EU’s new law fights Chinese protectionism Go back »

2012-02-02 | All chapters

EU's new law fights Chinese protectionism
Deutsche Welle, Feb 2nd, 2012

In contrast to Europe’s open market, the Chinese market can be a tough place to operate for foreign businesses. Companies looking to invest in China often receive unfair treatment in public procurement, a crucial segment of the market.

Public procurement, also called government procurement or public tendering, is the procurement of goods or services on behalf of a public authority. Public procurement accounts for a vital part of the global economy.

For this reason, EU Trade Commissioner Karel De Gucht and Internal Market Commissioner Michel Barnier are drafting a law which should be ready by March to combat Chinese protectionism.

"It’s been on the table for some time and now it’s in the final stage of preparation," Chantal Hughes, spokeswoman of the European Commission, told Deutsche Welle.

Dirk Moens, secretary general of the Beijing-based European Chamber of Commerce, said that despite permission being granted to European firms allowing them access to bidding processes, success rates were still very low.

"There are three types of problems that foreign companies are facing," Moens told Deutsche Welle. "First is the lack of transparency at different stages of the bidding process. It’s not clear how the evaluations are established and who is going to look at your bid. The evaluation criteria are so unclear that foreign companies have no clue how to prepare their bid in a way that responds optimally to what the buyer wants." 

The second problem is that once foreign companies are rejected, there is no way for them to discern why their bid was unsuccessful. Furthermore, the road to appeal does not exist.
 
State-owned enterprises usually have the channels to better understand the bidding process, whilst the Chinese government tends to prefer companies designated as "indigenous innovator". It is difficult for foreign companies to fall within in this category.
 
According to Moens, procurement laws in China exist but are vague and open to interpretation. Under the laws, domestic or predominantly state-owned companies are given preferential treatment. The only way to circumvent the rules is "to be associated with the state-owned enterprises, either through a joint venture or any partnership," said Moens.  
 
Markets opening, but slowly

China was among the countries that sought to keep public procurement laws out of the World Trade Organization when it joined in 2001. These negotiations are still ongoing.

On a visit to China in mid-January, Barnier, the EU trade commissioner, said that the trip was a good opportunity to highlight the great importance the EU attached to the process of China’s accession to the revised WTO Government Procurement Agreement (GPA). The GPA seeks to level the playing field between Europe and other regions of the world in the public procurement market.

"In November 2011, Chinese authorities presented a new offer that includes substantial progress particularly in terms of opening markets to foreign marketsat the provincial level. This is a step in the right direction but we are not there yet," Barnier said in China,expressing his hopes of accelerating the process of accession and the opening of Chinese markets particularly in the fields of water, energy, transport and construction.  

"We can’t use the provisions which exist within the GPA as we have never fully implemented it," the EU Commission spokeswoman, Chantal Hughes, said. The provisions allow countries in certain cases to close their market if other countries refuse to open theirs.

"We want them to be on a reciprocal basis. We’re all in favor of an open public procurement market as much as possible but we also want to ensure other areas of the world give us access to their public procurement market as that enjoyed by them in Europe," said Hughes.
 
Moens, meanwhile, says the European Chamber of Commerce in China has "made major recommendations to ensure all bidders have equal access to information from the beginning."

"We’ve got some acknowledgement that our recommendations are being considered seriously. I believe that we foreign companies will hear from the government slowly to clarify public procurement. But it will take time."