Opening Up the Chinese Government Procurement Market
The World Trade Organization’s Government Procurement Agreement has opened opportunities for U.S. businesses in the 37 countries that have signed it. In April, China committed to begin the process of becoming the 38th country.
By John Liuzzi
For U.S. exporters, navigating foreign government procurement can be a challenge. In a given economy, purchases by the government can represent up to 15 percent of the country’s total gross national product (GNP). This number equates to billions of dollars per year in potential opportunities for U.S. suppliers of goods and services. However, those markets can be as tough to crack as they are lucrative. Intense domestic pressure on governments to reserve procurements for their own suppliers combined with a lack of multilateral instruments to guarantee liberalization often results in suboptimal access for U.S. businesses. Although this scenario unfortunately typifies the environment of many of our trading partners, there is no country where the situation is as critical, while at the same time as hopeful, as China.
At the April 11, 2006, meeting of the U.S.–China Joint Commission on Commerce and Trade (JCCT) in Washington, D.C. (see the April issue of International Trade Update), China committed to commence formal consultations by December 2007 to join the Government Procurement Agreement (GPA) of the World Trade Organization (WTO). This movement represents a significant breakthrough. The U.S. government has been engaging China on this important, but seemingly elusive, goal for some time.
The Nature of the Government Procurement Agreement
The GPA is a so-called plurilateral WTO agreement, which means that acceptance of its terms is not compulsory upon accession to the WTO. Rather, a country must apply for membership and be accepted by the agreement’s members to receive benefits. The 37 current GPA parties are mostly industrialized, developed nations.
Originally negotiated in the 1970s as part of the Tokyo Round, the current GPA is a product of the Uruguay Round of WTO negotiations. It came into effect on January 1, 1996. Today, 37 countries have signed the agreement. The WTO has estimated that the non-defense procurement market covered by the agreement is in the range of hundreds of billions of dollars per year.
The GPA’s purpose is to open up to competition as much of its membership’s government procurement as possible to other members’ suppliers. It is designed to make certain that the members’ laws, regulations, procedures, and practices regarding government procurement are transparent and predictable, as well as to ensure that members do not protect domestic products or suppliers or discriminate against those of other GPA members. For GPA-covered procurements, national treatment and non-discrimination are the rule.
Initial Steps in a Long Process
Although China has committed to joining the GPA, the commitment is limited to formally beginning the GPA application process by tabling an initial market access offer covering only central government entities. Although this is a welcome start, it is only the beginning of a thorough consultation process that must be completed before China enters the agreement’s membership.
Once an initial offer is tabled, GPA parties will bilaterally engage China on the scope of its proposed commitments. In addition to central-level government entities, China will need to offer coverage of subcentral entities and state-owned enterprises and services coverage at a level that is commensurate with current party coverage. Parties will also review China’s implementing laws and regulations to ensure the Chinese government procurement system conforms to the GPA’s substantive and procedural requirements for covered procurements. There is no timetable for an accession. Only when a mutually agreed balance of concessions in coverage is reached and when all GPA parties are satisfied that China can implement the agreement’s requirements will the GPA Committee decide on China’s membership. Upon accession, China will be required to guarantee national treatment for other parties’ suppliers in all procurements covered by the GPA. In return, Chinese suppliers will receive the same treatment in other parties’ covered procurements.
The International Trade Administration (ITA) will play a critical role in work on China’s GPA accession. Before the United States will consent to China’s accession, it will seek a full-market access offer covering substantially all goods and services procured by central entities, subcentral entities, and—importantly—state-owned enterprises. The United States will also seek assurance that China’s government procurement system fully meets the GPA’s procedural requirements. Experts from several ITA units—Market Access and Compliance, Manufacturing and Services, and the U.S. and Foreign Commercial Service—will work to fulfill ITA’s mission of creating economic opportunity for American workers and businesses by analyzing the Chinese government’s procurement system, evaluating Chinese market access offers, and engaging Chinese government officials.
Accession by China to this agreement will not only open up a huge market to U.S. exports of goods and services, but also guarantee U.S. suppliers clear, enforceable rights when competing for Chinese government contracts covered under the agreement. The GPA accession process will also help to positively guide the direction of China’s ongoing development of its government procurement laws and regulations, because the GPA generally requires covered government procurement to be conducted in a competitive, transparent, and predictable fashion. The procurement laws and regulations of GPA’s parties embody those basic tenets.
John Liuzzi is an international trade specialist with ITA’s Trade Compliance Center.
For More Information and Assistance
The Commerce Department’s Trade Compliance Center (TCC) is the gateway to a range of U.S. government resources that monitor foreign compliance with trade agreements. U.S. businesses that encounter a foreign trade barrier or an unfair situation in a foreign market should visit the TCC’s Web site for more information.
The TCC also provides links to Web sites that contain information on government procurement opportunities offered by foreign countries. For additional information about the Government Procurement Agreement, and to consult the accompanying exporter’s guide, visit the TCC's Web site.