12. China’s Turn to Buy National

7 September 2009

In June, China shocked the world by announcing that most of its US$585 billion stimulus package would be reserved for the purchase domestic goods, equipment and services.

Under the policy, released by nine state agencies, government procurement must use only Chinese goods and services unless these are not available on reasonable commercial or legal terms. "Relevant departments should strengthen supervision to see if there are prejudices to restrict the usage of domestic equipment, and seek legal answers to such behavior. [...] For government-invested projects, unless the products or services are not obtainable in China, buyers should purchase Chinese products, and strengthen supervision on equipment importation," the stimulus guidelines state.

The move came just months after Yao Jian, a Chinese trade ministry spokesman, strongly criticised such restrictions in the US: "Some countries raised clauses to prioritise the purchase of products of their own countries in their economic stimulus packages. We express deep concern about these [measures]. Under the current financial crisis, measures issued by all countries should not cause negative impacts and . . . send out wrong messages."

The US rescue package prohibits the purchase foreign iron, steel and manufactured goods for any stimulus-funded infrastructure project, but comes with the caveat that the prohibition will be applied in a manner consistent with US obligations under the WTO's Government Procurement Agreement. China, however, is not yet party to the plurilateral treaty and thus has no WTO-related concerns about directing public spending to local enterprises.

According to state-owned news agency Xinhua, the Buy China policy, "does not create, but eliminates, discrimination." It quotes the economic planning agency NDRC as saying that some bidding documents for government contracts "set a lot of discriminatory conditions to illegally limit Chinese-made equipment." China' Commerce Ministry portrayed China as a victim rather than a perpetrator of protectionism: "As the third biggest trade entity and the second-largest exporting country in the world, China has become a main target of international trade frictions thanks to aggravated protectionism."

The rescue package is generally deemed to have been successful in helping the domestic economy, although it has also made Chinese manufacturers of steel and other products frequent targets of anti-dumping, countervailing and safeguard duties abroad. In August, the government warned that steel manufacturers faced restructuring due to persistent overcapacity despite the boost provided by stimulus spending on infrastructure. In some areas the stimulus may have worked too well: encouragement for green energy production has led to such a glut in solar panel and wind turbine stocks that production will curbed drastically in the near future.

Australian Province Braves Federal Ire

Australia's largest province, New South Wales, has adopted its own version of ‘buy local' in government purchases. A foreign bidder will not be considered unless it can offer the good or service for at least 20 percent less than a local firm with fewer than 500 employees. If the bid is not covered by any free trade agreement, the premium will apply to firms of all sizes.

According to the office of the NSW Treasurer, the policy is expected to apply to about US$3.3 billion worth of goods and services supplied to the provincial government.

Australia's Trade Minister, Simon Crean, has expressed strong concern about the move, which he sees as contrary to the federal government's commitment to fight protectionism. He warned that giving domestic companies preferential treatment would contribute to a ‘tit-for-tat downward spiral' that could have the perverse result of driving up unemployment.

The WTO noted in June that several new cases of ‘buy national' campaigns, usually at local government levels, had been reported in the previous three months (see page 4).

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7 September 2009
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