Closing a Legal Gap Between China and WTO
From News, page 5, issue no. 349, January 7th, 2008
Translated by Zuo Maohong
Original article: [Chinese]

"How exactly do you plan to open up your airport equipment procurement to us?" asked one EU official of his Chinese counterparts.

The question was met with silence at a meeting held after China's application to join the WTO's Government Procurement Agreement, which aims to open up governments' purchases to international competition.

Chinese state-owned enterprises, including most airports, are not listed as “procuring entities" in China's Government Procurement Law—a sticking point that has fueled US and EU ire in trade negotiations.

And now, discrepancies between Chinese law and international rules have dampened the country's newly-launched government procurement talks.

A Contentious List
First negotiated in 1981, the WTO's Government Procurement Agreement addresses a form of protectionism practiced by governments whose purchasing habits are biased towards domestic suppliers. China entered into government procurement negotiations on December 28th, 2007, when Finance Minister Xie Xuren signed an application to the GPA.

According to the government's plan, the list of entities will be increased gradually—encompassing central and local government entities in more-developed regions first, with other regions following suit later on.

Zhan Jingtao, director of the treasury department under the Ministry of Finance, explains that it's unrealistic to list certain inland local governments that are still incapable of affording anything provided by the listed suppliers, adding that different regions should be treated differently. His concerns met with sympathy by the EU delegates, who followed up with other suggestions.

But there have been dissenting voices on whether China's SOEs should be included as well. And this is the keystone of the talks, says Gu Liaohai, managing partner of Liaohai Law Firm.

Appendix I of the GPA describes qualifying procuring entities, and includes central and sub-central government entities as well as public utilities, SOEs, monopolies etc..

However, China's Government Procurement Law doesn't include SOEs as a procuring entity. In fact, Chinese SOEs have been procuring basic commodities such as computers and desks independently for years, without any governmental intervention.

The GPA however relies on its own rubric, not member nations, in deciding procuring entities.

SOEs the Key
When visiting China in June, 2007, J?rgen Holmquist, Director General of the Internal Market and Services under European Commission, expressed his hope that China would add its SOEs to the entity list.

Meanwhile US officials of Department of Commerce have demanded China include more than 100 specific SOEs in the entity list, as they meet the provisions on other entities in the Agreement.

The US embassy in China once even invited experts on government procurement to have a debate on Chinese law and SOEs.

The US says all the state-owned, public-interest-oriented enterprises in the US are considered  government procurement entities. And due to their engagement in public welfare undertakings, even some private firms are included.

According to the Agreement, enterprises whose senior management are appointed by the government, annual revenues are reported to the government, and businesses are intervened by the government should be included in the list.

But Chinese experts note that different countries should be treated differently—China has far more state-owned firms than the US, and they are usually bigger than those in the US. If all are counted, they argue, the two countries are not equally open GPA members.

In response, the US delegates stress that equality for the Agreement refers to equality in terms of rules, rather than money or quantity.

Professor Xu Huandong of Central University of Finance and Economics says that there's much room for negotiation since GPA is a voluntary agreement.

Adapting Existing Laws
Chinese SOEs procure according to Invitation and Submission of Bids Law only when there's a construction project. Legally speaking, Invitation and Submission of Bids Law is a procedural law, while Government Procurement Law is a substantial law, which, in theory, public biddings should apply to.

Like SOEs, construction projects are also controversial. Wang Shaoshuang of the government procurement section under the Ministry of Finance says that in foreign countries, construction projects such as bridges and power stations are all procured by the government, while in China, such procurement is covered by bidding law.

Some criticize the Government Procurement Law's neglect of construction projects, what they argue is the most significant aspect of procurement. Wang admits there's need to improve the current government procurement system, and says that the government is studying ways to improve it.

One option is that different interest groups negotiate amendments to both laws. To prepare for  amending the Government Procurement Law, the Ministry of Finance has reportedly been assessing its fulfillment since last year.

But any amendment will involves complicated bureaucratic procedures. With this in mind, China's GPA talks have a long journey ahead.