Source: http://loc.gov/law/help/govt-procurement-law/china.php
Timestamp: 2014-10-22 08:02:43
Document Index: 709683717

Matched Legal Cases: ['art. 3', 'art. 4', 'art. 1', 'art. 2', 'art. 4', 'art. 26', 'art. 26', 'art. 3', 'art. 27', 'art. 45', 'art. 46', 'art. 10', 'art. 86', 'art. 85', 'art. 114', 'art. 84', 'art. 112']

> Legal Topics > Government Procurement Law and Policy: China
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World Trade Organization (WTO) Guidelines
Domestic Sourcing Requirements
Exemptions to Application of the GPL
Government procurement in China is primarily under the regulation of two national laws: the Government Procurement Law and the Tender Law, and local government procurement measures. The State Council is currently drafting implementation regulations to the Government Procurement Law, which was recently published in order to solicit public opinions. A. Government Procurement Law
On June 29, 2002, the People’s Republic of China (PRC or China) Government Procurement Law (GPL) was promulgated, and entered into effect on January 1, 2003.[1] It is the first national law passed by China’s top legislature to exclusively regulate government procurement activities. In the past, government procurement in China was conducted by government agencies and local governments with money from their budgets without reference to a uniformed set of government procurement rules. This system was plagued with a lack of transparency, uncertain rules and standards, corruption and a lack of dispute resolution mechanisms.[2] According to the GPL, the aim of the GPL is to bring fairness, transparency and integrity to the government procurement in China.[3] Although China started to introduce regulations on transparent and competitive government procurement system in the mid-1990s, the passage of this law was believed to be a major step in establishing a comprehensive government procurement regulation system by the government of China.[4] B. Tender Law The PRC Tender Law is incorporated by the GPL provision, which provides that the PRC Tender Law applies to the procurement of construction projects that require tenders under the GPL.[5] The Tender Law was adopted in 1999, and became effective January 1, 2000.[6] The Tender Law is designed to standardize tendering and bidding activities in China.[7] As with the GPL, the Tender Law is a primary law on government procurement in China. C. GPL Implementation Regulations The GPL authorizes the State Council of China to formulate the implementation regulations of the GPL. On January 11, 2010, the State Council published the draft of the Implementation Regulations of the Government Procurement Law (Draft Implementation Regulations) on its website in order to solicit public opinions.[8] D. Local Government Procurement Measures Local governments at the provincial and municipal levels also publish the government procurement measures applicable within their jurisdictions. As early as 1998, Shenzhen Special Economic Zone has enacted its own government procurement rules, under which public bidding is required for contracts to purchase goods or services in excess of RMB100,000 (approximately US$14,000), and contracts to rent, repair and landscape in excess of RMB200,000 (approximately US$27,000).[9] Beijing Municipal Government published The Measures of Beijing Municipal Government Procurement on April 22, 1999, which became effective on June 1, 1999.[10] Back to Top
II. World Trade Organization (WTO) Guidelines
While China’s trade partners have made considerable efforts to persuade China to join the WTO Agreement on Government Procurement (GPA) before and after China’s WTO accession China has not yet become a party.[11] China was accepted as an observer to the GPA on February 21, 2002.[12] On December 28, 2007 after five years of negotiation, China has signed a written application to join the GPA. The application includes an offer of GPA coverage (“Appendix I Offer”), which signaled the initiation of China’s GPA accession process.[13] Back to Top
III. Government Procurement Process
A. Coverage of Government Procurement “Government procurement” is defined by the GPL as the use of government funds by government authorities, institutions and social organizations to procure goods, projects and services that fall within the centralized procurement catalogue or that are above the purchase thresholds.[14] The law further defines “procurement,” as the obtaining of goods, projects and services in the form of contracts for consideration, including by acquisition, lease, appointment, and employment.[15] “Goods” under this law refers to all types and categories of articles including raw materials, fuel, equipment, and products. The Draft Implementation Regulations further interpret that “goods” could be tangible or intangible, and include intellectual property (trademarks, copyrights and patents).[16] “Projects” means construction projects, including new construction, alteration, expansion, decoration, demolition and renovation of buildings and structures. “Services” means the objects of government procurement other than goods and projects. The Draft Implementation Regulations specify that “services” may include professional services, information network developments, financial and insurance, and transportation.[17] B. Methods of Government Procurement
Under the GPL, government procurement may be conducted by use of the following six methods: (1) Public tender. (2) Private tender or tender by invitation. (3) Competitive negotiation. (4) Single-source procurement. (5) Inquiry. (6) Other methods approved by the State Council regulatory authority for government procurement.[18] Among the specified methods, public tender is required by the GPL to be the principal method for the government procurement.[19] The other five methods may be used in government procurement of goods and services under prescribed situations.[20] For projects, the Tender Law requires that all construction projects to include, among others, all large-scale infrastructure or public utility projects relating to the public interest of society or public security, and projects wholly or partly utilizing state capital or state finances to be subject to tenders.[21] For goods and services under central government budgets, the purchase thresholds above which a public tender is required will be decided by the State Council; for those under local budgets, the purchase thresholds will be decided by provincial governments.[22] C. Government Procurement Contracts Under the GPL, government procurement contracts must be concluded in written contracts. These contracts are subject to the PRC Contract Law enacted in 1999.[23] The competent departments under the State Council will decide the mandatory provisions which must be included in government procurement contracts.[24] Once the bidding process is successfully completed, the purchaser and the winner of the bid or the successful supplier have 30 days from the date the notice informing the said winner or supplier of their acceptance is sent out to sign the government procurement contract.[25] Back to Top
IV. Domestic Sourcing Requirements
The GPL requires government procurements to be derived from domestic sources, with prescribed exemptions. Article 10 of the GPL provides that domestic goods, projects and services must be used for government procurement, except in the following circumstances: The required goods, projects or services are not available in China, or are not available under reasonable commercial conditions; The objects of procurement are for use outside of China; or It is specified otherwise in other laws or administrative regulations. A. Definition of Domestic Goods, Projects and Services
The GPL does not define domestic goods, projects and services. Rather, it authorizes the State Council to determine the definition. In the newly published Draft Implementation Regulations, “domestic goods” is defined as goods manufactured within the territory of China, and domestic manufacturing cost is “above a certain percentage.”[26] “Domestic projects and services” are defined to be projects and services provided by Chinese citizens, legal persons or other organizations.[27] Under these definitions, it is still not clear whether goods produced in China by joint ventures established by foreign and Chinese partners would be considered to be domestic goods. With regards to this issue, the Draft provides that more detailed standards in recognizing domestic goods, projects and services are to be jointly formulated by relevant departments under the State Council and the State Council finance department.[28] B. The “International Misunderstanding” of “Buy China” Requirements in the Stimulus Package On May 26, 2009, Chinese authorities issued a circular on tightening government supervision of tenders and bids in connection with government-invested projects (Circular).[29] The Circular orders the purchase of domestic products in government-invested projects. Commentators believe that by this order, “China has imposed a requirement for its stimulus projects to use domestically made goods - a move that could strain ties with trading partners after Beijing criticized Washington’s “Buy American” stimulus provisions.”[30] In response to the “Buy China” requirement charge, Chinese government used the GPL as a defense. On June 26, 2009, the Ministry of Commerce (MOFCOM) and the National Development and Reform Committee (NDRC) issued a joint statement denying that China has imposed a “Buy China” order as part of its stimulus package, and said it was a misunderstanding by foreign media to label the orders in the Circular as a method of trade protectionism (Joint Statement).[31] The Circular, according to the Joint Statement, was just reiterating the requirement of procuring domestic products in accordance with the GPL. The Joint Statement said that the requirement to buy domestic products in the Circular applies only to the procurements in government-invested projects that are within the scope of the GPL. The domestic products referred to under the GPL include the products of foreign-invested enterprises legally incorporated in China. Further, according to the Joint Statement, China has not signed the WTO GPA, thus the requirement to buy domestic products under the government procurement system is not against China’s WTO commitments.[32] Back to Top
V. Exemptions to Application of the GPL According to the GPL and the proposed Draft Implementation Regulations, the requirements of the GPL may not apply to the following government procurement activities: A. Military Procurement The GPL does not apply to military procurement. The regulations for military procurement will be formulated separately by the Central Military Commission.[33] B. Emergency and National Security Procurement For emergency procurement due to serious natural disaster or other matters of force majeure, or procurement involving national security or state secrets, the GPL does not apply.[34] The Draft Implementation Regulations require the procurement involving national security or State secrets to be approved by national security organs on the same level of the purchaser.[35] C. Procurement with International Loans When government procurement that makes use of loans from international organizations or foreign governments is carried out, and there are other stipulations on the substantial conditions on procurement in the agreement between the lender, the financier and the Chinese party, these stipulations may apply provided that they do not harm the State or social interests.[36] D. Procurement of Mechanical and Electrical Products It has been proposed in the newly published Draft Implementation Regulations that the tender be otherwise regulated for the import of mechanical and electrical products which have been approved by the finance authorities.[37] Back to Top
Foreign Law Specialist March 2010
[1] Zhonghua Renmin Gongheguo Zhengfu Caigou Fa [The People’s Republic of China Government Procurement Law] (adopted by the Standing Committee of the National People’s Congress (NPC Standing Committee) on June 29, 2002, effective on Jan. 1, 2003), 4 Zhonghua Renmin Gongheguo Quanguo Renmin Daibiao Dahui Changwu Weiyuan Hui Gongbao [Gazette of the NPC Standing Committee] (NPC Gazette) (2002), 228-236. For English translation, The Laws of the People’s Republic of China (2002), 21-42 (2003). See also the English translation provided by China Law and Practice (July/Aug. 2002). [2] See generally, Immanuel Gebhardt & Matthias Mueller, China’s New Government Procurement Law: A Major Step Towards Establishing a Comprehensive System? China Law and Practice (July/Aug. 2002); James Zimmerman, China Law Deskbook: A Legal Guide for Foreign-Invested Enterprises (2nd Ed.), Chapter 8, Tender Law and Government Procurement, 307-333 (2005). [3] The GPL, art. 3. [4] Gebhardt & Mueller, supra note 2. [5] The GPL, art. 4. [6] Zhonghua Renmin Gongheguo Zhaobiao Toubiao Fa [The PRC Tender Law, also translated as the “PRC Law on Bid Invitation and Bidding,” or the “PRC Law on Invitation and Submission of Bids”] (adopted by the NPC Standing Committee on Aug. 30, 1999, effective Jan. 1, 2001), 5 NPC Gazette 432-441. For the English translation see The Laws of the People’s Republic of China (1999), 143-160 (2000). [7] Id. art. 1. [8] The full text of the Implementation Regulations [in Chinese] (Jan. 11, 2010) is available on the website of the Legislative Affairs Office of the State Council, at http://www.chinalaw.gov.cn/article/cazjgg /201001/20100100193904.shtml. [9] Shenzhen Special Economic Zone Government Procurement Regulations (promulgated by the Shenzhen Municipality People’s Congress on Oct. 27, 1998, effective Jan. 1, 1999). The text in Chinese is available at http://www.szlh.gov.cn/main/zfjg/qzsdw/zfcg/xgfg/61053.shtml (last visited Jan. 15, 2010). [10] The text in Chinese is available at, http://www.sjsfg.gov.cn/news/200943/n0914388.html (last visited Jan. 15, 2010). [11] Ping Wang, China’s Accession to WTO’s Government Procurement Agreement: Domestic Challenges and Prospects in Negotiation, The University of Nottingham China Policy Institute Briefing Series-Issue 48 (March 2009), available at http://www.nottingham.ac.uk/cpi/documents/briefings/briefing-48-china-gpa-ascension.pdf. For parties to the WTO GPA, see Parties and Observers to the GPA, http://www.wto.org/english/tratop_E /gproc_e/memobs_e.htm#parties (last visited Jan. 15, 2010). [12] Parties and Observers to the GPA, http://www.wto.org/english/tratop_E /gproc_e/memobs_e.htm#parties (last visited Jan. 15, 2010). [13] Wang, supra note 11. [14] The GPL, art. 2. [15] Id. [16] The Draft Implementation Regulations, art. 4. [17] Id. [18] The GPL, art. 26. [19] The GPL, art. 26. [20] The GPL, arts. 29-32. [21] The Tender Law, art. 3. [22] The GPL, art. 27. [23] The GPL, arts. 43 & 44. [24] The GPL, art. 45. [25] The GPL, art. 46. [26] The Draft Implementation Regulations, art. 10. [27] Id. [28] Id. [29] FGFG [2009] No. 1362 (promulgated by National Development and Reform Committee (NDRC) and eight other central government departments). The text in Chinese is available at the NDRC website, at http://www.ndrc.gov.cn/zcfb/zcfbtz/2009tz/W020090604340199778069.pdf (last visited Jan. 15, 2010). [30] See, e.g. Joe McDonald, Beijing Orders “Buy China” for Stimulus Projects, THE MONITOR, June 17, 2009, available at http://hosted.ap.org/dynamic/stories/A/AS_CHINA_ECONOMY?SITE= TXMCA&SECTION=HO ME&TEMPLATE=DEFAULT. For more information on the Notice, see Laney Zhang, Order to "Buy China" in Government-Invested Projects, GLOBAL LEGAL MONITOR, June 25, 2009, available at http://www.loc.gov/lawweb/servlet/lloc_news?disp3_1384_text. [31] MOFCOM and NDRC: So-Called “Buy China” Policy Was a Misunderstanding, Xinhuanet, June 26, 3009, available at http://news.xinhuanet.com/fortune/2009-06/26/content_11607929.htm. [32] Id. [33] The GPL, art. 86. [34] The GPL, art. 85. [35] Id. art. 114. [36] The GPL, art. 84. [37] The Draft Implementation Regulations, art. 112. Back to Top