fell short of the parties’ requests. At the recent meeting of the WTO procurement committee, China indicated that it was “making progress” on preparing another revised offer, a refrain heard repeatedly over the past three years.

In recent years, most countries that have joined the Agreement or commenced GPA negotiations have done so to fulfill a commitment made as part of their accession to the WTO. That list includes China. Another major incentive should be to gain access to the procurement markets of the GPA parties. But, in practice, most parties do not restrict access to their procurement. As a consequence, China and other non-GPA members are able to participate in GPA-covered procurement without opening their own procurement markets.

Of the GPA parties, only the U.S. has an outright prohibition against purchasing from China in federal procurement. To encourage countries to join the GPA, the Trade Agreements Act of 1979 prohibits federal agencies from procuring goods and services covered by the GPA from any country that is not a party to the GPA or a free trade agreement (FTA), or is a least developed country. But, the prohibition is not ironclad; it provides exceptions for goods or services that are not available in the U.S. or from GPA or FTA partners. For procurement below GPA thresholds, China can participate if it meets the price preferences imposed on goods under the Buy American Act.

For several years, the EU has been considering a measure that is intended to address procurement practices that discriminate against EU businesses. In the European Commission’s recent package of trade and investment proposals, it called for the swift approval by the European Parliament and Council of an International Procurement Instrument, as “a tool to promote open and reciprocal access to public procurement markets around the world”. The proposed regulation would establish a process under which the Commission could impose price penalties on bids from countries that discriminate against EU firms. The price penalties could add as much as 20% to the price of the targeted country’s tenders. The Commission cites negotiations on China’s accession to the GPA as one reason for the adoption of the measure.

The EU proposal is now under consideration in the European Parliament where, according to Borderlex, members do not regard the current proposal as sufficient. They want the Commission to return to a 2012 proposal, which the Parliament had endorsed. That proposal would have allowed the EU to close its market completely to a trading partner that did not provide reciprocal access to its procurement.

A stronger EU procurement measure that blocked China’s access to the EU market until it provided reciprocal opportunities to EU firms under the GPA might provide a greater incentive for China to complete its accession. This is a consideration that should also be taken up by other parties such as Canada and Japan. As long as China has access to procurement markets of GPA parties, what reason does it have to complete its accession to the GPA? That is also a question that the GPA parties should consider as they encourage other countries to join their club.

Jean Heilman Grier

November 2, 2017

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    Book: The International Procurement System Government procurement required 40 years and substantial efforts to become part of the international trade regime, even though it comprises a significant part of the global economy. The international system requires governments to balance protectionist forces favoring local suppliers against the pressures of liberalization, which expand procurement markets and lower prices.