Source: YI CAI 

Authors: Feng Difan ▪ Gao Ya

I. Overview

On April 24, 2024, the European Union announced the initiation of an investigation under the International Procurement Instrument (IPI) concerning measures and practices allegedly affecting the access of EU economic operators, goods, and services to China's public procurement market for medical devices ("the challenged measures"). This marks the first investigation launched by the EU utilizing the IPI.

II. The Challenged Measures

(A) Prioritizing Domestic Medical Devices and Services Through Various Means, Including:

1.Article 10 of the PRC Government Procurement Law stipulates that domestic goods, construction, and services shall be procured, stating: "Government procurement shall procure domestic goods, construction and services. Except under any of the following circumstances: (1) the needed goods, construction or services are not available within the territory of the People's Republic of China, or cannot be obtained on reasonable commercial terms; (2) the items are to be procured for use outside the territory of the People's Republic of China; (3) otherwise provided by other laws or administrative regulations."

2.The "Made in China 2025" strategy calls for hospitals to procure 50% of mid-to-high-end medical devices from domestic production by 2020, and 70% by 2025.

3.The "Notice on Review and Guidance Standards for Government Procurement of Imported Products" (No. 551, 2021) requires local governments to increase the domestic procurement rate, covering 178 types of medical devices (137 of which require 100% domestic procurement).

4.The "Notice of the General Office of the State Council on Issuing the Summary of the 2014 Work and Key Tasks for 2015 in Deepening the Reform of the Medical and Health System" (Guo Ban Fa [2015] No. 34) requires public hospitals to prioritize the procurement of domestic medical devices and encourages the use of centralized procurement methods for domestic high-value medical devices.

(B) Restricting Procurement of Imported Products

China restricts the procurement of imported products, including medical devices, through measures such as the "Measures for the Administration of Government Procurement of Imported Products." These measures impose stricter regulations compared to domestic product procurement, for example:

Implementing a strict application-evaluation-approval procedure for the procurement of imported products, aimed at verifying whether domestic products exist that can substitute for the imported ones.

Mandatorily including clauses in contracts involving the procurement of imported products to protect national and public interests, with the possibility of contract termination on these grounds.

Explicitly stipulating the use of offsets in government procurement of imported products, such as prioritizing procurement from suppliers that transfer technology to Chinese enterprises.

(C) Setting Conditions in its Centralized Procurement of Medical Devices that Lead to Abnormally Low Bids, Unattainable by For-Profit Companies

The European Commission may also investigate other measures restricting EU operators, goods, and services from accessing China's public procurement market for medical devices.

III. Preliminary Assessment

The European Commission preliminarily assesses that the above-mentioned measures create serious and persistent obstacles, both de jure and de facto, for EU economic operators, goods, or services seeking access to China's public procurement market for medical devices.

IV. Subsequent Procedure

1.Based on the preliminary assessment, the European Commission formally initiates the investigation.

2.The Chinese government is invited to submit comments on the challenged measures and to engage in consultations aimed at eliminating and rectifying them.

3.Interested parties have 30 days from the publication of the notice to participate and submit information relevant to the challenged measures.

4.The investigation shall be completed within 9 months from the date of publication of the notice, extendable by 5 months under justifiable circumstances. Upon completion, the Commission will publish a report setting out its conclusions and the actions it intends to take.

V. Possible Measures by the EU after the Investigation

If, following the investigation, the European Commission finds that the challenged measures or practices of the third country do exist and considers that adopting relevant measures is in the Union's interest, the Commission may adopt an IPI measure restricting access for undertakings, goods, or services originating from that third country to the EU's public procurement or concession markets.

Such an IPI measure may require contracting authorities or entities to:

1.Apply a score adjustment to tenders submitted by undertakings from that country; or

2.Exclude tenders submitted by undertakings from that country.

The IPI measure shall only apply to public procurements whose estimated value exceeds a threshold set by the Commission based on the specific investigation findings. For works and concessions, this threshold shall be equal to or exceed €15,000,000 (net of VAT); for goods and services, it shall be equal to or exceed €5,000,000 (net of VAT).

Generally, an IPI measure shall lapse 5 years after its entry into force. The Commission may initiate a review of the IPI measure 9 months before its expiry and decide within 6 months whether to (1) extend the IPI measure for another 5 years, (2) adjust it appropriately, or (3) replace it with another IPI measure.

VI. Obligations for Winning Bidders under an IPI Measure

In public procurement procedures subject to an IPI measure, the successful tenderer must comply with the following obligations:

1.The successful tenderer shall not subcontract more than 50% of the total contract value to undertakings originating from the third country subject to the IPI measure.

2.For contracts involving the supply of goods, during the performance of the contract, the value of goods or services originating from the third country subject to the IPI measure shall not exceed 50% of the total contract value, regardless of whether these goods or services are supplied directly by the successful tenderer or by subcontractors.

3.The successful tenderer must provide evidence to the contracting authority demonstrating compliance with the above two obligations, at the latest after the contract has been performed, as requested.

4.If the obligations in 1 and 2 above are breached, the successful tenderer shall be liable to pay an amount equivalent to 10% to 30% of the total contract value.