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Towards a Multilateral Agreement on Transparency in Government Procurement

Published online by Cambridge University Press:  17 January 2008

Sue Arrowsmith
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Extract

Governments have traditionally tended to place procurement contracts with domestic industry and this may distort the natural patterns of international trade, creating inefficiencies in the global economy. As global, regional and bilateral initiatives have met with increasing success in reducing trade barriers such as quantitative restrictions and tariffs, greater attention is now being focused on the remaining barriers, including closed government procurement.

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Articles
Information
International & Comparative Law Quarterly , Volume 47 , Issue 4 , October 1998 , pp. 793 - 816
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Copyright © British Institute of International and Comparative Law 1998

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References

1. GATT Art.III(8) excluding the GATT national treatment obligation and GATS Art.XIII(2), which excludes application of most of the GATS obligations. There is debate over whether an MFN obligation applies to procurement under GATT: see Reich, , “The New GATT Agreement on Government Procurement The Pitfalls of Plurilateralism and Strict Reciprocity” (1997) 31 J. World Trade 125.Google Scholar The transparency obligations of Art.III of GATS do, however, apply to government procurement, including an obligation to publish general measures on services procurement It is less clear whether the obligation to publish general trade measures which exists under Art.X of GATT is aptly worded to cover procurement.

2. There are also numerous bilateral and several regional agreements. The major regional agreements, which take a similar approach to the GPA, are those of the EC, EEA, North American Free Trade Agreement and Central European Free Trade Area. Work on public procurement is currently being undertaken in the context of the initiative to create a Free Trade Area for the Americas, within MERCOSUR and within the Asia Pacific Economic Co-operation Forum (as to which see infra n.29).

3. This was never actually part of the GATT itself. On this agreement sec further Jones, “The GATT—MTN System and the European Community as International Frameworks for the Regulation of Economic Activity: the Removal of Barriers to Trade in Government Procurement” (1984) 8 Maryland J.Int Law and Trade 53; Bourgeois, “The Tokyo Round Agreements on Technical Barriers and on Government Procurement in International and EEC Perspective” (1982) 19 C.M.L.Rev. 5.

4. The GPA is contained in Annex IV to the Agreement Establishing a World Trade Organization. See generally Hoekman, and Mavroidis, (Eds), Law and Policy in Public Purchasing: The WTO Agreement on Government Procurement (1997)Google Scholar; de Graaf and Trepte, “The Revised GATT Procurement Agreement” (1994) 3Public Procurement L.Rev. CS70Google Scholar; de Graaf and King, “Towards a More Global Government Procurement Market: The Expansion of the GATT Government Procurement Agreement in the Context of the Uruguay Round” (1995) 29 Int.Lawyer 435Google Scholar; Hoekman, and Mavroidis, , “The WTO's Agreement on Government Procurement Expanding Disciplines, Declining Membership?” (1995) 4 Public Procurement L.Rev. 63Google Scholar; Brown, and Pouncey, , “Expanding the International Market for Public Procurement: The WTO's Agreement on Government Procurement” [1993] 3 Int. Trade Law and Regulation 69Google Scholar; Arrowsmith, , “The World Trade Organisation Agreement on Government Procurement; Obstacles and Opportunities” (1997) 1 Malaysian J. Law and Society 15Google Scholar; Low, , Mattoo, and Subramaniam, , “Government Procurement in Services” (1996) 20 World Competition 5Google Scholar; Blank, and Marceau, , “The History of the Government Procurement Negotiations since 1995” (1996) 5 Public Procurement L.Rev. 77Google Scholar; Reich, op. cit. supra n.1; Davies, , “Remedies for Enforcing the WTO Agreement on Government Procurement from the Perspective of the European Community—a Critical View” (1997) 20 World Competition 113;Google ScholarFooter, , “Remedies Under the New GATT Agreement on Government Procurement” (1995) 4 Public Procurement L.Rev. 80Google Scholar: Schede, , “The ‘Trondheim’ Provision in the WTO Agreement on Government Procurement Does this ‘Major Revision’ Live up to the Needs of the Private Sector?” (1996) 5 Public Procurement L.Rev. 161.Google Scholar

5. This requires signatories to give products and services of the other parties treatment no less favourable than that given to domestic products and services, and to their suppliers and service providers provided that they are offering goods or services originating from GPA parties. Art.III(2)(a) also prohibits discrimination between domestic providers themselves on the basis of foreign affiliation or ownership and Art.III(2)(b) prohibits discrimination against a domestic firm on the basis of the country of production of the goods or services which it supplies, provided again that the country of production is party to the GPA. (This is probably not covered by the rule in Art.III(1) which appears to apply only to products and services supplied by firms from other signatory States, not domestic firms.)

6. GPA Arts.III and XVI.

7. Westring, and Jadoun, , Public Procurement: Manual for Central and Eastern Europe, p.6.Google Scholar

8. GPA Art.XII(2)(h).

9. See the International Bank for Reconstruction and Development (World Bank), Guidelines: Procurement under IBRD Loans and IDA Credits (Jan. 1995, as revised), para. 2. Transparency is also stated as an objective in the preamble to the UNCITRAL Model Law on Procurement of Goods, Construction and Services, which is designed as a model for reform of national systems.

10. Similar obligations probably apply to all WTO members under GATT and GATS: see supra n.1.

11. See further Footer and Davies, both op. cit. supra n.4.

12. Ibid.

13. There is an extensive literature on this subject, most recently and usefully summarised by Trionfetti, , “The Government Procurement Agreement and International Trade: Theory and Empirical Evidence” (1997;Google Scholar paper written for the WTO). The likelihood that costs will outweigh benefits even with policies which economic theory suggests could be beneficial is exacerbated by the problems of successful policy implementation, due to inadequate skills and information on the part of government

14. The nature of the interests involved means that pressures from producers in existing protected industries are likely to be more significant than pressures from the more diversified and less organised groups which would benefit from removal of protectionist measures, namely taxpayers, consumers and potential participants in industries in which national resources would otherwise be employed.

15. Trionfetti, op. cit. supra n.13 (who finds the hypothesis supported by the empirical evidence). This is because in these economies existing domestic supply markets are less likely to be able to meet government demand. It should also be pointed out that even when discriminatory procurement does not have trade effects because private supply already exceeds government demand industry will lobby for protectionist policies since such policies effect a transfer of income from the government to the private sector in the form payments above equilibrium market price.

16. And see also Art.V(5). There is also special provision for exclusion of entities, products or services covered by regional or global arrangements.

17. GPA Art.XXIV (7)(c).

18. On this see Arrowsmith, , “Public Procurement as a Tool of Policy and the Impact of Market Liberalisation” (1995) 111 L.Q.R. 237Google Scholar; Kunzlik, , “Environmental Issues in Internationa] Public Procurement” and McCrudden, “Social Issues in Public Procurement A Legal Overview”, both in Arrowsmith, and Davies, (Eds), Public Procurement: Global Revolution (1998).Google Scholar

19. Thus, the US, for example, has a derogation for federal and sub-federal small business set-asides and set-asides aimed at women and minority groups, as well as for sub-federal programmes to promote the development of distressed areas and to support disabled veterans. Canada also has derogations for small business and minority set-aside programmes, as have Japan and Korea for some small business support policies.

20. GPA Art.II, in particular Art.II(4).

21. On this point sec e.g. Kelman, , Procurement and Public Management (1990).Google Scholar An approach to procurement which depends on the training of personnel and benchmarking to best practice standards rather than the regulation of discretion by detailed rules has been instituted recently in the UK: see White Paper, Setting New Standards: A Strategy for Government Procurement (1994) Cm.2840.Google Scholar

22. On this see Haagsma, “Information Technology Issues in International Public Procurement”, in Arrowsmith and Davies, op. cit. supra n.18. The Australian government has not, however, seen the existing GPA procedures as a bar to its own policies for information technology in public procurement: Department of Foreign Affairs and Trade (Australia), World Trade Organisation Agreement on Government Procurement: Review of Membership Implications (1996), chap.6, at 6.2.

23. GPA Art.XXIV(8).

24. This has been highlighted e.g. in the Australian report by the Department of Foreign Affairs and Trade cited supra n.22.

25. The costs of challenge procedures were identified as a concern in ibid.

26. Kulacoglu (secretary to the WTO Committee on Government Procurement), “Developments within the WTO since the Singapore Ministerial Conference”, paper delivered to the conference Public Procurement: Global Revolution, University of Wales Aberystwyth, 11–12 Sept 1997. It should be noted, however, that apart from the work in the transparency working group, there is a requirement under Art.XIII(2) of GATS for more general multilateral negotiations on services procurement, which is being pursued through a Working Party on GATS Rules which is examining a number of matters relating to the GATS Agreement There is no corresponding provision in GATT, but any multilateral rules agreed for services will certainly be applied in practice to goods also. The GATS mandate is not confined to transparency, and may result in national treatment commitments. Since this article is focused on the transparency agreement the possibilities for developing future commitments on national treatment are not considered. However Part IV deals briefly with the contribution that a transparency agreement might make to the gradual removal of discriminatory policies.

27. See supra n.22. In the US the Trade Agreements Act 1979, s.2512 provides for the total exclusion of non-GPA signatories from procurement subject to the GPA, subject to a possible waiver for States with transparent and competitive procedures “equivalent” to those of the GPA plus effective anti-corruption measures. Many more countries might be prepared to accept a transparency agreement if the US were prepared to introduce a waiver for all States complying with that agreement, without imposing any further conditions.

28. Another point to consider is that lack of transparency may also serve as a smokescreen for corruption, and transparency rules may be resisted for this reason by interested parties.

29. It is expected that any WTO transparency agreement will take the form of a legally binding treaty consisting of general rules applicable to all signatories, unless they are given specific derogations. This approach will be assumed in the following analysis. This is different from the approach of the Asia Pacific Economic Co-operation Forum (APEC), which has recently produced a document on transparency in government procurement for use within APEC which is non-binding. Further, both the general principles of transparency stated in the document, and the specific rules and procedures for giving effect to the principles are stated to be optional. Obviously this approach makes agreement on the contents of the transparency document easier to obtain. However, it is most unlikely that this non-binding and flexible approach, which is a characteristic of APEC in general, would be adopted by the WTO, and it is the author's understanding from conversations with WTO Working Group delegates that discussions are proceeding on the basis that any agreement will be binding and general On APEC see further APEC Government Procurement Experts Group, Non-binding Principles on Government Procurement; Transparency (Sept. 1997), approved by the meeting of APEC Ministers in Vancouver in Nov. 1995. The text is available on the Internet on the APEC Secretariat website (http;//www.apecsec.org.sg) under “1997 CIT Annual Report to Ministers”. On APEC's procurement programme in general see Arrowsmith, “Public Procurement within the Asia Pacific Economic Co-operation Forum” (1996) 5 Public Procurement L.Rev. CS71.Google Scholar

30. This is the approach adopted in e.g. the European procurement directives

31. The GPA thresholds are set primarily to identify those of cross-border interest, but inevitably general thresholds are a blunt instrument for doing this, especially since profitability does not always depend on contract size. Some overseas firms may well be interested in smaller contracts, and, indeed, the absence of detailed obligations on smaller contracts is a complaint frequently made about the EC regime within Europe.

32. See supra n.1.

33. Agreement on Technical Barriers to Trade, Art. 10.

34. This is required under Art.XVI of the GPA for those exceptional cases where offsets are permitted; and see also Art.XVII concerning transparency and observer status.

35. This is a requirement that is also stated in GPA Art.XVII.

36. It is submitted that it should be permitted to change these provided that adequate and equal notice is gfven to all participants—the position which, it is submitted, applies in any case under the GPA.

37. In fact it is the practice to give observer status without insisting on compliance with these conditions.

38. APEC transparency agreement, supra n.29, at para.3.

39. The author was informed by Aaditya Mattoo of the WTO that this has been the experience of the Intellectual Property and Services Division of the WTO in collecting information on services procurement in connection with current GATS negotiations.

40. See the works cited supra n.18.

41. The appropriate balance between transparency and discretion varies greatly between procurement systems.

42. This is the approach in the APEC document in transparency referred to supra n.29. The genera] principles laid down in the APEC agreement are concerned with: the general availability of information (paras.3–4); publication of general rules and practices (paras.5–6); transparency of opportunities (paras.7–8); provision of information to allow preparation of responsive offers (paras.9–10); application of transparent bid criteria (paras.13–14); provision of information on contract awards (paras.13–14); and availability of a complaints procedure (para.15). These are supplemented by examples of possible “practices” for putting these basic principles into effect: e.g. that early advice should be available for complex procurements and that an adequate and reasonable time should be allowed for preparing and submitting bids. The main departure from this non-prescriptive approach is a suggestion that open tendering should be the preferred method (para.8). It is submitted that such a provision should not be included in any WTO agreement, since for reasons of efficient procurement many developed States find that it is better to use more selective or restricted tendering as the norm. As indicated supra n.29, it will be more difficult to obtain agreement in the context of the WTO agreement than the APEC document, because of the non-binding and flexible nature of the latter.

43. It is not suggested that all the details of these rules should be provided to the WTO; rather, it is sufficient for these cases that the measures setting out the rules are themselves notified as already recommended above.

44. On this absence of effective redress see the articles by Davies and Schede, both op. cit. supra n.4.

45. National complaints procedures are referred to in the APEC transparency document (see supra n.29) but this is unsurprising in view of the flexible and non-binding nature of that document.