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Trade Deadlock: By the Numbers, or by the Rules?

From News, page 6, issue no. 366, May 5, 2008
Translated by Ren Yujie
Original article:

In a dialogue that ended April 28 between European Union (EU) and Chinese officials, China refused to include state-owned enterprises and local governments’ purchases into the WTO's Government Procurement Agreement (GPA).

The WTO opens both commercial and government procurement markets to its member countries. When China entered the WTO in 2001, it only opened the former. Last December 28, China submitted its application for entering the GPA, and a preliminary purchasing list, to WTO.

However, the Economic Observer learned that only the Chinese central government was included on the list. State-owned enterprises and local governments, which 13 GPA member countries had said they were concerned most about, were not included.

EU officials expressed disappointment over the Chinese stance, and the US had delayed a discussion with China on the issue, originally planned for April.

State-owned enterprises were excluded from GPA
Since 2006, the EU and US have demanded several times that China include state-owned enterprises and local governments on their government procurement list, demands which were re-iterated on April 24 and 25 when EU officials and representatives from industry met with China's central government officials in Beijing.

Zhan Jingtao, the director-general of the treasury department in China's Ministry of Finance (MOF), indicated that China would further amend the preliminary list. On April 28, the delegation went to Shanghai to meet with over 100 local officials.

The scale of government procurement among western countries is broad and covers procurement activities by governments and public institutions. In recent years, regardless of whether funding came from public or private sources; or whether they are government projects or private undertaking, as long as a project was in the public interest, it must observe rules of open government procurement. For example, according to the rules, a private construction of a stadium in Spain must implement government procurement because it is a public space.

By the end of 2007, officials in the US Department of Commerce claimed that China should include over 100 large state-owned enterprises in the government procurement list .

They said that because the Chinese government controlled high-level personnel appointments in state-owned enterprises, and because these enterprises make financial reports to the government every year, the Chinese government was also an active participant in their development.

Chinese officials refuted this, and emphasized that its number of SOEs vastly outnumbered those of other developed nations such as the United States. As a result, China said if its more than 100 SOEs were included, it would lead to an unbalanced level of market liberalization between nations under the Agreement.

Cao Fuguo, who oversees government procurement and public works research at the Central University of Financing and Economics, and who was invited to give keynote speeches at the two EU-attended conferences in Beijing and Shanghai, said a cost-benefit analysis was necessary if a country wanted to enter the GPA.

But U.S. commercial representatives insisted that the "equity" promoted by GPA was not one of currencies or figures, but an equity of rules.

Cao Fuguo said that GPA member countries had long been biased against non-GPA countryies during procurement processes, which left Chinese suppliers with little experience in direct participation of government procurement. As a result, Chinese firms were less sensitive to GP markets and much less competitive in them than even foreign businesses operating in China.

Besides this, Cao believed that to include SOEs into government procurement would conflict with the idea of separation of the government and enterprises, which China has been increasingly dedicated to for some time.

SOEs aside, GPA members were also surprised by the exclusion of local governments from the list.

Last year, officials from the MOF declared that local governments would be included in government procurement list starting with developed provinces and cities.

Also hampering further the opening up of China's GPA were two overlapping domestic laws. Before, SOEs had followed "Regulations for Implementation of Invitation And Submission of Bids Law" for large-scale purchasing projects, while government departments followed "Regulations for the Government Procurement Law".

The National Development and Reform Commission has been revising the former, and the MOF has recently submitted updated implementation guidelines for the latter to the State Council.

Cao said that if GPA members could accept China’s preliminary government procurement list, it would help China gain international experiences in public procurement, and was a step toward the eventual openness of China's own government procurement market.

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