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The European Commission launches the first investigation under the EU International Procurement Instrument (IPI)

The European Commission launches the first investigation under the EU International Procurement Instrument (IPI) on “Discriminatory practices in China's medical device procurement market against European companies and products”

News Bulletin

On April 24th, 2024, the European Commission initiated an investigation into China’s procurement market for medical devices under the International Procurement Instrument (IPI), focusing on discriminatory measures against European companies and products. The Commission’s evidence suggests that Chinese policies increasingly restrict European and foreign companies and EU products in this market, due to unfair distinctions between domestic and foreign companies, and between locally produced and imported medical devices. The Commission stated that previous concerns expressed to Chinese authorities had not been satisfactorily addressed, prompting action under the IPI regulations.

Investigation Summary

According to the EU Official Journal, this investigation was autonomously initiated by the EU under Article 5(1) of Regulation (EU) 2022/1031, enacted by the European Parliament and Council on June 23, 2022. The investigation targets measures and practices in China's public procurement market for medical devices, which create significant barriers for EU economic operators, goods, and services.


A. Description of "Chinese Measures and Practices" by the EU:

The European Commission identifies measures and practices implemented at both central and local levels in China, applicable to all entities procuring medical devices, including state-owned enterprises like public hospitals, comprising three main categories:

a) Prioritizing domestic medical devices and services through:

- The "Buy Chinese" policy under Article 10 of the Government Procurement Law (GPL) of the People’s Republic of China, mandates procurement of domestic goods, services, and works unless unavailable or unreasonable to obtain domestically.

- The “Made in China 2025” strategy requires hospitals to procure 50% of domestic mid-to-high-end medical devices by 2020, and 70% by 2025.

- The 2021 Notification No. 551 on the Review and Guidance Standards for Government Procurement of Imported Products, mandating increased domestic procurement rates for 315 products, including 178 medical devices, 137 of which require 100% domestic procurement.

- The Opinions on Deepening the Reform of the Medical and Health System (State Office Issuance [2015] No. 34), requiring public hospitals to prioritize domestic medical devices, encouraging centralized procurement of high-value domestic medical devices.


b) Restricting the procurement of imported goods, including medical devices, through:

- The Measures for the Administration of the Procurement of Imported Goods, imposing stricter regulations for imported products compared to domestic ones, such as stringent application and approval processes, mandatory contract clauses protecting national and public interests, and offset measures favoring suppliers transferring technology to Chinese enterprises.


c) Imposing conditions during centralized procurement of medical devices, leading to abnormally low bids unsustainable for profitable companies.

The Commission reserves the right to investigate additional relevant measures or practices that significantly and recurrently hinder EU economic operators, goods, and services from accessing China's public procurement market for medical devices, to be elucidated during the investigation.


B. Preliminary Assessment of Chinese Measures and Practices:

The European Commission’s preliminary assessment indicates that Chinese measures systematically disadvantage EU economic operators, goods, and services. These measures, through prioritizing domestic products and restricting imports, significantly reduce foreign companies’ market share. Additionally, China’s support for domestic companies in centralized procurement and stringent bidding and approval procedures further exclude foreign suppliers, increasing their market entry costs and risks, and undermining a fair competitive market environment.


C. Investigation Procedure and Timeline under IPI:

Based on the preliminary assessment, the Commission initiates the investigation under Article 5(1) of the IPI regulation to determine if Chinese measures severely and recurrently obstruct EU economic operators, goods, and services from entering the Chinese market. The Chinese government is invited to submit its views and provide relevant information to resolve the issue through consultations with the Commission. EU member states and other stakeholders are also invited to participate in the investigation and provide information within 30 days of the notification’s publication. As per Article 5(3) of the IPI regulation, the investigation must be completed within nine months from the notification’s publication date, extendable by five months if necessary.


Introduction to the International Procurement Instrument (IPI)

Within the WTO framework, 22 members have signed the Government Procurement Agreement (GPA), a multilateral accord granting national treatment to member countries' companies in government procurement markets. The EU and all its member states are GPA members, with the EU further opening its government procurement market to companies from all nationalities, including non-GPA members.

A. China’s Position:

China, among many other countries, is not a GPA member and is still undergoing prolonged negotiations to join, with no clear accession timeline. Currently, China’s government procurement market is not open to foreign companies, denying them national treatment.


B. EU’s Position:

From the EU’s perspective, there is an imbalance in government procurement relations with China and many non-EU countries, with a lack of reciprocity in market access being a major issue. With the introduction of the IPI, the EU aims to rebalance this situation, promoting the principle of reciprocity. While the IPI does not categorically exclude all non-GPA member companies from the EU’s government procurement market, it provides a legal framework for the European Commission to investigate measures by non-GPA members, like China, that harm EU companies’ access to those countries' government procurement markets. Post-investigation, the Commission can implement remedies, partially excluding such companies from the EU government procurement market.


Overview of the International Procurement Instrument (IPI):

The EU’s International Procurement Instrument (IPI), promulgated in June 2022 as Regulation (EU) 2022/1031, aims to foster fair competition in international procurement markets. The IPI’s primary goal is to eliminate procurement discrimination through dialogue, providing the European Commission with a legal framework to investigate whether measures by non-GPA members severely impair EU companies' access to those countries' government procurement markets.


Investigation Procedure:

The European Commission can initiate investigations autonomously or following complaints. After a preliminary assessment, if a formal investigation is decided upon, a notification is published in the EU Official Journal. The formal investigation lasts a maximum of nine months (extendable by five months), during which the EU consults with relevant parties and seeks non-EU countries' opinions. If no severe damage is found, the investigation terminates; if corrective measures or commitments are made by the third country, the investigation can be suspended.


Remedial Measures:

If market access barriers persist, the European Commission may implement measures such as:

- Adjusting the scoring of bids from third-country companies.

- Excluding certain third-country companies' bids.

- Exclusion measures apply to EU procurement projects valued at €5 million or more, or concession or works contracts worth €15 million or more.

Measures can target specific industries, products, services, or government entities. The IPI requires ensuring bidders cannot circumvent exclusion measures. Exclusion measures are valid for five years, and subject to review for potential continuation.


Expert Insight from Sinowing Law Firm

- The investigation's short initiation period leaves future developments uncertain, mainly targeting state enterprises and public hospitals, with minimal initial impact on private hospitals and enterprises.

- Given the complexity of international political dynamics, lengthy investigation and regulatory cycles mean short-term substantial impacts are unlikely. Even if future policies emerge, domestic companies can mitigate them through joint ventures, local manufacturing, or collaborative labeling.

- Currently, high-end foreign products hold a significant market share domestically, with medical device exports to Europe far lower than imports, suggesting a limited long-term impact on China's medical device development from the EU’s IPI investigation.


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