Published: 2008-01-09

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.

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