Bridges Weekly Trade News Digest • Volume 14 • Number 36 • 20th October 2010
New WTO Agreement on Government Procurement Within Reach by December
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A deal that would liberalise access to billions of dollars worth of public procurement contracts among over forty WTO members is within reach by the end of the year, Geneva-based trade officials said. However, it remains unclear whether China will become part of the optional scheme in the foreseeable future; major trading powers like the US and the EU want China to join, but not on the terms Beijing has offered thus far.
The WTO government procurement committee met on 14-15 October, following bilateral and small-group gatherings earlier in the week.
At the top of the committee’s agenda are two issues, neither of which are linked to the WTO’s struggling Doha Round talks: revising the Agreement on Government Procurement (GPA), a plurilateral WTO accord that has since 1996 opened up access to several types of public tenders to companies from all participating countries; and negotiating the accession to the GPA of several WTO members, most significantly China.
The two issues are related, according to Nicholas Niggli, the Swiss senior trade official who chairs the government procurement committee. He told Bridges that many WTO members, irrespective of whether they belong to the GPA, believe that the agreement in its current form does not reflect “twenty-first century procurement realities.” The revisions to the GDP currently under consideration would rectify this, he said. An updated GPA would “undoubtedly” encourage several other members to consider acceding to the plurilateral agreement, he suggested.
Government agencies’ procurement of goods and services tends to account for 10 to 20 percent of national GDP. Joining the GPA requires governments to give up the ability to direct certain types of public purchases to domestic firms - traditionally a much-used lever for promoting particular economic sectors (albeit one that has been vulnerable to abuse, at increased cost to taxpayers). In return, their companies receive access to the types of public tenders covered by the GPA in all countries that are party to it.
But not all types of public procurement are covered by the GPA. When the 41 WTO members covered by the agreement signed up to it (the figure includes all 27 member states of the EU), each made a detailed offer describing which types of public purchases of goods and services would be open to competition from other GPA signatories. These offers spelled out which ministries would be covered, monetary thresholds below which GPA obligations would not apply, and exceptions. For instance, the US excludes food aid from its commitments, enabling it to direct such purchases exclusively to domestic suppliers; it also has exceptions for the purchase of construction-grade steel and programmes to support veteran soldiers. Sub-central entities like state and provincial governments are often (but not always) subject to disciplines under the GPA, but tend to have greater latitude to source locally than central governments.
Public procurement practices have been in the spotlight over the past two years, as many governments introduced infrastructure-heavy fiscal stimulus packages to combat the global economic downturn, along with measures aimed at keeping the spending at home. “Buy American” requirements in the United States’ 2009 $787 billion fiscal stimulus package made several WTO members anxious. Before the package become law, Washington modified the domestic-sourcing rules for spending on public works projects to specify that they would be consistent with US obligations under international trade rules - thus meaning that GPA parties could not be excluded from types of procurement covered by its commitments under the agreement (see Bridges Weekly, 18 February 2009, http://ictsd.org/i/news/bridgesweekly/41050/). This, however, still excluded countries like China and Brazil, which are not parties to the GPA. China in turn introduced “buy Chinese” requirements in its own $586 billion fiscal stimulus.
WTO government procurement committee Chair Niggli suggested that the experience had demonstrated that GPA accession could protect countries from being shut out of lucrative contracts from other governments.
US, EU ask China for better offer
China is one of the most lucrative of these markets. As part of its terms of joining the WTO in 2001, China promised to accede to the GPA as soon as possible, but with no specific timetable for doing so. Beijing duly started negotiations on acceding to the GPA accession, but there are no clear indications about when these talks might conclude.
During the committee meeting, sources report that Niggli observed that China had made a revised offer of access to its market for public purchases in July, but that many countries wanted more. The chair of the government procurement committee is believed to be satisfied with China’s level of engagement and commitment to the GPA accession talks.
The EU said that the July offer, while an improvement upon China’s original offer, still fell short of Brussels’ expectations. A representative of the US expressed concern that China’s process of acceding to the GPA was taking so long, and called for accelerating the pace of the talks. The US would like China to table a new offer by June 2011, with commitments covering state-owned enterprises and sub-regional entities.
Japan wants China to make a new revised offer by the first half of 2011, as does Canada. Switzerland too, would like further improvements to China’s offer, but it did not mention a timetable.
China said that it was working with trading partners on the issue, but that all changes in its position would be made accordance with the country’s economic situation.
Mirroring the process for joining the WTO, acceding to the GPA requires consensus among GPA parties on the terms of accession offered by the would-be party.
Armenia is expected to accede to the GPA soon, possibly by the end of the year. Jordan is also in accession talks. Argentina, Chile, and India are observers to the GPA, but have not started accession negotiations. Brazil and South Africa are yet to seek observer status.
The growing number of bilateral and regional trade agreements with provisions on public procurement may ultimately weaken resistance to joining the GPA: if a government has already committed to open up public tenders to competition from one or two of its trading partners, broadening this to other countries may seem less of a stretch.
Revised GPA may be ready in December
The talks on revising the terms of the GPA are two-pronged: parties must agree on a revised text for the agreement, but also on the coverage of their future commitments on liberalised public procurement.
Governments provisionally agreed on a revised GPA text in December 2006, but it could not come into force until the coverage issue had been resolved. Now, agreement is within reach on both.
The draft revised GPA text is almost complete, based largely on the 2006 version. The parties are presently discussing its final provisions, and confirming the accuracy of legal translations. One area in which it would introduce changes is electronic procurement. In 1994, when governments were negotiating the GPA, virtually none used online advertising to solicit and receive tenders for public projects. Today, most do. The revised text reflects this; minimum notice periods are shortened, for example, to reflect the greater speed with which suppliers can submit proposals. Other changes pertain to flexibility, particularly special and differential treatment, in an attempt to make participation in the GPA more attractive to developing countries. (The 41WTO members bound by the GPA are for the most part developed countries.)
In the talks on coverage, GPA parties have made substantial progress, submitting revised offers for opened-up procurement markets in line with a roadmap outlined by the chair earlier this year. Most countries have settled their differences, or report that they are close to doing so, sources say.
The main sticking point is between the EU and the US. The EU has historically believed its coverage under the GPA to be broader and more comprehensive than that of the US, and would like Washington to do more than what it has currently offered. US negotiators counter that their public procurement markets are relatively open - more so than the EU’s by some metrics.
A two-week session has been planned starting 6 December for members to finalise changes to the draft text. One of the issues that needs to be defined is future work on public procurement.
Niggli told Bridges that members had a window of opportunity between now and early 2011 to reach an agreement on revising the GPA. Beyond that, countries may grow weary and walk away from the process. This would in turn dissuade new countries from joining the GPA, he warned.
ICTSD reporting.
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