EU considers measures against discrimination practice in China’s public procurement market

Possible measures that may be taken by the Commission to restore the EU-China level playing field in the medical device sector include restricting or excluding Chinese bidders from government contracts in the EU.

The announcement comes as a result of a nine-month investigation into China’s procurement market for medical devices. The investigation was launched in April 2024, and is the first IPI investigation initiated by the Commission since the IPI came into force in August 2022. The EU legislation is intended to promote reciprocity in terms of the openness of the EU and other countries’ public procurement markets around the world.

In a report, the Commission outlined the main findings of the investigation, which found “clear evidence” of China limiting the access of EU medical devices producers to its government contracts in an unfair and discriminatory way.

In a statement, the Commission said that the EU remains committed to engaging China in a constructive dialogue aimed at addressing and eliminating the discriminatory measures. However, “in the absence of an acceptable solution”, the Commission will now carefully assess the possibility of adopting IPI measures.

Under the rules of the IPI, the Commission can suspend the investigation and consultations at any time if China takes corrective action to eliminate or remedy the restrictive rules or practices, or commits to ending them within six months. However, if no such corrective actions are taken and the investigation finds that restrictive rules or practices exist, the Commission can exercise its power to impose punitive measures. The measures, or penalties, could range from downgrading bid scores of Chinese bidders in the procurement process to excluding the businesses entirely from tendering for EU contracts. 

The publication of the report marks a step closer to the imposition of possible punitive measures. If imposed, these measures will stay in place for five years, but the Commission can withdraw the IPI measures or suspend them if China takes satisfactory corrective actions.

The report was published on the same day that new European Council president Antonio Costa held his first phone conversation with Chinese president Xi Jinping, in which both sides discussed a possible EU-China summit in Brussels this year to mark the 50^th anniversary of diplomatic ties.

In a routine press conference held by China’s Ministry of Foreign Affairs on 15 January, Foreign Ministry Spokesperson Guo Jiakun responded to the EU’s investigation report and the possibility of restrictions on Chinese companies’ access to government contract tenders in the EU. He said that “China is committed to high-standard opening up, upholds the principle of market economy and WTO rules, and stands for dialogue and consultation in settling trade disputes”. 

“We hope that the EU can work with China in the same direction, honour its commitment to an open market and the principle of fair competition, observe WTO rules, provide a fair, transparent and non-discriminatory business environment for Chinese companies, and promote the sound and steady growth of China-EU trade ties,” said Guo.

Procurement and trade law specialist Dr Totis Kotsonis of Pinsent Masons noted that the conclusions of the IPI investigation, coming “hot on the heels of a number of European Commission investigations against Chinese interests under the Foreign Subsidies Regulation, is likely to increase even further trade tensions with China”.

“It is possible that in seeking to limit the escalation of tensions with China, the European Commission may yet decide to impose only limited punitive measures and seek further consultations with the Chinese authorities with a view to reaching an arrangement that addresses EU concerns,” he said.

“Whether the two parties can in fact negotiate successfully such arrangement is unclear at this point, not least in view of the fact that EU complaints about access to China’s public procurement market have been outstanding for many years.” 

Kotsonis added: “Relevant in this regard it also the fact that there have been calls within the EU for it to re-consider its current procurement legislation with a view to introducing a preference system that favours EU companies in the award of public contracts that relate to critical sectors and technologies.  Whether such approach might find favour may very well depend on the extent to which the EU considers that the IPI is effective in incentivising trade partners to open up their markets.  In this regard, this first IPI investigation and its ultimate outcome is of particular interest and importance.”